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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 1994
REGISTRATION NO. 33-52241
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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M.D.C. HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 6550 84-0622967
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION NUMBER)
ORGANIZATION)
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3600 SOUTH YOSEMITE STREET
SUITE 900
DENVER, COLORADO 80237
(303) 773-1100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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SPENCER I. BROWNE
PRESIDENT AND CHIEF OPERATING OFFICER
M.D.C. HOLDINGS, INC.
3600 SOUTH YOSEMITE STREET
SUITE 900
DENVER, COLORADO 80237
(303) 773-1100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
NESA E. HASSANEIN PARIS G. REECE III
BROWNSTEIN HYATT FARBER & STRICKLAND, VICE PRESIDENT AND CHIEF FINANCIAL
P.C. OFFICER
410 SEVENTEENTH STREET M.D.C. HOLDINGS, INC.
22ND FLOOR 3600 SOUTH YOSEMITE STREET
DENVER, COLORADO 80202 SUITE 900
DENVER, COLORADO 80237
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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M.D.C. HOLDINGS, INC.
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS IN PART I OF FORM S-3
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ITEM LOCATION IN PROSPECTUS
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1. Forepart of Registration Facing page; Outside front cover page
Statement and Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Inside front and outside back cover pages
Cover Pages of Prospectus
3. Summary Information, Risk Prospectus Summary; Risk Factors
Factors, Ratio of Earnings to
Fixed Charges
4. Use of Proceeds N/A
5. Determination of Offering Price N/A
6. Dilution N/A
7. Selling Security Holders Selling Security Holders
8. Plan of Distribution Plan of Distribution
9. Description of Securities to be Description of the Convertible Notes;
Registered Description of Common Stock
10. Interests of Named Experts and N/A
Counsel
11. Material Changes N/A
12. Incorporation of Certain Available Information; Incorporation of
Information by Reference Certain Documents by Reference
13. Disclosure of Commission N/A
Position on Indemnification for
Securities Act Liabilities
</TABLE>
<PAGE>
PROSPECTUS
M.D.C. HOLDINGS, INC.
8 3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2005
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The Prospectus relates to the public offering by the Selling Security Holders
(the "Selling Security Holders") of up to $28,000,000 principal amount of 8
3/4% Convertible Subordinated Notes due 2005 (the "Convertible Notes") of
M.D.C. Holdings, Inc., a Delaware corporation (the "Company"). The Convertible
Notes were originally issued in a private placement (the "Private Placement")
on December 28, 1993 by the Company.
The Convertible Notes are convertible at the option of the holder into Common
Stock (as defined) of the Company, unless previously redeemed or repurchased,
at any time prior to maturity at $7.75 per share, subject to adjustment in
certain events. The Convertible Notes are redeemable, in whole or in part, at
the option of the Company, at any time on or after December 15, 1998 at the
redemption prices set forth herein, plus accrued interest to the redemption
date. Interest on the Convertible Notes is payable semi-annually on June 15 and
December 15, commencing June 15, 1994. The Convertible Notes are general
unsecured obligations of the Company and are subordinated in right of payment
to all present and future Senior Indebtedness (as defined) and effectively
subordinated to all indebtedness and preferred stock of the Company's
subsidiaries. See "Description of the Convertible Notes." The Common Stock of
the Company is traded on the New York Stock Exchange ("NYSE") and the Pacific
Stock Exchange ("PSE") prices are reported under the symbol "MDC."
Upon a Change of Control (as defined), holders of the Convertible Notes will
have the right to require the Company to offer to repurchase their Convertible
Notes at a price equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest, if any, to the date of repurchase. The Company's
obligation to make such repurchase is subject to its prior purchase of its 11
1/8% Senior Notes due 2003 (the "Senior Notes") under similar circumstances.
The Selling Security Holders directly or through agents, dealers or
underwriters may sell the Convertible Notes from time to time on terms to be
determined at the time of sale. To the extent required, the specified
Convertible Notes to be sold, the names of the Selling Security Holders, the
respective purchase prices and public offering prices, the name of any agent,
dealer or underwriter and applicable commissions or discounts with respect to a
particular offering will be set forth in an accompanying Prospectus Supplement
or, if appropriate, a post-effective amendment to the Registration Statement of
which this Prospectus is a part. See "Plan of Distribution." Each of the
Selling Security Holders reserves the sole right to accept or to reject, in
whole or in part, any proposed purchase of its Convertible Notes.
The Company will not receive any proceeds from this offering but, by
agreement, will pay substantially all expenses of this offering, other than
commissions and discounts of underwriters, dealers or agents. The Selling
Security Holders, and any underwriters, dealers or agents that participate with
the Selling Security Holders in the distribution of the Convertible Notes, may
be deemed to be "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), and any commissions received by them
and any profit on the resale of the Convertible Notes purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
See "Plan of Distribution" for indemnification arrangements between the Company
and the Selling Security Holders and for indemnification arrangements for
underwriters.
The Company has been advised by Friedman, Billings, Ramsey & Co., Inc.
("FBR"), the placement agent in the Private Placement, that FBR intends to make
a market in the Convertible Notes offered hereby, but FBR is not obligated to
do so and there can be no assurance that an active public market in the
Convertible Notes will develop. The Company does not intend to list the
Convertible Notes on any national securities exchange. The Company intends to
list the shares of Common Stock issuable upon conversion of the Convertible
Notes on the NYSE and the PSE.
SEE "RISK FACTORS" FOR A DESCRIPTION OF CERTAIN RISKS INVOLVED IN THE
PURCHASE OF THE CONVERTIBLE NOTES.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------
The date of this Prospectus is May 19, 1994
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 under the Securities Act,
with respect to the Convertible Notes and the Common Stock into which the
Convertible Notes are convertible. For the purposes hereof, the term
"Registration Statement" means the original Registration Statement and any and
all amendments thereto. This Prospectus does not contain all of the information
set forth in the Registration Statement and the schedules and exhibits thereto,
to which reference hereby is made. Each statement made in this Prospectus
concerning a document filed as an exhibit to the Registration Statement is
qualified in its entirety by reference to such exhibit for a complete statement
of its provisions.
The Company is subject to the informational reporting requirements of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information can
be inspected, without charge, at the public reference facilities of the
Commission at its principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at its regional office at 500 W. Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th
Floor, New York, New York 10007. Any interested party may obtain copies of such
materials at prescribed rates from the Public Reference Section of the
Commission at its principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. In addition, such material can be inspected
at the offices of the New York Stock Exchange, 20 Broad Street, New York, New
York and the Pacific Stock Exchange, 115 Sansome Street, Suite 1104, San
Francisco, California.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus incorporates by reference documents which are not presented
herein or delivered herewith. Copies of any such documents filed by the
Company, including exhibits to such documents, are available upon request, and
without charge, from M.D.C. Holdings, Inc., 3600 South Yosemite Street, Suite
900, Denver, Colorado 80237, Attention: Paris G. Reece III, Vice President and
Chief Financial Officer (telephone (303) 773-1100).
The following documents, which have been filed by the Company with the
Commission, are hereby incorporated by reference in this Prospectus:
(i) Annual Report on Form 10-K for the fiscal year ended December 31, 1993;
(ii) Form 10-K/A-1 dated April 13, 1994 amending the Annual Report on Form
10-K for the fiscal year ended December 31, 1993;
(iii) Quarterly Report on Form 10-Q dated May 16, 1994 for the three months
ended March 31, 1994;
(iv) Current Report on Form 8-K dated January 11, 1994;
(v) Current Report on Form 8-K dated March 23, 1994; and
(vi) Proxy Statement dated May 14, 1993 relating to the 1993 Annual Meeting
of Stockholders.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Convertible Notes shall be deemed to
be incorporated by reference into this Prospectus and to be a part hereof from
the respective dates of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein, or in any subsequently filed document
that also is or is modified to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere or incorporated by reference in this Prospectus. References herein to
"MDC" or the "Company," unless otherwise indicated, refer to M.D.C. Holdings,
Inc. and its subsidiaries.
THE COMPANY
The Company is a national home builder with major operations in Colorado,
northern Virginia and suburban Maryland (collectively "Mid-Atlantic") and
northern California, and smaller operations in Arizona, Nevada and southern
California. Principally through HomeAmerican Mortgage Corporation
("HomeAmerican"), a wholly-owned subsidiary, the Company originates mortgage
loans for its home buyers and for others. HomeAmerican also purchases loans
originated by unaffiliated loan correspondents. To a substantially lesser
extent, the Company owns and manages portfolios of mortgage-related assets.
In its home building segment, the Company's strategy is to build quality
homes at affordable prices. The Company, as the general contractor, supervises
the development and construction of all of its projects and employs
subcontractors for site development and home construction. The Company
emphasizes the building of single-family homes generally for the first-time and
move-up buyer. Homes are constructed according to basic designs based on
customer preferences in the location in which they are built. Single-family
homes are built and sold by the Company's subsidiaries using the name Richmond
American Homes and Richmond Homes.
HomeAmerican is a Federal Housing Administration, Veterans Administration,
Federal National Mortgage Association and Federal Home Loan Mortgage
Corporation authorized mortgage loan originator. Substantially all of the
mortgage loans originated by HomeAmerican are sold to private investors.
HomeAmerican initially retains the right to service these mortgage loans
selling the servicing at a later date, usually in bulk.
