<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, 1998
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 . . . . . 8
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. . 20
Item 8. Financial Statements and Supplementary Data . . . . . . . . . 20
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . 20
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 10. Directors and Executive Officers of the Registrant . . . . . 21
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . 23
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 13. Certain Relationships and Related Transactions . . . . . . . 24
PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 26
<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 INCLUDING UNITED HOMES OF ILLINOIS, INC.;
UNITED HOMES OF MICHIGAN, INC.; AND UNITED HOMES, INC., AN ARIZONA
CORPORATION (INDIVIDUALLY, A "SUBSIDIARY," COLLECTIVELY THE "SUBSIDIARIES").
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.
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 and Option 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, 1998, the Company closed on the sale of 509 homes and 30
lots generating approximately $107.1 million in revenue from housing and land
sales as compared to 531 homes, and 55 lots which generated approximately
$92.7 million in revenue from housing and land sales during the fiscal year
ended September 30, 1997. As of September 30, 1998, the Company had
contracts to sell an additional 207 homes, and a current inventory of 982
improved lots.
Prices for the Company's homes, including the lot, range from $99,000 to
in excess of $450,000 per home. During the fiscal year ended September 30,
1998, the average price of a home sold by the Company was approximately
$186,000. The Company markets its products to entry-level through
semi-custom home buyers.
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
3
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homesites (lots) by controlling undeveloped and developed land through
Acquisition and Option Agreements for as long as possible prior to actual
purchase of the land. As of September 30, 1998, the Company had 324 homes
built or under construction to be sold or held as inventory located in 19
different subdivisions and in various stages of the construction process. A
total of 207 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 a third party and then
leased back. Homes in inventory not subject to a purchase contract are
generally marketed to transferee home buyers or buyers who cannot 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"). 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 7,769,000, up from the 1990 census figures of approximately
7,411,000 and is projected to rise to approximately 7,996,000 by 2002.
United's subsidiary, United Homes of Illinois, Inc. was ranked by Tracy
Cross & Associates, among the top twenty Illinois homebuilders for calendar
years 1998 and 1997. During the fiscal year ended September 30, 1998, the
Company closed on the sale of 394 homes including lots in the Chicago Area.
Prices for the Company's Chicago Area homes range from $99,000 to in excess
of $450,000.
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 2,815,000, up from the 1990 census
figures of approximately 2,238,000 and is projected to rise to approximately
3,232,000 by 2002.
United's subsidiary, United Homes, Inc., an Arizona corporation, has
operated in the Phoenix Area since 1984. During the fiscal year ended
September 30, 1998, the Company closed on the sale of 36 homes and lots in
the Phoenix Area. Prices for the Company's homes in this market range from
$110,000 to in excess of $400,000.
WESTERN MICHIGAN. The Company conducts its homebuilding operations in
western Michigan primarily in a 60 mile radius of Grand Rapids, Michigan
which includes Holland and Kalamazoo, Michigan (the "Grand Rapids Area").
The 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 1997 population of the Grand Rapids MSA was approximately
1,015,000, up from the 1990 census figures of approximately 942,000 and is
projected to increase to approximately 1,052,000 by 2002.
4
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United's subsidiary, United Homes of Michigan, Inc., was the second
largest homebuilder in the Grand Rapids Area based on homes closed as of
September 30, 1998. 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 entry-level and 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, 1998, the Company closed on the
sale of 109 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 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>
-- 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 and Option 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 consistent
with the Acquisition and Option Agreements. The Company attempts to
ultimately build a majority of 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, 1998, approximately 90%
of the homes sold by the Company were built on lots developed by 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
5
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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. The factors mentioned above may 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.
EMPLOYEES. As of September 30, 1998, the Company employed 101 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 LEGAL PROCEEDINGS. Except as discussed below, and as
arising in the ordinary course of business, or covered by insurance, the
Company currently is not subject to any environmental litigation or
administrative proceedings. In addition to the below discussed action, 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 purchase 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.
On May 27, 1998, the United States of America, on behalf of the Army Corps.
Of Engineers, filed a suit against the Company in the Northern District of
Illinois, Eastern Division, Case No. 93C3242; claiming entitlement to relief
under the Clean Water Act. On July 9, 1998, the Company filed a motion to
dismiss the complaint which motion is still pending. The Company believes
the case was filed without merit. There is no reasonable determination at
this point of the monetary damages which would be awarded if the Company is
unsuccessful in the case. Management believes that resolution of this matter
will not have a material effect on the Company's financial position, results
of operation or cash flows.
6
<PAGE>
ITEM 2. PROPERTIES
The following table summarizes the Company's inventory of homes and lots
sold, but not yet closed, the current lot inventory and lots available for
future development as of September 30, 1998:
<TABLE>
<CAPTION>
Homes and Lots Lots Available for
Sold but not Current Lot Future
Closed (1) Inventory (2) Development (3)
<S> <C> <C> <C>
Illinois . . . . . 111 670 1,895
Michigan . . . . . 69 210 771
Arizona . . . . . . 27 102 52
--- --- -----
Total . . . . . . . 207 982 2,718
--- --- -----
--- --- -----
</TABLE>
___________________
(1) Represent homes and lots 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 and Option 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 and Option
Agreements.
As of September 30, 1998, the Company controlled, through Acquisition
and Option Agreements, seven 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 parcels subject to Acquisition and
Option Agreements. There can be no assurance that the Company will complete
the acquisitions on the terms and conditions set forth below, if at all.
CLARENDON HILLS, ILLINOIS. The Company has a contract to acquire
approximately 6.8 acres of land for a project of 50 units in Clarendon Hills,
Illinois.
FOX LAKE, ILLINOIS. The Company has a contract to acquire approximately
20 acres zoned and improved for construction of 155 units in Fox Lake,
Illinois.
ELLENTON, FLORIDA. The Company has a contract to acquire approximately
220 acres of land in Ellenton, Florida for a project of 508 units.
STEVENS POINTE, MICHIGAN. The Company has a contract to acquire
approximately 105 acres in Kent County, Michigan, for a project of 226 units.
WOODSIDE GREEN, MICHIGAN. The Company has an option to acquire 30 acres
of land for a project of 81 units in Holland, Michigan.
CHANDLER, ARIZONA. The Company has concluded negotiations to acquire 84
platted lots in Chandler, Arizona.
PRESCOTT, ARIZONA. The Company has two separate options to acquire 15
and 20 lots, respectively, in Prescott, Arizona.
7
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ITEM 3. LEGAL PROCEEDINGS
On May 27, 1998, the United States of America, on behalf of the Army
Corps. Of Engineers, filed a suit against the Company in the Northern
District of Illinois, Eastern Division, Case No. 93C3242; claiming
entitlement to relief under the Clean Water Act. On July 9, 1998, the
Company filed a motion to dismiss the complaint which is still pending. The
Company believes the case was filed without merit. There is no reasonable
determination at this point of the monetary damages which would be awarded if
the Company is unsuccessful in the case. Management believes that resolution
of this matter will not have a material effect on the Company's financial
position, results of operation or cash flows.
In June, 1998, Axiom, Inc., an engineering firm employed by the Company
at various projects, filed a suit claiming non-payment of fees for services
provided. The Company has filed a counterclaim for damages due to defective
work. The exposure to the Company based on response from its attorney from
the filed lawsuit and the counterclaim is under $20,000.
On August 20, 1998, the Village of Cary filed a Complaint in Equity with
the Circuit Court of the Nineteenth Judicial Circuit, McHenry County,
Illinois, seeking to, among other items, set aside condemnation proceeds, if
and when awarded to the owner of a property known as Gentry Ridge, to allow
the Village to build a sewer interceptor. The Company is no longer the owner
of the subject property, but filed a motion to dismiss in November, 1998.
Decision of the Motion to Dismiss is pending. The Company believes the suit
as filed is without merit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NOT APPLICABLE
8
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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 $7,106,000 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 $7,000,000.
9
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From the effective date of the registration statement, the Company
incurred the following expenses in connection with the issuance and
distribution of the Debentures:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
($)
<S> <C>
Underwriting Discounts and
Commissions 489,959
Management Fee to Underwriter 139,988
Non-accountable expense
allowance to Underwriter 69,994
Reimbursable expenses of
Underwriter 120,000
Registration and filing fees 2,170
Legal fees and expenses 115,000
Blue Sky fees and expenses 33,583
(including counsel fees)
Printing and engraving expense 60,000
Accounting 70,000
Miscellaneous expenses 35,000
------------
Total $ 1,135,694
------------
------------
</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 $5,864,306 not including the underwriting
discount of $105,000. 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 a line of credit loan to
Heller Financial, Inc.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data as of September 30,
1998, 1997 and 1996 and for each of the three years in the period ended
September 30, 1998 has been derived from the Company's consolidated financial
statements audited by Deloitte & Touche LLP (1998) and Ernst &Young LLP (1997
and prior), independent auditors, whose reports with respect thereto is
included elsewhere in this Report. The selected consolidated financial data
as of September 30, 1995 and 1994 and for each of the two years ended
September 30, 1995 and 1994 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>
1998 1997 1996 1995 1994
YEAR ENDED SEPTEMBER 30
-----------------------
(DOLLARS IN THOUSANDS)
SELECTED STATEMENT OF
INCOME DATA:
<S> <C> <C> <C> <C> <C>
Revenues $ 108,501 $100,491 $ 65,117 $ 44,349 $ 32,886
Cost of Sales ($100,242) $(95,373) $(60,494) $(40,067) $ (29,227)
---------- -------- ------- -------- ---------
Gross Profit $ 8,259 $ 5,118 $ 4,623 $ 4,282 $ 3,659
Other Cost and
Expenses $ (4,815) $ (3,247) $ (2,838) $ (2,770) $ (2,490)
---------- -------- ------- -------- ---------
Income before
Investors' Share of
Income in Majority-
Owned Land
Development and
Housing Partnerships $ 3,444 $ 1,871 $ 1,785 $ 1,512 $ 1,169
Investors' Share of
Income in Majority-
Owned Land
Development and
Housing Partnerships $ (58) $ (698) $ (735) $ (70) --
---------- -------- ------- -------- ---------
Income before Income
Taxes $ 3,386 $ 1,173 $ 1,050 $ 1,442 $ 1,169
Income Taxes $ ( 1,365) $ (454) $ (401) $ (577) $ (468)
---------- -------- ------- -------- ---------
Net Income $ 2,021 $ 719 $ 649 $ 865 $ 701
---------- -------- ------- -------- ---------
---------- -------- ------- -------- ---------
OTHER DATA:
Number of Homes and
Lots Closed 539 586 378 267 174
Average Selling Price
Per Home $ 186 $ 174 $ 171 $ 163 $ 185
</TABLE>
11
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<TABLE>
<CAPTION>
AS OF SEPTEMBER 30
----------------------
(DOLLARS IN THOUSANDS)
SELECTED BALANCE
SHEET DATA: 1998 1997 1996 1995 1994
--------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Inventories $71,727 $71,233 $54,588 $28,796 $21,143
Total Assets $91,101 $85,111 $69,931 $34,365 $26,779
Total Liabilities $77,336 $73,675 $58,699 $22,909 $18,825
Investors' Equity in
Majority-Owned
Projects $ 759 $ 1,650 $ 2,164 $ 3,037 $ 400
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
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, 1998 and 1997 and for the years
ended September 30, 1998, 1997, and 1996 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, 1998, the Company
had 324 homes built or under construction, 207 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, 1998, 1997 AND 1996. Revenue from housing and
land sales for the fiscal years ended September 30, 1998, 1997 and 1996 was
approximately $107.1 million, $100.2 million and $64.7 million, respectively.
Total revenues were approximately $108.5 million, $100.4 million and $65.1
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 closed for the fiscal years ended
September 30, 1998, 1997 and 1996 was 509 homes, 531 homes and 378 homes,
respectively. The volume between fiscal years 1998 and 1997 remained
unchanged due to the competitive market conditions. The Company believes
that the increases in the volume of homes closed when comparing 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 1998 increased from $174,000 for fiscal
year 1997 to $186,000 in 1998. Also, the average selling price of a home
closed in fiscal year 1997 increased from $171,000 in fiscal year 1996 to
$174,000 in fiscal year 1997. The Company believes that the increase in the
average selling price for a home closed during fiscal
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year 1998 compared to fiscal year 1997 and fiscal year 1997 compared to 1996
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
83.9% for fiscal year 1998, 86.4% for fiscal year 1997 and 83.0% for fiscal
year 1996. The Company believes that the decrease in housing costs of 2.5% in
fiscal year 1998 compared to fiscal year 1997 was a result of the type of
homes built and closed between those fiscal years. The increase in housing
costs of 3.4% 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. Net income was $2,020,773 in 1998
compared to $718,603 in 1997 and $648,627 in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents balance at September 30, 1998
was approximately $.8 million, and on and September 30, 1997 was
approximately $1.1 million. The Company typically finances the acquisition
of land parcels and the costs associated with initial development of the
parcels (such as entitlement activities and construction of streets and
sewers) by drawing on a line of credit from Residential Funding Corp., a
portion which is allocated to fund acquisition and development activity, such
as sewer and roadway construction (the "Residential Line II"). Under the
agreements governing the Residential Line II, 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 Residential Line 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, 1998 and September 30, 1997, the Company had total
indebtedness of approximately $12.8 million and $10.7 million, respectively,
on the Residential Line II.
Once construction of a home commences, the Company was able to draw on
two lines of credit, a $25 million facility with Heller Financial (the
"Heller Line") and a 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. On June 9, 1998, Residential Funding Corporation (a)
increased the aggregate available under the Residential Lines to $55 million
from $50 million to allow for additional construction of homes and working
capital, and (b) made a $7 million term loan (the "RFC Term Loan") to the
Company. The RFC Term Loan bears interest at 15% per annum and was due on
November 15, 1998. An extension of the term loan to June 30, 1999 has been
granted. The RFC Term Loan is secured by assignments of certain real estate
sale contracts executed by the Company, pursuant to which the Company has
contracted to or is negotiating to sell certain of its land assets. As noted
herein, the Company typically does not commence construction of a home until
a buyer executes a purchase contract. As of September 30, 1998 and September
30, 1997, the Company had total indebtedness of approximately $31.3 million
and $29.6 million, respectively, outstanding on the Residential Line I and had
incurred interest charges of approximately $2.8 million and $2.4 million
associated with this line, all of which were funded by additional draws
allowable on these lines.
On June 22, 1998, the Heller Line was converted to a $13,715,000 project
loan. The Heller project loan bore interest at 3.75% over the LIBOR rate and
has matured on December 15, 1998. The Company received an extension of this
loan to May 15, 1999. The Heller Line was previously being used to fund only
one project, and was converted to a project loan for that project. The
Company does not believe the conversion of the Heller Line to a project loan
will have a material impact on its ability to finance its business. The
Heller Line, after the conversion, was paid off in full. As of September 30,
1998, the project loan balance was $3,522,802.
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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 Residential Line II 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 years ended September 30,
1998 and 1997, the Company made principal reductions of approximately $69.6
million and $68.8 million, respectively, on these lines. As of December 29,
1998, the Company had approximately $2.4 million available for borrowing
under its credit facilities. Draws under the Residential Lines bear interest
at a variable rate equal to prime plus 1.25% per annum (9.75% as of September
30, 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, 1998, the Company had approximately $3.5 million of this
indebtedness outstanding, all of which was secured by certain of the
Company's assets. This indebtedness generally matures between 1998 and 2000
and bears interest at a rate of approximately 10.0% per annum as of September
30, 1998.
Finally, the Company also generates additional working capital by: (i)
selling, and then leasing back, certain of its model homes to Dynex
Residential, Inc., formerly known as National Model Homes; or (ii) by
entering into other transactions with affiliates of the Company. On February
14, 1998, the Company entered into an agreement with National Model Homes, an
unrelated third party. Under the arrangement with National Model Homes, the
Company sells the model home at a price equal to the appraised value of the
completed home and then leases back the model home from National Model Homes.
Ninety percent of the purchase price is paid in cash and ten percent is
evidenced by a recourse promissory note. When the model home is sold to a
third party by National Model Homes, the note is paid. As of September 30,
1998, the company was leasing 18 model homes from National Model Homes. 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.
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
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, 1998, 1997
and 1996 of approximately $10.4 million, $2.7 million and $29.6 million,
respectively. The Company utilized cash flow generated during the fiscal
year ended September 30, 1998 to increase the Company's housing inventories
and notes receivable (approximately $5.3 million) and aided by a decrease in
the Company's accounts payable (approximately $4.2 million) and a decrease of
$1.3 million for land held for future development. Similarly, for the fiscal
year ended September 30, 1997 and 1996, the Company utilized approximately
$2.7 million and $29.6 million, respectively, in cash from operating
activities to increase the Company's inventory of housing (approximately
$16.6 million and $25.8
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million, respectively) offset by an increase in the Company's accounts
payable (approximately $9.7 million and $3.9 million, respectively) and a
decrease of $5.9 million and increase of $7.9 million, respectively, for land
held for future development. 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 cash flow in the fiscal years
ended September 30, 1998, 1997 and 1996. During the fiscal year ended
September 30, 1998, net cash provided by financing activities was
approximately $10.3 million comprised almost entirely of proceeds from
development loans, other notes payable and the debentures totaling
approximately $119.4 million offset by repayments on development loans and
other notes payable, discount and the debentures issuance cost of
approximately $108.9 million. For the fiscal years ended September 30, 1997
and 1996, financing activities provided the Company with net cash of
approximately $2.8 million and $29.1 million, respectively, comprised almost
entirely of the proceeds from development loans and other notes payable of
approximately $119.6 million and $99.6 million, respectively, offset by
repayments on development loans and other notes payable of approximately
$115.6 million and $68.8 million, respectively. 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, 1998, 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 1998. 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. The Company recognizes the importance of the Year 2000 issue
and is taking a phased approach intended to facilitate an appropriate
transition into the Year 2000. These phases include:
- - Allocation of Company resources to manage the approach,
- - Evaluation of the Company's information technology ("IT") systems and
non-IT systems that include imbedded microprocessors (together, the
Company's "Internal Systems"),
- - Inquiry into IT and non-IT systems for principal vendors (principally
subcontractors) and other service providers (together, the Company's
"External Systems"),
- - Evaluation of risk associated with Internal and External Systems
compliance efforts,
- - Test of all material Internal and External Systems as practicable,
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<PAGE>
- - Creation of contingency plans for non-compliance of either Internal or
External Systems, and
- - Determination of the expected total cost of a complete state of readiness
for the Company.
The Company will allocate resources to the phased approach outlined above and
will complete an inventory of Internal Systems and an inventory of External
Systems to determine those that do not properly recognize dates after
December 31, 1999.
The Company's principal Internal Systems include its general systems
architecture (mini-computers with remote operations) and integrated
enterprise software. The Company is currently operating on the latest
version of this system (excluding architecture) and has received
representations from the vendor indicating that they are Year 2000 compliant.
The Company is in the process of evaluating the compliance of its general
systems architecture. Despite the certifications from the software vendors
the Company will test compliance on its principal Internal Systems during
fiscal 1999.
The Company's principal External Systems include those of its payroll
processing service, subcontractors, significant raw material vendors, and
general service providers such as telecommunications and power. The Company
has substantially completed its evaluation of its significant subcontractors
and raw material providers via inquiry. The Company has not performed its own
test on these systems, and no assurance can be given as to the compliance of
these systems. Based on the information currently available, the Company is
not aware of any material non-compliance by its general service providers;
however, the Company does not control these systems and cannot assure their
compliance.
Costs - As of September 30, 1998, less than $10,000 of outside consulting
costs have been incurred related specifically to the Company's Year 2000
initiatives. The Company will incur capital expenditures and internal staff
costs, as well as additional outside consulting expenditures, related to this
process. Based on currently available information, the Company does not
expect the costs of these initiatives to exceed $400,000.
Risks Presented by the Year 2000 Issue - The failure by the Company to
appropriately address a material Year 2000 issue within its Internal Systems,
or the failure by any third party to address an External System could have a
material adverse impact on the Company's financial condition, liquidity or
results of operations. To date, however, the Company has not identified any
material Internal or External System that presents a significant risk of not
being Year 2000 ready or for which a suitable alternative does not exist.
With continued evaluation, however, the Company may identify an Internal or
External System that presents a risk for a Year 2000 disruption in
operations. The homebuilding construction process by nature is labor
intensive and could operate for a limited time in a manual environmental. At
this time, the Company believes the most likely worst case scenario would
result if there were a significant disruption in services provided by
lenders, or certain government agencies which could inhibit the ability of
the Company to deliver finished homes to its customers.
Contingency Plans - The Company will identify contingency plans that would
allow for the construction and delivery of homes to customers should any of
the Company's Internal or External Systems fail. These contingency plans
will consist of construction and raw material scheduling arrangements and
potential alternative financing options for home buyers.
DEBENTURE OFFERING. 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.
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FACTORS AFFECTING THE COMPANY'S BUSINESS
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 Residential Line II. Under the agreements governing the Residential Line
II, 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 Residential Line
II 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, 1998, the Company had
total indebtedness of $12.8 million on the Residential Line II. Once
construction of a home commences, the Company is able to draw on 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, 1998, the Company had total indebtedness of approximately
$31.3 million outstanding on the Residential Line I.
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 Residential Line II 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,
1998, the Company made principal reductions of approximately $69.6 million
under the Residential Line I. As of September 30, 1998, the Company had
approximately $3.1 million available for borrowing under all of its credit
facilities.
As of September 30, 1998, the Company had a total of $77.3 million of
outstanding liabilities, including $56.9 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 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.
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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 homebuilding 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,
transferring, conveying or otherwise disposing of substantially all of their
respective assets. The Indenture also imposes limitations on United and 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.
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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.
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.
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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.
SUBSEQUENT EVENTS. The RFC Term Loan which became due November 15,
1998, has been extended by agreement to June 30, 1999. In addition, on
January 8, 1999, the Company entered into a Second Amended Agreement, which
(a) increased the cash advance rate under the Residential Line as funded and
(b) modified the debt to equity ratio to 6.25:1
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
On June 26, 1998, the Company filed a Form 8-K as follows:
On June 23, 1998, United Homes, Inc. (The "Registrant") was advised by
Ernst & Young LLP that it was resigning as the Registrant's independent
accountant. Ernst & Young LLP had been engaged as the Registrant's
independent accountant to audit its financial statements as of September 30,
1997 and 1996 and for each of the three years ended September 30, 1997, 1996
and 1995. Ernst & Young LLP's reports on these financial statements did not
contain an adverse opinion or a disclaimer of opinion nor were these reports
qualified or modified as to uncertainty, audit scope or accounting
principles. At no time during Ernst & Young LLP's engagement as the
Registrant's independent accountant were there any disagreements on any
matter of accounting principles or practices, financial statements,
disclosure or auditing procedures.
On September 1, 1998, the Company filed a second Form 8-K as follows:
On August 27, 1998, United Homes, Inc. (The "Registrant") engaged
Deloitte & Touche LLP as the Registrant's independent accountant to audit and
report on the Registrant's annual financial statements for the year ending
September 30, 1998. At no time during the Registrant's two most recent
fiscal years, and any subsequent interim period prior to engaging Deloitte &
Touche LLP, did the Registrant consult Deloitte & Touche LLP regarding: (i)
either the application of accounting principles to a specified transaction,
either completed or proposed; or the type of audit opinion that might be
rendered on the Registrant's financial statements; or (ii) any matter that
was either the subject of a disagreement as defined in paragraph
304(a)(l)(iv) of Regulation S-K and the related instructions or a reportable
event described in paragraph 304(a)(l)(v).
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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 65 Chairman of the Board
Edward F. Havlik 54 President and Director
Laurie H. Bulson 31 Vice President and Director
(Directorship ended 9/30/98)
Timothy S. Owings 38 Vice President and Director
(Directorship ended 9/30/98)
William J. Crock, Jr. 51 Executive Vice President, Chief Financial
Officer, Secretary/Treasurer
David L. Feltman 39 Executive Vice President/General Counsel
</TABLE>
VIRGIL W. 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. 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 OF UNITED HOMES, INC. AND 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.
21
<PAGE>
DAVID L. FELTMAN, EXECUTIVE VICE PRESIDENT/GENERAL COUNSEL. Mr. Feltman
joined United in 1996. From 1988 to 1989 Mr. Feltman was associated with, and
from 1990 to 1995 a partner with, Shefsky & Froelich Ltd. practicing in the
Real Estate Department. In 1981 he received a B.S. in Accounting, and in 1984
he received a J.D. degree, both from the University of Illinois. Mr. Feltman
is also a C.P.A.
GLENN RICHMOND, PRESIDENT, UNITED HOMES OF MICHIGAN, INC. Mr. Richmond
has been with United Homes since May, 1997. He holds a B.S. in Urban
Planning from Michigan State University, and an M.B.A. in Real Estate Finance
from DePaul University. He brings 10 years of homebuilding experience with
expertise within the land acquisition planning and finance. Prior to
arriving at United, Mr. Richmond spent six years in the public sector as a
City Planner specializing in regulatory mandates and requirements.
RIK ALEX, SENIOR VICE PRESIDENT/MANAGER OF OPERATIONS. Mr. Alex joined
United Homes in September, 1998 as Senior Vice President of Operations. He
brings to United an extensive working knowledge spanning 40 years of land
development and construction experience. Mr. Alex is an instructor at
Northern Illinois University; a member of the Executive Advisory Board
College of Construction Management and Engineering at Bradley University and
a noted guest speaker at Purdue University School of Building Construction
Management.
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.
22
<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, 1998; and (ii) were the
most highly compensated executive officers of United at September 30, 1998,
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
($) Awards Options/SARS ($) ($)
(#)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Virgil W. Owings 1998 273,003 - - - - - -
Chairman 1997 325,000 - - - - - -
1996 325,000 - - - - - -
Edward F. Havlik 1998 403,955 - - - - - -
President 1997 325,000 - - - - - -
1996 325,000 - - - - - -
William J. Crock, Jr. 1998 132,047 25,000 - - - - -
Executive Vice 1997 125,000 - - - - - -
President 1996 125,000 - - - - - -
-
David L. Feltman 1998 122,108 25,000 - - - - -
Executive Vice 1997 125,000 - - - - - -
President, General 1996 - - - - - - -
Counsel -
Glenn Richmond
Bruce C. Brown (1) 1998 120,000 - - - - - -
President 1997 120,000 - - - - - -
United Homes of 1996 120,000 - - - - - -
Michigan, Inc.
Timothy S. Owings 1998 100,000 16,250 - - - - -
Vice President 1997 100,000 - - - - - -
1996 100,000 - - - - - -
John Wozniak 1998 103,305 - - - - - -
Vice President of 1997 100,000 - - - - - -
Production 1996 93,229 - - - - - -
Neville Alperstein(2) - - - - - -
</TABLE>
(1) Mr. Brown resigned his position effective September 30, 1998, and was
replaced with Glenn Richmond.
(2) Mr. Alperstein resigned his position as President of United Homes of
Illinois, Inc. in January 1998 to pursue other opportunities.
United has recently established a bonus plan which enables executive
level employees of United to receive up to twenty-five percent (25%) of their
annual base salary and all other employees to receive up to ten percent (10%)
plus an additional one quarter of one percent (.25%) for each year that the
individual has
23
<PAGE>
been employed by United if the Company achieves its income 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 September 30, 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 50,000 50%
Virgil W. Owings (3)
3260 North Hayden
Suite 102
Scottsdale, AZ 85251 50,000 50%
___________________
</TABLE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and generally includes voting power
and/or investment power with respect to securities. Shares of common stock
which a person has the right to acquire within 60 days of September 30,
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, the Nancy I. Havlik Trust owns 17,500
shares, and 30,000 shares are owned by TUET, LLC, which has as its members
the Nancy I. Havlik Trust and the Barbara M. Owings Irrevocable Trust, in
equal shares.
(3) Mr. Owings owns his interest in United through his interest in the Parent
which 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 30,000 shares are owned by TUET, LLC, which has
as its members the Nancy I. Havlik Trust and the Barbara M. Owings
Irrevocable Trust, in equal shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
On November 17, 1997, the Havlik Trust and the Owings Trust each
transferred a 37-1/2% interest in each of United Round Lake Land Development LLC
("Round Lake, LLC") and Mirage, LLC ("Mirage LLC") to a third party unrelated to
the Company, each retaining a 12-1/2% interest in Round Lake LLC and Mirage LLC.
On December 30, 1997, the Havlik Trust and Owings Trust each transferred its
remaining 12-1/2% interest in each of Round Lake LLC and Mirage LLC to a third
party unrelated to the Company.
24
<PAGE>
On November 17, 1997, Agnus-Irene Corp. and Arizona Fisheries, Inc. each
transferred a 37-1/2% interest in Model Homes, LLC to a third party unrelated
to the Company each retaining a 12-1/2% interest in Model Homes, LLC. On
December 30, 1997, each of Agnus-Irene Corp. and Arizona Fisheries, Inc.
transferred its remaining 12-1/2% interest in Model Homes, LLC to a third
party unrelated to the Company. During the quarter ended December 31, 1997,
the Company recognized approximately $1.2 million of previously deferred
income as of September 30, 1997.
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, 1998, United
Homes of Michigan, Inc. was obligated to pay Greenbrooke $205,428 (inclusive
of interest) for lots to be improved with single-family residences and
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.