The Company's asset management operations (collectively, the "asset
management segment"), among other things, enable MDC to (i) manage the day-to-
day operations of two national securities exchange-listed real estate
investment trusts; (ii) own interests ("CMO Ownership Interests") in issuances
of collateralized mortgage obligations ("CMO bonds"); and (iii) own interests
in various other investments. The Company currently does not expect to acquire
additional CMO Ownership Interests in the future, except to the extent
attractive opportunities may be identified. As a result, future income from the
asset management segment primarily will be dependent on management fees.
The Company is a Delaware corporation originally incorporated in Colorado in
1972. The principal executive offices of the Company are located at 3600 South
Yosemite Street, Suite 900, Denver, Colorado 80237, and its telephone number is
(303) 773-1100.
3
<PAGE>
RISK FACTORS
See "Risk Factors" for a discussion of certain risks involved in the purchase
of the Convertible Notes.
THE OFFERING
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Issue................. Up to $28,000,000 principal amount of 8 3/4% Convertible
Subordinated Notes due 2005 (the "Convertible Notes"). The
Convertible Notes were privately placed initially and the
proceeds received by the Company were used to, among other
things, repay certain indebtedness and for general
corporate purposes. The Convertible Notes offered hereby
are being offered for sale by the Selling Security
Holders, and the Company will not receive any part of the
proceeds from the sale thereof. The indenture governing
the Convertible Notes (the "Convertible Notes Indenture")
permits the issuance of up to $50,000,000 principal amount
of Convertible Notes (including the $28,000,000 of
Convertible Notes offered by this Prospectus). See
"Description of the Convertible Notes--General."
Interest Payment
Dates................ June 15 and December 15, commencing June 15, 1994
Ranking............... The Convertible Notes are general unsecured obligations
of the Company and are subordinate in right of payment to
all present and future Senior Indebtedness (as defined).
The Convertible Notes effectively are subordinate to all
indebtedness and preferred stock of the Company's
subsidiaries. See "Description of the Convertible Notes--
Subordination."
Conversion............ Each Convertible Note is convertible at the option of the
holder at any time prior to maturity, unless previously
redeemed or repurchased, into shares of Common Stock, at
$7.75 per share, subject to adjustment under certain
circumstances. If the Convertible Notes are called for
redemption or subject to repurchase, the right to convert
such Convertible Notes will expire at the close of
business on the second business day immediately preceding
the specified redemption or repurchase date. See
"Description of the Convertible Notes--Conversion
Rights."
Optional Redemption... The Convertible Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after
December 15, 1998, at the redemption prices set forth
herein, plus accrued interest, if any, to the date of
redemption. See "Description of the Convertible Notes--
Optional Redemption by the Company."
Change of Control..... In the event of a Change of Control, holders of the
Convertible Notes will have the right to require the
Company to offer to purchase all Convertible Notes then
outstanding at a purchase price equal to 101% of the
aggregate principal amount of the Convertible Notes, plus
accrued and unpaid interest, if any, to the date of
purchase. The Company's obligation to make such
repurchase is subject to its prior purchase of the Senior
Notes under similar circumstances. See "Description of
the Convertible Notes--Covenants--Repurchase of
Convertible Notes at the Option of the Holder Upon a
Change of Control."
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Certain Covenants.. The Convertible Notes Indenture generally does not
contain covenants limiting the operations of the Company.
See "Description of the Convertible Notes--Covenants" and
"Description of the Convertible Notes--Limitation on
Merger, Sale or Consolidation."
Listing............ The Company does not intend to list the Convertible Notes
on any national securities exchange. The Company intends
to list the shares of Common Stock underlying the
Convertible Notes on the NYSE and the PSE.
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
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1994 1993 1993 1992 1991 1990 1989
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INCOME STATEMENT DATA:
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Revenues................ $168,693 $115,885 $652,076 $511,568 $422,232 $512,695 $724,075
Income (loss) from con-
tinuing
operations............. 3,806 915 10,056 4,765 (12,903) (11,954) (90,091)
Income (loss) from con-
tinuing
operations per primary
common share........... $ .19 $ .04 $ .45 $ .22 $ (.62) $ (.63) $ (5.66)
Ratio of earnings to
fixed charges(1)....... 1.83 1.30 1.72 1.61 .53 .73 --
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<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------------------------------
1994 1993 1992 1991 1990 1989
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BALANCE SHEET DATA:
Total assets............ $733,224 $776,866 $858,944 $1,316,793 $1,477,146 $1,663,726
Total debt(2)........... 329,570 345,676 325,835 350,776 411,291 515,179
Stockholders' equity.... 178,270 175,854 164,182 160,488 157,261 150,474
</TABLE>
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(1) In computing the ratio of earnings to fixed charges, fixed charges consist
of home building and corporate interest expense plus (i) amortization and
expensing of debt expenses; (ii) amortization of discount or premium
relating to indebtedness; and (iii) capitalized interest. Earnings are
computed by adding fixed charges (except capitalized interest) and
amortization of previously capitalized interest to pretax earnings from
continuing operations. In computing the ratio, interest expense incurred by
the Company's mortgage lending and asset management segments is excluded.
The ratio is not applicable for the year ended December 31, 1989 due to a
net loss incurred in this year. Earnings for the years ended December 31,
1991, 1990 and 1989, respectively, were inadequate to cover fixed charges
by $13,029,000, $10,159,000 and $118,004,000.
(2) Excludes CMO bond indebtedness.
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RISK FACTORS
Prospective investors should carefully consider the following considerations
in addition to the other information set forth in this Prospectus before making
an investment in the Convertible Notes offered hereby.
LEVERAGE
The home building industry is capital intensive. The Company finances a
substantial portion of its land acquisition and residential construction
activities through the incurrence by its subsidiaries of secured indebtedness
and, as a result, the Company is highly leveraged. As of March 31, 1994, the
Company's total indebtedness (excluding CMO bond indebtedness) was $329,570,000
and the Company's debt-to-equity ratio was approximately 1.85 to 1. In
addition, agreements governing certain indebtedness that ranks senior to the
Convertible Notes permit the Company to incur significant additional
indebtedness. Although the Company expects to generate sufficient cash flow
from operations to meet its debt service obligations, there can be no assurance
that the Company will be able to satisfy its obligations to repurchase, under
certain circumstances, all or a portion of the Convertible Notes. See
"Description of the Convertible Notes." The ability of the Company to meet its
obligations will depend upon the future performance of the Company and will be
subject to financial, business and other factors affecting the business and
operations of the Company, including general economic conditions.
HOLDING COMPANY ISSUER
Most of the operations of the Company are conducted through, and most of the
Company's assets are held by, its subsidiaries, and, therefore, the Company is
dependent on the cash flow of its subsidiaries to meet its debt obligations,
including its obligations under the Convertible Notes. Except to the extent the
Company may itself be a creditor with recognized claims against its
subsidiaries, all claims of creditors and holders of preferred stock of the
subsidiaries will have priority with respect to the assets of such subsidiaries
over the claims of creditors of the Company, including holders of the
Convertible Notes. At March 31, 1994, the Company's subsidiaries had
$171,216,000 aggregate principal amount of indebtedness and liquidation
preference of preferred stock outstanding. Instruments governing certain
indebtedness of the Company's subsidiaries contain restrictions on transfer of
funds from such subsidiaries to the Company.
THE HOME BUILDING INDUSTRY
The home building industry significantly is affected by changes in economic
conditions, the supply of homes, changes in governmental regulation (including
uncertainties involving the entitlement process in the improvement of
undeveloped land), increases in real estate taxes, energy costs and costs of
materials and labor, the availability and cost of suitable land, environmental
factors, weather and the availability of financing at rates and on terms
acceptable to home builders and home buyers. Beginning in 1992 through October
1993, home mortgage interest rates declined to their lowest levels in 25 years
to an average of 6.7% on a 30-year, fixed-rate mortgage. From October 1993 to
May 1994, these rates have increased to as high as 9%. Increases in mortgage
interest rates adversely affect the Company's home building and mortgage
lending segments. Higher mortgage interest rates (i) may reduce the demand for
homes and home mortgages; and (ii) generally will reduce home mortgage
refinancing activity. With the recent increases in mortgage interest rates
relative to levels in 1993, the Company, consistent with the rest of the
industry in general, has experienced a major decline in refinancing activity in
its mortgage lending operations. These events have affected adversely the spot
mortgage loan originations and the amount of mortgage loans purchased through
correspondents by the Company's mortgage lending segment, although increased
originations from the Company's home building operations have offset to a
significant degree these declines. The Company is unable to predict the extent
to which current or future increases in mortgage interest rates will adversely
affect the Company's operating activities and results of operations.
The housing industry is cyclical and significantly is affected by prevailing
economic conditions. The Company's business and earnings are dependent in large
part on its Colorado and Mid-Atlantic markets. The Colorado market was affected
adversely beginning in 1986 through 1991 by weaknesses in the state economy as
well as by weaknesses in the housing industry in this market. The Company
experienced an
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increase in the number of new contracts for the purchase of homes in Colorado
beginning in 1991 which has continued through March 31, 1994. There can be no
assurance that the Company will be able to maintain or increase this level of
new sales contracts or deliver an increasing number of homes in the future in
its Colorado market. From late 1988 through 1990, the Company's Mid-Atlantic
market was affected adversely by weaknesses in the housing industry in this
market. The Company experienced an increase in the number of new contracts for
the purchase of homes in its Mid-Atlantic market in 1991 which has continued
through March 31, 1994, primarily due to (i) moderate growth in the region's
economy; (ii) an increase in the total number of subdivisions in which the
Company is operating; and (iii) the reduction in mortgage interest rates which
began in 1991 and continued to October 1993. There can be no assurance that the
Company will be able to maintain or increase this level of new sales contracts
or deliver an increasing number of homes in the future in its Mid-Atlantic
market.