Greenbrooke loaned the Company $240,259 in February, 1997. The
obligation was evidenced by a demand note which bears interest at the prime
rate. In July, 1998 the debt evidenced by this note was credited against the
purchase price in a transaction pursuant to which the Company sold certain of
its property for approximately $6,800,000 to an entity classified as an
affiliate pursuant to ownership attribution rules.
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. As of
September 30, 1998, the note was paid in full.
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, 1998, this note was paid in full.
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, 1998. As of September 30,
1998 approximately $414,652 is owed in aggregate on Note 1 and Note 2.
The entire obligation of Odyssey Limited Partnership to the Company has
been written off in fiscal 1998.
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, 1998 was
$4,563,471. This promissory note bears interest at the prime rate (8.50% as
of September 30, 1998).
25
<PAGE>
Messrs. Havlik and Owings have each guaranteed certain indebtedness of
the Company and its subsidiaries in the past. As of September 30, 1998,
Messrs. Havlik and Owings have guaranteed indebtedness outstanding for
approximately $12.6 million of debt, in the aggregate.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K -
CONFORM TO 8-K FILING-23
On June 26, 1998, the Company filed an 8-K as follows:
On June 23, 1998, United Homes, Inc. (The "Registrant") was advised by
Ernst & Young LLP that it was resigning as the Registrant's independent
accountant. Ernst & Young LLP had been engaged as the Registrant's
independent accountant to audit its financial statements as of September 30,
1997 and 1996 and for each of the three years ended September 30, 19997, 1996
and 1995. Ernst & Young LLP's reports on these financial statements did not
contain an adverse opinion or a disclaimer of opinion nor were these reports
qualified or modified as to uncertainty, audit scope or accounting
principles. At no time during Ernst & Young LLP's engagement as the
Registrant's independent accountant were there any disagreements on any
matter of accounting principles or practices, financial statements,
disclosure or auditing procedures.
On September 1, 1998, an 8-K was filed as follows:
On August 27, 1998, United Homes, Inc. (The "Registrant") engaged
Deloitte & Touche LLP as the Registrant's independent accountant to audit and
report on the Registrant's annual financial statements for the year ending
September 30, 1998. At no time during the Registrant's two most recent
fiscal years, and any subsequent interim period prior to engaging Deloitte &
Touche LLP, did the Registrant consult Deloitte & Touche LLP regarding: (i)
either the application of accounting principles to a specified transaction,
either completed or proposed; or the type of audit opinion that might be
rendered on the Registrant's financial statements; or (ii) any matter that
was either the subject of a disagreement as defined in paragraph
304(a)(l)(iv) of Regulation S-K and the related instructions or a reportable
event described in paragraph 304(a)(l)(v).
26
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
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(4)
10.1 -- 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)
10.2 -- 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 May 28, 1996(1)
10.3 -- 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)
10.4 -- 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
August 21, 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
February 3, 1997(1)
10.6 -- $7,000,000 Promissory Note from United Homes, Inc., United
Homes of Michigan, Inc., United Homes of Illinois, Inc.,
and United Homes, Inc., an Arizona corporation to
Residential Funding Corporation dated June 9, 1998*
10.7 -- Amendment Agreement between United Homes, Inc., United
Homes of Illinois, Inc., United Homes of Michigan, Inc.,
United Homes, Inc., an Arizona corporation and Residential
Funding Corporation dated June 9, 1998*
10.8 -- Second Amendment Agreement between United Homes, Inc.,
United Homes of Michigan, Inc., United Homes of Illinois,
Inc., United Homes, Inc., an Arizona corporation and
Residential Funding Corporation dated January 8, 1999.*
10.9 -- Loan Agreement dated June 22, 1998 by and between United-
Woodmere, Inc. and Heller Financial, Inc.*
10.10 -- Note dated June 22, 1998 in the amount of $13,715,000 from
United-Woodmere, Inc., to Heller Financial, Inc.*
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.
(4) Incorporated by reference from the Registrants Form 10-K Annual Report
pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
for the fiscal year ended September 30, 1997, File No. 0-23347 filed
December 30, 1997.
27
<PAGE>
United Homes, Inc.
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of September 30, 1998 and 1997. . . . . . . . F-3
Consolidated Statements of Income for the years ended September 30, 1998,
1997, and 1996... . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholder's Equity for the years
ended September 30, 1998, 1997, and 1996. . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the years ended September 30,
1998, 1997, and 1996. . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . F-7
</TABLE>
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 sheet of United
Homes, Inc., a wholly owned subsidiary of United Development Management
Company, as of September 30, 1998, and the related consolidated statements of
income, stockholder's equity, and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at September 30,
1998, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
Chicago, Illinois
January 8, 1999
Report of Independent Auditors
Board of Directors
United Development Management Company
We have audited the accompanying consolidated balance sheet of United
Homes, Inc., a wholly owned subsidiary of United Development Management
Company, as of September 30, 1997, and the related consolidated statements of
income, stockholder's equity, and cash flows for each of the two years in the
period then ended. 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 the consolidated
results of its operations and its cash flows for each of the two years in the
period then ended, 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
1998 1997
-------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 795,880 $ 937,305
Closing proceeds in transit - 168,063
Housing inventories 71,727,336 71,232,760
Land held for future development 1,085,786 2,352,502
Investment in real estate partnership 541,243 541,243
Due from Parent 4,563,471 4,159,383
Due from affiliates 373,098 190,836
Notes receivable from affiliates - 3,902,000
Notes receivable 9,112,374 -
Other receivables (net of allowance of $245,000 in
1997) 248,773 381,870
Deposits 91,937 220,833
Other Assets 2,561,395 1,023,827
-------------------------
Total assets $91,101,293 $85,110,622
-------------------------
-------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable $11,102,417 $15,284,650
Accrued costs on closed sales 2,237,972 3,870,524
Accrued liabilities 393,441 145,540
Deferred income 250,711 1,264,371
Deposits from home buyers 613,266 963,233
Development loans and other notes payable 56,912,050 52,146,531
Mandatory Redemption debentures, net of 5,826,111 -
issuance costs and discount
-------------------------
Total liabilities 77,335,968 73,674,849
Investors' equity in majority-owned land development
and housing partnerships 758,563 1,649,784
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 1,203,900 3,900
Retained earnings 11,802,762 9,781,989
-------------------------
Total stockholder's equity 13,006,762 9,785,989
-------------------------
Total liabilities and stockholder's equity $91,101,293 $85,110,622
-------------------------
-------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
United Homes, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1998 1997 1996
--------------------------------------------------
<S> <C> <C> <C>
REVENUES
Housing and land sales (539 units, 564 units, and 378 units in 1998, 1997,
and 1996, respectively) $ 107,148,828 $ 88,596,301 $ 64,749,166
Housing and land sales-affiliates:
Housing sales (22 units, net of deferred gain of $753,397 in 1997) - 3,908,103 -
Land sales (net of deferred gain of $681,972 in 1997) - 7,567,714 -
Recognition of deferred income 1,264,371 170,998 -
Share of net income from minority-owned land development and housing
partnership - 55,969 156,233
Management fees 87,350 192,034 212,021
--------------------------------------------------
108,500,549 100,491,119 65,117,420
COST OF SALES
Housing costs, including amortization of capitalized interest and real
estate taxes of $5,079,231, $4,510,581, and $2,031,442 in 1998, 1997, and
1996, respectively 89,884,577 86,669,662 53,787,863
Amortization of capitalized project costs 10,357,083 8,703,541 6,706,639
--------------------------------------------------
Operating Profit 8,258,889 5,117,916 4,622,918
OTHER COSTS AND EXPENSES
Administrative 5,270,185 3,210,901 2,818,552
Interest, net of interest income of $643,689 (of which $613,109 is
from note receivable in 1998), $38,933 and $38,971 in 1997 and
1996, respectively (455,709) 35,603 19,811
--------------------------------------------------
4,814,476 3,246,504 2,838,363
--------------------------------------------------
Income before investors' share of income in majority-owned land development
and housing partnerships 3,444,413 1,871,412 1,784,555
Investors' share of income in majority-owned land development and housing
partnerships 57,992 698,164 734,597
--------------------------------------------------
Income before income taxes 3,386,421 1,173,248 1,049,958
Income taxes 1,365,648 454,645 401,331
--------------------------------------------------
Net income $ 2,020,773 $ 718,603 $ 648,627
--------------------------------------------------
--------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
United Homes, Inc.
Consolidated Statements of Stockholder's Equity
Years ended September 30, 1998, 1997, and 1996
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
-----------------------------------
<S> <C> <C> <C>
Balance at October 1, 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
Additional capital contribution 1,200,000
Net income 2,020,773
-------------------------------------
Balance at September 30, 1998 $100 $1,203,900 $11,802,762
-------------------------------------
-------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
United Homes, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1998 1997 1996
-----------------------------------------------------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 2,020,773 $ 718,603 $ 648,627
Adjustments to reconcile net income to net cash used in
operating activities:
Share of net income from real estate partnership - (55,969) (156,233)
Investors' share of equity in majority-owned land
development and housing partnerships 57,992 698,164 734,597
Bad debt expense - 145,000 -
Amortization of debentures issuance costs 66,805 - -
Changes in:
Closing proceeds in transit 168,063 154,218 184,143
Housing inventories (62,695) (16,644,716) (25,791,983)
Land held for future development 1,266,716 5,906,239 (7,918,741)
Due from Parent (1,581,046) (664,086) (1,942,804)
Due from affiliates (182,262) 72,470 (252,149)
Other receivables 133,097 69,820 (24,832)
Notes receivable from affiliates 3,902,000 (3,902,000) -
Notes receivable (9,112,374) - -
Deposits 128,896 179,877 (324,705)
Other assets (337,568) (327,453) 203,884
Construction draws in process - (1,059,437) (675,636)
Accounts payable (4,182,233) 9,655,153 3,936,745
Accrued costs on closed sales (1,632,552) 1,074,322 1,997,481
Accrued liabilities 247,901 (171,449) (352,111)
Deferred income (1,013,660) 1,264,371 -
Deposits from home buyers (349,967) 204,832 136,705
-----------------------------------------------------------
Net cash used in operating activities (10,462,114) (2,682,041) (29,597,012)
CASH FLOW FROM INVESTING ACTIVITIES
Distributions from real estate partnership investment - - 178,000
-----------------------------------------------------------
Net cash provided by investing activities - - 178,000
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from development loans and other notes payable 112,513,289 119,618,114 99,565,025
Repayments of development loans and other notes payable (107,747,770) (115,610,439) (68,818,031)
Proceeds from mandatory redemption debentures 6,895,000 - -
Payment of issuance costs on mandatory redemption debentures (1,135,694) - -
Contributions from investors' in majority-owned land
development and housing partnerships - 425,775 150,000
Distributions to investors' in majority-owned land
development and housing partnerships (204,136) (1,638,266) (1,757,036)
-----------------------------------------------------------
Net cash provided by financing activities 10,320,689 2,795,184 29,139,958
-----------------------------------------------------------
Increase (decrease) in cash and cash equivalents (141,425) 113,143 (279,054)
Cash and cash equivalents at beginning of year 937,305 824,162 1,103,216
-----------------------------------------------------------
Cash and cash equivalents at end of year $ 795,880 $ 937,305 $ 824,162
-----------------------------------------------------------
-----------------------------------------------------------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
During the year ended September 30, 1998, UHI assigned its interests in
United Lindsay East Valley Partnership (Lindsay) to United Development
Management Company. The investor's equity in Lindsay at date of assignment
was $1,176,958.
During the year ended September 30, 1998, United Development Management
Company contributed $1,200,000 in condominium units and commercial real
estate property to United Homes, Inc.
During the year ended September 30, 1998, the investors in the majority-owned
land development and housing partnership contributed $431,881 of land
inventory to United Homes, Inc.
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
United Homes, Inc.
Notes to Consolidated Financial Statements
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
United Homes, Inc. (UHI), is a wholly owned subsidiary of United Development
Management Company (the Parent). UHI and its wholly owned subsidiaries,
United Homes of Illinois, Inc., United Homes of Michigan, Inc. and United
Homes, Inc. an Arizona corporation (collectively, the Company) are engaged in
the ownership, development, construction, and sale of residential real
estate, with operations in Illinois, Arizona, and Michigan. The accompanying
consolidated financial statements include the accounts of UHI, its wholly
owned subsidiaries and Majority-Owned Partnerships. All significant
intercompany balances and transactions have been eliminated. In addition, UHI
has a non-controlling 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 also provides development and construction management services 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>
1998 539 $107,148,828
1997 586 92,504,404
1996 378 64,749,166
</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.
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 files 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)
MANAGEMENT'S 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 of assets and liabilities, disclosure of contingent
assets and liabilities, and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 1997 consolidated financial statements have been
reclassified to conform with the 1998 presentation.
3. HOUSING INVENTORIES
Housing inventories consist of the following:
<TABLE>
<CAPTION>
1998 1997
---------------------------------
<S> <C> <C>
Land under development, including
site development costs $33,006,027 $32,509,293
Direct construction costs 18,802,515 17,573,716
Capitalized project costs 17,677,320 16,993,716
Land held for sale 2,241,474 4,156,035
---------------------------------
$71,727,336 $71,232,760
---------------------------------
---------------------------------
</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, 1998 and 1997:
<TABLE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION
TYPE OF INVESTMENT ----------------------------------------
PARTNERSHIP PERCENT CARRYING SHARE OF NET
NAME INTEREST OWNERSHIP AMOUNT INCOME ASSETS LIABILITIES INCOME
(LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1998:
United Development Bristolwood
Limited Partnership (1) Limited 24.875% $541,243 $ - $ 773,607 $80,817 $(1,047,298)
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
</TABLE>
NOTE (1): DURING 1997, THE COMPANY ACQUIRED $1,176,000
OF IMPROVED LOTS FROM UNITED DEVELOPMENT BRISTOLWOOD LTD.
PARTNERSHIP (UDB).
NOTE (2): DURING 1996, THE COMPANY SHARE OF INCOME RELATING TO
24.875% IN UDB WAS $156,233.
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 AND NOTES RECEIVABLE FROM AFFILIATES
Notes receivable and Notes receivable from affiliate consist of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land Sales $8,559,924 $3,409,620
Model Homes 552,450 492,380
---------- ----------
$9,112,374 $3,902,000
---------- ----------
---------- ----------
</TABLE>
The notes have various maturity dates from 1999 to 2001 and interest rates
ranging from 10% to 15%.
As of September 30, 1998, the Company has notes receivable related to the
sale of 18 model homes to a public company and has leased them back. The gain
from the sale of these homes is recognized over the related lease term in
accordance with Statement of Financial Accounting Standards No. 98 (SFAS
No. 98) "Accounting for Leases."
On November 17, 1997, the ownership interests in the notes receivable from
affiliates were sold to an unrelated third party. With the sale of these
ownership interests, the income recognition of the previously deferred income
of $1,264,371 was reported. The income recognition resulted from the
following:
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
$1,200,000 (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>
1998 1997
-----------------------------
<S> <C> <C>
Revolving credit facilities (1) $31,334,645 $29,596,075
Land development and construction (1) and(2) 20,609,797 22,507,898
Installment and other (3) 45,108 42,558
Term loan (4) 4,922,500 -
-----------------------------
$56,912,050 $52,146,531
-----------------------------
-----------------------------
</TABLE>
(1) In January 1997, the Company entered into a revolving credit
agreement with a financial institution and replaced the Company's
previous credit facility. At September 30, 1997, the maximum
principal available under the credit agreement was $25,000,000
subject to the maximum number of housing units under construction.
The credit agreement bore interest at the Commercial Paper Rate,
as defined, plus 3.75% (9.47% at September 30,1997), which was
added monthly to the unpaid balance. Outstanding principal and
interest on the construction base was repaid from proceeds of
home sales. The credit agreement included various operating and
financial covenants, including restrictions on the payment of
dividends. The outstanding principal balance at September 30,
1997 was $6,372,565.
F-11
<PAGE>
United Homes, Inc.
Notes to Consolidated Financial Statements (continued)
On June 22, 1998, this $25 million credit facility was converted to a
$13,715,000 project loan. The project loan bore interest at 3.75%
over the LIBOR rate (9.13% at September 30, 1998)and had a maturity
date of December 15, 1998. An extension until May 15, 1999 has been
approved by the lender. The outstanding balance at September 30, 1998
was $3,522.802.
In March 1997, the Company entered into a revolving credit
agreement with another financial institution which matures March
2001. At September 30, 1998, the maximum principal available
under the credit agreement is $55,000,000, with a land
acquisition and development loan amount not to exceed $25,000,000
and a construction loan not to exceed $45,000,000 ($40,000,000 in
1997) 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, 1998), which is added monthly to the unpaid balance.
Outstanding principal and interest on the land acquisition and
development loan is repaid based on agreed upon lot release prices.
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, 1998 and 1997 was $31,334,645 and $23,223,510, respectively,
categorized as revolving credit facilities and $12,804,669 and
$10,662,462, respectively, 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 2002. 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>
Interest is added to the outstanding principal monthly, and
unpaid principal and interest is repaid from proceeds of home
sales. These loans include $349,215 and $1,536,579 at
September 30, 1998 and 1997, 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.
(4) On June 9, 1998, the lender with the $55,000,000 revolving credit
agreement made a $7,000,000 term loan. The term loan bears interest
at 15% per annum and matured on November 15, 1998. The collateral for
this loan is assignments of certain real estate sale contracts
executed by the Company, pursuant to which the Company has contracted
for or is negotiating to sell certain of its land assets. The
outstanding balance at September 30, 1998 is $4,922.500.
On January 8, 1999, the Company entered into a loan modification with the lender
on the $55 million revolving credit facility and the $7 million term loan.
Under the revised terms of the revolving credit facility, the debt to adjusted
equity covenant was increased to 6.25 to 1 from 5 to 1. Also, the maturity date
on the term loan was extended until June 30, 1999.
The aggregate maturities of development loans and other notes payable are as
follows:
<TABLE>
<CAPTION>
<S> <C>
YEAR ENDING SEPTEMBER 30 AMOUNT
-------------------------------------------
1999 $17,569,641
2000 6,189,507
2001 33,134,259
2002 18,643
2003
Thereafter
------------
$56,912,050
------------
------------
</TABLE>
Substantially all of the Company's housing inventories and land held for sale
are pledged as collateral to secure repayment of indebtedness.
During the years ended September 30, 1998, 1997, and 1996, the Company
incurred and paid interest on development loans and other notes payable of
$6,549,717, $6,342,270, and $3,960,336, respectively, of which $6,361,737,
$6,267,734, and $3,901,554 was capitalized, respectively.
7. MANDATORY REDEMPTION DEBENTURES
During the first quarter of fiscal 1998, the Company sold 7,000 mandatory
redemption debentures with a par value of $1,000 per debenture at a price of
$985 per debenture. The gross proceeds from the offering totaled $6,985,000
after underwriting discount with offering expense of $1,135,694. The
debentures are due March 15, 2005 and bear interest at 11%. Interest is
payable quarterly commencing in March 1998. The debentures are to be redeemed
semi-annually commencing in September 1999 in amounts of $583,110.
The debentures restrict the Company from, among other things, incurring
additional indebtedness, paying excessive dividends or making certain other
restricted payments or investments to the Parent, consummating certain assets
sales, entering into certain transactions with affiliates, incurring liens or
merging or consolidating with any other person or selling, assigning,
transferring, conveying, or otherwise disposing of substantially all of their
respective assets.
F-13
<PAGE>
United Homes, Inc.
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES
The Company's income tax expense consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------------------------------------
<S> <C> <C> <C>
Year ended September 30, 1998
U.S. Federal $614,566 $ 565,895 $1,180,461
State 96,410 88,777 185,187
-------- --------- ---------
$710,976 $ 654,672 $1,365,648
-------- --------- ---------
-------- --------- ---------
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
-------- --------- ---------
-------- --------- ---------
</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>
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
Computed expected tax expense $1,185,247 $410,637 $367,485
Increase in income taxes resulting
from:
State income taxes, net of federal income 120,370 40,073 29,294
tax benefit
Other, net 60,031 3,935 4,552
--------------------------------------
Total $1,365,648 $454,645 $401,331
--------------------------------------
--------------------------------------
</TABLE>
F-14
<PAGE>
United Homes, Inc.
Notes to Consolidated Financial Statements (continued)
The net deferred tax liabilities at September 30, 1998 and 1997 are recorded
as a reduction of amounts due from Parent and are comprised of the following:
<TABLE>
<CAPTION>
1998 1997
-------------------------
<S> <C> <C>
DEFERRED ASSETS
Deferred gains $ 100,284 $ 484,633
Housing inventories 356,146 344,749
Receivables allowance - 93,909
-------------------------
456,430 923,291
DEFERRED LIABILITIES
Capitalized costs 1,980,938 1,793,127
-------------------------
Net deferred liability $1,524,508 $ 869,836
-------------------------
-------------------------
</TABLE>
9. RELATED PARTY TRANSACTIONS
Substantially all due from affiliates at September 30, 1998 and 1997, 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.
In 1998 and 1997, the Company purchased an additional 48 and 76 lots,
respectively, from an affiliate for $624,000 and $820,000, respectively. The
Company is obligated to purchase an additional 40 single-family lots at a
price of $13,000 per lot (Note 11).
On July 15, 1998, the Company entered into transaction whereby it sold
certain property to an entity classified as an affiliate based upon the
ownership attribution rules. The gross purchase price was approximately $6.8
million.
F-15
<PAGE>
United Homes, Inc.
Notes to Consolidated Financial Statements (continued)
10. 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 AND NOTES
RECEIVABLE FROM AFFILIATES AND MANDATORY REDEMPTION DEBENTURES
The carrying amount of the Company's development loans and other notes
payable and notes receivable and notes receivable from affiliates and
mandatory redemption debentures approximates fair value
based on the current rates for similar types of arrangements.
11. COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS
Letters of credit and bonds approximating $4.2 million at September 30, 1998,
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,
1998, the Company had pledged cash of approximately $119,000 as collateral for
one letter of credit.
The Company has guaranteed certain bank loans for four limited liability
companies. As of September 30, 1998, the aggregate outstanding balance of
these loans was approximately $8.9 million.
On May 27, 1998, the United States of America, on behalf of the Army Corps.
of Engineers, filed a suit against the Company in the Northern District of
Illinois, Eastern Division, Case No. 93C3242; claiming entitlement to relief
under the Clean Water Act. On July 9, 1998, the Company filed a motion to
dismiss the complaint which motion is still pending. The Company believes the
case was filed without merit. There is no reasonable determination at this
point of the monetary damages which would be awarded if the Company is
unsuccessful in the case. Management believes that resolution of this matter
will not have a material effect on the Company's financial position, results
of operations or cash flows.
F-16
<PAGE>
11. COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS (CONTINUED)
The Company has committed to acquire various parcels of improved and
unimproved land through 2001 as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30 AMOUNT
--------------------------------------
<S> <C> <C>
1999 $ 160,000
2000 640,000
2001 140,000
---------
$ 940,000
---------
---------
</TABLE>
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: January 13, 1999
--------------------------- -----------
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 January 13, 1999
----------------------- -----------
Virgil Owings Director
/s/ Edward Havlik President and Director (Principal January 13, 1999
----------------------- -----------
Edward Havlik Executive Officer
/s/ William J. Crock, Jr. Executive Vice President, Chief January 13, 1999
----------------------- -----------
William J. Crock, Jr. Financial Officer, Secretary
and Treasurer (Principal
Financial Officer and Principal
Accounting Officer)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
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(4)
10.1 -- 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)
10.2 -- 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 May 28, 1996(1)
10.3 -- 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)
10.4 -- 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
August 21, 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
February 3, 1997(1)
10.6 -- $7,000,000 Promissory Note from United Homes, Inc., United
Homes of Michigan, Inc., United Homes of Illinois, Inc.,
and United Homes, Inc., an Arizona corporation to
Residential Funding Corporation dated June 9, 1998*
10.7 -- Amendment Agreement between United Homes, Inc., United
Homes of Illinois, Inc., United Homes of Michigan, Inc.,
United Homes, Inc., an Arizona corporation and Residential
Funding Corporation dated June 9, 1998*
10.8 -- Second Amendment Agreement between United Homes, Inc.,
United Homes of Michigan, Inc., United Homes of Illinois,
Inc., United Homes, Inc., an Arizona corporation and
Residential Funding Corporation dated January 8, 1999.*
10.9 -- Loan Agreement dated June 22, 1998 by and between United-
Woodmere, Inc. and Heller Financial, Inc.*
10.10 -- Note dated June 22, 1998 in the amount of $13,715,000 from
United-Woodmere, Inc., to Heller Financial, Inc.*
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.
(4) Incorporated by reference from the Registrants Form 10-K Annual Report
pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
for the fiscal year ended September 30, 1997, File No. 0-23347 filed
December 30, 1997.
<PAGE>
Exhibit 10.6
PROMISSORY NOTE
$7,000,000 June 9, 1998
1. PRINCIPAL.
For value received, in installments as herein provided, UNITED HOMES,
INC., an Illinois corporation, UNITED HOMES, INC., an Arizona corporation,
UNITED HOMES OF ILLINOIS, INC., an Illinois corporation and UNITED HOMES OF
MICHIGAN, INC., a Michigan corporation (collectively, the "MAKER"), promises
to pay to the order of RESIDENTIAL FUNDING CORPORATION, a Delaware
corporation ("HOLDER"), in the manner and on the dates set forth below, the
principal sum of Seven Million Dollars ($7,000,000) (the "NOTE AMOUNT"), or
so much thereof as shall from time to time be disbursed hereunder, together
with accrued interest from the date of disbursement hereunder on the unpaid
principal at the per annum rate of Fifteen Percent (15%).
As used herein, the term "HOLDER" shall mean Holder and any subsequent
holder of this Promissory Note (this "NOTE"), whichever is applicable from
time to time. Certain defined terms used in this Note are defined in
SECTION 17 hereof.
2. DISBURSEMENTS.
The Maker may request that proceeds of this Note be disbursed to the
Maker, in such manner as the Maker requests, subject to the following
conditions:
(a) the initial disbursement of proceeds of this Note shall be
applied to pay in full the outstanding amount of that certain working
capital advance made to the the Maker pursuant to the terms of that certain
letter agreement dated May 7, 1998 between the Maker and the Holder;
(b) such request shall be accompanied by a draw request certification
(a "DRAW REQUEST CERTIFICATION") signed by an appropriate officer of the
Maker, which such request shall be in form and substance satisfactory to
the Holder;
(c) the Holder shall not be obligated to make any disbursement of the
proceeds of this Note if (i) any statement made in the applicable Draw
Request Certification is untrue or incorrect on and as of the date of the
requested disbursement, before and after giving effect thereto, (ii)
any of the representations and warranties of the Maker contained in the
ABF Loan Documents or in the Project Loan Documents are untrue or
incorrect on and as of the date of the requested disbursement, before
and after
<PAGE>
giving effect thereto, (iii) an Event of Default or Potential Default
has occurred and is continuing, or would result from such disbursement,
(iv) the aggregate outstanding principal amount of this Note then
exceeds the Note Amount or (v) the making of such disbursement would
cause the aggregate outstanding principal amount of this Note to exceed
the Note Amount.
3. PRINCIPAL PAYMENTS; MATURITY DATE.
The Maker shall make the following interim payments of the principal amount
of this Note:
(a) the Maker shall repay Two Million Dollars ($2,000,000) of the
principal amount of this Note, or such lesser amount of this Note as may be
outstanding, upon the earlier of (i) August 19, 1998, which is the date
eighty (80) days from the date of this Note, and (ii) that day on which the
Maker sells all or a portion of the Tiffany Farms III Project; and
(b) the Maker shall repay One Million Five Hundred Thousand Dollars
($1,500,000) of the principal amount of this Note, or such lesser amount of
this Note as may be outstanding, upon the earlier of (i) October 29, 1998,
which is the date one hundred forty (140) days from the date of this Note,
and (ii) that day on which the Maker sells all or a portion of the Sierra
Vista Project.
The unpaid principal balance hereof, together with all unpaid interest
accrued thereon, and all other amounts payable by Maker under the terms of this
Note shall be due and payable on the earlier of (i) November 15, 1998 and (ii)
that day which is the initial settlement day relating to the Zeto Strategic
Funding Facility (the "Maturity Date").
If any date on which payment of the principal of this Note is due,
including but not limited to the Maturity Date, should fall on a day other than
a Business Day, payment of the outstanding principal and all unpaid interest due
under the terms hereof shall be made on the next succeeding Business Day and
such extension of time shall be included in computing any interest in respect of
such payment.
4. PREPAYMENT.
Maker shall have the right to prepay this Note in full or in part, at a
price equal to (i) the principal amount of this Note to be prepaid, as requested
by the Maker, plus (ii) all accrued interest to the date of prepayment on the
principal amount prepaid, plus (iii) all unpaid fees, charges and expenses due
and owing to Holder.
5. FEES AND INTEREST.
<PAGE>
(a) Concurrent with each principal payment of this Note, whether the
principal is paid on the required payment dates, on the Maturity Date or on any
other date, the Maker shall pay to the Holder a fee equal to one and one-half
percent (1.5%) of the principal amount of this Note repaid.
(b) On or before the fifth (5th) Business Day of each month, commencing in
July, 1998, the Holder shall send to Maker a statement setting forth the amount
of interest due for the previous month. Maker shall pay the interest due for
the previous month on or before the fifteenth (15th) calendar day of each month
in which the Holder has sent a statement of interest due pursuant to the terms
of the preceding sentence. Throughout the term of this Note, interest shall be
calculated on a 360-day year and shall be computed for the actual number of days
in the period for which interest is charged. If any payment of interest or
principal to be made by Maker shall become due on a day other than a Business
Day, such payment shall be made on the next succeeding Business Day and such
extension of time shall be included in computing any interest with respect to
such payment.
6. MANNER OF PAYMENT.
Principal and interest are payable in lawful money of the United States of
America. All payments of principal and interest with respect to this Note shall
be made to Holder by federal funds wire transfer as instructed by Holder in
immediately available funds not later than 1:00 p.m. (Minneapolis time) on the
dates such payments are to be made. Any payment received after 1:00 p.m.
(Minneapolis time) shall be deemed received by Holder on the next Business Day.
7. APPLICATIONS OF PAYMENTS; LATE CHARGES.
(a) Payments received by Holder pursuant to the terms hereof shall be
applied in the following manner:
FIRST, to the payment of expenses, charges, costs and fees incurred
by or payable to Holder and for which Maker is obligated pursuant to the
terms of this Note;
SECOND, to the payment of interest accrued to the date of such
payments; and
THIRD, to the payment of principal.
Notwithstanding anything to the contrary contained herein, after the occurrence
and during the continuation of an Event of Default, amounts received by Holder
from any party shall be applied in such order as Holder, in its sole discretion,
may elect.
<PAGE>
(b) If any installment of interest is not received by Lender on or before
the Interest Due Date, then in addition to the remedies conferred upon Holder
pursuant to SECTION 8 hereof, a late charge of four percent (4%) of the amount
due and unpaid will be added to the delinquent amount to compensate Holder for
the expense of handling the delinquency. Maker and Holder agree that such late
charge represents a good faith and fair and reasonable estimate of the probable
cost to Holder of such delinquency. Maker acknowledges that during the time
that any such amount shall be in default, Holder will incur losses which are
impracticable, costly and inconvenient to ascertain and that such late charge
represents a reasonable sum considering all of the circumstances existing on the
date of the execution of this Note and represents a reasonable estimate of the
losses Holder will incur by reason of late payment. Maker further agrees that
proof of actual losses would be costly, inconvenient, impracticable and
extremely difficult to fix. Acceptance of such late charge shall not constitute
a waiver of the default with respect to the overdue installment, and shall not
prevent Holder from exercising any of the other rights and remedies available
hereunder.
8. SECURITY.
This Note is secured by (i) the ABF Loan Security Instruments and the
Project Loan Security Instruments, (ii) any other collateral pledged to secure
the ABF Loan or the Project Loan pursuant to the terms of the ABF Loan Documents
or in the Project Loan Documents, whether such pledge has previously occurred or
occurs in the future, (iii) the Sierra Vista Assignment, (iv) the Tiffany Farms
III Assignment, and (v) that certain Guaranty Agreement dated of even date
herewith from Virgil Owens and Edward Havlik. The Maker expressly acknowledges
and agrees that this Note is cross defaulted with the ABF Loan and the Project
Loan, and that all collateral pledged to secure the ABF Loan and/or the Project
Loan also secures the payment and performance of this Note.
9. REMEDIES.
Upon the occurrence of an Event of Default and without demand or notice,
Holder shall have the option to declare the entire balance of principal of this
Note, together with all accrued interest, thereon immediately due and payable
and to exercise rights and remedies available to it at law or in equity. Such
rights of the Holder shall include, but not be limited to (i) the rights
afforded the Holder in the ABF Loan Documents or in the Project Loan Documents,
and (ii) the right to foreclose on any security for this Note, including but not
limited to the ABF Loan Security Instruments and the Project Loan Security
Instruments and all related security instruments or documents. The exercise by
the Holder of any of its rights or remedies shall not operate to waive its
rights to proceed against any other security or other entities or individuals
directly or indirectly responsible for repayment of this Note, nor to waive any
and all security for this Note as the Holder may in its discretion so determine.
The Holder may pursue any such other remedy or remedies as Holder may so
determine to be in its best interest.
<PAGE>
Upon the occurrence of an Event of Default (and so long as such Event of
Default shall continue), the entire balance of principal together with accrued
interest thereon shall bear interest at the Prime Rate plus six and one-quarter
percent (6.25%) (the "DEFAULT RATE"). The application of the Default Rate shall
not be interpreted or deemed to extend any cure period set forth in any ABF Loan
Document or in any Project Loan Document or otherwise limit in any way any of
Holder's remedies hereunder or thereunder.
No delay or omission on the part of Holder hereof in exercising any right
under this Note, under any of the ABF Loan Documents or under any of the Project
Loan Documents shall operate as a waiver of such right.
10. WAIVER.
Maker hereby waives diligence, presentment, protest and demand, notice of
protest, dishonor and nonpayment of this Note and expressly agrees that, without
in any way affecting the liability of Maker hereunder, Holder may extend any
maturity date or the time for payment of any installment due hereunder, accept
security, release any party liable hereunder and release any security hereafter
securing this Note. Maker further waives, to the full extent permitted by law,
the right to plead any and all statutes of limitations as a defense to any
demand on this Note, any other Project Loan Document or on any Deed of Trust,
security agreement or other agreement now or hereafter securing this Note.
11. ATTORNEYS' FEES.
If this Note is not paid when due or if any Event of Default occurs, Maker
promises to pay costs of enforcement and collection, including, but not limited
to, Holder's reasonable attorneys' fees, whether or not any action or proceeding
is brought to enforce the provisions hereof.
12. SEVERABILITY.
Every provision of this Note is intended to be severable. In the event any
term or provision hereof is declared by a court of competent jurisdiction to be
illegal or invalid for any reason whatsoever, such illegality or invalidity
shall not affect the balance of the terms and provisions hereof, which terms and
provisions shall remain binding and enforceable.
13. INTEREST RATE LIMITATION.
The provisions of this Note are hereby expressly limited so that in no
contingency or event whatever shall the amount paid or agreed to be paid to
Holder for the use, forbearance or detention of the sums evidenced by this Note
exceed the maximum amount permissible under applicable law. If from any
circumstance whatever the performance or fulfillment of any
<PAGE>
provision of this Note should involve or purport to require any payment in
excess of the limit prescribed by law, then the obligation to be performed or
fulfilled is hereby reduced to the limit of such validity, and if, from any
circumstance whatever, Holder should ever receive as interest an amount which
would exceed the highest lawful rate under applicable law, then the amount
which would be excessive interest shall be applied as an optional reduction
of principal in accordance with the terms of SECTION 4 of this Note (or, at
Holder's option, be paid over to Maker), and shall not be counted as interest.
14. HEADINGS.
Headings at the beginning of each numbered section of this Note are
intended solely for convenience and are not to be deemed or construed to be a
part of this Note.
15. GOVERNING LAW.
This Note shall be governed by and construed in accordance with the laws of
the State of Illinois.
16. NON-REVOLVING NATURE OF NOTE.
Repaid principal amounts of this Note shall not be available to be
reborrowed.
17. CERTAIN DEFINED TERMS.
In addition to the other defined terms contained elsewhere in this Note,
the terms set forth below shall have the meanings given to them. Capitalized
terms used in this Note which are not otherwise defined shall have the meanings
given those terms in the ABF Loan Documents or in the Project Loan Documents, as
applicable.
"ABF LOAN" shall mean that certain loan in the current principal amount of
$33,950,300 made pursuant to the terms and conditions of the ABF Loan Agreement.
"ABF LOAN AGREEMENT" shall mean that certain Loan Agreement dated as of
March 14, 1997, between the Maker and the Holder, as the same may be amended or
otherwise modified from time to time.
"ABF LOAN DOCUMENTS" shall have the meaning given the term "Loan Documents"
in the ABF Loan Agreement.
"ABF LOAN SECURITY INSTRUMENTS" shall mean any and all pledge agreements,
guaranties, deeds of trust, mortgages, security agreements, assignments and
other agreements or instruments
<PAGE>
executed by Maker or any Affiliate of Maker granting in favor of Lender a
lien or encumbrance on or a security interest in any property or right or
interest of Maker or such Affiliate as security for the ABF Loan, as the same
may be amended or otherwise modified from time to time in accordance with the
ABF Loan Agreement, including but not limited to all deeds of trust and
mortgages presently in place granted to secure the ABF Loan.
"AFFILIATE" shall mean a Person that, directly or indirectly, controls, is
controlled by, or is under common control with, a referenced Person.
"BUSINESS DAY" shall mean a day other than Saturday, Sunday or a day on
which national banks are legally closed for business in the State of Arizona,
Illinois, Michigan or Minnesota.
"EVENT OF DEFAULT" shall mean the occurrence and continuance of any one or
more of the following events:
(a) Maker shall fail to pay any installment of principal on this Note
when due, whether at stated maturity, as a result of a mandatory prepayment
requirement, upon acceleration or otherwise, or pay when due any interest,
fees or other amounts payable hereunder;
(b) any event of default (however described) under any of the ABF
Loan Documents shall occur and not be cured within the applicable grace
period, if any; or
(c) any event of default (however described) under any of the Project
Loan Documents shall occur and not be cured within the applicable grace
period, if any.
"PERSON" shall mean an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.
"POTENTIAL DEFAULT" shall mean the existence of any event which, with the
giving of notice, the passage of time, or both, would constitute an Event of
Default hereunder or an event of default (however described) under any other of
the Master Loan Documents.
"PROJECT LOAN" shall mean that certain loan in the current principal amount
of $16,049,700 made pursuant to the terms and conditions of the Project Loan
Agreement.
"PROJECT LOAN AGREEMENT" shall mean that certain Loan Agreement dated as of
May 28, 1996, between the Maker and the Holder, as the same may be amended or
otherwise modified from time to time.
<PAGE>
"PROJECT LOAN DOCUMENTS" shall have the meaning given the term "Loan
Documents" in the Project Loan Agreement.
"PROJECT LOAN SECURITY INSTRUMENTS" shall mean any and all pledge
agreements, guaranties, deeds of trust, mortgages, security agreements,
assignments and other agreements or instruments executed by Maker or any
Affiliate of Maker granting in favor of Lender a lien or encumbrance on or a
security interest in any property or right or interest of Maker or such
Affiliate as security for the Project Loan, as the same may be amended or
otherwise modified from time to time in accordance with the Project Loan
Agreement, including but not limited to all deeds of trust and mortgages
presently in place granted to secure the Project Loan.
"SIERRA VISTA ASSIGNMENT" shall mean that certain Assignment of Contract
dated as of June 9, 1998 from the Maker, as assignor, for the benefit of the
Holder, relating to the Sierra Vista Project, as the same may be amended or
modified from time to time.
"SIERRA VISTA PROJECT" shall mean that certain residential housing
subdivision commonly known as "Sierra Vista" located in Cave Creek, Arizona,
as legally described in the Sierra Vista Purchase Contract.
"SIERRA VISTA PURCHASE CONTRACT" shall mean that certain Agreement of
Purchase and Sale dated as of a date in May, 1998 by and between United
Homes, Inc., as seller, and HC Builders, Inc., as purchaser, relating to the
sale of the Sierra Vista Project, as the same may be amended or modified from
time to time.
"TIFFANY FARMS III ASSIGNMENT" shall mean that certain Assignment of
Contract dated as of June 9, 1998 from the Maker, as assignor, for the
benefit of the Holder, relating to the Tiffany Farms III Project, as the same
may be amended or modified from time to time.
"TIFFANY FARMS III PROJECT" shall mean that certain residential housing
subdivision commonly known as "Tiffany Farms Units 2, 3 and 4" located in
Antioch, Illinois, as legally described in the Tiffany Farms Purchase
Contract.
"TIFFANY FARMS III PURCHASE CONTRACT" shall mean that certain Real
Estate Sale Contract dated June 4, 1998 by and between United Homes, Inc., as
seller, and Tiffany Farms LLC, as purchaser, relating to the sale of the
Tiffany Farms III Project, as the same may be amended or modified from time
to time.
"ZETO STRATEGIC FUNDING FACILITY" shall mean that certain credit
facility denominated as "$50,000,000 In 10.5% Mandatory Redemption Debentures
Due August 31, 2006" from United Development Management Company, as issuer,
as described in that certain Private Placement Memorandum dated March 18,
1998.
<PAGE>
IN WITNESS WHEREOF, Maker has caused this Promissory Note to be duly
executed and delivered on the date first above written.
MAKER:
UNITED HOMES, INC.,
an Illinois corporation
By:
Printed Name:
Title:
UNITED HOMES, INC.,
an Arizona corporation
By:
Printed Name:
Title:
UNITED HOMES OF ILLINOIS, INC.,
an Illinois corporation
By:
Printed Name:
Title:
UNITED HOMES OF MICHIGAN, INC.,
a Michigan corporation
By:
Printed Name:
Title:
<PAGE>
Exhibit 10.7
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT (the "Amendment Agreement") dated as of June 9,
1998 is entered into by and between UNITED HOMES, INC., an Illinois
corporation, UNITED HOMES, INC., an Arizona corporation, UNITED HOMES OF
ILLINOIS, INC., an Illinois corporation and UNITED HOMES OF MICHIGAN, INC.,
a Michigan corporation (collectively, the "Borrower") and RESIDENTIAL FUNDING
CORPORATION, a Delaware corporation (the "Lender").
RECITALS
This Amendment Agreement is entered into upon the basis of the following
facts and circumstances:
A. Lender has made a revolving acquisition, development and
construction loan to the Borrower in the original principal amount of Twenty
Five Million Dollars ($25,000,000) (the "Project Loan") pursuant to the terms
of the Loan Agreement dated as of May 28, 1996 (as amended or modified, the
"Project Loan Agreement") and in connection therewith Borrower has made,
executed and delivered to Lender that certain Promissory Note dated May 28,
1996 (the "Original Project Note") payable to the order of Lender in the
principal amount of Twenty Five Million Dollars ($25,000,000).
B. Lender has made a revolving construction loan to Borrower in the
original principal amount of Twenty Five Million Dollars ($25,000,000) (the
"ABF Loan") pursuant to the terms of the Loan Agreement dated as of March 14,
1997 (as amended or modified, the "ABF Loan Agreement") and in connection
therewith Borrower has made, executed and delivered to Lender that certain
Revolving Promissory Note dated March 14, 1997 (the "Original ABF Note")
payable to the order of Lender in the principal amount of Twenty Five Million
Dollars ($25,000,000).
C. Lender has made a working capital loan to Borrower in the principal
amount of Seven Million Dollars ($7,000,000) (the "Working Capital Loan") and
in connection therewith Borrower has made, executed and delivered to Lender
that certain Promissory Note dated June 9, 1998 (the "Working Capital Note")
payable to the order of Lender in the principal amount of Seven Million
Dollars ($7,000,000).
D. The Borrower has now requested, and the Lender has now consented,
to increase the aggregate of the principal amounts of the Project Loan plus
the ABF Loan to Fifty Five Million Dollars ($55,000,000), and to make certain
other changes to the terms and conditions of the Project Loan Agreement and
the related documents and to the terms and conditions of the ABF Loan
Agreement and the related documents.
<PAGE>
E. Lender is willing to make the requested amendments upon and subject
to the terms and conditions set forth in this Amendment Agreement.
F. Capitalized terms used herein which are not otherwise defined shall
have the meanings given those terms in the Project Loan Agreement or the ABF
Loan Agreement, as the context requires.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing Recitals and the
covenants and conditions, representations and warranties contained herein,
the parties hereto agree as follows:
Section 1. AMENDMENT OF PROJECT LOAN AGREEMENT. The Project Loan
Agreement is hereby amended as follows:
(a) ADDITION OF CERTAIN DEFINITIONS. The following terms are hereby
added to the SECTION 1.1 of the Project Loan Agreement:
"ABF LOAN" shall mean the revolving construction loan described in
the ABF Loan Agreement.
"ABF LOAN AGREEMENT" shall mean that certain Loan Agreement dated
as of March 14, 1997 between the Lender and the Borrower, as amended by
the Amendment Agreement, as such Loan Agreement may be further amended
or otherwise modified from time to time in accordance with the terms
thereof.
"ABF LOAN AMOUNT" shall mean the following:
(a) prior to the date of the Amendment Agreement, the amount set
forth in the ABF Loan Agreement as originally executed and delivered,
as such amount was amended by letter agreements between the Lender and
the Borrower dated November 26, 1997 and May 13, 1998;
(b) on the date of the Amendment Agreement and continuing until
the date as to which the Borrower has made an alternative election
pursuant to the terms of SECTION 2.17 of the ABF Loan Agreement, the
amount set forth in SECTION 3 of the Amendment Agreement; and
(c) on such date as to which the Borrower has made an election
pursuant and subject to the terms of SECTION 2.17 of the ABF Loan
Agreement, the
<PAGE>
amount set forth in the Borrower's written statement delivered to
the Lender pursuant to the terms of SECTION 2.17 of the ABF Loan
Agreement,
subject in all events to the requirement that the ABF Loan Amount plus the
Loan Amount shall at all times equal Fifty Five Million Dollars
($55,000,000).
"ABF LOAN DOCUMENTS" shall have the meaning given the term "Loan
Documents" in the ABF Loan Agreement.
"ABF NOTE" shall mean (i) prior to June 9, 1998, the Revolving
Promissory Note dated as of March 14, 1997 executed by Borrower, as maker,
and made payable to the order of Lender, as holder, in the amount of Twenty
Five Million Dollars ($25,000,000) to evidence the ABF Loan and (ii) on
and after June 9, 1998, the Amended and Restated Revolving Promissory Note
dated June 9, 1998 executed by Borrower, as maker, and made payable to the
order of Lender, as holder, in the amount of Fifty Five Million Dollars
($55,000,000) to evidence the ABF Loan, as such Amended and Restated
Revolving Promissory Note may be amended or otherwise modified from time to
time.
"AMENDMENT AGREEMENT" shall mean that certain Amendment Agreement
dated as of June 9, 1998 between the Lender and the Borrower, as such
Amendment Agreement may be amended or otherwise modified from time to time
in accordance with the terms thereof.
"LETTER OF CREDIT" shall mean, with respect to any Project, any letter
of credit issued by a bank or other financial institution in favor of a
governmental entity to secure the Borrower's obligation to complete the
Development Work.
"WORKING CAPITAL LOAN" shall mean the working capital loan evidenced
by the Working Capital Note.
"WORKING CAPITAL NOTE" shall mean the Promissory Noted dated June 9,
1998 executed by Borrower, as maker, and made payable to the order of
Lender, as holder, in the amount of Seven Million Dollars ($7,000,000) to
evidence the Working Capital Loan.
(b) AMENDMENT OF CERTAIN DEFINITIONS. The terms "Additional Loan Fee",
"Approval Period", "Loan", "Loan Agreement", "Loan Amount", "Loan Documents",
"Maturity Date", "Note" and "Project Maturity Date" set forth in SECTION 1.1 of
the Project Loan Agreement are hereby amended to read as follows:
"ADDITIONAL LOAN FEE" shall mean, with respect to a High Advance Rate
Project, the additional fee the Borrower will be required to pay to Lender
as a condition precedent
<PAGE>
to the Lender's release of its lien on any Lot or Unit located in the
Project, which amount shall equal, unless otherwise stated in the
Project Commitment relating to the Project, five percent (5%) of the
principal amount of the Loan required to be paid to the Lender upon the
sale, disposition or transfer of the Lot or Unit.
"APPROVAL PERIOD" shall mean the period of time during which new
Projects may be approved for funding and Model Homes may be refinanced from
proceeds of the Loan, which period shall commence on May 28, 1996 and shall
end on _________________________, which is the date __________________
months after ___________________, as such period may be extended pursuant
to the terms of Section 2.11.
"LOAN" shall mean the revolving loan described in the Loan Agreement.
"LOAN AGREEMENT" shall mean the Loan Agreement dated as of May 28,
1996 between the Lender and the Borrower, as amended by the Amendment
Agreement, as such Loan Agreement may be further amended or otherwise
modified from time to time in accordance with the terms thereof.
"LOAN AMOUNT" shall mean the following:
(a) prior to the date of the Amendment Agreement, the amount set
forth in the Loan Agreement as originally executed and delivered, as
such amount was amended by letter agreements between the Lender and
the Borrower dated November 26, 1997 and May 13, 1998;
(b) on the date of the Amendment Agreement and continuing until
the date as to which the Borrower has made an alternative election
pursuant to the terms of SECTION 2.15, the amount set forth in SECTION
3 of the Amendment Agreement; and
(c) on such date as to which the Borrower has made an election
pursuant and subject to the terms of SECTION 2.15, the amount set
forth in the Borrower's written statement delivered to the Lender
pursuant to the terms of SECTION 2.15,
subject in all events to the requirement that the Loan Amount plus the ABF
Loan Amount shall at all times equal Fifty Five Million Dollars
($55,000,000).
"LOAN DOCUMENTS" shall mean, as to the Loan, all documents,
instruments, agreements, assignments and certificates relating thereto,
including, without limitation, any and all loan or credit agreements,
promissory notes, deeds of trust, mortgages,
<PAGE>
security agreements, assignments of rents, assignments of leases,
assignments of contracts, environmental indemnities, guaranties,
contractor's consent agreements, lender's title insurance policies,
opinions of counsel, evidences of authorization or incumbency, escrow
instructions, architect's consent agreements, and UCC-1 financing
statements to be executed (and acknowledged where applicable) by
Borrower, Project Owner, Model Home Owner and/or Lender (where
applicable) in connection with Lender making the Loan to Borrower, as
the same may be amended or otherwise modified from time to time in
accordance with the Loan Agreement. The Loan Documents shall include,
but not be limited to, the following:
(a) the Loan Agreement;
(b) the Note;
(c) the Project Documents;
(d) the Model Home Documents;
(e) any Letter of Credit;
(f) the ABF Loan Documents; and
(g) the Working Capital Note and all documents, instruments,
agreements, assignments and certificates relating thereto.
"MATURITY DATE" shall mean the first to occur of (i) November 28,
1999, which is the date forty two (42) months from the date of the Loan
Agreement (as such date may be extended in writing by Lender and Borrower
from time to time), or (ii) the date on which the Loan is required to be
repaid pursuant to SECTION 6.2.
"NOTE" shall mean (i) prior to June 9, 1998, the Promissory Note
dated May 28, 1996 executed by Borrower, as maker, and made payable to the
order of Lender, as holder, in the amount of Twenty Five Million Dollars
($25,000,000) and maturing on the Maturity Date, to evidence the Loan and
(ii) on and after June 9, 1998, the Amended and Restated Revolving
Promissory Note dated June 9, 1998 executed by Borrower, as maker, and made
payable to the order of Lender, as holder, in the amount of Fifty Five
Million Dollars ($55,000,000) and maturing on the Maturity Date, to
evidence the Loan, as such Amended and Restated Revolving Promissory Note
may be amended or otherwise modified from time to time.
"PROJECT MATURITY DATE" shall mean, with respect to a Project, the
date which is set forth in the Project Commitment as the date on which all
proceeds of the Loan advanced
<PAGE>
for the Project must be repaid.
(c) AMENDMENT OF SECTION 2.6. SECTION 2.6 of the Project Loan Agreement
shall be amended to read as follows:
Section 2.6. REPAYMENT OF PRINCIPAL. Principal of the Loan shall be
due and payable as follows:
(a) with respect to the Projects as to which proceeds of the
Loan are to be disbursed to construct the Construction Improvements
within the Project, upon the sale of a Lot and/or Unit in such
Project, the Borrower shall repay the principal amount of the Loan (i)
at the rate of one hundred fifteen percent (115%) of (A) the total
amount of the Loan disbursed for the acquisition of such Lot plus (B)
the total amount of the Loan budgeted for the Development Work related
to such Lot, and (ii) at the rate of one hundred percent (100%) of the
total amount of the Loan disbursed for the Construction Improvements
related to the Home on such Lot, until such time as the total amount
of the Loan disbursed for such Project has been paid in full; during
the Approval Period, principal repaid in accordance with this
SUBPARAGRAPH (a) may be reborrowed subject to and upon compliance with
the terms of this Loan Agreement;
(b) with respect to the Projects as to which proceeds of the
Loan are to be disbursed to construct the Construction Improvements
within the Project, upon disbursement of proceeds of the Loan for a
Home within the Project, the principal amount of the Loan (i)
disbursed to acquire the related Lot, (ii) budgeted for the
Development Work related to such Lot, and (iii) disbursed for the
Construction Improvements related to the Home on such Lot, is required
to be repaid twelve (12) months from the date Loan proceeds are first
disbursed for the Construction Improvements for such Home, unless the
Unit sells prior to such date, in which event the principal shall be
repaid in accordance with SUBPARAGRAPH (a) above; during the Approval
Period, principal repaid in accordance with this SUBPARAGRAPH (b) may
be reborrowed subject to and upon compliance with the terms of this
Loan Agreement;
(c) with respect to the Projects as to which proceeds of the ABF
Loan are to be disbursed with respect to the Construction Improvements
within the Project, upon pledge of a Lot within the Project to become
part of the Borrowing Base Collateral (as such term is defined in the
ABF Loan Agreement), the Borrower shall repay the principal amount of
the Loan at the rate of one hundred fifteen percent (115%) of (i) the
total amount of the Loan disbursed for the acquisition of such Lot
plus (ii) the total amount of the Loan budgeted for the Development
Work related to such Lot, until such time as the total amount of the
Loan disbursed for such Project has been paid in full; during the
Approval Period,
<PAGE>
principal repaid in accordance with this SUBPARAGRAPH (c) may be
reborrowed subject to and upon compliance with the terms of this
Loan Agreement;
(d) if the amount of the Loan disbursed for a Project has not
been repaid on or before the Project Maturity Date, the Borrower shall
on such date repay the entire principal amount of the Loan allocable
to such Project; during the Approval Period, principal repaid in
accordance with this SUBPARAGRAPH (d) may be reborrowed subject to and
upon compliance with the terms of this Loan Agreement;
(e) upon the sale or refinancing of a Model Home, the Borrower
shall repay the principal amount of the Loan at the rate of one
hundred percent (100%) of the total amount of the Loan disbursed for
the Model Home; during the Approval Period, principal repaid in
accordance with this SUBPARAGRAPH (e) may be reborrowed subject to and
upon compliance with the terms of this Loan Agreement; and
(f) on the Maturity Date, the Borrower shall repay the entire
remaining principal amount of the Loan.
(d) ADDITION OF SECTION 2.15 -- ADJUSTMENTS TO PROJECT LOAN AMOUNT AND ABF
LOAN AMOUNT. The Project Loan Agreement is hereby amended to add the following
new SECTION 2.15:
Section 2.15. ADJUSTMENTS TO LOAN AMOUNT AND ABF LOAN AMOUNT.
SECTION 3 of the Amendment Agreement sets forth the Loan Amount and the ABF
Loan Amount in effect on the date of the Amendment Agreement, and the
allocations of the Loan Amount to the various Projects approved for funding
on the date of the Amendment Agreement. Thereafter, upon delivery to the
Lender of thirty (30) days' prior written notice, the Borrower may elect to
adjust the Loan Amount and the ABF Loan Amount from the then current
allocations, subject to the following terms and conditions:
(a) the Borrower's written notice shall specify (i) the Loan
Amount, which amount shall not be less than Ten Million Dollars
($10,000,000) nor more than Twenty Five Million Dollars ($25,000,000),
(ii) the ABF Loan Amount, which amount shall not be less than Twenty
Five Million Dollars ($25,000,000) nor more than Forty Million Dollars
($40,000,000) and (iii) the total of the Loan Amount and the ABF Loan
Amount, which amount shall at all times equal Fifty Five Million
Dollars ($55,000,000);
(b) the Loan Amount shall never be decreased to an amount less
than the amount necessary to fund projects previously approved for
financing pursuant to the terms of this Loan Agreement;
<PAGE>
(c) the Borrower shall deliver to the Lender (i) such
endorsements to the Title Policies as the Lender shall require to
reflect any necessary increases in the amount of insurance provided by
the Title Policies and (ii) such other documents as Lender may
reasonably require; and
(d) the Borrower shall make such adjustments to the Loan Amount
and the ABF Loan Amount no more frequently than four (4) times per
year.
(e) AMENDMENT OF SECTION 5.4 -- FINANCIAL COVENANTS. SECTION 5.4 of the
Project Loan Agreement is hereby amended to read as follows:
Section 5.4. FINANCIAL COVENANTS. Borrower shall comply with, or
ensure compliance with, each of the following financial covenants:
(a) NET WORTH. United Homes shall, on a consolidated basis, at
all times maintain a Net Worth equal to or in excess of Ten Million
Dollars ($10,000,000).
(b) LIMITATION ON DISTRIBUTIONS. United Homes shall not
distribute dividends, bonuses or profit participations to officers or
stockholders greater than thirty percent (30%) of year-end, audited,
pre-tax profits generated in any one year.
(c) RATIO OF LIABILITIES TO ADJUSTED NET WORTH. During the
period commencing on the date of the Amendment Agreement and
continuing through and including November 15, 1998, the ratio of
United Homes' total liabilities (reported on a consolidated basis) to
its Adjusted Net Worth shall not exceed 6.5. to 1.0. During the
period commencing November 16, 1998 and at all time thereafter, the
ratio of United Homes' total liabilities (reported on a consolidated
basis) to its Adjusted Net Worth shall not exceed 5.0 to 1.0.