The adoption, in August 1989, of the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 ("FIRREA"), as well as the national "credit crunch"
that commenced in mid-1989, and the enactment in August 1991 of the Federal
Deposit Insurance Corporation Improvements Act of 1991, affected adversely the
ability of home builders to acquire and develop land into finished sites for
homes. FIRREA, among other things, has reduced the amount of resources thrifts
allocate to acquisition, development and construction loans, which has
affected, and in the future may affect, adversely the Company's ability to
acquire and develop new properties and develop its current land inventory into
finished sites suitable for the construction of homes.
REGULATORY AND ENVIRONMENTAL FACTORS
The Company is subject to continuing compliance with various federal, state
and local statutes, ordinances, rules and regulations, including, among others,
zoning and land use ordinances, building, plumbing and electrical codes,
contractors' licensing laws and health and safety regulations and laws. Various
localities in which the Company operates have imposed (or may in the future
impose) fees on developers to fund, among other things, schools, road
improvements and low and moderate income housing.
From time to time, various municipalities in which the Company operates,
particularly in California and Nevada, restrict or place moratoriums on the
availability of water and sewer taps. Additionally, certain jurisdictions in
which the Company operates (particularly in California) have proposed or
enacted growth initiatives restricting the number of building permits available
in any given year. Although no assurance can be given as to future conditions
or future governmental action, in general, the Company believes that it has, or
under existing agreements and regulations ultimately can obtain, an adequate
number of water and sewer taps and building permits for its inventory of land
and land held for development. The Company's general policy is to acquire
finished building sites and land for development only in areas which have, or
will have upon completion of development, the availability of building permits,
access to utilities and other municipal service facilities necessary for
anticipated development requirements. Generally, the zoning of land is suitable
for its intended use when acquired.
The home building operations of the Company also are affected by
environmental considerations pertaining to, among other things, availability of
water, municipal sewage treatment capacity, land use, hazardous waste disposal,
naturally occurring radioactive materials, building materials, population
density and preservation of the natural terrain and vegetation (collectively,
"Environmental Laws"). The particular Environmental Laws which apply to any
given home building project vary greatly according to the site's location,
environmental conditions and present and former uses. These Environmental Laws
may result in delays, may cause the Company to incur substantial compliance and
other costs and may prohibit or severely restrict home building activity in
certain environmentally-sensitive regions or areas.
COMPETITION
The real estate industry is fragmented and highly competitive. In each of its
markets, the Company competes with numerous home builders, subdivision
developers and land development companies (a number of which build nationwide).
Home builders not only compete for customers, but also for, among other things,
desirable financing, raw materials and skilled labor. In a number of its
markets, the Company competes with
7
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home builders that are substantially larger and have greater financial
resources than the Company. Competition for home sales is based, among other
factors, on price, style, financing provided to prospective purchasers,
location, quality, warranty service and general reputation in the community.
The mortgage industry is fragmented and highly competitive. In each of the
areas in which it originates loans, HomeAmerican competes with numerous banks,
thrifts and mortgage bankers, many of which are larger and have greater
financial resources than HomeAmerican. Competition is based, among other
factors, on pricing, loan terms and underwriting criteria.
AFFILIATED TRANSACTIONS
The Company has entered into several transactions with affiliates, including
Larry A. Mizel, the Company's Chairman of the Board of Directors and Chief
Executive Officer, David D. Mandarich, Executive Vice President--Real Estate
and a director of the Company and other members of the Board of Directors.
Material transactions between the Company and its officers and directors are
subject to review by the Company's Board of Directors. Such review includes a
review of the fairness of the transaction or an independent appraisal.
THRIFT INVESTIGATIONS
The Company understands that investigations are being conducted by Federal
grand juries and other government agencies in various states with regard to the
failures of a number of thrifts with which MDC had business transactions during
the period 1983 through mid-1988. The Company and its affiliates have received
and responded to subpoenas requesting documents and information in connection
with certain investigations and may in the future receive additional inquiries
or subpoenas. No indictments or charges have been brought against the Company
or any of its officials by any grand jury investigating the failure of any
savings and loan institutions. Although the Company believes there is no basis
for the imposition of criminal or civil liability in connection therewith, were
any indictment or charge to be brought against the Company, there could be a
material adverse effect upon the Company's financial position and liquidity.
TAX MATTERS
M.D.C. Holdings, Inc. and its wholly-owned subsidiaries file a consolidated
federal income tax return (the "MDC Consolidated Return"). Richmond Homes, Inc.
I ("Richmond Homes") and its subsidiaries filed (or will file) separate
consolidated federal income tax returns (the "Richmond Homes Consolidated
Returns") from its inception (December 28, 1989) through the date Richmond
Homes was merged into a wholly-owned subsidiary of MDC (February 2, 1994).
The Internal Revenue Service (the "IRS") has completed its examination of the
MDC Consolidated Returns for the years 1984 through 1987 and has proposed
certain adjustments to the taxable income reflected in such returns. A
substantial portion of the proposed adjustments concern the characterization of
$22,000,000 in gains on sales of property held for investment, which were
reported as capital gains. Certain of the other proposed adjustments would
shift the recognition of certain items of income and expense from one year to
another ("Timing Adjustments"). To the extent taxable income is increased by
proposed Timing Adjustments, taxable income may be reduced by a corresponding
amount in other years, nevertheless the Company would incur an interest charge
as a result of such adjustment. The Company currently is protesting many of
these proposed adjustments through the IRS appeals process and believes that
the amount of these adjustments will be reduced as a result. In the opinion of
management, adequate provision has been made for the additional income taxes
and interest which may arise as a result of the proposed adjustments.
The IRS currently is examining the MDC Consolidated Returns for the years
1988 through 1990 and the Richmond Homes Consolidated Returns for the years
1989 and 1990. No reports have been issued by the IRS in connection with these
examinations. In the opinion of management, adequate provision has been made
for additional income taxes and interest which may result from these
examinations.
ABSENCE OF PUBLIC MARKET; MARKET MAKING RESTRICTIONS
At present, the Convertible Notes are owned by a small number of investors.
There can be no assurance that an active public market for the Convertible
Notes will develop. If a market for the Convertible Notes
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develops, such Notes may trade at a discount from their principal amount. The
Company does not intend to list the Convertible Notes on a national securities
exchange. Sellers of the Convertible Notes and market makers in the Convertible
Notes, if any, may be subject to certain rules and regulations with respect to
market making promulgated by the Securities and Exchange Commission under the
Exchange Act; such rules and regulations may affect the ability to make a
market in the Convertible Notes and this may restrict the salability of the
Convertible Notes. The Company has been advised by FBR, the placement agent in
the Private Placement, that FBR intends to make a market in the Convertible
Notes offered hereby, but FBR is not obligated to do so and there can be no
assurance that an active public market in the Convertible Notes will develop.
The Common Stock is listed on the NYSE and the PSE. The Company intends to list
the shares of Common Stock underlying the Convertible Notes on the NYSE and the
PSE.
DESCRIPTION OF THE CONVERTIBLE NOTES
The Convertible Notes were issued in the original principal amount of
$28,000,000 pursuant to an Indenture, dated as of December 15, 1993 (the
"Convertible Notes Indenture"), between the Company and First Bank National
Association (the "Trustee"). A copy of the Convertible Notes Indenture
(including the form of Convertible Notes) is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summary does not purport to be a complete description of the Convertible Notes
and is subject to the detailed provisions of, and is qualified in its entirety
by reference to, all of the provisions of the Convertible Notes Indenture
(including the form of Convertible Notes). Capitalized terms that are used but
not otherwise defined herein have the meanings assigned to them in the
Convertible Notes Indenture and those definitions are incorporated herein by
reference.
GENERAL
The Convertible Notes are general, unsecured, subordinated obligations of the
Company, limited in aggregate principal amount to $50,000,000 (including the
$28,000,000 of Convertible Notes offered by this Prospectus). The Convertible
Notes were and will be issued only in fully registered form without coupons, in
denominations of $1,000 and any integral multiple thereof.
The Company intends to prepare and file with the Commission a proxy statement
in order to seek approval from its stockholders to issue additional Convertible
Notes or other convertible debt securities or equity securities. THERE CAN BE
NO ASSURANCE THAT SUCH STOCKHOLDER APPROVAL WILL BE OBTAINED OR, IF OBTAINED,
THAT SUCH ADDITIONAL CONVERTIBLE NOTES OR OTHER CONVERTIBLE DEBT SECURITIES OR
EQUITY SECURITIES WILL BE ISSUED. In addition to being subject to stockholder
approval, the proxy statement and the issuance of the additional Convertible
Notes or other convertible debt securities or equity securities will be subject
to legal considerations, market conditions at the time of any issuance, the
exercise of the business judgment of the Board of Directors of the Company and
to any necessary determination at the time of any issuance of additional
Convertible Notes or other convertible debt securities or equity securities
that such issuance would be fair to the stockholders of the Company.
The Convertible Notes mature on December 15, 2005, and bear interest at 8
3/4% per annum from the date of issuance or from the most recent Interest
Payment Date to which interest has been paid or provided for, payable
semiannually on December 15 and June 15 of each year, commencing June 15, 1994,
to the persons in whose names such Convertible Notes are registered at the
close of business on the December 1 or June 1 preceding such Interest Payment
Date. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
Principal of, premium, if any, and interest on the Convertible Notes is
payable, and the Convertible Notes may be presented for registration of
transfer or exchange, at the office or agency of the Company maintained for
such purposes. At the option of the Company, payment of interest may be made by
check mailed to the Holders of the Convertible Notes at the addresses set forth
upon the registry books of the Company. No service charge will be made for any
registration of transfer or exchange of the Convertible Notes, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
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charge payable in connection therewith. Holders must surrender their
Convertible Notes to a Paying Agent to collect principal payments. The Trustee
is acting as Paying Agent and Registrar. The Company may change any Paying
Agent or Registrar without notice. The corporate finance office of the Trustee
is presently located at 180 East Fifth Street, Suite 200, St. Paul, Minnesota
55101, c/o Corporate Finance Department. First Bank National Association and
certain of its affiliates are lenders to certain subsidiaries of the Company
and is also trustee under the indenture governing the Senior Notes.
The Convertible Notes Indenture does not restrict the Company's ability to
operate its business, including its ability to incur indebtedness, pay
dividends or make acquisitions or dispositions of property and assets.
The Company intends to list the shares of Common Stock underlying the
Convertible Notes on the NYSE and the PSE.
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms contained in the
Convertible Notes Indenture. Reference is made to the Convertible Notes
Indenture for the full definition of all such terms, as well as any other terms
used herein for which no definition is provided.
"Affiliate" means, with respect to any specified Person, (i) any other Person
directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such specified Person, or (ii) any officer,
director, a Person acting with respect to such Person in a similar capacity, or
controlling shareholder of such other Person. For purposes of this definition,
the term "control" means (a) the power to direct the management and policies of
a Person, either directly or through one or more intermediaries, whether
through the ownership of voting securities, by contract, or otherwise, or (b)
without limiting the foregoing, the beneficial ownership of 10% or more of the
voting power of the voting common equity of such Person (on a fully diluted
basis). Notwithstanding the foregoing, the term "Affiliate" will not include,
with respect to the Company or any Wholly Owned Subsidiary of the Company, any
Wholly Owned Subsidiary of the Company and, with respect to Richmond Homes, any
Wholly Owned Restricted Subsidiary of Richmond Homes.
"Capital Stock" means, with respect to any Person, any capital stock of such
Person and shares, interests, participations or other ownership interests
(however designated) of any Person and any rights (other than debt securities
convertible into corporate stock), warrants or options to purchase any of the
foregoing, including (without limitation) each class of common stock and
preferred stock of such Person if such Person is a corporation or membership
interests if such Person is a limited liability company and each general and
limited partnership interest of such Person if such Person is a partnership.
"Capitalized Lease Obligation" means obligations under a lease that are
required to be capitalized for financial reporting purposes in accordance with
GAAP (including Statement of Financial Accounting Standards No. 13 of the
Financial Accounting Standards Board), and the amount of Indebtedness
represented by such obligations shall be the capitalized amount of such
obligations, as determined in accordance with GAAP.
"Default" means any event or condition that is, or after notice or passage of
time or both would be, an Event of Default.
"Disqualified Capital Stock" means (i) with respect to any Person, any
Capital Stock of such Person or its Subsidiaries that, by its terms or by the
terms of any security into which it is convertible or exchangeable, is, or upon
the happening of an event or the passage of time would be, required to be
redeemed or repurchased by such Person or its Subsidiaries, including at the
option of the holder, in whole or in part, or has, or upon the happening of an
event or passage of time would have, a redemption or similar payment due on or
prior to the Stated Maturity and (ii) with respect to any Subsidiary of the
Company that is not an Unrestricted Subsidiary, any Capital Stock (other than
(a) Capital Stock owned by the Company or a Wholly Owned Subsidiary of the
Company that is not an Unrestricted Subsidiary and (b) common stock with no
preferences
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or privileges and with no redemption or repayment provisions); provided that
any Capital Stock which would not constitute Disqualified Capital Stock but for
provisions thereof giving holders thereof the right to require the Company to
repurchase or redeem such Capital Stock upon the occurrence of a change of
control of the Company occurring prior to the Stated Maturity of the
Convertible Notes will not constitute Disqualified Capital Stock if the change
of control provisions applicable to such Capital Stock are no more favorable to
the holders of such Capital Stock than the "Repurchase of Convertible Notes at
the Option of the Holder Upon a Change of Control" covenant set forth in the
Convertible Notes Indenture and such Capital Stock specifically provides that
the Company will not repurchase or redeem (or be required to repurchase or
redeem) any such Capital Stock pursuant to such provisions prior to the
Company's repurchase of Convertible Notes pursuant to the "Repurchase of
Convertible Notes at the Option of the Holder Upon a Change of Control"
covenant set forth in the Convertible Notes Indenture.
"Excluded Person" means any beneficial holder of 10% or more of any class of
common stock of the Company outstanding immediately prior to the Issue Date.
"GAAP" means generally accepted accounting principles as in effect in the
United States applied on a basis consistent with that used in the preparation
of the audited financial statements of the Company for the fiscal year ended
December 31, 1993.
"Indebtedness" means, with respect to any Person (without duplication), (i)
all liabilities (other than trade payables and accrued expenses incurred in the
ordinary course of business) of such Person (a) for borrowed money (whether or
not the recourse of the lender is to the whole of the assets of such Person or
only to a portion thereof), (b) evidenced by bonds, notes, debentures or
similar instruments or letters of credit or representing the balance deferred
and unpaid of the purchase price of any property or services, (c) evidenced by
bankers' acceptances or similar instruments issued or accepted by financial
institutions or Interest Swap Obligations (other than those that fix or cap the
interest rate on variable rate indebtedness or that fix the exchange rate in
connection with indebtedness denominated in a foreign currency, and other than
the purchase of hedging transactions in the ordinary course of business), or
(d) for the payment of money relating to a Capitalized Lease Obligation; (ii)
reimbursement obligations of such Person with respect to letters of credit;
(iii) all liabilities of others of the kind described in the preceding clause
(i) or (ii) that such Person has guaranteed or that is otherwise its legal
liability and all mandatory obligations (including at the option of the holder
thereof) to purchase, redeem or acquire any Disqualified Capital Stock; and
(iv) all obligations of others secured by a Lien (other than a Permitted Lien)
to which the property or assets (including, without limitation, leasehold
interests and any other tangible or intangible property rights) of such Person
are subject, whether or not the obligations secured thereby shall have been
assumed by or shall otherwise be such Person's legal liability. The amount of
Indebtedness of any Person at any date will be, in the case of clause (iv) (if
the Indebtedness referred to therein is not assumed by such Person), the lesser
of the (a) fair market value of all assets subject to the Lien securing the
Indebtedness of others on the date that the Lien attaches or (b) amount of the
Indebtedness secured.
"Interest Swap Obligation" means any obligation of any Person pursuant to any
arrangement whereby, directly or indirectly, such Person is entitled to receive
from time to time periodic payments calculated by applying either a fixed or
floating rate of interest on a stated notional amount in exchange for periodic
payments made by such Person calculated by applying a fixed or floating rate of
interest on the same notional amount; provided that the term "Interest Swap
Obligation" shall also include interest rate exchange, collar, swap option,
futures contract or other similar agreements providing interest rate
protection.
"Issue Date" means the date of first issuance of the Convertible Notes under
the Convertible Notes Indenture.
"Lien" means any mortgage, lien, pledge, charge, security interest, or other
encumbrance of any kind, whether or not filed, recorded, or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement and any lease deemed to constitute a security interest and any option
or other agreement to give any security interest).
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"Material Subsidiary" means "Material Subsidiary" as that term is defined in
the Senior Notes Indenture.
"Non-Recourse Indebtedness" means, with respect to any Person, Indebtedness
(or portion thereof) of such Person for which the sole legal recourse for
collection of principal, premium, and interest on such Indebtedness is against
the specific property identified in the instruments evidencing or securing such
Indebtedness, which property was acquired with the proceeds of such
Indebtedness or such Indebtedness was Incurred within 180 days after the
acquisition of such property, without any liability on the part of the Company
or any Subsidiary of the Company that is not an Unrestricted Subsidiary for any
deficiency with respect to principal, premium and interest.