(d) POSITIVE NET INCOME. The Borrower shall ensure that the
pre-tax net income for the Borrower, on a consolidated basis, shall
not be negative for any two consecutive calendar quarters, nor
negative for any four consecutive calendar quarters on a cumulative
basis.
(f) ADDITION OF SECTION 2.16 -- LETTERS OF CREDIT. The Project Loan
Agreement is hereby amended to add the following new SECTION 2.16:
Section 2.16. LETTERS OF CREDIT.
(a) Borrower hereby agrees to pay to the Lender, for each Letter of
Credit
<PAGE>
which the Borrower requests the Lender arrange to be issued, the annual
fee relating to such Letter of Crecit, in the amount specified by the
Lender.
(b) On each date that the Lender or any Affiliate of the Lender pays
any amount to reimburse the issuer of a Letter of Credit for amounts paid
by the issuer due to a draw upon the Letter of Credit, the Borrower shall
pay to the Lender an amount equal to the amount so drawn.
(c) Borrower acknowledges that any payment made by Lender or any
Affiliate of Lender as set forth in SUBSECTION (b) above shall constitute a
disbursement of the Loan, requiring immediate repayment from the Borrower.
Borrower further acknowledges that its failure to make such required
repayment shall constitute an Event of Default, entitling Lender to
exercise any and all of its remedies against Borrower in accordance with
the terms of the Loan Documents.
(d) The obligation of Borrower to Lender with respect to the
obligations incurred pursuant to this SECTION 2.16 shall be absolute,
unconditional and irrevocable to the extent permitted by law, and shall be
performed strictly in accordance with the terms of this Loan Agreement,
irrespective of any of the following circumstances:
(1) any lack of validity or enforceability of any Letter of
Credit, any other Loan Document, any of the documents relating to the
Letters of Credit, or any other agreement or instrument underlying the
Letters of Credit or the other Loan Documents, or any failure to
comply strictly with the terms of any Letter of Credit, any other Loan
Document or any other agreement or instrument;
(2) any amendment or waiver of, or consent to departure from,
the Letters of Credit, any document relating thereto or any other Loan
Document;
(3) the existence of any claim, setoff, defense or other rights
which the Lender, any Affiliate of Lender or Borrower may have at any
time against any other party or any beneficiary or any transferee of
any Letter of Credit (or any persons or entities for whom any such
party or beneficiary or any such transferee may be acting), the issuer
of any Letter of Credit or any other person or entity whether in
connection with a Letter of Credit, any document relating thereto, any
other Loan Document, any agreement or transaction underlying a Letter
of Credit or any unrelated transactions;
(4) any statement, certificate, draft or other document
presented under a Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect whatsoever;
<PAGE>
(5) payment by the issuer of a Letter of Credit under the Letter
of Credit against presentation of a draft or certificate which does
not comply with the terms of the Letter of Credit; or
(6) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing.
Section 2. AMENDMENT OF ABF LOAN AGREEMENT. The ABF Loan Agreement is
hereby amended as follows:
(a) ADDITION OF CERTAIN DEFNINITIONS. The following terms are hereby
added to the SECTION 1.1 of the ABF Loan Agreement:
"AMENDMENT AGREEMENT" shall mean that certain Amendment Agreement
dated as of June 9, 1998 between the Lender and the Borrower, as such
Amendment Agreement may be amended or otherwise modified from time to time
in accordance with the terms thereof.
"WORKING CAPITAL LOAN" shall mean the working capital loan evidenced
by the Working Capital Note.
"WORKING CAPITAL NOTE" shall mean the Promissory Noted dated June 9,
1998 executed by Borrower, as maker, and made payable to the order of
Lender, as holder, in the amount of Seven Million Dollars ($7,000,000) to
evidence the Working Capital Loan.
(b) AMENDMENT OF CERTAIN DEFINITIONS. The terms "Loan", "Loan Agreement",
"Loan Amount", "Loan Documents", "Maturity Date", "Note", "Related Loan",
"Related Loan Agreement" and "Related Loan Amount" set forth in SECTION 1.1 of
the ABF Loan Agreement are hereby amended to read as follows:
"LOAN" shall mean the revolving loan described in this Loan Agreement.
"LOAN AGREEMENT" shall mean the Loan Agreement dated as of March 14,
1997 between the Lender and the Borrower, as amended by the Amendment
Agreement, as such Loan Agreement may be further amended or otherwise
modified from time to time in accordance with the terms thereof.
"LOAN AMOUNT" shall mean the following:
(a) prior to the date of the Amendment Agreement, the amount set
forth in the Loan Agreement as originally executed and delivered, as
such amount was amended by letter agreements between the Lender and
the Borrower dated
<PAGE>
November 26, 1997 and May 13, 1998;
(b) on the date of the Amendment Agreement and continuing until
the date as to which the Borrower has made an alternative election
pursuant to the terms of SECTION 2.17, the amount set forth in SECTION
3 of the Amendment Agreement; and
(c) on such date as to which the Borrower has made an election
pursuant and subject to the terms of SECTION 2.17, the amount set
forth in the Borrower's written statement delivered to the Lender
pursuant to the terms of SECTION 2.17,
subject in all events to the requirement that the Loan Amount plus the
Related Loan Amount shall at all times equal Fifty Five Million Dollars
($55,000,000).
"LOAN DOCUMENTS" shall mean, as to the Loan, all documents,
instruments, agreements, assignments and certificates executed by Borrower,
or from Borrower, relating thereto, including, without limitation, any and
all loan or credit agreements, promissory notes, deeds of trust, mortgages,
security agreements, assignments of rents, assignments of leases,
assignments of contracts, environmental indemnities, guaranties,
contractor's consent agreements, evidences of authorization or incumbency
and escrow instructions to be executed (and acknowledged where applicable),
by Borrower and/or Lender (where applicable), and UCC-1 financing
statements from Borrower, in connection with Lender making the Loan to
Borrower, as the same may be amended or otherwise modified from time to
time in accordance with this Loan Agreement. The Loan Documents shall
include, but not be limited to, the following:
(a) this Loan Agreement;
(b) the Note;
(c) the Mortgage;
(d) the Security Agreement;
(e) the UCC-1 Financing Statement;
(f) the Environmental Indemnity;
(g) the Assignment;
(h) the Project Commitments;
<PAGE>
(i) the Title Procedures Agreement;
(j) the Bank Letter of Instructions, or any substitute letter of
instructions delivered pursuant to the terms of SECTION 3.9;
(k) the Related Loan Documents; and
(l) the Working Capital Note and all documents, instruments,
agreements, assignments and certificates relating thereto.
"MATURITY DATE" shall mean the first to occur of (i) March 14, 2001,
which is the date forty eight (48) months from the date of the Loan
Agreement (as such date may be extended by Lender and Borrower from time to
time, either in accordance with SECTION 2.14 or otherwise), or (ii) the
date on which the Loan is required to be repaid pursuant to SECTION 7.2.
"NOTE" shall mean (i) prior to June 9, 1998, the Revolving Promissory
Note dated March 14, 1997 executed by Borrower, as maker, and made payable
to the order of Lender, as holder, in the amount of Twenty Five Million
Dollars ($25,000,000) and maturing on the Maturity Date, to evidence the
Loan and (ii) on and after June 9, 1998, the Amended and Restated Revolving
Promissory Note dated June 9, 1998 executed by Borrower, as maker, and made
payable to the order of Lender, as holder, in the amount of Fifty Five
Million Dollars ($55,000,000) and maturing on the Maturity Date, to
evidence the Loan, as such Amended and Restated Revolving Promissory Note
may be amended or otherwise modified from time to time.
"RELATED LOAN" shall mean the revolving loan made by Lender to
Borrower pursuant to the terms of the Related Loan Agreement.
"RELATED LOAN AGREEMENT" shall mean that certain Loan Agreement dated
as of May 28, 1996 between the Lender and the Borrower, as amended by the
Amendment Agreement, as such Loan Agreement may be further amended or
otherwise modified from time to time.
"RELATED LOAN AMOUNT" shall mean the following:
(a) prior to the date of the Amendment Agreement, the amount set
forth in the Related Loan Agreement as originally executed and
delivered, as such amount was amended by letter agreements between the
Lender and the Borrower dated November 26, 1997 and May 13, 1998;
<PAGE>
(b) on the date of the Amendment Agreement and continuing until
the date as to which the Borrower has made an alternative election
pursuant to the terms of SECTION 2.15 of the Related Loan Agreement,
the amount set forth in SECTION 3 of the Amendment Agreement; and
(c) on such date as to which the Borrower has made an election
pursuant and subject to the terms of SECTION 2.15 of the Related Loan
Agreement, the amount set forth in the Borrower's written statement
delivered to the Lender pursuant to the terms of SECTION 2.15 of the
Related Loan Agreement,
subject in all events to the requirement that the Loan Amount plus the
Related Loan Amount shall at all times equal Fifty Five Million Dollars
($55,000,000).
(d) AMENDMENT OF SECTION 2.17 -- ADJUSTMENTS TO PROJECT LOAN AMOUNT AND
ABF LOAN AMOUNT. SECTION 2.17 of the ABF Loan Agreement is hereby amended to
read as follows:
Section 2.17. ADJUSTMENTS TO LOAN AMOUNT AND RELATED LOAN AMOUNT.
SECTION 3 of the Amendment Agreement sets forth the Loan Amount and the
Related Loan Amount in effect on the date of the Amendment Agreement, and
the allocations of the Related Loan Amount to the various Projects approved
for funding on the date of the Amendment Agreement. Thereafter, upon
delivery to the Lender of thirty (30) days' prior written notice, the
Borrower may elect to adjust the Loan Amount and the Related Loan Amount
from the then current allocations, subject to the following terms and
conditions:
(a) the Borrower's written notice shall specify (i) the Loan
Amount, which amount shall not be less than Twenty Five Million
Dollars ($25,000,000) nor more than Forty Million Dollars
($40,000,000), (ii) the Related Loan Amount, which amount shall not be
less than Ten Million Dollars ($10,000,000) nor more than Twenty Five
Million Dollars ($25,000,000) and (iii) the total of the Loan Amount
and the Related Loan Amount, which amount shall at all times equal
Fifty Five Million Dollars ($55,000,000);
(b) the Related Loan Amount shall never be decreased to an
amount less than the amount necessary to fund projects previously
approved for financing pursuant to the terms of the Related Loan
Agreement;
(c) the Borrower shall deliver to the Lender (i) such
endorsements to the Title Policies as the Lender shall require to
reflect any necessary increases in the amount of insurance provided by
the Title Policies and (ii) such other documents as Lender may
reasonably require; and
<PAGE>
(d) the Borrower shall make such adjustments to the Loan Amount
and the Related Loan Amount no more frequently than four (4) times per
year.
(e) AMENDMENT OF SECTION 5.4 -- FINANCIAL COVENANTS. From and after the
date of this Amendment Agreement, SECTION 5.4 of the ABF Loan Agreement shall be
amended to read as follows:
Section 5.4. FINANCIAL COVENANTS. Borrower shall comply with, or
ensure compliance with, each of the following financial covenants:
(a) NET WORTH. United Homes shall, on a consolidated basis, at
all times maintain a Net Worth equal to or in excess of Ten Million
Dollars ($10,000,000).
(b) LIMITATION ON DISTRIBUTIONS. United Homes shall not
distribute dividends, bonuses or profit participations to officers or
stockholders greater than thirty percent (30%) of year-end, audited,
pre-tax profits generated in any one year.
(c) RATIO OF LIABILITIES TO ADJUSTED NET WORTH. During the
period commencing on the date of the Amendment Agreement and
continuing through and including November 15, 1998, the ratio of
United Homes' total liabilities (reported on a consolidated basis) to
its Adjusted Net Worth shall not exceed 6.5. to 1.0. During the
period commencing November 16, 1998 and at all time thereafter, the
ratio of United Homes' total liabilities (reported on a consolidated
basis) to its Adjusted Net Worth shall not exceed 5.0 to 1.0.
(d) POSITIVE NET INCOME. The Borrower shall ensure that the
pre-tax net income for the Borrower, on a consolidated basis, shall
not be negative for any two consecutive calendar quarters, nor
negative for any four consecutive calendar quarters on a cumulative
basis.
Section 3. ALLOCATIONS OF PROJECT LOAN AMOUNT AND ABF LOAN AMOUNT.
Commencing on the date of this Amendment Agreement and continuing until such
time as the Borrower makes an election to adjust the allocations of the Project
Loan Amount and the ABF Loan Amount as set forth in SECTION 2.15 of the Project
Loan Agreement and SECTION 2.17 of the ABF Loan Agreement, the allocations of
the Project Loan Amount and the ABF Loan Amount shall be as set forth in the
following table:
<TABLE>
<CAPTION>
CURRENT
PROJECT ALLOCATION
<S> <C>
Project Loan:
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Casa del Cielo $2,053,823
Gregg's Landing 1,975,318
Sienna Point, IL 741,768
Tiffany Farms/Antioch 2,236,367
Waukegan/Bayberry 2,234,444
Woodside Green 657,246
Bayberry, MI 747,234
Sienna Point, MI 1,045,706
Harvest Run 2,291,605
Cave Creek 1,500,000
Desert Springs 2,700,000
SUBTOTAL $18,183,511
ABF Loan 36,816,489
TOTAL $55,000,000
Letters of Credit(1) $1,811,842.25
</TABLE>
(1) The amount allocated to letters of credit shall be in addition to
the total of the Project Loan Amount and the ABF Loan Amount, provided that the
total of the letters of credit shall not exceed $2,000,000.
The allocations set forth in the preceding table replace in their entirety the
allocations set forth in that certain letter from the Lender to the Borrower
dated May 13, 1998, which letter shall be of no further force or effect.
Section 4. REPRESENTATIONS AND WARRANTIES OF BORROWER. The Borrower
represents, warrants and agrees that (i) there exists no Potential Default or
Event of Default under the Project Loan Documents, the ABF Loan Documents or the
documents relating to the Working Capital Loan, (ii) the Project Loan Documents,
the ABF Loan Documents and the documents relating to the Working Capital Loan
continue to be the legal, valid and binding agreements and obligations of the
Borrower enforceable in accordance with their terms, as modified herein, (iii)
the Lender is not in default under any of the Project Loan Documents, the ABF
Loan Documents or the documents relating to the Working Capital Loan, (iv) the
Borrower has no offset or defense to its performance or obligations under any of
the Project Loan Documents, the ABF Loan Documents or the documents relating to
the Working Capital Loan, (v) the representations contained in the Project Loan
Documents, the ABF Loan Documents and the documents relating to the Working
Capital Loan remain true and accurate in all respects, and (vi) there has been
no Material Adverse Change from the date of any of the Project Loan Documents,
the ABF Loan Documents or the documents relating to the Working Capital Loan to
the date of this Modification Agreement.
Section 5. EFFECT ON PROJECT LOAN DOCUMENTS, ABF LOAN DOCUMENTS AND
DOCUMENTS RELATING TO THE WORKING CAPITAL LOAN. Except as hereby expressly
modified, the Project Loan Documents, the ABF Loan Documents and the documents
relating to the Working Capital Loan shall otherwise be unchanged and shall
remain in full force and effect, and the Borrower ratifies
<PAGE>
and reaffirms all of its obligations thereunder.
Section 6. EXECUTION IN COUNTERPART. This Amendment Agreement may
be executed in any number of counterparts and by the different parties hereto
on separate counterparts, each of which when so executed and delivered shall
be an original, but all of which shall together constitute one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, Borrower has executed this Amendment Agreement and
Lender has consented to this Amendment Agreement as of the date first written
above by and through their duly authorized representatives.
BORROWER:
UNITED HOMES, INC.,
an Illinois corporation
By:
Printed Name:
Title:
UNITED HOMES, INC.,
an Arizona corporation
By:
Printed Name:
Title:
UNITED HOMES OF ILLINOIS, INC.,
an Illinois corporation
By:
Printed Name:
Title:
UNITED HOMES OF MICHIGAN, INC.,
a Michigan corporation
By:
Printed Name:
Title:
<PAGE>
The Lender consents to foregoing
terms of this Amendment Agreement.
LENDER:
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By:
Printed Name:
Title:
<PAGE>
SECOND AMENDMENT AGREEMENT
THIS SECOND AMENDMENT AGREEMENT dated as of _______________, 199_ is
entered into by and among:
UNITED HOMES, INC., an Illinois corporation;
UNITED HOMES, INC., an Arizona corporation;
UNITED HOMES OF ILLINOIS, INC., an Illinois corporation and
UNITED HOMES OF MICHIGAN, INC., a Michigan corporation,
(collectively, the "Borrower");
EDWARD F. HAVLIK and VIRGIL W. OWINGS
(collectively, the "Guarantors" and individually a "Guarantor"); and
RESIDENTIAL FUNDING CORPORATION, a Delaware corporation
(the "Lender").
W I T N E S S E T H, That:
A. WHEREAS, Lender originally made a revolving acquisition,
development and construction loan to Borrower in the original principal
amount of Twenty-Five Million Dollars ($25,000,000.00) (the "Project Loan")
pursuant to the terms of the Loan Agreement dated as of May 28, 1996 (the
"Original Project Loan Agreement") and in connection therewith, Borrower has
made, executed and delivered to Lender that certain Promissory Note dated
May 28, 1996 (the "Original Project Note") payable to the order of Lender in
the principal amount of Twenty-Five Million Dollars ($25,000,000.00).
B. WHEREAS, Lender originally made a revolving construction loan to
Borrower in the original principal amount of Twenty-Five Million Dollars
($25,000,000.00) (the "ABF Loan") pursuant to the terms of the Loan Agreement
dated as of March 14, 1997 (the "Original ABF Loan Agreement") and in
connection therewith, Borrower has made, executed and delivered to Lender
that certain Revolving Promissory Note dated March 14, 1997 (the "Original
ABF Note") payable to the order of Lender in the principal amount of
Twenty-Five Million Dollars ($25,000,000.00).
C. WHEREAS, Lender has made a working capital loan to Borrower in the
principal amount of Seven Million Dollars ($7,000,000.00) (the "Working
Capital Loan") and in connection therewith Borrower has made, executed and
delivered to Lender that certain Promissory Note dated June 9, 1998 (the
"Present Working Capital Note") payable to the order
<PAGE>
of Lender in the principal amount of Seven Million Dollars ($7,000,000.00).
D. WHEREAS, Borrower and Lender have executed and delivered an
Amendment Agreement dated June 9, 1998 (the "First Amendment") providing,
among other things, for (a) the increase to $55,000,000.00 of the maximum
aggregate principal amount of the Project Loan and ABF Loan together, (b) the
amendment and modification as set forth therein of the Original Project Loan
Agreement, the Original ABF Loan Agreement, the Original ABF Note and the
Original Project Note (as so amended, respectively, the "Present Project Loan
Agreement", the "Present ABF Loan Agreement" and "Present ABF Note"; and (c)
the amendment and modification of certain other instruments evidencing,
governing, securing or related to the Project Loan, the ABF Loan and the
Working Capital Loan (generally, the "Present Ancillary Loan Documents")
E. WHEREAS, Borrower has requested Lender to modify and amend the
Present Project Loan Agreement, the Present ABF Loan Agreement, the Present
Working Capital Note and the Present Ancillary Loan Documents, in the manner
and to the extent hereinafter set forth.
F. WHEREAS, Guarantors have heretofore executed and delivered to
Lender a certain Guaranty Agreement (the "Guaranty") wherein the Guarantors,
jointly and severally, guarantee the Present Working Capital Loan and all
amounts payable under and agreements of Borrower pursuant to the Present
Working Capital Note.
G. WHEREAS, Borrower and Guarantors have requested Lender to execute
and deliver this Second Amendment Agreement to modify and amend certain of
the provisions of the Present Project Loan Agreement, the Present ABF Loan
Agreement, the Present Working Capital Note and the Present Ancillary Loan
Documents and instruments relating thereto, all in the manner and to the
extent hereinafter set forth.
H. WHEREAS, Lender is willing to make the requested amendment upon
and subject to the terms and conditions set forth in this Second Amendment
Agreement, including the amendment and modification of the Guaranty as set
forth herein.
NOW, THEREFORE, in consideration of the RECITALS and of the covenants
and agreements herein contained, and for Ten Dollars ($10.00) and other good
and valuable considerations in hand paid by each party hereto to the other,
the receipt and sufficiency of all of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. RECITALS. The foregoing recitals hereto constitute part of this
Agreement.
2. CERTAIN DEFINITIONS. For the purposes hereof, except as otherwise
set forth herein, terms defined in the First Amendment, when used herein,
shall have the meanings so defined, except that:
(a) All references to the Project Loan Agreement shall be deemed
references to the Present Project Loan Agreement as modified and amended
by this Second
<PAGE>
Amendment and as the same may be further amended or modified from time
to time;
(b) All references to the ABF Loan Agreement shall be deemed
references to the Present ABF Loan Agreement as modified and amended by
this Second Amendment, and as the same may be further amended or modified
from time to time;
(c) All references to the Working Capital Note shall be deemed
references to the Present Working Capital Note as hereby modified and
amended and as the same may hereafter be modified and amended;
(d) All references to any Ancillary Loan Document shall be deemed
references to such Present Ancillary Loan Document as modified and amended
by this Second Amendment Agreement and as the same may be further amended
or modified from time to time;
(e) "Event of Default" shall include any event or condition which
constitutes a default hereunder.
3. CONCERNING THE WORKING CAPITAL LOAN. It is agreed that:
(a) As at the date hereof, the outstanding principal balance of the
Working Capital Loan is $_________;
(b) Notwithstanding anything to the contrary contained in the
Working Capital Loan, from and after the date hereof Lender shall have no
obligation to make any other or further advances or disbursements (or
re-advances or re-disbursements) of the Working Capital Loan, including but
not limited to, any re-advance or re-disbursement of amounts heretofore or
hereafter repaid upon the Working Capital Loan;
(c) Borrower hereby covenants and agrees that Borrower shall pay to
Lender as a mandatory principal payment upon the Working Capital Loan:
(i) $2,000,000.00 upon the closing of the sale of Borrower's
property known as Sierra Vista;
(ii) $2,000,000.00 upon the sale or transfer by Borrower of
its interest in the Agreement of Purchase and Sale referred to in
item 6 of Schedule I hereto or sale by Borrower of the property
described in said Agreement of Purchase and Sale after the same has
been acquired by or for the benefit of Borrower;
(iii) The entire outstanding principal balance of the Working
Capital Loan in the event that Borrower shall obtain a credit
facility (the "Zito Facility") from Michael Zito, Strategic Capital
Funding, Inc. or any entity affiliated with them or either of them
(generally "Zito");
provided that in the event that the Working Capital Loan is paid in full
prior to June 30,
<PAGE>
1999 and no Event of Default has occurred and is continuing, Borrower
shall have no obligation to pay to Lender any amount derived from the
closing of the transactions referred to in clauses (i), (ii) and (iii)
above;
(d) Subject to compliance by Borrower with all of the Conditions
Precedent set forth in Section 8 hereof, the Maturity Date of the Working
Capital Loan shall be extended to June 30 1999;
(e) The provisions of this Section 3, other than the provisions of
Subsection (d) hereof shall take effect immediately; and the provisions of
Subsection (d) hereof shall take effect only on the Compliance Date
specified in Section 8 hereof, if it shall occur;
(f) Borrower hereby restates all of Borrower's representations and
warranties contained in the Working Capital Note, except to the extent
modified herein, as fully and with the same effect as if set forth herein
and made on the date hereof;
(g) The Working Capital Note shall be deemed modified and amended
to give effect to the foregoing provisions of this Section.
4. CONCERNING THE ABF LOAN. The parties hereto agree that:
(a) Lender has executed and delivered to and with Borrower and
Guarantors a certain letter agreement dated December 22, 1998 (the "Letter
Agreement") which Letter Agreement provides that during the period (the
"Interim Period") commencing December 4, 1998 and ending on the Compliance
Date (if such shall occur) or January 15, 1999 (whichever first occurs),
the Borrowing Base Amount for the ABF Loan is to be calculated as if the
percentage "75%" appearing in clause 3 of Section 3.6(b) of the ABF Loan
Agreement reads "80%" and the percentage "80%" appearing in clause 4 of
said Section 3.6(b) reads "85%"; provided that Borrower and Guarantors
hereby agree that such agreement on the part of Lender was a matter of
grace and that Lender was under no obligation so to do and is under no
obligation to continue so to do;
(b) Subject to the satisfaction of the Conditions Precedent prior
to the Satisfaction Date, during the period (the "Extension Period")
commencing on the Compliance Date and continuing until the date (the
"Termination Date") which is the earlier of an Event of Default or June 30,
1999:
(i) The percentage "75%" appearing in clause 3 of Section 3.6
of the ABF Loan Agreement shall be deemed to read "85%";
(ii) The percentage "80%" appearing in clause 4 of said
Section 3.6 shall be deemed to read "90%";
(c) In all events the modifications to Section 3.6 of the ABF Loan
Agreement effected pursuant to the Letter Agreement and pursuant to Section
(b) above shall terminate on the Termination Date, and thereafter the
calculation of the Borrowing Base
<PAGE>
Amount shall be as set forth in Section 3.6 of the Present ABF Loan
Agreement without reference to the Letter Agreement and Subsection (b)
above;
(d) Notwithstanding anything to the contrary in the Present ABF
Loan Agreement, in the Letter Agreement or herein contained, in the event
that the Zito Credit Facility shall be closed, Lender, in its sole and
absolute discretion, may elect to modify, change or adjust the percentages
and manner of calculation of the Borrowing Base Amount including the
percentages set forth in clauses 3 and 4 of Section 3.6 of the Present ABF
Loan Agreement, as modified in the Letter Agreement and in Subsection (b)
above, to such method of calculation and to such percentages as Lender may
in its sole discretion deem appropriate; provided that such percentages
shall not be less favorable to Borrower than as set forth in said clauses 3
and 4 of Section 3.6 of the Present ABF Loan Agreement.
(e) The provisions of this Section 4, other than the provisions of
Subsection (b) hereof shall take effect immediately; and the provisions of
Subsection (b) hereof shall take effect upon the Compliance Date, if it
shall occur;
(f) Notwithstanding anything to the contrary contained in the
Present ABF Loan Agreement, Lender shall not be obligated or required to
make any disbursement of the ABF Loan in connection with any additional
Projects;
(g) Borrower hereby restates all of Borrower's representations and
warranties contained in the Present ABF Loan Agreement, except to the
extent modified herein, as fully and with the same effect as if set forth
herein and made on the date hereof; and
(h) The Present ABF Loan Agreement shall be deemed amended to give
effect to the foregoing provisions.
5. CONCERNING THE PROJECT LOAN AGREEMENT. The parties hereby agree
that:
(a) Notwithstanding anything to the contrary contained in the
Present Project Loan Agreement, Lender shall not be obligated or required
to make any disbursement of the Project Loan in connection with any
additional Projects;
(b) The provisions of Section 5(a) hereof shall take effect
immediately;
(c) Borrower hereby restates all of Borrower's representations and
warranties contained in the Present Project Loan Agreement, except to the
extent modified herein, as fully and with the same effect as if set forth
herein and made on the date hereof; and
(d) The Present Project Loan Agreement shall be deemed modified and
amended to give effect to the foregoing provisions.
6. CONCERNING FINANCIAL COVENANTS. Subject to the satisfaction of the
Conditions Precedent on or prior to the Satisfaction Date, then, notwithstanding
anything to the contrary
<PAGE>
contained in the Present Project Loan Agreement and the ABF Loan Agreement:
(a) During the Extension Period, the ratio (the "Liabilities/Net
Worth Ratio") of Borrower's total liabilities (reported on a consolidated
basis) to its Adjusted Net Worth shall be equal to or less than 6.25 to
1.00, notwithstanding the provisions of Section 5.4(c) of each of the
Present Project Loan Agreement and Present ABF Loan Agreement; provided
that from and after the Termination Date, such ratio shall not exceed 5.0
to 1.0;
(b) Notwithstanding the fact that the making of the Special Loans
(hereinafter defined) may violate the restrictions imposed upon Borrower by
Section 5.3 of each of the Present Project Loan Agreement and Present ABF
Loan Agreement, Lender hereby waives any present such violation (if the
same has occurred) and agrees that the outstanding principal amount of
Loans receivable by Borrower as described as Item 1 in Schedule I hereto
(the "Special Loans"), not exceeding $7,972,471 in principal amount, may be
included, at such values as may be approved by Lender, as assets of
Borrower for the purpose of determining its compliance with the financial
covenants (the "Financial Covenants") set forth in each of the Project Loan
Agreement and ABF Loan Agreement; provided that Borrower shall not make any
redisbursements, replacements, extensions, increases or any other changes
in any of the Special Loans or any instrument evidencing or securing the
same and shall not make any other or further transfers, pledges or loans in
violation of the provisions of Section 5.4 of each of the Project Loan
Agreement and ABF Loan Agreement;
(c) From and after the date hereof:
(i) Minority interests owned by Borrower in other entities,
valued as may be approved by Lender, may be included as equity of the
Borrower for the purposes of calculating the Liabilities/Net Worth
Ratio
(ii) In all events the subordinated debt incurred by Borrower
pursuant to the terms of a public offering completed through Miller &
Schroeder Financial, Inc. shall be included as a debt of the Borrower
for the purpose of any calculation relating to Financial Covenants;
(d) After the Termination Date, Borrower shall comply with each of
the Financial Covenants contained in the Present Project Loan Agreement and
Present ABF Loan Agreement, without regard to the modifications and
amendments provided for in this Section 6;
(e) The Present Project Loan Agreement and the Present ABF Loan
Agreement shall be deemed modified and amended in the manner and to the
extent set forth in this Section on the Compliance Date, but only if the
Compliance Date shall occur.