"Permitted Liens" means (i) Liens for taxes, assessments or governmental
charges or claims that either (a) are not yet delinquent, (b) are being
contested in good faith by appropriate proceedings and as to which appropriate
reserves have been established or other provisions have been made in accordance
with GAAP, or (c) solely encumber property abandoned or in the process of being
abandoned and with respect to which there is no recourse to the Company or any
Subsidiary that is not an Unrestricted Subsidiary, (ii) statutory Liens of
landlords and carriers', warehousemen's, mechanics', suppliers', materialmen's,
repairmen's or other Liens imposed by law and arising in the ordinary course of
business and with respect to amounts that, to the extent applicable, either (a)
are not yet delinquent or (b) are being contested in good faith by appropriate
proceedings and as to which appropriate reserves have been established or other
provisions have been made in accordance with GAAP, (iii) Liens incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, (iv)
Liens incurred or deposits made to secure the performance of tenders, bids,
leases, statutory obligations, surety and appeal bonds, progress payments,
government contracts, utility services and other obligations of like nature in
each case incurred in the ordinary course of business of the Company and its
Subsidiaries that are not Unrestricted Subsidiaries, (v) attachment or judgment
Liens with respect to judgments or proceedings which, with the passage of time,
would not constitute an Event of Default and which are being contested in good
faith by appropriate proceedings, (vi) easements, rights-of-way, restrictions
and other similar charges, encumbrances or burdens not materially interfering
with the ordinary course of business of the Company and its Subsidiaries that
are not Unrestricted Subsidiaries, (vii) leases or subleases granted to others
not materially interfering with the ordinary course of business of the Company
and its Subsidiaries that are not Unrestricted Subsidiaries, (viii) purchase
money mortgages (including, without limitation, Capitalized Lease Obligations
and purchase money security interests), (ix) Liens on assets securing
Indebtedness which refinanced Indebtedness that was previously secured by such
assets, (x) any interest in or title of a lessor to property subject to any
Capitalized Lease Obligations incurred in compliance with the provisions of the
Convertible Notes Indenture, (xi) Liens existing on the date of the Convertible
Notes Indenture, including without limitation, Liens securing Indebtedness
existing on the Issue Date, (xii) any option, contract or other agreement to
sell or purchase an asset or participate in the income or revenue derived
therefrom; (xiii) Liens securing Non-Recourse Indebtedness of the Company or a
Subsidiary that is not an Unrestricted Subsidiary, (xiv) Liens on property or
assets of any Subsidiary securing Indebtedness of such Subsidiary owing to the
Company or one or more Wholly Owned Subsidiaries that are not Unrestricted
Subsidiaries, (xv) Liens with respect to any asset which Lien existed at the
time such asset was acquired by the Company or any of its Subsidiaries provided
that such Liens only extend to assets that were subject to Liens prior to the
acquisition of such asset by such Person, (xvi) any legal right of, or right
granted in good faith to, a lender or lenders to which the Company or a
Subsidiary that is not an Unrestricted Subsidiary may be indebted to offset
against, or appropriate and apply to the payment of, such Indebtedness any and
all balances, credits, deposits, accounts or monies of the Company or a
Subsidiary that is not an Unrestricted Subsidiary with or held by such lender
or lenders, (xvii) any pledge or deposit of cash or property by the Company or
any Subsidiary that is not an Unrestricted Subsidiary in conjunction with
obtaining surety and performance bonds and letters of credit required to engage
in constructing on-site and off-site improvements or as otherwise required by
political subdivisions or other governmental authorities in the ordinary course
of business or secured indebtedness, (xviii) Liens in favor of the Trustee
arising pursuant to the Convertible Notes Indenture, (xix)
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Liens incurred in the ordinary course of business as security for the Company's
or its Subsidiaries' that are not Unrestricted Subsidiaries obligations with
respect to indemnification in favor of title insurance providers, (xx) letters
of credit, bonds or other assets pledged to secure insurance in the ordinary
course of business, (xxi) Liens on assets securing warehouse lines of credit
and other credit facilities to finance the operations of the Company's mortgage
lending Subsidiaries and Liens related to issuances of collateralized mortgage
obligations and mortgage-related securities, and (xxii) Liens on property or
assets of any Subsidiary of Richmond Homes securing Indebtedness of such
Subsidiary owing to Richmond Homes or one or more of its Subsidiaries that is
not an Unrestricted Subsidiary or Liens on property or assets of Richmond Homes
securing Indebtedness of Richmond Homes to one or more Subsidiaries that are
not Unrestricted Subsidiaries and (xxiii) any other Liens, provided that such
Liens at any time do not attach to property with fair value, in the aggregate,
in excess of $5 million.
"Person" means any corporation, individual, limited liability company, joint
stock company, joint venture, partnership, unincorporated association,
governmental regulatory entity, country, state or political subdivision
thereof, trust, municipality or other entity.
"Senior Notes" means the $190,000,000 principal amount of 11 1/8% Senior
Notes due 2003 and 11 1/8% Series B Senior Notes due 2003, issued pursuant to
the Senior Notes Indenture.
"Senior Notes Indenture" means the Indenture, dated as of December 15, 1993,
by and among the Company, the Guarantors and Pledgors named therein and First
Bank National Association, as trustee, relating to the Senior Notes, a form of
which is attached as Exhibit B, as the same shall be amended, modified and
supplemented from time to time.
"Stated Maturity," when used with respect to any Security, means December 15,
2005.
"Subsidiary" of any Person means (i) any (A) corporation of which at least a
majority of the aggregate voting power of all classes of Capital Stock is
directly or indirectly beneficially owned by such Person, and (B) entity other
than a corporation of which such Person directly or indirectly beneficially
owns at least a majority of the Capital Stock, (ii) in the case of the Company,
Richmond Homes and its Subsidiaries for so long as the Company is required to
consolidate Richmond Homes and its Subsidiaries in its financial statements in
accordance with GAAP, and (iii) any Person (other than political subdivisions
or enterprises thereof or governmental agencies) required to be consolidated
for financial accounting purposes in accordance with GAAP. To the extent
Richmond Homes becomes, and for so long as Richmond Homes remains, a Wholly
Owned Subsidiary of the Company, all references in the Convertible Notes
Indenture to Wholly Owned Subsidiaries of the Company shall include Richmond
Homes and its Wholly Owned Subsidiaries that are not Unrestricted Subsidiaries.
"Unrestricted Subsidiary" means each of the Subsidiaries of the Company so
designated by a resolution adopted by the Board of Directors of the Company as
provided by and in compliance with the Senior Notes Indenture; provided that
the term "Unrestricted Subsidiary" shall have no effect in the event the Senior
Notes Indenture is no longer in effect.
"Voting Stock" means Capital Stock of the Company having generally the right
to vote in the election of the directors of the Company.
"Wholly Owned Restricted Subsidiary" of any Person means (i) a Subsidiary
(which, with respect to the Company, is a Restricted Subsidiary), of which 100%
of the common equity (except for (x) directors' qualifying shares, (y) certain
minority interests owned by other Persons solely due to local law requirements
that there be more than one stockholder, but which interest is not in excess of
what is required for such purpose and (z) shares required by law to be owned by
an individual holding a real estate broker license as a
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condition to such Subsidiary being licensed as a real estate broker, but which
interest is not in excess of what is required for such purpose) is owned
directly by such Person or through one or more Wholly Owned Subsidiaries of
such Person, or (ii) any entity other than a corporation in which such Person,
directly or indirectly, owns all of the common equity of such entity.
SUBORDINATION
The Convertible Notes are general, unsecured obligations of the Company
subordinated in right of payment to all Senior Indebtedness (as defined) of the
Company. As of March 31, 1994, $210,128,000 of Senior Indebtedness was
outstanding and the Convertible Notes were effectively subordinated to
$171,216,000 of indebtedness and preferred stock of the Company's subsidiaries.
"Senior Indebtedness" is defined to mean: the principal of, interest on and any
other amounts owing with respect to any Indebtedness of the Company, whether
outstanding on the Issue Date or thereafter created, incurred, assumed,
guaranteed by the Company (including, but not limited to, the Senior Notes),
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or the assumption or guarantee thereof expressly provides
that such Indebtedness shall be pari passu or subordinate in right of payment
to the Convertible Notes; provided, however, Senior Indebtedness shall not
include (a) in the case of the obligation of the Company in respect of each
Convertible Note, the obligation of the Company in respect of other Convertible
Notes, (b) Indebtedness of the Company to a Subsidiary or an Affiliate of the
Company, (c) Indebtedness to, or guaranteed on behalf of, any individual
shareholder, director, officer or employee of the Company or of any Subsidiary
of the Company (including, without limitation, amounts owed for compensation),
(d) Indebtedness represented by Capitalized Lease Obligations, (e) Indebtedness
and other amounts incurred in connection with obtaining goods, materials or
services, (f) Disqualified Capital Stock and (g) Indebtedness incurred in
violation of the Convertible Notes Indenture.
The Convertible Notes Indenture provides that no payment may be made by the
Company on account of the principal of, premium, if any, or interest on the
Convertible Notes, or to acquire any of the Convertible Notes (including
repurchases of the Convertible Notes at the option of the Holder upon a Change
of Control or otherwise) for cash or property, or on account of the redemption
provisions of the Convertible Notes (i) upon the maturity of any Senior
Indebtedness by lapse of time, acceleration (unless waived) or otherwise,
unless and until all principal of and interest on such Senior Indebtedness and
all other obligations in respect thereof are first paid in full, or such
payment duly is provided for, or (ii) in the event of default in the payment of
any principal of, premium, if any, or interest on, or any other amounts payable
in respect of, any Senior Indebtedness when it becomes due and payable, whether
at maturity or at a date fixed for prepayment or by declaration or otherwise (a
"Payment Default"), unless and until such Payment Default has been cured or
waived or otherwise has ceased to exist.
Upon the happening of an event of default (any event that permits the holders
of Senior Indebtedness or their representatives immediately to accelerate
maturity with respect to any Senior Indebtedness other than a Payment Default),
upon written notice of such event of default given to the Company and the
Trustee by the holders of an aggregate of $10 million principal amount
outstanding of such Senior Indebtedness or their representative (a "Payment
Notice"), then, unless and until such event of default has been cured or waived
or otherwise has ceased to exist, no payment may be made by the Company on
account of the principal of or premium, if any, or interest on the Convertible
Notes or to acquire or repurchase any of the Convertible Notes for cash or
property, or on account of the redemption provisions of the Convertible Notes.
Notwithstanding the foregoing, unless (a) the Senior Indebtedness in respect of
which such event of default exists has been declared due and payable in its
entirety within 179 days after the Payment Notice is delivered as set forth
above (the "Payment Blockage Period"), and (b) such declaration has not been
rescinded or waived, the Company shall be required to pay all sums not paid to
the Holders of the Convertible Notes during the Payment Blockage Period due to
the foregoing prohibitions and to resume all other payments as and when due on
the Convertible Notes. Any number of Payment Notices may be given; provided,
however, that (i) not more than one Payment Notice shall be given within a
period of any 360 consecutive days and (ii)
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no event of default that existed upon the date of such Payment Notice or the
commencement of such Payment Blockage Period (whether or not such event of
default is on the same issue of Senior Indebtedness) shall be made the basis
for the commencement of any other Payment Blockage Period.
In the event that, notwithstanding the foregoing, any payment or distribution
of assets of the Company whether in cash, property or securities shall be
received by the Trustee or the Holders at a time when such payment or
distribution is prohibited by the foregoing provisions, such payment or
distribution shall be held in trust for the benefit of the holders of Senior
Indebtedness of the Company, and shall be paid or delivered by the Trustee or
such Holders, as the case may be, to the holders of Senior Indebtedness of the
Company remaining unpaid or unprovided for or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any of such Senior Indebtedness of the Company
may have been issued, ratably according to the aggregate amounts remaining
unpaid on account of the Senior Indebtedness of the Company held or represented
by each, for application to the payment of all Senior Indebtedness of the
Company remaining unpaid, to the extent necessary to pay or to provide for the
payment of all such Senior Indebtedness in full after giving effect to any
concurrent payment or distribution to the holders of such Senior Indebtedness.
Upon any distribution of assets of the Company upon any dissolution, winding
up, total or partial liquidation or reorganization of the Company, whether
voluntary or involuntary, in bankruptcy, insolvency, receivership or a similar
proceeding or upon assignment for the benefit of creditors, (i) the holders of
all Senior Indebtedness of the Company will first be entitled to receive
payment in full (or have such payment duly provided for) before the Holders are
entitled to receive any payment on account of the principal of, premium, if
any, and interest on the Convertible Notes and (ii) any payment or distribution
of assets of the Company of any kind or character, whether in cash, property or
securities to which the Holders or the Trustee on behalf of the Holders would
be entitled, except for the subordination provisions contained in the
Convertible Notes Indenture, will be paid by the liquidating trustee or agent
or other person making such a payment or distribution directly to the holders
of Senior Indebtedness of the Company or their representative to the extent
necessary to make payment in full (or have such payment duly provided for) of
all such Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution to the holders of such Senior Indebtedness.
No provision contained in the Convertible Notes Indenture of the Convertible
Notes affects the obligations of the Company, which is absolute and
unconditional, to pay, when due, principal of, premium, if any, and interest on
the Convertible Notes. The subordination provisions of the Convertible Notes
Indenture and the Convertible Notes do not prevent the occurrence of any
Default or Event of Default under the Convertible Notes Indenture or limit the
rights of the Trustee or any Holder, subject to the two preceding previous
paragraphs, to pursue any other rights or remedies with respect to the
Convertible Notes.
As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or an assignment for the benefit of the creditors of the Company or
any of its subsidiaries or a marshalling of assets or liabilities of the
Company and its subsidiaries, holders of the Convertible Notes may receive less
than other creditors.
CONVERSION RIGHTS
Holders of Convertible Notes are entitled at any time prior to the close of
business on December 15, 2005, subject to prior redemption or repurchase, to
convert such Convertible Notes or portion thereof (which are $1,000 or integral
multiples thereof) into Common Stock of the Company, at $7.75 per share subject
to adjustment as described below. The Company at any time may also lower the
conversion rate, temporarily or otherwise, so long as such action does not
cause Common Stock to be issued at less than its par value. The right to
convert Convertible Notes called for redemption or subject to an offer to
repurchase will terminate at the close of business on the second Business Day
prior to the redemption or repurchase date, and will be lost if not exercised
prior to that time unless the Company defaults in making the payments due upon
redemption or repurchase.
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<PAGE>
The conversion price is subject to adjustment upon the occurrence of certain
events, including the issuance of Common Stock as a dividend or distribution on
the Common Stock; subdivisions, combinations and certain reclassifications of
Common Stock; the issuance to all holders of Common Stock of shares or certain
rights or warrants to subscribe for shares of Common Stock at less than the
then current market price per share (as determined in the manner set forth in
the Convertible Notes Indenture relating to the Convertible Notes); and the
distribution to all holders of Common Stock of any assets (other than cash
dividends) or debt securities or any rights or warrants to purchase assets or
debt securities.
No adjustment in the conversion rate need be made unless such adjustment
would require a change of at least 1% of the conversion rate then in effect;
provided, however, that any adjustments that would otherwise be required to be
made shall be carried forward and taken into account in any subsequent
adjustment.
If any Convertible Note is converted between the record date for the payment
of interest and the next succeeding interest payment date, such Convertible
Note must be accompanied by funds equal to the interest payable on such
succeeding interest payment date on the principal amount so converted (unless
such Convertible Note shall have been called for redemption, in which case no
such payment shall be required). A Convertible Note converted on an interest
payment date need not be accompanied by any payment, and the interest on the
principal amount of the Convertible Note being converted will be paid on such
interest payment date to the registered holder of such Convertible Note on the
immediately preceding record date. Subject to the aforesaid right of the
registered holder to receive interest, no payment or adjustment will be made on
conversion for interest accrued on the converted Convertible Note or for
dividends on the Common Stock issued on conversion. Fractional shares of Common
Stock shall not be issued upon conversion, but, in lieu thereof, the Company
will pay a cash adjustment based upon the market price of the Common Stock on
the first Business Day prior to the day of conversion, as provided in the
Convertible Notes Indenture.
OPTIONAL REDEMPTION BY THE COMPANY
The Company does not have the right to redeem any Convertible Notes prior to
December 15, 1998. On or after December 15, 1998, the Company has the right to
redeem all or any part of the Convertible Notes in cash at the redemption
prices (expressed as a percentage of the principal amount thereof), in each
case including accrued and unpaid interest, if any, to the redemption date, for
the periods set forth below:
<TABLE>
<CAPTION>
IF REDEEMED DURING THE
12-MONTH PERIOD
BEGINNING DECEMBER 15, REDEMPTION PRICE
---------------------- ----------------
<S> <C>
1998.................................................. 105%
1999.................................................. 104%
2000.................................................. 103%
2001.................................................. 102%
2002.................................................. 101%
2003 and thereafter................................... 100%
</TABLE>
In the case of a partial redemption, the Trustee shall select the Convertible
Notes or portions thereof for redemption on a pro rata basis, by lot or in such
other manner it deems appropriate and fair. The Convertible Notes may be
redeemed in part only in multiples of $1,000 of principal amount.
The Convertible Notes do not have the benefit of any sinking fund.
Notice of any redemption will be sent, by first class mail, at least 15 days
and not more than 60 days prior to the date fixed for redemption to the Holder
of each Convertible Note to be redeemed to such Holder's last address as then
shown upon the books of the Registrar. Any notice that relates to a Convertible
Note to be redeemed in part only must state the portion of the principal amount
equal to the unredeemed portion thereof and must state that on and after the
date fixed for redemption, upon surrender of such Convertible Note, a new
Convertible Note or Convertible Notes in a principal amount equal to the
unredeemed portion thereof will be issued. On and after the date fixed for
redemption, interest will cease to accrue on the Convertible Notes or portions
thereof called for redemption.
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<PAGE>
COVENANTS
The Convertible Notes Indenture contains, among others, the following
covenants:
Repurchase of Convertible Notes at the Option of the Holder Upon a Change of
Control. In the event that a Change of Control (as defined below) has occurred,
each Holder will have the right, at such Holder's option, subject to the terms
and conditions of the Convertible Notes Indenture, to require the Company to
repurchase all or any part of such Holder's Convertible Notes (provided that
the principal amount of such Notes must be $1,000 or an integral multiple
thereof) on the date that is no later than 60 Business Days (unless later
required by applicable law) after the occurrence of such Change of Control (the
"Change of Control Payment Date"), at a cash price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any (the "Change
of Control Purchase Price"), to the Change of Control Payment Date. The
Company's obligation to make such repurchase is subject to its prior purchase
of the Senior Notes under similar circumstances.
The Company shall notify the Trustee within 10 Business Days after the
Company knows or reasonably should know as a result of a public filing of the
occurrence of each Change of Control. Within 20 Business Days after the Company
knows or reasonably should know as a result of a public filing of the
occurrence of each Change of Control, the Company will make an unconditional
offer (a "Change of Control Offer") to all Holders of Convertible Notes to
purchase all of the Convertible Notes at the Change of Control Purchase Price
by sending written notice of a Change of Control Offer, by first class mail, to
each Holder at its registered address, with a copy to the Trustee. The notice
to Holders will contain all instructions and materials required by applicable
law and will contain or make available to Holders other information material to
such Holders' decision to tender Convertible Notes pursuant to the Change of
Control Offer.