7. AGREEMENT OF GUARANTORS. The Guarantors, and each of them, jointly
and severally hereby agree as follows, to take effect immediately:
<PAGE>
(a) The Guarantors hereby consent to the execution and delivery by
the Borrower of the Letter Agreement and this Second Amendment Agreement,
and jointly and severally agree that the Guaranty as hereby amended shall
be and remain in effect and shall not be modified, amended, affected or
terminated by reason of the execution and delivery hereof or the carrying
out of the terms, provisions and agreements contained herein;
(b) Guarantors represent and warrant that the execution and
delivery of the Letter Agreement, the modification and amendment of the
Present Working Capital Note, the Present Project Loan Agreement, the
Present ABF Loan Agreement and Present Ancillary Loan Documents as provided
for herein, and the agreement of Lender to make and advance additional
amounts of the ABF Loan pursuant to the Borrowing Base Amount calculated as
set forth in the Letter Agreement and in Section 4 hereof are and will be
of substantial economic benefit to the Guarantors and each of them;
(c) Guarantors and each of them jointly and severally agree that
the Guaranty shall and will hereafter, except as released as provided in
Section 11 hereof, constitute a guarantee not only of the Working Capital
Loan but also of all outstanding amounts of the Project Loan and the ABF
Loan now or hereafter outstanding pursuant to the Project Loan Agreement
and the ABF Loan Agreement;
(d) Guarantors and Lender hereby agree that to give effect to the
provisions of this Section 7, (i) clause A of the Recital to the Guaranty
is hereby deleted in its entirety, and there is substituted in lieu thereof
a new clause A to read as follows:
"A. UNITED HOMES, INC., an Illinois corporation; UNITED HOMES, INC.,
an Arizona corporation; UNITED HOMES OF ILLINOIS, INC., an Illinois
corporation and UNITED HOMES OF MICHIGAN, INC., a Michigan
corporation, (collectively, the "Borrower") has or may become
indebted to Lender for one or more loans (collectively, the "Loan")
made or to be made by Lender to Borrower pursuant to one or more of
the following instruments (together, whether one or more and however
termed, called the "Note"):
(a) Borrower's Note dated June 9, 1998 in the stated
principal sum of $7,000,000 payable to Lender's order, as
amended by the Amendments hereinafter referred to;
(b) Loan Agreement dated May 28, 1996 between Borrower and
Lender, as amended by the Amendments and Loan Agreement dated
March 14, 1997, as amended by the amendments, and all notes,
security instruments and other documents delivered in
connection therewith, relating to two separate loans to
aggregate in all not to exceed $55,000,000, made and to be made
by Lender to Borrower and known, respectively, as the Project
Loan and the ABF Loan;
<PAGE>
(c) Amendment Agreement dated June 9, 1998, Letter Agreement
dated December 22, 1998 and Second Amendment Agreement dated
__________. 199_ (together, the "Amendments") relating to the
instruments referred to in clauses (a) and (b) above.";
and (ii) Section 2(c) of the Guaranty is hereby deleted in its entirety;
(e) In all other respects the Guaranty as hereby amended is
approved ratified and confirmed; it being intended that from and after the
date hereof, and whether or not the Conditions Precedent shall be satisfied
the Guaranty, as amended hereby, shall be the joint and several guaranty of
Guarantors of the aggregate of the Working Capital Loan, ABF Loan and
Project Loan as may be now or hereafter outstanding and of all obligations
and undertakings evidencing, securing and governing the same, as fully and
with the same effect as if the same had been originally referred to and
specified in the Guaranty as Guaranteed Debt;
(f) Guarantors hereby restate herein all of their representations,
warranties, waivers and agreements set forth in the Guaranty as fully and
with the same effect as if set forth herein at length and made on the date
hereof.
8. CONDITIONS PRECEDENT. The following shall be conditions precedent
(the "Conditions Precedent") to the effectiveness of certain provisions hereof;
and such Conditions Precedent shall be satisfied, if at all, on or before
January 15, 1999 (the "Satisfaction Date"; and the date on or prior to the
Satisfaction Date upon which the Conditions Precedent shall be satisfied and
complied with being called the "Compliance Date"):
(a) Borrower shall or shall cause the owner thereof to mortgage,
pledge, hypothecate and grant a security interest to Lender in all of the
property, rights and interests (the "Additional Collateral") described in
Schedule I attached hereto and made a part hereof, all pursuant to
instruments in form and substance satisfactory to Lender (the "Additional
Collateral Documents");
(b) Borrower shall deliver to Lender evidence that the Additional
Collateral Documents, including acknowledgments of third parties,
constitute and create a valid, first and perfected lien and security
instruments in the Additional Collateral in favor of Lender;
(c) Borrower shall deliver to Lender such evidence as Lender may
require concerning the due and lawful power and authority of Borrower, the
Guarantors and each other party executing this Agreement and any Additional
Collateral Document, to execute and deliver this Agreement and/or such
Additional Collateral Documents and to pledge the Additional Collateral as
provided for herein and therein;
(d) Borrower shall deliver to Lender a favorable opinion of
counsel acceptable to Lender, and in form and substance acceptable to
Lender, confirming the corporate or other entity existence of each
constituent of Borrower and each party to any
<PAGE>
of the Additional Collateral Documents, the due execution and delivery
thereof by each such person and entity, the valid and binding effect
thereof, and as to all matters relating to the transactions contemplated
herein;
(e) Borrower shall deliver to Lender such other agreements,
certificates and documents relating to the transactions contemplated herein
as Lender may in its sole and absolute discretion require;
(f) Borrower shall have paid all costs and expenses (including
legal fees and disbursements) incurred by Lender in connection with the
preparation of the Letter Agreement, this Second Amendment Agreement and
the transactions contemplated therein and herein;
provided that Lender may temporarily defer the requirement of satisfaction of
one or more of the foregoing Conditions Precedent and during the period of
deferral may implement the provisions hereof which require or are subject to the
satisfaction of Conditions Precedent, but Lender may withdraw any such deferral
at any time prior to satisfaction of any deferred Condition Precedent and
require full satisfaction of all Conditions Precedent as a condition of any
further implementation of any provision hereof which requires or is subject to
the satisfaction of Conditions Precedent.
9. FURTHER ASSURANCES. Borrower hereby covenants and agrees to and for
the benefit of Lender to execute and deliver to Lender and to furnish to Lender
such further and additional instruments (including policies of title insurance
and endorsements thereto) as Lender may in its sole discretion require to
confirm the existence and continued priority of the liens of all mortgages,
deeds of trust and Additional Collateral Documents securing all or any part of
the Working Capital Loan, Project Loan and/or ABF Loan,as may be now or at any
time hereafter outstanding (the "Loan Security Documents").
10. NO WAIVERS. No waivers of any defaults or non-compliance of
obligations or agreements of Borrower under the Working Capital Note, Project
Loan Agreement, ABF Loan Agreement or Ancillary Loan Agreement shall be deemed
made or given by virtue of the execution and delivery hereof by Lender, except
to the extent specifically set forth herein; nor shall any specific waiver
provided for herein constitute a waiver of any subsequent Event of Default
whether of the same or different nature.
11. RELEASE OF COLLATERAL. Lender hereby agrees that upon Borrower's
written request it will release the Additional Collateral described in items 1
to 4 (both inclusive) of Schedule I hereto and release the Guarantors from their
obligations under the Guaranty, as hereby amended, in the event that at any time
on or before the Termination Date all of the following conditions shall be
complied with:
(a) The Working Capital Note is repaid in full;
(b) No Event of Default exists; and
<PAGE>
(c) The outstanding balance of the Project Loan and ABF Loan shall
not exceed in the aggregate the amount permitted to be borrowed by Borrower
in accordance with the provisions of the Present Project Loan Agreement and
Present ABF Loan Agreement, with, for periods subsequent to the Termination
Date (i) Borrower's Liabilities/Net Worth Ratio not to exceed 5.0 to 1.0
and (ii) the Borrowing Base Amount calculated as set forth in Section 4(c)
hereof (that is to say; the Borrowing Base Amount for the ABF Loan is to be
calculated as if the percentage "75%" appearing in clause (3) of Section
3.5(b) of the ABF Loan Agreement remains "75%" and the percentage "80%"
appearing in clause (4) of said Section 3.5(b) remains "80%").
12. COSTS AND EXPENSES. Borrower hereby agrees to pay and/or to
reimburse Lender for payment of, any and all costs and expenses (including legal
fees and disbursements) incurred by Lender in connection with the preparation
and implementation of the Letter Agreement, this Agreement and the Additional
Collateral Documents and the consummation and implementation of the transactions
contemplated hereby and thereby.
13. CONTINUING PRIORITY. In the event by virtue of any of the terms,
provisions and conditions of this Second Amendment Agreement, any lien upon any
property securing the Working Capital Loan, the Project Loan and/or the ABF
Loan, otherwise junior in priority to any of the Loan Security Documents, this
Second Amendment Agreement shall, NUNC PRO TUNC, be null and void without any
further action of the parties hereto to the fullest extent as if this Second
Amendment Agreement had never been executed, to the end that the lien and
priority of the Loan Security Documents shall not be impaired; provided that:
(a) The provisions of Section 7 hereof shall remain in effect as
independent covenants and the Guaranty shall be deemed amended as provided
for therein; and
(b) The provisions of Section 14 hereof shall remain in effect as
independent covenants.
14. RELEASE. Borrower and Guarantors represent, acknowledge and agree as
follows:
(a) Borrower and Guarantors acknowledge that Lender has duly and
timely performed and observed all of the terms, conditions and obligations
on its part to be performed and observed under and pursuant to the Working
Capital Note, the Project Loan Agreement, the ABF Loan Agreement and the
Ancillary Loan Documents at all times to and including the date of
execution and delivery hereof; and
(b) Each constituent of the Borrower and each Guarantor, and on its
or his own behalf and on behalf of all persons claiming by, through or
under them, or any of them, hereby remises, discharges and acquits Lender
and its shareholders, directors, agent and employees (the "Released
Parties") of and from any and all claims, demands, actions, causes of
action, obligations and liabilities of any kind and nature whatsoever which
exists, may exist or may hereafter exist by reason of any action or
inaction of the Released Parties taken or omitted to be taken by any one or
more of the Released Parties
<PAGE>
on or prior to the date hereof in connection with the Working Capital
Loan, the Project Loan or the ABF Loan, or any instrument evidencing,
securing or governing the same, including, but not limited to, the
Present Working Capital Note, the Present Project Loan Agreement, the
Present ABF Loan Agreement and the Present Ancillary Loan Documents; and
(c) The provisions of this Section 14 shall remain in effect and
shall survive the termination of this Second Amendment Agreement.
15. CONCERNING THE LETTER AGREEMENT. If and to the extent any provision
of the Letter Agreement shall conflict with any provision hereof, the provisions
hereof shall be controlling.
16. CONFIRMATION. Except to the extent herein specifically set forth,
all parties hereto hereby confirm and reaffirm their respective agreements and
undertakings contained in the Present Working Capital Note, the Present Project
Loan Agreement, the Present ABF Loan Agreement, the Present Ancillary Loan
Documents and the Guaranty, as hereby modified and amended.
17. NOTICES. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively made and given
when personally delivered, when transmitted by facsimile, the next business day
after delivery to a reputable overnight courier (e.g. FedEx, Purolator, etc.) or
three days after having been deposited in the United States Mail, certified
mail, postage prepaid, return receipt requested, addressed as set forth in
Section 7.2 of the Original ABF Loan Agreement; except that all notices to
Guarantors shall be sent to the address of Borrower as therein set forth.
18. BINDING EFFECT. The provisions hereof shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
19. TIME. Time is of the essence hereof and of each of the Working
Capital Note, the Project Loan Agreement, the ABF Loan Agreement, the Guaranty
and the Ancillary Loan Documents.
20. EXECUTION IN COUNTERPARTS. This Second Amendment Agreement my be
executed in any number of counterparts and by he different parties hereto on
separate counterparts, each of which when os executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
Agreement to be duly executed all on and as of the day, month and year first
above written.
UNITED HOMES, INC., an Illinois corporation;
By: _____________________________________
Printed Name: ____________________________
Title: ___________________________________
UNITED HOMES, INC., an Arizona corporation;
By: _____________________________________
Printed Name: ____________________________
Title: ___________________________________
UNITED HOMES OF ILLINOIS, INC., an Illinois
corporation
By: _____________________________________
Printed Name: ____________________________
Title: ___________________________________
UNITED HOMES OF MICHIGAN, INC., a Michigan
corporation,
By: _____________________________________
Printed Name: ____________________________
Title: ___________________________________
_________________________________________
EDWARD F. HAVLIK
_________________________________________
VIRGIL W. OWINGS
RESIDENTIAL FUNDING CORPORATION, a Delaware
corporation
By: _____________________________________
Printed Name: ____________________________
Title: ___________________________________
c:\wpwindoc/rfc/united\2nd-amd.v3/
<PAGE>
SCHEDULE I TO SECOND AMENDMENT AGREEMENT
The following is the description of the Additional Collateral to be delivered
to Lender, together with appropriate instruments of assignment in all
respects satisfactory to Lender, as provided for in the foregoing Second
Amendment Agreement.
ITEM 1.
All of the rights and interests of payee in and under the following Promissory
Notes:
Demand Promissory Note dated September 10, 1997 in the amount of
$1,032,000.00 made by Mirage LLC payable to the order of United
Homes, Inc.
Demand Promissory Note dated September 22, 1997 in the amount of
$2,377,000.00 made by United Round Lake Land Development LLC payable
to the order of United Homes, Inc.
Promissory Note dated September 30, 1998 in the amount of $4,563,471.00
made by United Development Management Company payable to the order
of United Homes, Inc. due on the first day of the month which is
fifteen (15) months after the month succeeding the month in which
such Promissory Note is dated.
provided that in connection with the foregoing Notes (a) each Note, duly
endorsed in blank for transfer by the payee thereof shall be delivered to
Lender; (b) each maker ("Maker") thereof shall consent to and acknowledge the
collateral assignment and transfer thereof to Lender; and (c) each Maker
shall agree to pay to Lender the first monies received by such Maker from the
real estate project owned by such Maker, prior to paying any other obligation
of such Maker for borrowed money and prior to making any distribution to
shareholders or affiliates of such Maker.
ITEM 2.
The assignment to Lender by each Maker of the Notes described in Item 1 above
of all of its beneficial and economic interest in and monies to be received
from each real estate project owned by such Maker.
<PAGE>
ITEM 3.
An assignment by United Homes, Inc., as builder ("Builder") to Lender of all
of its rights and interest under that certain Master Sale and Rental
Agreement dated February 11, 1998 ("National Agreement") between Builder and
National Model Homes, Inc. ("National"), including, but not limited to, all
monies due and notes payable to Builder pursuant to the National Agreement,
together with (a) the acknowledgment of National of such assignment,(b) the
agreement of National to pay to Lender all amounts payable to Builder
pursuant to the National Agreement, (c)the agreement by National not to look
to Lender for the performance by Lender of any of Builder's agreements or
obligations under the National Agreement and (d) the certification by
National of amounts due Builder under the National Agreement.
ITEM 4.
The agreement by each shareholder ("Shareholder") of each constituent of
Borrower ("Constituent") to pledge and deliver all of such Shareholder's
shares of capital stock of such Constituent to Lender, in each case duly
endorsed in blank for transfer, which pledge and delivery shall be made
either (a) concurrently with the execution and delivery of the foregoing
Second Amendment Agreement as to all shares not subject to a pledge to Heller
Financial, Inc. (the "Existing Pledgee") and (b) immediately following the
release by Existing Pledgee of any such shares pledged to it; provided that
each Constituent of Borrower shall acknowledge the assignment and pledge made
and to be made as aforesaid.
ITEM 5.
An assignment executed by Borrower, the Guarantors and all officers,
directors, shareholders and affiliates of Borrower and Guarantors (including
VPA Ltd., an Illinois corporation, of which Guarantors are the sole
shareholders and directors) of their respective rights, economic interests
and monies receivable from Victorian Park Associates whether pursuant to the
Agreement of Limited Partnership thereof, pursuant to the Order Confirming
Final Plan entered in the matter entitled, "In Re: Victorian Park Associates,
92 B 25140 in the United States Bankruptcy Court for the Northern District of
Illinois, Eastern Division, or otherwise.
ITEM 6.
The assignment to Lender by United Homes, Inc., as purchaser ("Purchaser") of
all of its rights and interests in and under that certain Agreement of
Purchase and Sale dated October 20, 1997 between Purchaser and Angeles
Mortgage Investment Trust, as seller ("Angeles") relating to the purchase by
Purchaser of approximately 200 acres of vacant land located at Highway 301
and Erie Road Manatee County, Florida, provided that (a) Lender shall not be
obligated upon or liable to perform any obligations or agreements of
Purchaser under said Agreement, and (b) Lender may require the consent and
agreement of Angeles as to such assignment and the agreement of Angeles to
accept, but not require, performance by Lender in lieu of performance by
Purchaser under such Agreement.
c:\wpwindoc/rfc/united/sched.1
<PAGE>
Exhibit 10.9
Loan No. 98-163
Woodmere Construction Loan
CONSTRUCTION LOAN AGREEMENT
THIS CONSTRUCTION LOAN AGREEMENT (this "AGREEMENT") is made this 22nd
day of June, 1998 between UNITED-WOODMERE, INC., an Illinois corporation
("BORROWER") and HELLER FINANCIAL, INC., a Delaware corporation ("LENDER").
RECITALS
A. Lender has agreed to make a loan (the "LOAN") to Borrower subject
to the terms and conditions contained herein. The Loan is evidenced by that
certain Promissory Note of even date herewith in the original principal
amount of Thirteen Million Seven Hundred Fifteen Thousand and No/100 Dollars
($13,715,000) (the Note and all amendments thereto and substitutions therefor
are hereinafter referred to as the "NOTE"). The terms and provisions of the
Note are hereby incorporated herein by reference in this Agreement.
B. Borrower is, or on the Closing Date will be, the owner of certain
real property located on the east side of Lemont Road south of 75th Street in
the City of Darien, DuPage County, Illinois, commonly known as "Woodmere" and
more particularly described on EXHIBIT A hereto (the "PROPERTY"). Borrower
shall construct 64 townhouse units (collectively called the "HOMES" and
collectively with all other improvements to be constructed on the Property,
the "IMPROVEMENTS") on said real property. The Property and the Improvements
are sometimes collectively called the "PROJECT."
C. Borrower will use the proceeds of the Loan for the purpose of
constructing the Project.
D. Borrower's obligations under the Loan will be secured by, among
other things, a first priority Mortgage, Assignment of Rents and Security
Agreement of even date herewith (the "MORTGAGE"). This Agreement, the Note,
the Mortgage, the Guaranty, the Security Agreement, the Environmental
Indemnity and any other documents evidencing or securing the Loan or executed
in connection therewith, and any modifications, renewals and extensions
thereof, are referred to herein collectively as the "LOAN DOCUMENTS."
E. An index of defined terms appears on the attached SCHEDULE I.
NOW, THEREFORE, in consideration of the foregoing and the mutual
conditions and agreements contained herein, the parties agree as follows:
<PAGE>
ARTICLE I THE LOAN
1.1. DISBURSEMENTS. Subject to and upon the terms, conditions and
limitations contained in this Agreement, Lender agrees to lend, and Borrower
agrees to borrow and take down, the Loan, to be evidenced by the Note. All
proceeds of the Loan shall be advanced against the Note as provided in this
ARTICLE I and shall be used by Borrower to pay for Project Costs as contained
in the Project Budget. The principal amount actually owing on the Note from
time to time shall be the aggregate of all advances theretofore made by the
Lender against the Note less all payments theretofore made on the principal
of the Note.
1.1.1. INITIAL FUNDING. Subject to the satisfaction of the
conditions set forth in ARTICLE III of this Agreement, on the Closing Date,
Lender shall disburse to Borrower the Initial Funding Amount from the
proceeds of the Loan, which shall be used to repay in full all amounts
outstanding (including without limitation, the principal balance thereof),
under that certain $25,000,000 revolving credit loan (the "ABF") made by
GENEL Company, Inc., an Oregon corporation ("GENEL"), pursuant to that
certain Revolving Credit Agreement dated as of May 30, 1995 between United
Homes, Inc., an Illinois corporation ("UNITED HOMES") and Genel, which
revolving credit loan and Revolving Credit Agreement were previously assigned
by Genel to Lender. The "INITIAL FUNDING AMOUNT" is an amount equal to the
aggregate of (a) $5,511,748.29 (which is the total outstanding principal
balance and accrued and unpaid interest under the ABF as of the date hereof)
PLUS (b) per diem interest of $1,436.56 for each day after the date hereof
through the Closing Date; provided, however, if the Closing Date occurs after
June 30, 1998, the per diem interest for each day from and after July 1, 1998
through the Closing Date shall be recalculated based on the principal balance
of the ABF as of July 1, 1998 and the Base Rate in effect as of July 1, 1998
PLUS (c) the principal amount of any disbursements of loan proceeds made
under the ABF after the date hereof and per diem interest thereon. The
"CLOSING DATE" means the date of disbursement of the Initial Funding Amount.
1.1.2. ADDITIONAL ADVANCES. Subject to the satisfaction of the
conditions set forth in ARTICLE IV of this Agreement and SECTION 1.1.3 below,
Lender shall make additional advances of the Loan to or for the benefit of
Borrower in the manner provided in ARTICLE IV of this Agreement. Additional
Advances may be made on the Closing Date to pay certain trade payables and
other Project Costs then due and payable with respect to the Project.
Notwithstanding the foregoing, Lender shall not be obligated to make any
advances after October 31, 1998.
1.1.3. MAXIMUM OUTSTANDING PRINCIPAL AMOUNT. The maximum amount
which Borrower shall be entitled to have outstanding on the Loan at any given
time shall be $8,000,000.
1.1.4. MAXIMUM LOAN AMOUNT.
(a) In the event the actual amount of the Initial Funding
Amount on the Closing Date is less than the amount calculated under the
provisions of SECTION 1.1.1 above (as a result of payments made on the
outstanding principal balance of the ABF prior to the Closing Date), the
aggregate maximum amount of the Loan that may be borrowed by Borrower
<PAGE>
during the term of the Loan shall be reduced by an amount equal to the amount
by which the actual amount of the Initial Funding Amount on the Closing Date
is less than the amount calculated under the provisions of SECTION 1.1.1
above and in such event, notwithstanding that the stated principal amount of
the Loan under the Loan Documents is $13,715,000, the aggregate amount of the
Loan that may be borrowed by Borrower shall be said reduced amount of the
Loan.
(b) Borrower hereby acknowledges and agrees that the stated
principal amount of the Loan of $13,715,000 is based on total anticipated
remaining revenues from the sale of Homes in the Project as of the date of
this Agreement in the amount of $14,315,000. In the event actual revenues
from the sale of Homes in the Project from and after the date of this
Agreement are less than $14,315,000, the aggregate maximum amount of the Loan
that may be borrowed by Borrower during the term of the Loan shall be reduced
by an amount equal to the amount by which the actual revenues from the sale
of Homes in the Project from and after the date of this Agreement are less
than $14,315,000 and, in such event, notwithstanding that the stated
principal amount of the Loan under the Loan Documents is $13,715,000, the
aggregate amount of the Loan that may be borrowed by Borrower shall be said
reduced amount of the Loan. During the term of the Loan, the amount that may
be borrowed by Borrower shall be reduced as aforesaid based on Lender's
determination from time to time of the anticipated remaining revenues and the
actual revenues from the sale of Homes in the Project as Homes are sold.
1.2. LOAN TERM. The Loan shall mature on December 15, 1998 (the
"MATURITY DATE").
1.3. INTEREST RATE. Borrower shall pay interest on the outstanding
principal balance of the Loan at a floating rate per annum equal to the Base
Rate plus three and three-quarters percent (3.75%) (the aggregate rate
referred to as the "INTEREST RATE"). "BASE RATE" shall mean the rate
published each day in THE WALL STREET JOURNAL for notes maturing three (3)
months after issuance under the caption "Money Rates, London Interbank
Offered Rates (LIBOR)". The Interest Rate for each calendar month shall be
fixed based upon the Base Rate published prior to and in effect on the first
(1st) business day of such month. Interest shall be calculated based on a 360
day year and charged for the actual number of days elapsed.
1.4. PAYMENTS. Borrower shall make interest payments monthly in arrears
on the first (1st) day of each month computed on the outstanding principal
balance of the Loan at the Interest Rate. In addition, in the event the
outstanding balance of the Loan at any time shall exceed $8,000,000, Borrower
shall immediately repay the Loan in the amount of such excess. The
outstanding principal balance of the Loan shall be due and payable on or
before the Maturity Date, or any earlier date on which the Loan shall be
required to be paid in full, whether by acceleration or otherwise.
<PAGE>
1.5. CASH MANAGEMENT SYSTEM.
1.5.1. DISBURSEMENT ACCOUNT. From and after the Closing Date,
Borrower shall maintain Account Number 50060158 (the "DISBURSEMENT ACCOUNT")
in the name of Borrower at American National Bank and Trust Company of
Chicago (the "BANK"), into which Loan proceeds to be funded to Borrower shall
be disbursed from time to time; provided, however, at Lender's option,
disbursements of Loan proceeds may be made through Title Company or shall be
paid by Lender directly to the contractors, subcontractors, laborers and
materialmen to whom payment is owed or shall be made to the Disbursement
Account.
1.5.2. DEPOSITORY ACCOUNT. All Project receipts shall be
deposited into the following account of Lender or such other place as Lender
may from time to time designate (the "DEPOSITORY ACCOUNT") in accordance with
the provisions of Section 1.5.5 below:
ABA No. 0710-0001-3
Account Number 55-90183
The First National Bank of Chicago NBD
One First National Plaza
Chicago, IL 60670
Reference: Heller Financial, Inc. -
United-Woodmere, Inc.
Lender shall apply such funds transferred to the Depository Account to the
obligations in the order specified in SECTION 1.6 hereof.
1.5.3. NO OTHER ACCOUNTS. Borrower shall not establish or
maintain any depository accounts with Bank or any other bank or financial
institution other than the Disbursement Account and concentration account
number 18092047 in the name of Borrower at Bank, which concentration account
is required by Bank and is linked to the Disbursement Account.
1.5.4. RECEIPT OF PAYMENTS. For purposes only of computing interest
hereunder, all payments shall be applied by Lender against the outstanding
aggregate amount of the Loan on the day payment has been credited by Lender's
depository bank to the Depository Account in immediately available funds.
1.5.5. TRANSFER OF PROJECT RECEIPTS. On or before the Closing
Date, Borrower, Chicago Title Insurance Company ("TITLE COMPANY") and Lender
will enter into a tri-party agreement (the "TRI-PARTY AGREEMENT"). All
closings of sales of Homes shall occur only through an escrow with the Title
Company established pursuant to the Tri-Party Agreement. In accordance with
the provisions of the Tri-Party Agreement, Borrower and Title Company shall
establish an escrow with each buyer of a Home upon execution of a purchase
contract by said buyer with respect thereto. Each deposit made by each said
buyer, all other escrow funds
<PAGE>
paid by said buyer (including, without limitation, any deposits for upgrades
and any other deposits or payments made by said buyer after the opening of
escrow) and all other escrow funds, including, without limitation, said
buyer's closing funds and loan proceeds from third party lenders, shall be
deposited directly into the escrow with Title Company and held therein until
disbursement thereof at the close of escrow in accordance with the provisions
of this Agreement and the Tri-Party Agreement. In the event any escrow funds
are received by Borrower, Borrower shall deposit said escrow funds into the
applicable escrow promptly upon Borrower's receipt thereof. On each day that
a close of an escrow occurs, Title Company shall, in accordance with the
Tri-Party Agreement, wire transfer all escrow funds which are payable to
Borrower at the close of escrow directly to the Depository Account. In the
event any other Project revenues or receipts are received by Borrower,
Borrower shall immediately pay the same to Lender, which shall be deposited
by Lender into the Depository Account upon Lender's receipt thereof.
1.6. APPLICATION OF PAYMENTS. Lender and Borrower agree that Lender
shall apply any and all payments at any time or times hereafter received by
Lender from or on behalf of Borrower, including, without limitation, amounts
transferred to the Depository Account, against the outstanding Loan and the
other obligations of Borrower hereunder and under the other Loan Documents as
provided in the next sentence. Such payments received by Lender shall be
applied upon receipt in the following order: (i) then due and payable fees
and expenses; (ii) then due and payable interest payments; (iii) then
outstanding principal under the Loan; (iv) then to any other due and unpaid
obligations; and (v) any excess shall be held by Lender in the Participation
Reserve. Lender is authorized to, and at its option may, make advances on
behalf of Borrower for payment of all fees, expenses, charges, costs,
principal and interest incurred by Borrower hereunder. Such advances shall
be made when and as Borrower fails promptly to pay when due such fees,
expenses, charges, costs, principal and interest and, at Lender 's option and
to the extent permitted by law, shall be deemed an advance of principal
constituting part of the Loan hereunder.
1.7. NO REBORROWING OF REPAID PRINCIPAL. Borrower agrees that the Loan
is not a revolving loan. Accordingly, advances of principal which are repaid
may not be reborrowed by Borrower.
<PAGE>
1.8. ASSUMPTION OF EQUITY LOAN AND PAYMENT OF PARTICIPATION.
1.8.1. ASSUMPTION OF EQUITY LOAN. As additional consideration
for making the Loan, Borrower hereby assumes the obligations of United Homes
under that certain Loan Agreement (the "EQUITY LOAN AGREEMENT") dated as of
February 6, 1996 by and between Lender and United-Darien Limited Partnership,
an Illinois limited partnership ("UNITED-DARIEN"), as amended by that certain
First Amendment to Loan Documents (the "EQUITY LOAN AMENDMENT") dated as of
March 31, 1997 by and among Lender, Borrower, United-Darien, United Homes and
United Development Management Company, an Illinois corporation, which Equity
Loan Agreement evidences and governs the $3,300,000 loan (the "EQUITY LOAN")
made by Lender to United-Darien and which Equity Loan was assumed by United
Homes under the provisions of the Equity Loan Amendment.
1.8.2. PARTICIPATION.
(a) Without limiting the generality of SECTION 1.8.1 above,
Borrower agrees that it shall distribute "REVENUE" (as defined in the Equity
Loan Agreement as amended by the Equity Loan Amendment) from the Project (as
defined in the Equity Loan Agreement as amended by the Equity Loan Amendment)
in accordance with the provisions of Section 1.8 of the Equity Loan Agreement
as amended by the Equity Loan Amendment and, in connection therewith, shall
pay to Lender the "PARTICIPATION" (as defined in the Equity Loan Agreement as
amended by the Equity Loan Amendment and as further amended by the provisions
of SECTION 1.8.2(b) below) when the Participation is due and payable.
(b) Notwithstanding anything to the contrary in the Equity
Loan Agreement as amended by the Equity Loan Amendment, as additional
consideration for making the Loan, Borrower agrees that the Participation to
be paid to Lender under the Equity Loan shall be an amount equal to the
greater of (i) $285,000 and (ii) 10% of the balance remaining after applying
Revenue to satisfy the distribution requirements of subsections (i) through
(viii) and subsections (ix)(a) and (ix)(b) of Section 1.8 of the Equity Loan
Agreement as amended by the Equity Loan Amendment. Borrower shall pay such
Participation to Lender in accordance with, and when due and payable under,
the provisions of Section 1.8 of the Equity Loan Agreement as amended by the
Equity Loan Amendment and by this SECTION 1.8.2(b).
1.8.3. PARTICIPATION RESERVE. In the event any funds that are
transferred to the Depository Account remain after application thereof by
Lender to the amounts set forth in CLAUSES (i) THROUGH (iv) of SECTION 1.6
above, such excess funds shall be held by Lender as a reserve for the payment
of the Participation (the "PARTICIPATION RESERVE"). The Participation
Reserve may be commingled with the general funds of Lender and shall not be
deemed to be held in trust for the benefit of Borrower. Absent an Event of
Default hereunder or under any of the Loan Documents, or an event which, with
the giving of notice or passage of time would
<PAGE>
constitute an Event of Default, within ninety (90) days after the closing of
the sale of the last Home in the Project, Lender shall disburse the sums held
in the Participation Reserve in the following priority: (x) first to the
payment of Lender's Participation until Lender's Participation is paid in
full, and (y) then, the remainder of the monies deposited in the
Participation Reserve together with interest thereon calculated at the money
market rate of interest available to Lender on deposits of its funds in money
market rate deposit accounts for the period of time in which said monies to
which Borrower is entitled were held in the Participation Reserve, shall be
paid to Borrower in payment of Borrower's balance of the Residual (as defined
in the Equity Loan Agreement as amended by the Equity Loan Amendment). Upon
the occurrence of an Event of Default, the sums held in the Participation
Reserve shall be applied by Lender, at its option, to the Loan and all other
amounts payable by Borrower under the Loan Documents and to that end,
Borrower hereby grants to Lender a security interest in all sums held in the
Participation Reserve.
1.9. PREPAYMENTS OF LOAN. Borrower may prepay the outstanding principal
balance of the Loan in full or in part any time; PROVIDED Borrower pays the
Participation then due Lender.
ARTICLE II
SECURITY
2.1. COLLATERAL. The Loan and all other indebtedness and obligations
under the Loan Documents shall be secured by the following (collectively, the
"COLLATERAL"): (a) the Mortgage, (b) the security interests encumbering the
personal property of Borrower granted under the security agreement by
Borrower in favor of Lender (the "SECURITY AGREEMENT"), (c) the guaranty (the
"UNITED DEVELOPMENT GUARANTY") of United Development Management Company, an
Illinois corporation ("UNITED DEVELOPMENT"), (d) the guaranty (the "HAVLIK
GUARANTY") of Edward F. Havlik ("HAVLIK"), (e) the security interests
encumbering the personal property of United Homes granted under various
security agreements by United Homes in favor of Lender (the "UNITED HOMES
SECURITY AGREEMENTS"), (f) the stock pledges encumbering certain stock owned
by United Homes granted under various pledge agreements by United Homes in
favor of Lender (the "UNITED HOMES PLEDGE AGREEMENTS"), (g) the stock pledges
encumbering certain stock owned by United Development granted under various
pledge agreements by United Development in favor of Lender (the "UNITED
DEVELOPMENT PLEDGE AGREEMENTS"), (h) the mortgage liens granted by United
Homes encumbering certain real property owned by United Homes and (i) any
other collateral or security described in this Agreement or in any of the
other Loan Documents or required by Lender in connection with the Loan.
United Development, Havlik and United Homes are hereinafter collectively
referred to as "OBLIGORS."
<PAGE>
ARTICLE III
CONDITIONS PRECEDENT TO INITIAL FUNDING
Lender's obligation to disburse the Initial Funding Amount is subject to
satisfaction of each of the following conditions:
3.1. LOAN DOCUMENTS. Lender shall have received the following Loan
Documents, all in form and substance satisfactory to Lender:
(a) this Agreement;
(b) the Note;
(c) the Mortgage;
(d) the Security Agreement;
(e) such Uniform Commercial Code financing statements as Lender may
require;
(f) the United Development Guaranty;
(g) the Havlik Guaranty;
(h) a hazardous wastes indemnity agreement ("ENVIRONMENTAL
INDEMNITY"), executed by Borrower and Obligors;
(i) the mortgages granted by United Homes;
(j) the United Homes Security Agreements;
(k) the United Homes Pledge Agreements;
(l) the United Development Pledge Agreements;
(m) the Tri-Party Agreement;
(n) a bank agency agreement among Borrower, Lender and the Bank; and
(o) an assignment of distributions granted by Havlik.
<PAGE>
3.2. TITLE POLICY AND ENDORSEMENTS. Lender shall have received a
commitment for title insurance in an amount and issued by Title Company. On
the Closing Date, Lender shall receive a mortgagee title insurance policy
("TITLE POLICY"), acceptable to Lender, insuring marketability of title and
insuring that the lien of the Mortgage is a valid first lien on the Project,
subject only to exceptions to title approved by Lender. The Title Policy
shall also contain any reinsurance and endorsements required by Lender
including without limitation creditors' rights, zoning 3.0, variable rate,
usury, shared appreciation mortgage and extended coverage endorsements
(Comprehensive Form 1). Lender shall have also received a commitment for
title insurance in an amount and issued by Title Company with respect to the
real property owned by United Homes on which Lender is being granted a
mortgage lien. At Lender's option, Lender shall also receive mortgagee title
insurance policies, acceptable to Lender, insuring marketability of title and
insuring that the lien of the mortgages granted to Lender encumbering the
real property owned by United Homes is a valid first or second lien, as
applicable, on said real property Project, subject only to exceptions to
title approved by Lender and containing any endorsements required by Lender.
3.3. INSURANCE. Borrower shall have provided Lender with and Lender
shall have approved copies of certificates evidencing the insurance policies
required to be delivered pursuant to the Mortgage.
3.4. COMPLIANCE WITH LAWS. Borrower shall have submitted and Lender
shall have approved evidence satisfactory to Lender that the Project complies
in all material respects with all applicable laws (including, without
limitation, all building, zoning, density, land use, ordinances, regulations
and planning requirements), covenants, conditions and restrictions,
subdivision requirements (including, without limitation, parcel maps), and
environmental impact and other environmental requirements.
3.5. OPINIONS OF COUNSEL. Lender shall have received an opinion of
Borrower's and Obligors' counsel, acceptable to Lender, stating: (a) that the
Loan is not usurious under applicable laws; (b) that the Loan Documents are
validly executed, fully authorized and binding and enforceable in accordance
with their terms; (c) that the execution and delivery of the Loan Documents
and the performance of the transactions contemplated thereby do not violate
or contravene any law, court order, judgment or contract to which Borrower or
any Obligor is a party; and (d) such further opinions as Lender shall
require. The opinion of Borrower's and Obligors' counsel shall be from an
independent counsel acceptable to Lender. Lender shall have also received
satisfactory opinions from its own counsel in connection with the Loan.
3.6. ZONING AND FINAL PLAT. Lender shall have received the final plat
for the Project, which plat shall have been approved by all required parties
and governmental entities for the development of the Project and shall have
been recorded in the plat records of DuPage County, Illinois. Lender shall
have also received such other evidence satisfactory to Lender
<PAGE>
that Borrower has received zoning approval from the applicable governmental
entity with jurisdiction over the zoning of the Property permitting the
construction and completion of the Project as presently planned by Borrower.
The final plat and approved zoning designation for the Project shall be
acceptable to Lender in its sole discretion.
3.7. APPROVALS. Lender shall have received copies of all necessary
approvals for the Project, including the building and grading permits for the
Improvements.
3.8. SUFFICIENCY OF FUNDS. Lender shall have received evidence that
sufficient funds are available to Borrower in addition to proceeds of the
Loan to pay all Project Costs.
3.9. UTILITIES. Lender shall have received evidence satisfactory to
Lender that all utilities and municipal services (including such utilities as
are necessary to secure a certificate of occupancy or equivalent) will in a
timely manner be supplied to the Project upon completion of construction,
including commitment letters from the agencies or entities supplying such
services.
3.10. ADDITIONAL ITEMS. Lender shall have received such other items
as Lender may reasonably require.
ARTICLE IV
METHOD AND CONDITIONS OF DISBURSEMENT OF ADDITIONAL ADVANCES
4.1. REQUIREMENTS FOR DISBURSEMENTS. Lender's obligation to disburse
any additional advance is subject to satisfaction of all of the following
conditions, as determined by Lender in its sole discretion:
4.1.1. LOAN CLOSING CONDITIONS. The conditions precedent for
closing the Loan as set forth in ARTICLE III shall have been fully met to the
satisfaction of Lender.
4.1.2. BORROWER'S DELIVERIES. Borrower shall have submitted to
Lender the following documents all in form and substance satisfactory to
Lender:
(a) A completed draw request in the form of EXHIBIT B
attached hereto detailing all costs for which payment is requested, including
a listing of all trade payables for the Project.
(b) A certificate of Borrower stating that Borrower has in
fact expended the amount of the requested disbursement for the development or
construction of the Property and the Improvements.
(c) A completed form of "application for payment and sworn
<PAGE>
statement" and certification for each draw request on the Loan made by the
Borrower, identifying all change orders and extras to the Construction
Contract and all amounts relating thereto.
(d) Copies of invoices, purchase orders, canceled checks and
other documents to support the full amount of non-construction costs
contained in the draw request, as Lender may request.
(e) Copies of all contracts or subcontracts that Borrower or
the General Contractor has executed since the submittal of the previous draw
request, as Lender may request.
(f) Receipt by Lender of lien waivers or releases from all
contractors, subcontractors, laborers and materialmen employed in furnishing
labor or materials in connection with the construction of the Improvements
and, if required by Lender, an affidavit of General Contractor sufficient in
the opinion of Title Company to issue the endorsement to the Title Policy
described in SECTION 4.1.2.(h)(i) with no exception with respect to liens
arising by reason of unpaid bills or claims for work performed or materials
furnished in connection with the Improvements.
(g) If required by Lender, a certificate of the Inspecting
Architect verifying the percentage of the Improvements which have been
completed, stating that the undrawn Loan proceeds will be adequate to
complete the Improvements in accordance with the Plans and Specifications and
addressing all other matters set forth in SECTION 4.10(c).
(h) If required by Lender, an endorsement or telephone
confirmation to be followed by a written endorsement to the Title Policy
which shall (i) extend the effective date of the Title Policy to the date of
advancement and show that since the effective date of said Policy (or the
effective date of the last such endorsement, if any) there has been no change
in the status of the title to the Project and no additional exceptions to the
coverage of the Title Policy, including no intervening liens affecting the
priority of the Mortgage since the date of the issuance of the most recent
endorsement to the Title Policy, and (ii) state the amount of coverage then
existing under the Title Policy, which shall be the total of all
disbursements of the Loan including the disbursement which is made
concurrently with the down date endorsement. At Lender's option, between
draw requests, Lender shall cause the Title Company to search title to the
Project and identify any liens or encumbrances filed against the Property
since the most recent disbursement of Loan proceeds, the cost of which
searches shall be borne by Borrower.
(i) Any other information that Lender may reasonably request.
4.1.3. ADDITIONAL BORROWER DELIVERIES. Borrower shall have
supplied Lender
<PAGE>
with evidence satisfactory to Lender that each of the following has been
satisfied:
(a) All outstanding claims for labor, materials and fixtures
and other trade payables have been paid;
(b) All funds previously disbursed by Lender have been
applied directly to the cost of construction of Improvements and other
incidental costs, all as set forth in the Project Budget or otherwise as
Lender shall have approved in writing;
(c) Except as provided in SECTION 6.7.5., all change orders
shall have been approved in writing by Lender;
(d) The amount of undisbursed Loan proceeds is sufficient to
pay the cost of completing the Improvements in accordance with the Plans and
Specifications; and
(e) The location of the Improvements will not encroach upon
any adjoining properties or interfere with any easement.
4.1.4. NO DEFAULT. No Event of Default has occurred and is
continuing hereunder or under the Loan Documents and no event has occurred
which if it continued uncured would, with the passage of time, the giving of
notice or both, constitute an Event of Default.
4.2. CONDITIONS TO EACH DISBURSEMENT.
4.2.1. CONDITIONS ON DISBURSEMENT OBLIGATION. At no time and in
no event shall Lender be obligated to disburse funds:
(a) In excess of the amount recommended by the Lender's
Inspecting Architect, if any such recommendation has been obtained;
(b) If any Event of Default shall have occurred;
(c) If Lender is not satisfied that the construction of the
Improvements will be completed on or before the Maturity Date;
(d) If the Loan is not "in balance" as provided in
SECTION 4.13 or;
(e) If the Project shall have been damaged by fire or other
casualty and Lender shall not have received insurance proceeds sufficient in
the sole judgment of Lender to effect the restoration of the Improvements in
accordance with Plans and Specifications and to permit the completion of the
Improvements on or before the Completion
<PAGE>
Date set forth herein.
4.2.2. PROCEDURE FOR DISBURSEMENT OF LOAN PROCEEDS. Lender
shall make all disbursements of Loan proceeds pursuant to its reasonably
prescribed disbursement control procedures and in accordance with Borrower's
written instructions. At Lender's option, all disbursements of Loan proceeds
shall be made through Title Company or shall be paid by Lender directly to
the contractors, subcontractors, laborers and materialmen to whom payment is
owed or shall be made to the Disbursement Account. Borrower hereby directs
and authorizes each of the foregoing disbursement procedures.
4.3. PAYMENT FOR ON-SITE OR WAREHOUSED MATERIALS. Lender will disburse
Loan proceeds for application toward payment for materials delivered to the
Project but not yet installed or incorporated into the Project and for
materials stored with a bonded warehouseman subject to Lender's receipt of
the following which shall be satisfactory to Lender in its sole discretion:
4.3.1. VENDORS' LIENS AND CLAIMS. A bill of sale or other
documents evidencing payment in full for such materials and release of all
vendor's liens and claims, or other evidence that Borrower will apply the
amount requested to be paid in payment for such materials and all vendors'
liens and claims will be released upon such payment.
4.3.2. DELIVERY AND SECURITY. Evidence satisfactory to Lender
that such materials have been delivered to the Project or the bonded
warehouseman and are properly secured and insured against loss, damage, or
destruction (with Lender named as loss payee).
4.3.3. UCC SEARCH. A financing statement search indicating that
no party has any purported interest on file or record in goods stored with
the warehouseman, if applicable.
4.3.4. LIEN PERFECTION. Appropriate documentation perfecting
Lender's first lien security interest in such materials.
4.4. PAYMENT FOR OFF-SITE MATERIALS. Lender will disburse Loan proceeds
for application toward payment for materials not delivered to the Project but
stored with the manufacturer subject to Lender's receipt of the following
which shall be satisfactory to Lender in its sole discretion:
4.4.1. SATISFACTION OF ON-SITE CONDITIONS. Satisfaction of the
requirements set out in SECTIONS 4.3.1., 4.3.3. AND 4.3.4.
4.4.2. INSURANCE. Evidence that such materials are properly
secured and insured against loss, damage, or destruction (with Lender named
as loss payee).
<PAGE>
4.4.3. MANUFACTURER'S CREDITWORTHINESS. Evidence of the
creditworthiness of the manufacturer.
4.5. SOFT COSTS. Notwithstanding the other provisions of this
ARTICLE IV or any other provisions of this Agreement, except as otherwise
agreed by Lender, no advance of Loan proceeds hereunder shall be made by
Lender to Borrower for the payment of any soft costs (of the type set forth
in the Project Budget as "soft costs"), other than interest under the Loan,
until all construction of the Project has been completed and all construction
costs have been paid in full.
4.6. DEBIT TO LOAN. Notwithstanding the other provisions of this
ARTICLE IV, Lender may, without notice to or consent from Borrower, but shall
not be obligated to, debit or charge the Loan to pay, as and when due, any
loan or commitment fees, interest on the Loan, release charges under prior
liens on the Property or reasonable legal fees and disbursements of Lender's
attorneys which are payable by Borrower, and such other sums as Borrower may
from time to time owe to Lender with respect to the Loan and which have not
been paid by Borrower when due. Such debit or charge shall be deemed an
advance of principal constituting part of the Loan hereunder.
4.7. NOTICE, FREQUENCY AND PLACE OF DISBURSEMENTS. Each draw request
shall be submitted by Borrower to Lender at least three (3) business days
prior to the date of the requested advance. Disbursements shall be made no
more frequently than weekly. All disbursements shall be made at the
principal office of Lender at Chicago, Illinois or at such other place as
Lender may designate.
4.8. ADVANCES TO GENERAL CONTRACTOR. At its option Lender may make any
or all advances of the Loan directly to the General Contractor for deposit in
an appropriately designated special bank account and the execution of this
Agreement by Borrower shall, and hereby does, constitute an irrevocable
direction and authorization to so advance the funds. No further direction or
authorization from Borrower shall be necessary to warrant such direct
advances to the General Contractor and all such advances shall satisfy PRO
TANTO the obligations of Lender hereunder and shall be secured by the
Mortgage and the other Loan Documents as fully as if made to Borrower,
regardless of the disposition thereof by the General Contractor.
4.9. RECEIPT OF FUNDS. All Loan funds will be considered to have been
advanced to and received by Borrower upon, and interest on such funds will be
payable by Borrower from and after, the initiation by Lender of their wire
transfer or any other means of delivery of Loan funds to or for the benefit
of Borrower or charge against the Loan funds as provided in SECTION 4.6.
4.10. INSPECTION.
(a) Lender and its agents and representatives shall have the right
at any time
<PAGE>
during regular business hours to enter the Project and inspect the work of
construction and all materials, plans, specifications and other matters
relating to the Project's construction. If Lender in good faith determines
that any work or materials do not conform to the Plans and Specifications or
sound building practice or otherwise depart from the requirements of this
Agreement, Lender after written notice to Borrower may require the work to be
stopped and withhold disbursements until the matter is corrected. In such
event Borrower will promptly correct the work to Lender's satisfaction. No
such action by Lender will affect Borrower's obligation to complete the
Project on or before the Completion Date. Any inspection or examination by
Lender is for the sole purpose of protecting Lender's security and preserving
Lender's rights under this Agreement.
(b) Borrower shall pay for the services of Lender's inspecting
architect/engineer (the "INSPECTING ARCHITECT") and who in that capacity
shall be independent of Borrower and shall be responsible to Lender and its
interests. All contracts, subcontracts, Project Budgets, Construction
Schedules, draw requests, Plans and Specifications and any changes or
modifications of the foregoing shall, if requested by Lender, be subject to
the approval of the Inspecting Architect. The Inspecting Architect shall
have the right of entry and free access to the Property and/or the Project,
the right to inspect all work done, labor performed and materials furnished
in and about the Property or the Project, to make such tests of material and
construction as may be required, and to inspect all books, contracts,
subcontracts and records of Borrower relating to these matters.
(c) The Inspecting Architect shall, at such frequency
required by Lender, inspect the Project and submit to Lender a report
commenting on: (i) the quality of the construction materials, (ii) an
evaluation of the progress of construction, (iii) any deficiencies noted
during the inspection, (iv) an evaluation of conformance with the Plans and
Specifications for work in place, (v) adherence to the Construction Schedule,
and (vi) other pertinent aspects of the Project which, in the Inspecting
Architect's opinion, should be known to Lender. All costs and expenses of
the Inspecting Architect in preparing said reports shall be borne by Borrower.
4.11. LOAN BALANCING. The Loan shall be in balance as determined by
Lender in its sole discretion. For purposes of this Agreement, the Loan will
be deemed "in balance" only if the undisbursed proceeds of any category of
Project Costs are sufficient to pay all of such category of Project Costs not
yet paid which have been or will be incurred in completing the Project until
the Maturity Date. The initial determination of Loan balancing shall be
based upon the Project Budget. Lender will re-evaluate the accuracy and
adequacy of the Project Budget in connection with the determination of Loan
balancing upon receipt of each draw request. If Lender at any time
determines that the actual cost of any category of Project Costs will exceed
the budgeted cost of such category of Project Costs, as listed on the most
recent Project Budget approved or deemed approved by Lender, whether such
excess is attributable to changes in the nature of construction of the
Project or in the Plans and Specifications or to any
<PAGE>
other cause, Lender shall so notify Borrower. Within three (3) business days
following effective receipt of such notice, Borrower shall deposit with
Lender cash, instruments or commitments in form and substance acceptable to
Lender in the amount necessary to bring the loan "in balance." Lender shall
disburse any such deposit under the same conditions and for the same purposes
as set forth in this Agreement for any disbursement of Loan proceeds. Lender
may, at its option, fully disburse such deposit prior to or concurrently with
Lender's making of any further disbursement under the terms of this
Agreement. If, at any time following the deposit of any such cash,
instruments or commitments, decreases in the Project Budget reduce or
eliminate the deposit required to bring the Loan into balance, then Lender
shall return or refund to Borrower any such cash, instruments or commitments
that Lender has not previously disbursed to the extent not required to the
Loan to remain in balance. Lender shall not be obligated to pay any interest
to Borrower on any such deposit held by Lender hereunder.
4.12. ADVANCES DO NOT CONSTITUTE A WAIVER. No advance of Loan
proceeds hereunder shall constitute a waiver of any of the conditions of
Lender's obligation to make further advances nor, in the event Borrower is
unable to satisfy any such condition, shall any such advance have the effect
of precluding Lender from thereafter declaring such inability to be an Event
of Default hereunder.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
As an inducement to Lender to disburse the Loan, Borrower hereby
represents and warrants as follows, which representations and warranties
shall be true as of the date hereof and shall remain true throughout the term
of the Loan:
5.1. BORROWER EXISTENCE. Borrower is a corporation duly formed, validly
existing and in good standing under the laws of the State of Illinois with
its principal place of business at 2100 Golf Road, Suite 110, Rolling
Meadows, Illinois 60008. Borrower is in good standing under the laws of the
State of Illinois and is authorized to transact business in the State of
Illinois. The Loan Documents have each been duly authorized, executed and
delivered and each constitutes the duly authorized, valid and legally binding
obligation of Borrower, enforceable against Borrower in accordance with their
respective terms.
5.2. OBLIGORS. Havlik, directly or indirectly, owns a majority of the
issued and outstanding stock of Borrower and the other Obligors. Each
Obligor is an Affiliate of Borrower. Havlik shall have authority to make all
material business decisions for Borrower during the term of the Loan.
5.3. BORROWER'S CORPORATE DOCUMENTS. A true and complete copy of the
articles
<PAGE>
of incorporation and by-laws of Borrower and all other documents creating and
governing Borrower (collectively, the "INCORPORATION DOCUMENTS") have been
furnished to Lender. There are no other agreements, oral or written, among
any of the shareholders of Borrower relating to Borrower. The Incorporation
Documents were duly executed and delivered, are in full force and effect, and
binding upon and enforceable in accordance with their terms. The
Incorporation Documents constitute the entire understanding among the
shareholders of Borrower. No breach exists under the Incorporation Documents
and no act has occurred and no condition exists which, with the giving of
notice or the passage of time would constitute a breach under the
Incorporation Documents.
5.4. OTHER AGREEMENTS. Borrower is not in default under any contract,
agreement or commitment to which it is a party. The execution, delivery and
compliance with the terms and provisions of this Agreement and the Loan
Documents will not (i) to the best of Borrower's knowledge, violate any
provisions of law or any applicable regulation, order or other decree of any
court or governmental entity, or (ii) conflict or be inconsistent with, or
result in any default under, any contract, agreement or commitment to which
Borrower is bound. Borrower has delivered to Lender copies of any agreements
(including leases) between Borrower and any Affiliate related in any way to
the Project and any other agreements or documents materially affecting the
use and operation of the Project or the construction of the Improvements
thereon.
5.5. PROPERTY. Fee simple title to the Property is, or
contemporaneously with the initial funding of the Loan will be, owned by
Borrower free and clear of all liens, claims, encumbrances, covenants,
conditions and restrictions, security interests and claims of others, except
only such exceptions as have been approved in writing by Lender. To the best
of Borrower's knowledge, the Project is in compliance with all zoning
requirements, building codes, subdivision improvement agreements, and all
covenants, conditions and restrictions of record. The zoning and subdivision
approval of the Project and the right and ability to, use or operate the
Improvements are not in any way dependent on or related to any real estate
other than the Property. To the best of Borrower's knowledge, there are no,
nor are there any alleged or asserted, violations of law, regulations,
ordinances, codes, permits, licenses, declarations, covenants, conditions, or
restrictions of record, or other agreements relating to the Project, or any
part thereof.
5.6. PROPERTY ACCESS. The Property is accessible through fully improved
and dedicated roads accepted for maintenance and public use by the public
authority having jurisdiction.
5.7. UTILITIES. All utility services necessary and sufficient for the
use or operation of the Project are available or will be available when
construction or installed as part of the Improvements, including water,
storm, sanitary sewer, gas, electric and telephone facilities.
<PAGE>
5.8. FLOOD HAZARDS/WETLANDS. The Property is not situated in an area
designated as having special flood hazards as defined by the Flood Disaster
Protection Act of 1973, as amended, or as a wetlands by any governmental
entity having jurisdiction over the Property.
5.9. TAXES/ASSESSMENTS. There are no unpaid or outstanding real estate
or other taxes or assessments on or against the Project or any part thereof,
except general real estate taxes for 1998 not yet due or payable. Copies of
the current general real estate tax bills with respect to the Project have
been delivered to Lender. Said bills cover the entire Project and do not
cover or apply to any other property. There is no pending or contemplated
action pursuant to which any special assessment may be levied against any
portion of the Project.
5.10. EMINENT DOMAIN. There is no eminent domain or condemnation
proceeding pending or, to the best of Borrower's knowledge threatened,
relating to the Project.
5.11. LITIGATION. Except as set forth in EXHIBIT C, there is no
litigation, arbitration or other proceeding or governmental investigation
pending or, to the best of Borrower's knowledge, threatened against or
relating to Borrower, any stockholder in Borrower, any Obligor, any
stockholder in any Obligor, or any of their property, assets, or business,
including the Project, which if decided adversely would affect the business,
affairs, assets or financial condition of Borrower, any Obligor, the Project
or the prospects for repayment of the Loan.
5.12. ACCURACY. Neither this Agreement nor any document, financial
statement, credit information, certificate or statement furnished to Lender
by Borrower contains any untrue statement of a material fact or omits to
state a material fact which would affect Lender's decision to make the Loan.
5.13. FOREIGN OWNERSHIP. Neither Borrower nor any stockholder in
Borrower is or will be, and no legal or beneficial interest of a stockholder
in Borrower is or will be held, directly or indirectly, by a "foreign
corporation", "foreign partnership", "foreign trust", "foreign estate",
"foreign person", "affiliate" of a "foreign person" or a "United States
intermediary" of a "foreign person" within the meaning of IRC Sections 897
and 1445, the Foreign Investments in Real Property Tax Act of 1980, the
International Foreign Investment Survey Act of 1976, the Agricultural Foreign
Investment Disclosure Act of 1978, or the regulations promulgated pursuant to
such Acts or any amendments to such Acts.