On or before the Change of Control Payment Date, the Company will (i) accept
for payment Convertible Notes or portions thereof properly tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal
Tender sufficient to pay the Change of Control Purchase Price (together with
accrued and unpaid interest) of all Convertible Notes so tendered and (iii)
deliver to the Trustee Convertible Notes so accepted together with an Officers'
Certificate listing the Convertible Notes or portions thereof being purchased
by the Company. The Paying Agent will promptly mail to the Holders of
Convertible Notes so accepted payment in an amount equal to the Change of
Control Purchase Price (together with accrued and unpaid interest), and the
Trustee will promptly authenticate and mail or deliver to such Holders a new
Convertible Note equal in principal amount to any unpurchased portion of the
Convertible Note surrendered. Any Convertible Notes not so accepted will be
promptly mailed or delivered by the Company to the Holder thereof. The Company
will publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date.
"Change of Control" means (i) any sale, transfer or other conveyance (other
than to the Company or a wholly owned Subsidiary), whether direct or indirect,
of all or substantially all of the assets of the Company, on a consolidated
basis, to any "person" or "group" in one transaction or a series of related
transactions, provided that a transaction where the holders of all classes of
Voting Stock of the Company immediately prior to such transaction own, directly
or indirectly, 50% or more of the aggregate voting power of all classes of
Voting Stock of such "person" or "group" immediately after such transaction
will not be a Change of Control, or (ii) any "person" or "group," other than
the Management Group (as defined below) is or becomes the "beneficial owner,"
directly or indirectly, of more than 50% of the total voting power of the
Voting Stock then outstanding. The "Management Group" shall consist of at least
a majority of the executive officers of the Company as of the date of the
Convertible Notes Indenture, members of their immediate families, certain
trusts for their benefit, and legal representatives of, or heirs, beneficiaries
or legatees receiving Common Stock (or securities convertible or exchangeable
for Common Stock) under any such person's estate.
The term "all or substantially all of the assets" is likely to be interpreted
by reference to state law at the time applicable and will be dependent on the
facts and circumstances existing at such time.
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<PAGE>
For the purpose of this definition, (i) the terms "person" and "group" shall
have the meanings used for purposes of Rules 13d-3 and 13d-5 of the Exchange
Act, whether or not applicable; provided that no Excluded Person and no person
or group controlled by Excluded Persons shall be deemed to be a "person" or
"group" and (ii) the term "beneficial owner" shall have the meaning used in
Rules 13d-3 and 13d-5 under the Exchange Act, whether or not applicable, except
that a person shall be deemed to have "beneficial ownership" of all shares that
any such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time or upon the occurrence of certain
events.
The Change of Control purchase feature of the Convertible Notes may make more
difficult or discourage a takeover of the Company, and, thus, the removal of
incumbent management. To the extent applicable and if required by law, the
Company will comply with Section 14 of the Exchange Act and the provisions of
Regulation 14E and any other tender offer rules under the Exchange Act and
other securities laws, rules and regulations which may then be applicable to
any offer by the Company to purchase the Convertible Notes at the option of
Holders upon a Change of Control.
Limitation on Transactions with Affiliates. The Convertible Notes Indenture
provides that neither the Company nor any of its Subsidiaries may, make any
loan, advance, guaranty or capital contribution to or for the benefit of, or
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or for the benefit of, or purchase or lease any property or assets from, or
enter into or amend any contract, agreement or understanding with, or for the
benefit of any Affiliate which transaction involves or has a value in excess of
$250,000 (each an "Affiliate Transaction"), except transactions made in good
faith, the terms of which are at least as favorable as the terms which could be
obtained by the Company or such Subsidiary, as the case may be, in a comparable
transaction made on an arm's length basis with Persons who are not Affiliates.
Notwithstanding the foregoing, (a) with respect to any Affiliate Transaction
or series of related Affiliate Transactions with an aggregate value in excess
of $1,000,000, such transaction must first be approved, by a majority of the
independent directors of the Board of Directors of the Company pursuant to a
Board Resolution, on terms which are at least as favorable as the terms which
could be obtained on an arm's length basis with persons who are not Affiliates
and (b) with respect to any Affiliate Transaction or related series of
Affiliate Transactions with an aggregate value in excess of $10,000,000, the
Company must first obtain a favorable written opinion from an independent
financial advisor of national reputation as to the fairness from a financial
point of view of such transaction to the Company or such Subsidiary, as the
case may be.
Notwithstanding the foregoing, Affiliate Transactions shall not include (i)
transactions exclusively between or among the Company and its Wholly Owned
Subsidiaries that are not Unrestricted Subsidiaries, (ii) transactions in which
the sole participants are Wholly Owned Subsidiaries of the Company that are not
Unrestricted Subsidiaries or transactions between the Company and its Wholly
Owned Subsidiaries that are not Unrestricted Subsidiaries permitted by the
provisions of the covenant under the caption "Limitation on Merger, Sale or
Consolidation," (iii) any contract, agreement or understanding with, or for the
benefit of, or planned for the benefit of, employees of the Company or any
Subsidiaries (in their capacity as such) that has been approved by the Board of
Directors, (iv) Capital Stock issuances to members of the Board of Directors,
officers and employees of the Company or its Subsidiaries pursuant to plans
approved by the stockholders of the Company or the respective Subsidiary, (v)
home sales and readily marketable mortgage loans to employees, officers and
directors of the Company and Subsidiaries in the ordinary course of business,
(vi) payment of regular fees and reimbursement of expenses to directors of the
Company who are not employees of the Company and wages and other compensation
to officers of the Company or any of its Restricted Subsidiaries, (vii)
contractual arrangements in effect on the Issue Date and renewals and
extensions thereof not involving modifications adverse to the Company or any
Subsidiary of the Company that is not an Unrestricted Subsidiary, (viii) normal
banking relationships with an Affiliate on an arm's length basis, or (ix) any
item described by Section 4.10(c)(ii) of the Senior Notes Indenture.
LIMITATION ON MERGER, SALE OR CONSOLIDATION. The Convertible Notes Indenture
provides that the Company may not consolidate with or merge with or into
another Person or, directly or indirectly, sell, lease
18
<PAGE>
or convey all or substantially all of its assets (computed on a consolidated
basis), whether in a single transaction or a series of related transactions, to
another Person or group of affiliated Persons, unless (i) either (a) the
Company is the continuing corporation or (b) the resulting, surviving or
transferee entity is a corporation or partnership organized under the laws of
the United States, any state thereof or the District of Columbia and expressly
assumes by supplemental indenture all of the obligations of the Company under
the Convertible Notes and the Convertible Notes Indenture; (ii) no Default or
Event of Default shall exist or shall occur immediately before or after giving
effect to such transaction; and (iii) immediately after giving effect to such
transaction on a pro forma basis, the net worth of the surviving or transferee
entity on a stand-alone basis is at least equal to the net worth of the Company
immediately prior to such transaction. The provisions of clause (iii) above
shall not apply to a transaction between the Company and its Wholly Owned
Subsidiaries that are not Unrestricted Subsidiaries.
Upon any consolidation or merger or any transfer of all or substantially all
of the assets in accordance with the foregoing, the successor corporation
formed by such consolidation or into which the Company is merged or to which
such transfer is made, shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Convertible Notes
Indenture with the same effect as if such successor corporation had been named
therein as the Company.
EVENTS OF DEFAULT AND REMEDIES
The Convertible Notes Indenture defines an Event of Default as (i) the
failure by the Company to pay installments of interest on the Convertible Notes
as and when the same become due and payable and the continuance of any such
failure for 30 days, (ii) the failure by the Company to pay all or any part of
the principal or premium, if any, on the Convertible Notes when and as the same
become due and payable at maturity, redemption, by acceleration or otherwise,
including payment of the Change of Control Purchase Price, (iii) the failure by
the Company to observe or perform any other covenant or agreement contained in
the Convertible Notes or the Convertible Notes Indenture and, subject to
certain exceptions, the continuance of such failure for a period of 45 days
after written notice is given to the Company by the Trustee or to the Company
and the Trustee by the Holders of at least 25% in aggregate principal amount of
the Convertible Notes outstanding, (iv) certain events of bankruptcy,
insolvency or reorganization in respect of the Company or any of its Material
Subsidiaries, (v)(A) the acceleration of any Indebtedness (other than Non-
Recourse Indebtedness) of the Company or any of its Subsidiaries that are not
Unrestricted Subsidiaries that has an outstanding principal amount of
$5,000,000 or more in the aggregate to be immediately due and payable; provided
that, in the event any such acceleration is withdrawn or otherwise rescinded
within a period of ten business days after such acceleration by the holders of
such Indebtedness, any Event of Default under this clause (v) will be deemed to
be cured and any acceleration under the Convertible Notes Indenture will be
deemed withdrawn or rescinded; and (B) the failure by the Company or any of its
Subsidiaries that are not Unrestricted Subsidiaries to make any principal,
premium, interest or other required payment in respect of Indebtedness (other
than Non-Recourse Indebtedness) of the Company or any of its Subsidiaries that
are not Unrestricted Subsidiaries with an outstanding aggregate principal
amount of $5,000,000 or more (after giving effect to any applicable grace
period set forth in the documents governing such Indebtedness); and (vi) one or
more final judgments in an amount not covered by insurance or reserved for
aggregating at least $5,000,000 at any one time rendered against the Company or
any of its Subsidiaries that are not Unrestricted Subsidiaries and not bonded,
satisfied or discharged for a period (during which execution shall not be
effectively stayed) of (A) 45 days after the judgment (which, if there is more
than one judgment, causes such judgments to exceed $5,000,000 in the aggregate)
becomes final and such court shall not have ordered or approved, and the
parties shall not have agreed upon, the payment of such judgment at a later
date or dates or (B) 45 days after all or any part of such judgment is payable
pursuant to any court order or agreement between the parties. The Convertible
Notes Indenture provides that if a Default occurs and is continuing and if it
is known to the Trustee, the Trustee must, within 90 days after the occurrence
of such default, give to the Holders notice of such default; provided that,
except in the case of default in payment of principal of, premium, if any, or
interest on the Convertible Notes, including a default in the payment of the
Change of Control Purchase
19
<PAGE>
Price as required by the Convertible Notes Indenture, the Trustee will be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interest of the Holders.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (iv), above, relating to the Company or its
Material Subsidiaries), then in every such case, unless the principal of all of
the Convertible Notes shall have already become due and payable, either the
Trustee or the Holders of 25% in aggregate principal amount of the Convertible
Notes then outstanding, by notice in writing to the Company (and to the Trustee
if given by Holders) (an "Acceleration Notice"), may declare all principal,
determined as set forth below, including in each case accrued interest thereon,
or, as appropriate, the Change of Control Purchase Price (if due and unpaid) to
be due and payable immediately. If an Event of Default specified in clause (iv)
above, relating to the Company or any of its Material Subsidiaries occurs, all
principal and accrued interest thereon will be immediately due and payable on
all outstanding Convertible Notes without any declaration or other act on the
part of the Trustee or the Holders. The Holders of no less than a majority in
aggregate principal amount of the Convertible Notes then outstanding generally
are authorized to rescind such acceleration if all existing Events of Default,
other than the non-payment of the principal of, premium, if any, and interest
on the Convertible Notes which have become due solely by such acceleration,
have been cured or waived.