5.14. SOLVENCY. None of Borrower, any stockholder in Borrower, any
Obligor or any stockholder in any Obligor is insolvent and there has been no:
(i) assignment made for the benefit of the creditors of any of them; (ii)
appointment of a receiver for any of them or for the property of any of them;
or (iii) bankruptcy, reorganization, or liquidation proceeding instituted by
or against any of them.
<PAGE>
5.15. FINANCIAL STATEMENT/NO CHANGE. Borrower has heretofore
delivered to Lender copies of the most current financial statements of
Borrower and Obligors. Said financial statements were prepared on a basis
consistent with that of preceding years, and all of such financial statements
present fairly the financial condition of Borrower and Obligors as of the
dates in question and the results of operations for the periods indicated.
Since the dates of such statements, there has been no material adverse change
in the business or financial condition of any of Borrower or any Obligor.
Neither Borrower nor any Obligor has any material contingent liabilities not
provided for or disclosed in said financial statements. There has been no
material adverse change since April 1, 1998 in the structure, business
operations, credit, prospects or financial condition of Borrower, any Obligor
or the Project.
5.16. SINGLE ASSET ENTITY. Borrower: (i) does not hold, directly or
indirectly, any ownership interest (legal or equitable) in any real or
personal property other than the interest which it owns in the Project; (ii)
is not a shareholder or partner or member of any other entity; and (iii) does
not conduct any business other than the ownership, management and operation
of the Property.
5.17. NO BROKER. No brokerage commission or finder's fee is owing
to any broker or finder arising out of any actions or activity of Borrower in
connection with the Loan.
5.18. DOCUMENTS. Borrower and Obligors have furnished Lender with a
true and complete copy of all documents relating to the Project, including
the Construction Documents.
ARTICLE VI
AFFIRMATIVE COVENANTS
6.1. BOOKS AND RECORDS/AUDITS. Borrower shall keep and maintain at all
times at Borrower's address stated below, or such other place as Lender may
approve in writing, complete and accurate books of accounts and records
adequate to reflect the results of the operation of the Project (including
computations of the Participation) and to provide the financial statements
required to be provided to Lender pursuant to SECTION 6.2 below and copies of
all written contracts, correspondence, reports of Lender's independent
consultant, if any, Construction Documents and other documents affecting the
Project. Lender and its designated agents shall have the right to inspect
and copy any of the foregoing. Additionally, Lender may audit and determine,
in Lender's sole and absolute discretion, the accuracy of Borrower's records
and computations. The costs and expenses of the audit shall be paid by
Borrower (from its own sources and not from Project Revenue or if Borrower is
unable to pay said costs and expenses from its own sources, Borrower shall
cause the costs and expenses of said audit to be paid by an Affiliate of
Borrower) if the audit discloses a monetary variance in any financial
information or computation (including the computation of the Participation)
equal to or greater than the greater of: (i) five percent (5%); or (ii)
$10,000 more than any
<PAGE>
computation submitted by Borrower. If the audit does not disclose any such
variance, the costs and expenses of said audit shall be paid from Project
Revenue.
6.2. FINANCIAL STATEMENTS; BALANCE SHEETS. Borrower shall furnish to
Lender and shall cause each Obligor to furnish to Lender such financial
statements and other financial information as Lender may from time to time
request. All such financial statements shall show all material contingent
liabilities and shall accurately and fairly present the results of operations
and the financial condition of Borrower at the dates and for the period
indicated. Without limitation of the foregoing, Borrower shall furnish to
Lender and shall cause each Obligor to furnish to Lender the following
statements:
6.2.1. MONTHLY AND ANNUAL OPERATING STATEMENTS. Statements of
the operation of the Project as of the last day of each month, to be
delivered within 10 days after the end of each month and certified by
Borrower as true, correct, and complete, and yearly statements of the
operation of the Project, to be delivered within 90 days after the end of
each fiscal year and certified by Borrower as true, correct, and complete.
6.2.2. ANNUAL BALANCE SHEETS AND FINANCIAL STATEMENTS. Annual
balance sheets and financial statements from Borrower and each Obligor,
within 90 days of the end of each fiscal year which are true and correct in
all respects, have been prepared in accordance with sound accounting
practices, and fairly present the financial condition(s) of the person(s)
referred to therein as of the date(s) indicated. At Lender's request, such
financial statements shall include, specific information concerning
Borrower's and each Obligor's other real estate holdings.
6.2.3. EQUITY LOAN FINANCIAL STATEMENTS. The financial
statements and other financial information required to be delivered to Lender
under the provisions of the Equity Loan Agreement as amended by the Equity
Loan Amendment when such financial statements and other financial information
are required to be delivered to Lender thereunder.
6.2.4. AUDITS. If Borrower fails to furnish or cause to be
furnished promptly any report required by this SECTION 6.2, or if Lender
reasonably deems such reports to be unacceptable, Lender may elect (in
addition to exercising any other right and remedy) to conduct an audit of all
books and records of Borrower or any Obligor which in any way pertain to the
Project and to prepare the statement or statements which Borrower failed to
procure and deliver. Such audit shall be made and such statement or
statements shall be prepared by an independent firm of certified public
accountants to be selected by Lender. Borrower shall pay all reasonable
expenses of the audit and other services, which expenses shall be immediately
due and payable with interest thereon at the default rate contained in the
Note.
<PAGE>
6.3 USE OF PROCEEDS. Borrower shall use the proceeds of the Loan for
the following purposes only: (i) repayment in full of the ABF, (ii) payment
of the Project Costs in accordance with the Plans and Specifications and the
Project Budget and (iii) payment of such other costs and expenses related to
the Project as Lender may approve in accordance with the terms of this
Agreement. No portion of the proceeds of the Loan shall be used by Borrower
in any manner that might cause the borrowing or the application of such
proceeds to violate Regulation G, Regulation U, Regulation T or Regulation X
or any other regulation of the Board of Governors of the Federal Reserve
System or to violate the Securities Act of 1933 or the Securities Exchange
Act of 1934.
6.4. NOTICE OF LITIGATION, DEFAULT OR CONSTRUCTION DELAYS. Promptly
after discovery by Borrower, Borrower shall provide Lender with:
(a) notice of any litigation, arbitration, or other proceeding or
governmental investigation pending or, to Borrower's or any Obligor's
knowledge, threatened against or relating to Borrower, any Obligor or the
Project;
(b) a copy of all notices of default and violations of laws,
regulations, codes, ordinances and the like received by Borrower or any
Obligor relating to the Project;
(c) notice of any failure of the Project or the Improvements to be in
substantial conformity with the Plans and Specifications, Construction
Schedule, Construction Documents and all other documents and reports used in
preparation for or in the actual construction of the Improvements, and in
substantial compliance with all applicable laws, regulations, ordinances,
codes, approvals, permits, licenses, covenants of record or other agreements
relating to the Project, or any part thereof; and
(d) notice of any actual or anticipated material delays in construction
of the Project.
6.5 AFFILIATE TRANSACTIONS. Prior to entering into any agreement with
an Affiliate pertaining to the Project, Borrower shall deliver to Lender a
copy of such agreement, which shall be satisfactory to Lender in its sole
discretion. If requested by Lender, such agreement shall provide Lender the
right to terminate it upon Lender's (or its designee's) acquisition of the
Project through foreclosure, a deed-in-lieu of foreclosure, UCC sale or
otherwise.
"AFFILIATE" means with respect to any individual, trust, estate,
partnership, limited liability company, corporation or any other incorporated
or unincorporated organization (each a "PERSON"), a Person that directly or
indirectly, through one or more intermediaries, controls or is controlled by
or is under common control with Borrower or any Obligor; any officer,
director or shareholder of Borrower; any relative of any of the foregoing.
The term "control" means possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by
<PAGE>
contract or otherwise.
6.6. CONSTRUCTION. The Improvements shall be completed in substantial
accordance with the Construction Documents and in compliance with all
applicable laws, regulations, ordinances, codes, permits, licenses,
declarations, covenants, or restrictions of record or other agreements
relating to the Project or any part thereof.
6.7. PROJECT BUDGET AND CONSTRUCTION SCHEDULE.
6.7.1. APPROVAL; COMPLETION. Lender has approved the initial
Project Budget as set forth in EXHIBIT D attached hereto and by this
reference made a part hereof (the "PROJECT BUDGET") specifying all costs of
constructing and developing the Project (the "PROJECT COSTS"), and an initial
construction schedule showing the Homes (each identified by unit numbers or
other specific identification) and other Improvements presently under
construction and the Homes and other Improvements to be constructed during
the term of the Loan and specifying the stages of completion of each, all as
set forth in EXHIBIT E attached hereto and by this reference made a part
hereof (the "CONSTRUCTION SCHEDULE"). Borrower shall complete the Project
within the Project Budget and shall complete each item listed in the Project
Budget with the funds allocated to that item in the Project Budget, in each
case as the Project Budget may be modified as hereinafter provided. Borrower
shall complete construction of the Project (as evidenced by a certificate of
completion executed by the Inspecting Architect) within the time periods set
forth in the Construction Schedule, but in any event on or before the
Maturity Date.
6.7.2. UPDATE TO PROJECT BUDGET AND CONSTRUCTION SCHEDULE. On a
regular monthly basis commencing July 1, 1998, and more often upon not less
than ten (10) days' written notice to Borrower by Lender, Borrower shall
prepare and submit to Lender for its written approval a revised draft Project
Budget and Construction Schedule to reflect current information on actual
Project Costs, revised estimates of Project Costs to be incurred in the
future, any change in Lender's estimate of interest chargeable pursuant to
the terms of the Note, approved change orders, the execution of subcontracts
or purchase orders for items covered by allowances in any construction
contract, and such factors as reasonably should from time to time be taken
into account to obtain an accurate and up-to-date Project Budget and
Construction Schedule, including an accurate accounting of the stage of
completion.
6.7.3. CERTIFICATION OF REVISED PROJECT BUDGET AND CONSTRUCTION
SCHEDULE. The chief financial officer of Borrower shall certify each revised
draft Project Budget and Construction Schedule submitted by Borrower as being
true and correct to the best of Borrower's knowledge (except as to Lender's
estimate of interest costs, which need not be so certified). Lender, and at
Lender's option, the Inspecting Architect, shall approve each revised draft
Project Budget and Construction Schedule. Each such revised draft Project
Budget and Construction Schedule shall be deemed approved by Lender unless
Lender gives Borrower written notice within thirty (30) days after Lender's
receipt of such revised draft Project
<PAGE>
Budget and draft Construction Schedule specifying in reasonable detail
Lender's objection thereto.
6.7.4. APPROVAL OF REVISED PROJECT BUDGET AND CONSTRUCTION
SCHEDULE. A revised Project Budget or Construction Schedule approved or
deemed approved by Lender shall thereupon be and become the Project Budget or
Construction Schedule until a further revised draft Project Budget or
Construction Schedule is approved or deemed approved by Lender. Borrower and
Lender shall seek promptly in good faith to resolve any objection by Lender
and to agree upon an appropriate revision to the Project Budget or
Construction Schedule. If Borrower and Lender are unable to reach such
agreement within fifteen (15) days after Borrower receives Lender's written
objections, Lender may at any time thereafter prepare and submit to Borrower
a revised draft Project Budget or Construction Schedule, certified by an
officer of Lender on behalf of Lender as being true and correct to the best
of Lender's knowledge, which shall thereafter and until further revised as
provided herein be deemed for all purposes of this Agreement to be the
Project Budget or Construction Schedule.
6.7.5. CHANGE ORDERS. If Borrower becomes aware of any change
in the approved Project Costs which would materially alter the design or
quality of the Project, or which would increase the total costs contemplated
in the Project Budget (as the Project Budget is revised from time to time and
approved or deemed approved by Lender) by an amount of $5,000 or more for any
one such change or which when added to the amount of all such other prior
changes, would increase such total costs by an amount of $25,000 or more,
Borrower must immediately notify Lender in writing and promptly submit a
revised Project Budget to Lender for its approval. Lender shall not be
required to make any further disbursements of the Loan until Lender approves
the revised Project Budget.
6.8. FURTHER ENCUMBRANCES. Borrower expressly covenants and agrees to
keep the Project free and clear of liens for charges of labor, materials,
supplies, or services, and to pay for such charges before they become
delinquent, subject to Borrower's ability to contest any such liens in
accordance with the provisions of the Mortgage.
6.9. ASSIGNMENT. Until the Loan is repaid, Borrower will deliver true
and complete copies and will collaterally assign to Lender, promptly after
they are obtained and/or executed and to the extent they are assignable, any
building permits or development rights for the Project, any other permits or
governmental approvals required (in Lender's reasonable judgment) for the
completion of the Project, any contracts with any architect, soils engineer,
civil engineer, mechanical or any other type engineer and relating to the
Project, and any contracts with any party relating to the construction of the
Project. If requested by Lender, Borrower shall promptly obtain the consent
to such assignment of all parties to any permits, approvals or contracts so
assigned.
6.10. COMPLIANCE WITH REGULATIONS AND RESTRICTIONS. Borrower
covenants that it
<PAGE>
has examined and is familiar with all applicable conditions, easements,
reservations, rights-of-way or other restrictions affecting the Property as
well as all applicable laws, ordinances, administrative rules and
regulations, orders and requirements of all governmental, judicial or legal
authorities, including but not limited to, all environmental legislation and
regulations affecting the Property. Borrower, the Property, the Project, and
the present and intended uses of the Property comply or will comply with all
such conditions, easements, reservations, rights-of-way, and other
restrictions, as well as all existing and future applicable laws, ordinances,
administrative rules and regulations, orders and requirements of all
governmental, judicial or legal authorities.
6.11. GOVERNMENTAL PERMISSIONS. Borrower has secured or shall
secure all governmental permissions, if any, that are necessary to own,
operate, and maintain the Property and complete the Project and it has not
received notice nor has it knowledge of any violation of any applicable law,
regulation, order, or requirement which could have a materially adverse
affect on the ownership and operation of the Property and which has not been
complied with or corrected in all material respects.
6.12. CORRECTION OF DEFECTS. Borrower shall promptly correct any
structural defect in the Improvements or any departure from the Plans and
Specifications not previously approved by lender and any violation of any
requirement of any governmental entity.
6.13. STORAGE OF MATERIALS. Borrower shall cause all materials
supplied for or intended to be utilized in the construction of the
Improvements but not affixed to or incorporated into the Project to be stored
on the Property or at such other location as may be approved by Lender in
writing, with adequate safeguards to prevent loss, theft, damage or
commingling with other materials not intended to be utilized in the
construction of the Improvements.
6.14. CONSTRUCTION DOCUMENTS. At Lender's request, Borrower shall
deliver to Lender the copies of the executed construction contract (the
"CONSTRUCTION CONTRACT") with the general contractor (the "GENERAL
CONTRACTOR") for the Project, the executed architect's contract (the
"ARCHITECT'S CONTRACT") with the architect (the "ARCHITECT") for the Project,
all amendments and modifications to the Construction Contract and the
Architect's Contract, copies of all subcontracts into which the General
Contractor has entered for the construction of the Project, any and all
architect's and engineer's agreements relating to the Improvements, the
Project Budget, the Construction Schedule, and the final plans and
specifications for construction of the Improvements prepared for Borrower by
the Architect (the "PLANS AND SPECIFICATIONS"), all of which shall be
acceptable to Lender in its sole discretion. All of the foregoing and all
other documents and reports used in preparation for or in the actual
construction of the Improvements shall collectively be called the
"CONSTRUCTION DOCUMENTS."
<PAGE>
ARTICLE VII
NEGATIVE COVENANTS
7.1. NO AMENDMENTS. Borrower shall not amend, modify or terminate, or
permit the amendment, modification or termination of:
(a) Borrower's Articles of Incorporation; or
(b) the Construction Documents (other than as provided in
SECTION 6.7.5) without Lender's prior written consent.
7.2. NO WAIVER UNDER CONSTRUCTION DOCUMENTS. Borrower shall not,
without Lender's prior written consent, permit any default under any of the
Construction Documents, waive any of the obligations of any party under the
Construction Documents or do any act which would relieve the General
Contractor from its obligations to construct the Improvements according to
the Plans and Specifications or relieve any party to the Construction
Documents from its Obligations thereunder.
7.3 NO ADDITIONAL INDEBTEDNESS. Borrower shall not, without Lender's
prior written consent, incur additional indebtedness, except for trade
payables in the ordinary course of business.
7.4. NO COMMINGLING FUNDS. Borrower shall not commingle the funds
related to the Project with funds from any other property.
7.5 NO LIENS OR TRANSFERS. Borrower shall not, without the prior
written approval of Lender: (a) create or permit to be created any liens or
encumbrances against any of the Project, including any Loan or claim for lien
for any labor or material or (b) sell, assign, transfer, further encumber, or
otherwise dispose of the Project, or any part thereof, or any interest
therein, except sales of Homes in the ordinary course of business.
7.6. USE OF PROPERTY. Unless required by applicable law, Borrower shall
not permit changes in the use of any part of the Property from the use
existing at the time the Mortgage was executed. Borrower shall not initiate
or acquiesce in a change in the plat of subdivision, or zoning classification
of the Project without Lender's prior written consent.
ARTICLE VIII
ADDITIONAL SECURITY
8.1. NATURE OF ADDITIONAL SECURITY. As additional security for the
performance of Borrower's obligations under the Loan Documents, Borrower
hereby irrevocably assigns and
<PAGE>
grants to Lender a security interest in the following:
(a) All existing and future building permits, governmental
permits, the Plans and Specifications, studies, data and drawings with
respect thereto prepared by or for Borrower and all agreements entered into
in connection with the Project, if any;
(b) Borrower's rights, if any, in any trademarks or tradenames
used in connection with the Property and the Project, including the name
"Woodmere";
(c) Borrower's rights pursuant to the terms of the Construction
Contract and the Architect's Contract, and all amendments and modifications
thereto;
(d) All existing and future goods, materials and equipment, of
whatever kind or nature, located in, on, or upon the Property which are or
are to be used in connection with the Project or the use or occupancy of the
Property, but which are not themselves a part of the Property, including,
without limitation, building and construction materials, supplies and
equipment;
(e) Borrower's interest in all Loan funds held by Lender, whether
or not disbursed, all funds that Borrower has deposited with Lender under
this Agreement, and all reserves, deferred payments, deposits, refunds, cost
savings and payments of any kind relating to the Project; and
(f) All proceeds of the foregoing.
8.2. RIGHTS ON DEFAULT. Upon an Event of Default by Borrower, Lender
may use any of the foregoing for any purpose for which Borrower could have
used them under this Agreement or with respect to the Project or its
financing. Lender will also have all other rights and remedies as to any of
the foregoing which are provided under applicable law or in equity, but
Lender will not have any obligation thereunder unless it expressly so agrees
in writing.
ARTICLE IX
EVENTS OF DEFAULT; ACCELERATION OF INDEBTEDNESS; REMEDIES
9.1. EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an "EVENT OF DEFAULT" under this Agreement:
(a) Failure of Borrower to pay, within five (5) days of the due
date, any of the payment obligations of Borrower to Lender ("INDEBTEDNESS"),
including any payment due under the Note or this Agreement; or
<PAGE>
(b) Failure of Borrower strictly to comply with the provisions of
SECTIONS 5.16 (single asset entity) and 4.10 (inspection) of this Agreement;
or
(c) Breach of any covenant, representation or warranty other than
as set forth in SUBSECTIONS (a) AND (b) above or in SUBSECTIONS (d) THROUGH
(k) below which is not cured within thirty (30) days after notice; provided,
however, if such breach cannot by its nature be cured within thirty (30)
days, and Borrower diligently pursues the curing thereof (and then in all
events cures such failure within sixty (60) days after the original notice
thereof), Borrower shall not be in default hereunder; or
(d) A petition under any Chapter of Title 11 of the United States
Code or any similar law or regulation is filed by or against Borrower or any
Obligor (and in the case of an involuntary petition in bankruptcy, such
petition is not discharged within sixty (60) days of its filing), or a
custodian, receiver or trustee for any of the Project is appointed, or
Borrower or any Obligor makes an assignment for the benefit of creditors, or
any of them are adjudged insolvent by any state or federal court of competent
jurisdiction, or any of them admit their insolvency or inability to pay their
debts as they become due or an attachment or execution is levied against any
of the Project; or
(e) The occurrence of a default and the expiration of any cure
period applicable thereto under any of the Construction Documents or any Loan
Document; or
(f) Borrower shall default in the payment of any indebtedness
(other than the Indebtedness) and such default is declared and is not cured
within the time, if any, specified therefor in any agreement governing the
same; or
(g) Any statement, report or certificate made or delivered to
Lender by Borrower or any Obligor is not materially true and complete at any
time; or
(h) Any mechanic's lien or materialman's lien or charge is
recorded or filed on or against the Property or any part thereof, and such
lien or charge is not, within thirty (30) days thereafter, bonded against in
an amount satisfactory to Lender, satisfied by insurance, or otherwise
removed; or
(i) There is any substantial deviation in the work of construction
from the Plans and Specifications without the prior written approval of
Lender, or there is incorporated in the Improvements any substantially
defective workmanship or materials, which said deviation or defect is not
commenced to be corrected within ten (10) days after written notice thereof
and such correction diligently continued to its conclusion; or
(j) There occurs cessation of the work of construction prior to
completion of
<PAGE>
the Improvements for a continuous period of ten (10) days or more for causes
other than those beyond the control of Borrower or consented to in writing by
Lender; or
(k) Borrower neglects, fails, or refuses to keep in full force and
effect any required permit or approval with respect to the construction of
the Improvements.
9.2. ACCELERATION; REMEDIES. Upon the occurrence of an Event of Default
at the option of Lender, the Indebtedness shall become immediately due and
payable without notice to Borrower and Lender shall be entitled to all of the
rights and remedies provided in the Loan Documents or at law or in equity.
In addition, Lender shall at its option be entitled to proceed to exercise
any of the following:
(a) to perform or cause to be performed any and all work and labor
necessary to complete the Improvements in accordance with Plans and
Specifications;
(b) to employ security watchmen to protect the Project;
(c) to disburse that portion of the Loan proceeds not previously
disbursed and all amounts deposited by Borrower to keep the Loan "in balance"
to the extent necessary to complete construction of the Improvements in
accordance with the Plans and Specifications, and if the completion requires
a larger sum than the remaining undisbursed portion of the Loan, to disburse
such additional funds, all of which funds so disbursed by Lender shall be
deemed to have been disbursed to Borrower and shall be secured by the
Mortgage and the other Loan Documents. In connection therewith, Lender may
make such additions and changes and corrections in the Plans and
Specifications which shall be necessary or desirable to complete the
Improvements in substantially the manner contemplated by the Plans and
Specifications; employ such contractors, subcontractors, agents, architects
and inspectors as shall be required for said purposes; pay, settle or
compromise all existing or future bills and claims which are or may be liens
against the Project or as may be necessary or desirable for the completion of
the Improvements or the clearance of title to the Project; execute all
applications and certificates in the name of Borrower which may be required
by any construction contract; and do any and every act with respect to the
construction of the Improvements which Borrower may do in its own behalf.
Lender shall have no obligation to undertake any of the foregoing actions and
if Lender shall do so, it shall have no liability to Borrower for the
sufficiency or adequacy of any such actions taken by Lender; and/or
(d) terminate its obligations to Borrower under this Agreement,
including, without limitation, its obligations to make advances of the Loan.
Each remedy provided in the Loan Documents is distinct and cumulative to all
other rights or remedies under the Loan Documents or afforded by law or
equity, and may be exercised concurrently, independently, or successively, in
any order whatsoever.
<PAGE>
9.3. LENDER'S PERFORMANCE CONDITIONAL. So long as any Event of Default
has occurred and is continuing hereunder, Lender shall have no obligation to
perform any of its obligations set forth in this Agreement or any of the Loan
Documents.
ARTICLE X
PARTIAL RELEASES
Borrower may, in connection with its sales of Homes, require Lender to
release from the lien of the Mortgage any portion of the Property in such
order as Borrower may select, subject to performance of the following
conditions precedent:
(a) No Event of Default has occurred and is continuing and no
event has occurred which if it continued uncured would, with the passage of
time, the giving of notice, or both, constitute an Event of Default.
(b) The Property has been subdivided in accordance with all
applicable laws and regulations, and all necessary governmental permits
and/or exemptions therefor have been obtained, remain in full force and
effect and are subject to no pending proceeding which could materially and
adversely affect the Project.
(c) If required by Lender, Borrower has delivered to Lender a
written request that a partial release be made specifically describing the
portion of the Property to be released (each, a "RELEASE PARCEL") and stating
such other information as Lender may require from time to time.
(d) If the release of the Release Parcel, alone or together with
all previous Release Parcels, would cause all or any portion of the
unreleased Property to lack access to publicly dedicated and accepted streets
or roadways, Borrower has provided easements for ingress and egress over the
Release Parcel, which easements are satisfactory to Lender.
(e) Sale proceeds from the sale of the Release Parcel are
distributed to Lender in accordance with the provisions of this Agreement and
the Tri-Party Agreement.
(f) Lender has received or is satisfied that it will receive,
payment of its costs and expenses in effecting such partial release.
ARTICLE XI
MISCELLANEOUS
<PAGE>
11.1. EXPENDITURES AND EXPENSES. Borrower shall promptly pay all
reasonable Costs (defined below) incurred by Lender in connection with the
documentation, modification, workout, collection or enforcement of the Loan
or any of the Loan Documents (as applicable) and all such Costs shall be
included as additional Indebtedness bearing interest at the default rate
contained in the Note until paid. For the purposes hereof "COSTS" means all
expenditures and expenses which may be paid or incurred by or on behalf of
Lender including repair costs, payments to remove or protect against liens,
attorneys' fees (including fees of Lender's inside counsel), receivers' fees,
engineers' fees, accountants' fees, independent consultants' fees (including
environmental consultants), all costs and expenses incurred in connection
with any of the foregoing, Lender's out-of-pocket costs and expenses related
to any audit or inspection of the Property, outlays for documentary and
expert evidence, stenographers' charges, stamp taxes, publication costs, and
costs (which may be estimates as to items to be expended after entry of an
order or judgment) for procuring all such abstracts of title, title and UCC
searches, and examination, title insurance policies, Torrens' Certificates
and similar data and assurances with respect to title as Lender may deem
reasonably necessary either to prosecute any action or to evidence to bidders
at any foreclosure sale of the Project the true condition of the title to, or
the value of, the Project.
11.2. DISCLOSURE OF INFORMATION. Lender shall have the right (but
shall be under no obligation) to make available to any party for the purpose
of granting participations in or selling, transferring, assigning or
conveying all or any part of the Loan (including any governmental agency or
authority and any prospective bidder at any foreclosure sale of the Project)
any and all information which Lender may have with respect to the Project and
Borrower, whether provided by Borrower, any Obligor or any third party or
obtained as a result of any environmental assessments. Borrower and Obligors
agree that Lender shall have no liability whatsoever as a result of
delivering any such information to any third party, and Borrower and any
Obligor, on behalf of themselves and their successors and assigns, hereby
release and discharge Lender from any and all liability, claims, damages, or
causes of action, arising out of, connected with or incidental to the
delivery of any such information to any third party.
11.3. SALE OF LOAN. Lender, at any time and without the consent of
Borrower or any Obligor, may grant participations in or sell, transfer,
assign and convey all or any portion of its right, title and interest in and
to the Loan, this Agreement and the other Loan Documents, any guaranties
given in connection with the Loan and any collateral given to secure the Loan.
11.4. FORBEARANCE BY LENDER NOT A WAIVER. Any forbearance by Lender
in exercising any right or remedy under any of the Loan Documents, or
otherwise afforded by applicable law, shall not be a waiver of or preclude
the exercise of any right or remedy. Lender's acceptance of payment of any
sum secured by any of the Loan Documents after the due date of such payment
shall not be a waiver of Lender's right to either require prompt payment when
due of all other sums so secured or to declare a default for failure to make
<PAGE>
prompt payment. The procurement of insurance or the payment of taxes or
other liens or charges by Lender shall not be a waiver of Lender's right to
accelerate the maturity of the Loan, nor shall Lender's receipt of any
awards, proceeds, or damages under SECTION 4 of the Mortgage operate to cure
or waive Borrower's or Obligors' default in payment of sums secured by any of
the Loan Documents. With respect to all Loan Documents, only waivers made in
writing by Lender shall be effective against Lender.
11.5. GOVERNING LAW; SEVERABILITY. The Loan Documents shall be
governed by and construed in accordance with the internal laws of the State
of Illinois. The invalidity, illegality or unenforceability of any provision
of this Agreement shall not affect or impair the validity, legality or
enforceability of the remainder of this Agreement, and to this end, the
provisions of this Agreement are declared to be severable.
11.6. RELATIONSHIP. The relationship between Lender and Borrower
shall be that of creditor-debtor only. No term in this Agreement or in the
other Loan Documents and no course of dealing between the parties shall be
deemed to create any relationship of agency, partnership or joint venture or
any fiduciary duty by Lender to any other party.
11.7. INDEMNITY. Borrower shall indemnify, protect, hold harmless
and defend Lender, its successors, assigns, shareholders, directors,
officers, employees, and agents from and against any and all loss, damage,
cost, expense (including attorneys' fees), and claims arising out of or in
connection with (a) the Project, (b) the Collateral, (c) any act or omission
of Borrower, any Obligor, or their respective employees or agents, whether
actual or alleged, and (d) any and all brokers' commissions or other costs of
similar type by any party in connection with the Loan, in each case except to
the extent arising from the indemnitee's gross negligence or willful
misconduct. Upon written request by an indemnitee, Borrower will undertake,
at its own costs and expense, on behalf of such indemnitee, using counsel
satisfactory to the indemnitee, the defense of any legal action or proceeding
whether or not such indemnitee shall be a party and for which such indemnitee
is entitled to be indemnified pursuant to this section. At Lender's option,
Lender may, at Borrower's expense, prosecute or defend any action involving
the priority, validity or enforceability of any of the Loan Documents.
11.8. NOTICE. Any notice or other communication required or
permitted to be given shall be in writing addressed to the respective party
as set forth below and may be personally served, telecopied or sent by
overnight courier or U.S. Mail and shall be deemed given: (a) if served in
person, when served; (b) if telecopied, on the date of transmission if before
3:00 p.m. (Chicago time) on a business day; PROVIDED that a hard copy of such
notice is also sent pursuant to (c) or (d) below; (c) if by overnight
courier, on the first business day after delivery to the courier; or (d) if
by U.S. Mail, certified or registered mail, return receipt requested on the
fourth (4th) day after deposit in the mail postage prepaid.
<PAGE>
Notices to Borrower: United-Woodmere, Inc.
2100 Golf Road, Suite 110
Rolling Meadows, Illinois 60008-4240
Attn: Mr. Edward F. Havlik
Telecopy: 847-527-9285
Notices to Lender: Heller Financial, Inc.
Real Estate Financial Services
500 West Monroe St. 17th Fl.
Chicago, Illinois 60661
Attn: Manager, Residential Investment Group
Loan No. 98-163
Telecopy: (312) 441-7740
With a copy to: Heller Financial, Inc.
Real Estate Financial Services
500 West Monroe St. 15th Fl.
Chicago, Illinois 60661
Telecopy: (312) 441-7872
Attn: Group General Counsel
Loan No. 98-163
11.9. SUCCESSORS AND ASSIGNS BOUND; JOINT AND SEVERAL LIABILITY;
AGENTS; AND CAPTIONS. The covenants and agreements contained in the Loan
Documents shall bind, and the rights thereunder shall inure to, the
respective successors and assigns of Lender, Borrower and Obligors, subject
to the provisions of this Agreement. All covenants and agreements of
Borrower and Obligors shall be joint and several. In exercising any rights
under the Loan Documents or taking any actions provided for therein, Lender
may act through its employees, agents or independent contractors as
authorized by Lender. The captions and headings of the paragraphs and
sections of this Agreement are for convenience only and are not to be used to
interpret or define the provisions hereof.
11.10. TERMS AND USAGE. As used in the Loan Documents "BUSINESS DAY"
means any day, other than a Saturday or a Sunday, when banks in Chicago,
Illinois are not required or authorized to be closed.
11.11. TIME OF ESSENCE. Time is of the essence of this Agreement and
the other Loan Documents and the performance of each of the covenants and
agreements contained herein and therein.
11.12. VENUE. BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY
STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK,
<PAGE>
STATE OF ILLINOIS AND IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S ELECTION,
ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. BORROWER
EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS
AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. BORROWER HEREBY WAIVES ANY
PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF
PROCESS MAY BE MADE UPON BORROWER BY CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED, ADDRESSED TO BORROWER, AT THE ADDRESS SET FORTH IN THIS
AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME
HAS BEEN POSTED.
11.13. JURY TRIAL WAIVER. BORROWER AND LENDER HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
OR RELATED TO, THE SUBJECT MATTER OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS AND THE BUSINESS RELATIONSHIP THAT IS BEING ESTABLISHED. THIS
WAIVER IS KNOWINGLY, INTENTIONALLY AND VOLUNTARILY MADE BY BORROWER AND
LENDER, AND BORROWER ACKNOWLEDGES THAT NEITHER LENDER NOR ANY PERSON ACTING
ON BEHALF OF LENDER HAS MADE ANY REPRESENTATIONS OF FACT TO INCLUDE THIS
WAIVER OF TRIAL BY JURY OR HAS TAKEN ANY ACTIONS WHICH IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. BORROWER AND LENDER ACKNOWLEDGE THAT THIS WAIVER IS A
MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH OF THEM
HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS AND THAT EACH OF THEM WILL CONTINUE TO RELY ON THIS
WAIVER IN THEIR RELATED FUTURE DEALINGS. BORROWER AND LENDER FURTHER
ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED (OR HAVE HAD THE OPPORTUNITY TO
BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL.
11.14. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall constitute an original, and together shall
constitute the Agreement.
11.15. FINAL AGREEMENT/MODIFICATION. This Agreement, together with
the other Loan Documents, represents the entire agreement among Borrower,
Obligors and Lender and supersedes all prior agreements among the parties
with respect to the Loan. This Agreement and the other Loan Documents may
only be modified by written instrument executed by the applicable parties.
<PAGE>
The parties hereto have executed this Agreement or has caused the same
to be executed by their duly authorized representatives as of the date first
above written.
BORROWER:
UNITED-WOODMERE, INC., an Illinois corporation
By: _________________________________
Name: William J. Crock
Title: Vice President
LENDER:
HELLER FINANCIAL, INC.
By:_______________________________________
Its:_______________________________________
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
PARCEL 1:
LOTS 1 THROUGH 12, BOTH INCLUSIVE, 23, 29, 31 AND 32 IN WOODMERE SUBDIVISION,
BEING A SUBDIVISION OF THAT PART OF THE NORTHWEST 1/4 OF THE NORTHWEST 1/4 OF
SECTION 32, TOWNSHIP 38 NORTH, RANGE 11, EAST OF THE THIRD PRINCIPAL
MERIDIAN, ACCORDING TO THE PLAT OF SUBDIVISION RECORDED AS DOCUMENT NUMBER
R96-140515, IN DUPAGE COUNTY, ILLINOIS.
PARCEL 2:
LOTS 3, 9 THROUGH 16, BOTH INCLUSIVE, AND 33 THROUGH 48, BOTH INCLUSIVE, IN
WOODMERE SUBDIVISION PHASE II, A RESUBDIVISION OF LOTS 81 AND 82 IN WOODMERE
SUBDIVISION, BEING A SUBDIVISION OF THAT PART OF THE NORTHWEST 1/4 OF THE
NORTHWEST 1/4 OF SECTION 32, TOWNSHIP 38 NORTH, RANGE 11, EAST OF THE THIRD
PRINCIPAL MERIDIAN, ACCORDING TO THE PLAT OF SUBDIVISION RECORDED AS DOCUMENT
NUMBER R96-184333, AND CERTIFICATE OF CORRECTION RECORDED AS DOCUMENT
R97-059502, IN DUPAGE COUNTY, ILLINOIS.
PARCEL 3:
LOTS 17 THROUGH 32, BOTH INCLUSIVE, 49 THROUGH 54, BOTH INCLUSIVE, AND 60 IN
WOODMERE PHASE II RESUBDIVISION BEING A RESUBDIVISION OF LOTS 17 THROUGH 32,
INCLUSIVE, LOTS 49 THROUGH 54, INCLUSIVE, LOT 60 AND OUTLOTS G, I, J, K, O, R
AND T IN WOODMERE SUBDIVISION, PHASE II, OF THAT PART OF THE NORTHWEST 1/4 OF
THE NORTHWEST 1/4 OF SECTION 32, TOWNSHIP 38 NORTH, RANGE 11, EAST OF THE
THIRD PRINCIPAL MERIDIAN, ACCORDING TO THE PLAT THEREOF RECORDED SEPTEMBER
17, 1997 AS DOCUMENT NUMBER R97-138981, IN DUPAGE COUNTY, ILLINOIS.
PARCEL 4:
EASEMENT FOR INGRESS AND EGRESS FOR THE BENEFIT OF PARCELS 1, 2 AND 3 AS
CREATED BY DECLARATION OF EASEMENT RECORDED AS DOCUMENT NUMBER R-97-040949.
<PAGE>
EXHIBIT B
FORM OF DRAW REQUEST
(See Attached)
<PAGE>
EXHIBIT C
LITIGATION
None
<PAGE>
EXHIBIT D
PROJECT BUDGET
(See Attached)
<PAGE>
EXHIBIT E
CONSTRUCTION SCHEDULE
(See Attached)
<PAGE>
SCHEDULE I
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM SECTION
<S> <C>
ABF 1.1.1.
Affiliate 6.5.
Agreement Introductory
Architect 6.14.
Architect's Contract 6.14.
Bank 1.5.1.
Base Rate 1.3.
Borrower Introductory
Business Day 11.10.
Closing Date 1.1.1.
Collateral 2.1
Construction Documents 6.14.
Construction Contract 6.14.
Construction Schedule 6.7.1.
Control 6.5.
Costs 11.1.
Depository Account 1.5.1.
Disbursement Account 1.5.2.
Environmental Indemnity 3.1(h)
Equity Loan 1.8.1.
Equity Loan Agreement 1.8.1.
Equity Loan Amendment 1.8.1.
Event of Default 9.1.
Genel 1.1.1.
General Contractor 6.14.
Havlik 2.1.
Havlik Guaranty 2.1.
Homes Recital B
Improvements Recital B
Incorporation Documents 5.3.
Indebtedness 9.1(a)
Initial Funding Amount 1.1.1.
Inspecting Architect 4.10(b)
Interest Rate 1.3.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Lender Introductory
Loan Recital A
Loan Documents Recital D
Maturity Date 1.2.
Mortgage Recital D
Note Recital A
Obligors 2.1.
Participation 1.8.2(a)
Participation Reserve 1.8.3.
Person 6.5.
Plans and Specifications 6.14.
Project Recital B
Project Budget 6.7.1.
Project Costs 6.7.1.
Property Recital B
Release Parcel Article X(c)
Revenue 1.8.2(a)
Security Agreement 2.1.
Title Company 1.5.5.
Title Policy 3.2.
Tri-Party Agreement 1.5.5.
United-Darien 1.8.1.
United Development 2.1
United Development Guaranty 2.1.
United Development Pledge Agreements 2.1.
United Homes 1.8.1.
United Homes Pledge Agreements 2.1.
United Homes Security Agreements 2.1.
</TABLE>
<PAGE>
Loan No. 98-163
Woodmere Construction Loan
CONSTRUCTION LOAN AGREEMENT
BETWEEN
HELLER FINANCIAL, INC.,
A DELAWARE CORPORATION
("LENDER")
AND
UNITED-WOODMERE, INC.,
AN ILLINOIS CORPORATION
("BORROWER")
$13,715,000 Construction Loan
Woodmere Townhome and Condominium Project
Darien, Illinois
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
ARTICLE I The Loan . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1. Disbursements. . . . . . . . . . . . . . . . . . . . . . . . 2
1.2. Loan Term. . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3. Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . 3
1.4. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.5. Cash Management System . . . . . . . . . . . . . . . . . . . 4
1.6. Application of Payments. . . . . . . . . . . . . . . . . . . 5
1.7. No Reborrowing of Repaid Principal . . . . . . . . . . . . . 5
1.8. Assumption of Equity Loan and Payment of Participation . . . 5
1.9. Prepayments of Loan. . . . . . . . . . . . . . . . . . . . . 6
ARTICLE II Security . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1. Collateral . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III Conditions Precedent to Initial Funding. . . . . . . . . . . 7
3.1. Loan Documents . . . . . . . . . . . . . . . . . . . . . . . 7
3.2. Title Policy and Endorsements. . . . . . . . . . . . . . . . 8
3.3. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.4. Compliance with Laws . . . . . . . . . . . . . . . . . . . . 8
3.5. Opinions of Counsel. . . . . . . . . . . . . . . . . . . . . 9
3.6. Zoning and Final Plat. . . . . . . . . . . . . . . . . . . . 9
3.7. Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.8. Sufficiency of Funds . . . . . . . . . . . . . . . . . . . . 9
3.9. Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.10. Additional Items . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV Method and Conditions of Disbursement of Additional Advances 9
4.1. Requirements for Disbursements . . . . . . . . . . . . . . . 9
4.2. Conditions to Each Disbursement. . . . . . . . . . . . . . . 11
4.3. Payment for On-Site or Warehoused Materials. . . . . . . . . 12
4.4. Payment for Off-Site Materials . . . . . . . . . . . . . . . 12
4.5. Soft Costs . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.6. Debit to Loan. . . . . . . . . . . . . . . . . . . . . . . . 13
4.7. Notice, Frequency and Place of Disbursements . . . . . . . . 13
4.8. Advances to General Contractor . . . . . . . . . . . . . . . 13
4.9. Receipt of Funds . . . . . . . . . . . . . . . . . . . . . . 13
4.10. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.11. Loan Balancing . . . . . . . . . . . . . . . . . . . . . . . 14
4.12. Advances Do Not Constitute a Waiver. . . . . . . . . . . . . 15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE V Representations and Warranties . . . . . . . . . . . . . . . 15
5.1. Borrower Existence . . . . . . . . . . . . . . . . . . . . . 15
5.2. Obligors . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.3. Borrower's Corporate Documents . . . . . . . . . . . . . . . 16
5.4. Other Agreements . . . . . . . . . . . . . . . . . . . . . . 16
5.5. Property . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.6. Property Access. . . . . . . . . . . . . . . . . . . . . . . 16
5.7. Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.8. Flood Hazards/Wetlands . . . . . . . . . . . . . . . . . . . 17
5.9. Taxes/Assessments. . . . . . . . . . . . . . . . . . . . . . 17
5.10. Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . 17
5.11. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.12. Accuracy . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.13. Foreign Ownership. . . . . . . . . . . . . . . . . . . . . . 17
5.14. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.15. Financial Statement/No Change. . . . . . . . . . . . . . . . 17
5.16. Single Asset Entity. . . . . . . . . . . . . . . . . . . . . 18
5.17. No Broker. . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.18. Documents. . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI Affirmative Covenants. . . . . . . . . . . . . . . . . . . . 18
6.1. Books and Records/Audits . . . . . . . . . . . . . . . . . . 18
6.2. Financial Statements; Balance Sheets . . . . . . . . . . . . 19
6.3. Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . 19
6.4. Notice of Litigation or Default. . . . . . . . . . . . . . . 20
6.5. Affiliate Transactions . . . . . . . . . . . . . . . . . . . 20
6.6. Construction . . . . . . . . . . . . . . . . . . . . . . . . 20
6.7. Project Budget and Construction Schedule . . . . . . . . . . 21
6.8 Further Encumbrances . . . . . . . . . . . . . . . . . . . . 22
6.9. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.10. Compliance with Regulations and Restrictions . . . . . . . . 22
6.11. Governmental Permissions . . . . . . . . . . . . . . . . . . 23
6.12. Correction of Defects. . . . . . . . . . . . . . . . . . . . 23
6.13. Storage of Materials . . . . . . . . . . . . . . . . . . . . 23
6.14. Construction Documents . . . . . . . . . . . . . . . . . . . 23
ARTICLE VII Negative Covenants . . . . . . . . . . . . . . . . . . . . . 23
7.1. No Amendments. . . . . . . . . . . . . . . . . . . . . . . . 23
7.2. No Waiver Under Construction Documents . . . . . . . . . . . 24
7.3. No Additional Indebtedness . . . . . . . . . . . . . . . . . 24
7.4. No Commingling Funds . . . . . . . . . . . . . . . . . . . . 24
7.5. No Liens or Transfers. . . . . . . . . . . . . . . . . . . . 24
7.6. Use of Property. . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . Additional Security 24
8.1. Nature of Additional Security. . . . . . . . . . . . . . . . 24
8.2. Rights on Default. . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE IX Events of Default; Acceleration of Indebtedness; Remedies. . 25
9.1. Events of Default. . . . . . . . . . . . . . . . . . . . . . 25
9.2. Acceleration; Remedies . . . . . . . . . . . . . . . . . . . 26
9.3. Lender's Performance Conditional . . . . . . . . . . . . . . 27
ARTICLE X Partial Releases . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE XI Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . 28
11.1. Expenditures and Expenses. . . . . . . . . . . . . . . . . . 28
11.2. Disclosure of Information. . . . . . . . . . . . . . . . . . 29
11.3. Sale of Loan . . . . . . . . . . . . . . . . . . . . . . . . 29
11.4. Forbearance by Lender Not a Waiver . . . . . . . . . . . . . 29
11.5. Governing Law; Severability. . . . . . . . . . . . . . . . . 29
11.6. Relationship . . . . . . . . . . . . . . . . . . . . . . . . 29
11.7. Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.8. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.9. Successors and Assigns Bound; Joint and Several Liability;
Agents; and Captions . . . . . . . . . . . . . . . . . . . . 31
11.10. Terms and Usage. . . . . . . . . . . . . . . . . . . . . . . 31
11.11. Time of Essence. . . . . . . . . . . . . . . . . . . . . . . 31
11.12. Venue. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.13. Jury Trial Waiver. . . . . . . . . . . . . . . . . . . . . . 31
11.14. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 32
11.15. Final Agreement/Modification . . . . . . . . . . . . . . . . 32
EXHIBIT A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
EXHIBIT B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
EXHIBIT C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
EXHIBIT D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
EXHIBIT E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
SCHEDULE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
</TABLE>
<PAGE>
Exhibit 10.10
Loan No. 98-163
Woodmere Construction Loan
PROMISSORY NOTE
$13,715,000.00 June 22, 1998
1. PROMISE TO PAY.
FOR VALUE RECEIVED, UNITED-WOODMERE, INC., an Illinois corporation
("MAKER") whose address is 2100 Golf Road, Suite 110, Rolling Meadows,
Illinois 60008 promises to pay to the order of HELLER FINANCIAL, INC., a
Delaware corporation, and its successors and assigns ("HOLDER") the sum of
Thirteen Million Seven Hundred Fifteen Thousand and No/100 Dollars
($13,715,000.00), together with all other amounts added thereto pursuant to
this Note or otherwise payable to Holder including, but not limited to, the
amounts set forth in the Loan Agreement (as hereinafter defined) (the "LOAN")
(or so much thereof as may from time to time be outstanding), together with
interest thereon as hereinafter set forth, payable in lawful money of the
United States of America. Payments shall be made to Holder at 500 West
Monroe Street, 15th Floor, Chicago, Illinois 60661 (or such other address as
Holder may hereafter designate in writing to Maker).
This Note is secured by, among other things, that certain Mortgage,
Assignment of Rents and Security Agreement of even date herewith (the
"MORTGAGE") encumbering, among other things, the property commonly described
as the Woodmere Project located on the east side of Lemont Road south of 75th
Street in Darien, Illinois (the "PROPERTY"). This Note, the Mortgage, the
Construction Loan Agreement of even date herewith (the "LOAN AGREEMENT") and
any other documents evidencing or securing the Loan or executed in connection
therewith, and any modification, renewal or extension of any of the foregoing
are collectively called the "LOAN DOCUMENTS."
2. PRINCIPAL AND INTEREST.
So long as no Event of Default exists, interest shall accrue on the
principal balance hereof from time to time outstanding and Maker shall pay
interest thereon at a rate equal to a floating rate per annum equal to the
Base Rate plus three and three-quarters percent (3.75%) (the aggregate rate
referred to as the "INTEREST RATE"). "BASE RATE" shall mean the rate
published each day in THE WALL STREET JOURNAL for notes maturing three (3)
months after issuance under the caption "Money Rates, London Interbank
Offered Rates (LIBOR)". The Interest Rate for each calendar month shall be
fixed based upon the Base Rate published prior to and in effect on the first
(1st) business day of such month. Interest shall be calculated based on a
360 day year and charged for the actual number of days elapsed.
<PAGE>
3. PAYMENT.
Commencing July 1, 1998, Maker shall make monthly payments of interest
in arrears on or before the first day of each month computed on the
outstanding principal balance of the Loan at the Interest Rate.
The Loan shall be due and payable on or before December 15, 1998, or any
earlier date on which the Loan shall be required to be paid in full, whether
by acceleration or otherwise ("MATURITY DATE").
4. PREPAYMENT.
Maker may prepay the Loan in full or in part without premium at any time
subject to payment of the Participation (as defined in the Loan Agreement).
5. DEFAULT.
5.1 EVENTS OF DEFAULT.
Any of the following shall constitute an "EVENT OF DEFAULT" under this
Note: (a) failure to pay any amounts owed pursuant to this Note within five
(5) calendar days after such payment is due; or (b) the occurrence of any
default under any of the other Loan Documents, after giving effect to any
applicable grace or cure period.
5.2 REMEDIES.
So long as an Event of Default remains outstanding: (a) interest shall
accrue at a rate equal to the Interest Rate plus four percent (4%) per annum
(the "DEFAULT RATE"); (b) Holder may, at its option and without notice (such
notice being expressly waived), declare the Loan immediately due and payable;
and (c) Holder may pursue all rights and remedies available under the
Mortgage or any other Loan Documents. Holder's rights, remedies and powers,
as provided in this Note and the other Loan Documents, are cumulative and
concurrent, and may be pursued singly, successively or together against
Maker, any guarantor of the Loan, the security described in the Loan
Documents, and any other security given at any time to secure the payment
hereof, all at the sole discretion of Holder. Additionally, Holder may
resort to every other right or remedy available at law or in equity without
first exhausting the rights and remedies contained herein, all in Holder's
sole discretion. Failure of Holder, for any period of time or on more than
one occasion, to exercise its option to accelerate the Maturity Date shall
not constitute a waiver of the right to exercise the same at any time during
the continued existence of any Event of Default or any subsequent Event of
Default.
If any attorney is engaged: (i) to collect the Loan or any sums due
under the Loan Documents, whether or not legal proceedings are thereafter
instituted by Holder; (ii) to
<PAGE>
represent Holder in any bankruptcy, reorganization, receivership or other
proceedings affecting creditors' rights and involving a claim under this
Note; (iii) to protect the liens and security interests of the Mortgage or
any of the Loan Documents; (iv) to represent Holder in any other proceedings
whatsoever in connection with this Note or any of the Loan Documents
including post judgment proceedings to enforce any judgment related to the
Loan Documents; or (v) in connection with seeking an out-of-court workout or
settlement of any of the foregoing, then Maker shall pay to Holder all costs,
attorneys' fees and expenses in connection therewith, in addition to all
other amounts due hereunder.
6. LATE CHARGE.
If payments of principal and/or interest, or any other amounts under the
other Loan Documents are not timely made or remain overdue for a period of
five (5) days, Maker, without notice or demand by Holder, promptly shall pay
an amount ("LATE CHARGE") equal to four percent (4%) of each delinquent
payment.
7. GOVERNING LAW; SEVERABILITY.
This Note shall be governed by and construed in accordance with the
internal laws of the State of Illinois. The invalidity, illegality or
unenforceability of any provision of this Note shall not affect or impair the
validity, legality or enforceability of the remainder of this Note, and to
this end, the provisions of this Note are declared to be severable.
8. WAIVER.
Maker, for itself and all endorsers, guarantors and sureties of this
Note, and their heirs, successors and assigns and legal representatives,
hereby waives presentment for payment, demand, notice of nonpayment, notice
of dishonor, protest of any dishonor, notice of protest and protest of this
Note, and all other notices in connection with the delivery, acceptance,
performance, default or enforcement of the payment of this Note, and agrees
that their respective liability shall be unconditional and without regard to
the liability of any other party and shall not be in any manner affected by
any indulgence, extension of time, renewal, waiver or modification granted or
consented to by Holder. Maker, for itself and all endorsers, guarantors and
sureties of this Note, and their heirs, legal representatives, successors and
assigns, hereby consents to every extension of time, renewal, waiver or
modification that may be granted by Holder with respect to the payment or
other provisions of this Note, and to the release of any makers, endorsers,
guarantors or sureties, and of any collateral given to secure the payment
hereof, or any part hereof, with or without substitution, and agrees that
additional makers, endorsers, guarantors or sureties may become parties
hereto without notice to Maker or to any endorser, guarantor or surety and
without affecting the liability of any of them.
<PAGE>
9. SECURITY, APPLICATION OF PAYMENTS.
This Note is secured by the liens, encumbrances and obligations created
hereby and by the other Loan Documents and the terms and provisions of the
other Loan Documents are hereby incorporated herein. Payments will be
applied, at Holder's option, first to any fees, expenses or other costs Maker
is obligated to pay under this Note or the other Loan Documents, second to
interest due on the Loan and third to the outstanding principal balance of
the Loan.
10. MISCELLANEOUS.
10.1 AMENDMENTS.
This Note may not be terminated or amended orally, but only by a
termination or amendment in writing signed by Holder.
10.2 LAWFUL RATE OF INTEREST.
In no event whatsoever shall the amount of interest paid or agreed to be
paid to Holder pursuant to this Note or any of the Loan Documents exceed the
highest lawful rate of interest permissible under applicable law. If, from
any circumstances whatsoever, fulfillment of any provision of this Note and
the other Loan Documents shall involve exceeding the lawful rate of interest
which a court of competent jurisdiction may deem applicable hereto ("EXCESS
INTEREST"), then IPSO FACTO, the obligation to be fulfilled shall be reduced
to the highest lawful rate of interest permissible under such law and if, for
any reason whatsoever, Holder shall receive, as interest, an amount which
would be deemed unlawful under such applicable law, such interest shall be
applied to the Loan (whether or not due and payable), and not to the payment
of interest, or refunded to Maker if such Loan has been paid in full.
Neither Maker nor any guarantor or endorser shall have any action against
Holder for any damages whatsoever arising out of the payment or collection of
any such Excess Interest.
10.3 CAPTIONS.
The captions of the Paragraphs of this Note are for convenience of
reference only and shall not be deemed to modify, explain, enlarge or
restrict any of the provisions hereof.
10.4 NOTICES.
Notices shall be given under this Note in conformity with the terms and
conditions of the Loan Agreement.
<PAGE>
10.5 JOINT AND SEVERAL.
The obligations of Maker under this Note shall be joint and several
obligations of Maker and of each Maker, if more than one, and of each Maker's
heirs, personal representatives, successors and assigns.
10.6 TIME OF ESSENCE.
Time is of the essence of this Note and the performance of each of the
covenants and agreements contained herein.
11. SALE OF LOAN.
Holder, at any time and without the consent of Maker, may grant
participations in or sell, transfer, assign and convey all or any portion of
its right, title and interest in and to the Loan, this Note, the Mortgage and
the other Loan Documents, any guaranties given in connection with the Loan
and any collateral given to secure the Loan.
12. VENUE.
MAKER HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN THE COUNTY OF COOK, STATE OF ILLINOIS AND IRREVOCABLY AGREES
THAT, SUBJECT TO HOLDER'S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF
OR RELATING TO THIS NOTE SHALL BE LITIGATED IN SUCH COURTS. MAKER EXPRESSLY
SUBMITS AND CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES
ANY DEFENSE OF FORUM NON CONVENIENS. MAKER HEREBY WAIVES ANY PERSONAL
SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS
MAY BE MADE UPON MAKER BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT
REQUESTED, ADDRESSED TO MAKER, AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND
SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN
POSTED.
<PAGE>
13. JURY TRIAL WAIVER.
MAKER, AND HOLDER BY ITS ACCEPTANCE OF THIS NOTE, HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
OR RELATED TO, THE SUBJECT MATTER OF THIS NOTE AND THE BUSINESS RELATIONSHIP
THAT IS BEING ESTABLISHED. THIS WAIVER IS KNOWINGLY, INTENTIONALLY AND
VOLUNTARILY MADE BY MAKER AND BY HOLDER, AND MAKER ACKNOWLEDGES THAT NEITHER
HOLDER NOR ANY PERSON ACTING ON BEHALF OF HOLDER HAS MADE ANY REPRESENTATIONS
OF FACT TO INCLUDE THIS WAIVER OF TRIAL BY JURY OR HAS TAKEN ANY ACTIONS
WHICH IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. MAKER AND HOLDER ACKNOWLEDGE
THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT MAKER AND HOLDER HAVE ALREADY RELIED ON THIS WAIVER IN
ENTERING INTO THIS NOTE AND THAT EACH OF THEM WILL CONTINUE TO RELY ON THIS
WAIVER IN THEIR RELATED FUTURE DEALINGS. MAKER AND HOLDER FURTHER
ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED (OR HAVE HAD THE OPPORTUNITY TO
BE REPRESENTED) IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER
BY INDEPENDENT LEGAL COUNSEL.
IN WITNESS WHEREOF, Maker has executed this Note or has caused the same
to be executed by its duly authorized representatives as of the date set
first forth above.
MAKER:
UNITED-WOODMERE, INC., an Illinois
corporation
By: ________________________
Name: William J. Crock, Jr.
Its: Vice President
<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, 1998 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-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 796
<SECURITIES> 0
<RECEIVABLES> 14,298
<ALLOWANCES> 0
<INVENTORY> 71,727
<CURRENT-ASSETS> 4,280
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 91,101
<CURRENT-LIABILITIES> 14,598
<BONDS> 63,496
0
0
<COMMON> 1,204
<OTHER-SE> 11,803
<TOTAL-LIABILITY-AND-EQUITY> 91,101
<SALES> 107,149
<TOTAL-REVENUES> 108,501
<CGS> 100,242
<TOTAL-COSTS> 100,242
<OTHER-EXPENSES> 4,814
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,386
<INCOME-TAX> 1,366
<INCOME-CONTINUING> 2,021
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,021
<EPS-PRIMARY> 20
<EPS-DILUTED> 20
</TABLE>