Prior to the declaration of acceleration of the maturity of the Convertible
Notes, the Holders of a majority in aggregate principal amount of the
Convertible Notes at the time outstanding may waive on behalf of all the
Holders any default, except a default in the payment of principal of or
interest on any Convertible Note not yet cured, or a default with respect to
any covenant or provision which cannot be modified or amended without the
consent of the Holder of each outstanding Convertible Note affected. Subject to
the provisions of the Convertible Notes Indenture relating to the duties of the
Trustee, the Trustee is under no obligation to exercise any of its rights or
powers under the Convertible Notes Indenture at the request, order or direction
of any of the Holders, unless such Holders have offered to the Trustee
reasonable security or indemnity. Subject to all provisions of the Convertible
Notes Indenture and applicable law, the Holders of a majority in aggregate
principal amount of the Convertible Notes at the time outstanding have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee.
MODIFICATION OF THE CONVERTIBLE NOTES INDENTURE
Except in certain circumstances, the Convertible Notes Indenture, and
obligations of the Company and the rights of the holders of the Convertible
Notes may be modified by the Company only with the consent of the holders of
more than 50% in aggregate principal amount of the outstanding Convertible
Notes; but no modifications of certain provisions of the Convertible Notes
Indenture including any modification of the terms of payment of principal (or
premium, if any) or interest or a modification adversely affecting the terms of
conversion or reducing the percentage required for modification will be
effective against any holder of Convertible Notes without such holder's
consent.
DISCHARGE OF CONVERTIBLE NOTES INDENTURE
The Company may terminate its obligations under the Convertible Notes
Indenture when (i) either (A) all outstanding Convertible Notes have been
delivered to the Trustee for cancellation or (B) all such Convertible Notes not
theretofore delivered to the Trustee for cancellation have become due and
payable or will become due and payable within one year and the Company has
irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire indebtedness on the
Convertible Notes, not theretofore delivered to the Trustee for cancellation,
for principal of, premium, if any, and interest to the date of deposit or
Stated Maturity or redemption; (ii) the Company has paid or caused to be paid
all sums payable by the Company under the Convertible Notes Indenture; and
(iii) the Company has delivered an Officer's Certificate and an Opinion of
Counsel relating to compliance with the conditions set forth in the Convertible
Notes Indenture.
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<PAGE>
The Company will be deemed to have paid and discharged the entire
indebtedness on the Convertible Notes and the Convertible Notes Indenture shall
cease to be of further effect as to all outstanding Convertible Notes (except
as to (i) rights of registration of transfer, substitution and exchange of
Convertible Notes and the Company's right of optional redemption, (ii) rights
of Holders to receive payments of principal of, premium, if any, and interest
on the Convertible Notes (but not the Change of Control Purchase Price of the
Convertible Notes) and any other rights of the Holders with respect to such
amounts, (iii) the rights, obligations and immunities of the Trustee under the
Convertible Notes Indenture and (iv) certain other specified provisions in the
Convertible Notes Indenture (the foregoing exceptions (i) through (iv) are
collectively referred to as the "Reserved Rights")) after the irrevocable
deposit by the Company with the Trustee, in trust for the benefit of the
Holders, of (A) money in an amount, (B) U.S. Government Obligations which
through the payment of interest and principal will provide, not later than one
day before the due date of payment in respect of the Convertible Notes, money
in an amount, or (C) a combination thereof, sufficient to pay and discharge the
principal of and interest on the Convertible Notes then outstanding on the
dates on which any such payments are due in accordance with the terms of the
Convertible Notes Indenture and of the Convertible Notes. Defeasance may only
be deemed to occur if certain conditions are satisfied, including, among other
things, delivery by the Company to the Trustee of an opinion of outside counsel
acceptable to the Trustee (who may be outside counsel to the Company). The
Convertible Notes Indenture will not be discharged if, among other things, a
default or an Event of Default shall have occurred and be continuing on the
date of such deposit or shall occur on or before the 91st day (or one day after
such greater period of time in which any such deposit of trust funds may remain
subject to bankruptcy or insolvency laws) after the date of such deposit.
GOVERNING LAW
The Convertible Notes Indenture and the Convertible Notes are governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of law.
NO PERSONAL LIABILITY OF STOCKHOLDERS, OFFICERS, DIRECTORS
No stockholder, employee, officer or director, as such, past, present or
future of the Company or any Subsidiary or any successor corporation shall have
any personal liability in respect of the obligations of the Company under the
Convertible Notes Indenture, the Convertible Notes by reason of his or its
status as such stockholder, employee, officer or director.
DESCRIPTION OF COMMON STOCK
The Company has authorized 100,000,000 shares of common stock, $.01 par value
(the "Common Stock").
COMMON STOCK
At March 31, 1994, 19,020,000 shares of the Common Stock were issued and
outstanding. Holders of shares of Common Stock are entitled to one vote for
each share held of record on matters submitted to a vote of stockholders.
Holders of shares of the Common Stock do not have cumulative voting rights in
the election of directors to the Company's Board of Directors, which is divided
into three classes, with members of each class serving a three-year term.
A vote by the holders of a majority of shares of the Common Stock present at
a meeting at which a quorum is present is necessary to take action, except for
certain extraordinary matters which require the approval of the holders of 80%
of the outstanding shares of voting stock. In addition, certain Business
Combinations (as defined in the Company's Certificate of Incorporation, as
amended (the "Certificate") but generally, a merger or consolidation of the
Company with any holder (directly or indirectly) of more than 10% of the
outstanding shares of voting stock of the Company (an "Interested Stockholder")
or certain related parties; the sale or other disposition by the Company of any
assets or securities to an Interested
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<PAGE>
Stockholder involving assets or securities having a value of $15,000,000 or
more than 15% of the book value of the total assets or 15% of the stockholders'
equity of the Company; the adoption of any plan or proposal for the liquidation
or dissolution of the Company or for any amendment to the Company's Bylaws; or
any reclassification of securities, recapitalization, merger with a subsidiary
or other transaction which has the effect of increasing an Interested
Stockholder's proportionate ownership of the capital stock of the Company)
involving the Company and an Interested Stockholder must be approved by the
holders of 80% of the shares of outstanding voting stock, unless approved by a
majority of Continuing Directors (as defined in the Certificate) or unless
certain minimum price and procedural requirements are met. In the case of any
Business Combination involving payments to holders of shares of the Common
Stock, the fair market value per share of such payments would have to be at
least equal to the highest value determined under the following alternatives:
(i) the highest price per share of the Common Stock paid by or on behalf of the
Interested Stockholder during the two years prior to the public announcement of
the proposed Business Combination (the "Announcement Date") or in the
transaction in which it became an Interested Stockholder, whichever is higher;
and (ii) the fair market value per share of the Common Stock on the
Announcement Date or on the date on which the Interested Stockholder became an
Interested Stockholder, whichever is higher. "Fair market value" is defined in
the Certificate to mean, in the case of exchange-listed or NASDAQ-quoted stock,
the highest closing price or closing bid in the 30 days preceding the date in
question, and, in the case of other property, the fair market value as
determined by a majority of the Continuing Directors.
Subject to the preferences applicable to any then outstanding shares of
preferred stock of the Company, holders of shares of Common Stock are entitled
to dividends when and as declared by the Board of Directors of the Company from
funds legally available therefor and are entitled, in the event of liquidation,
to share ratably in all assets remaining after payment of liabilities. The
shares of Common Stock are neither redeemable nor convertible, and the holders
thereof have no preemptive or subscription rights to purchase any securities of
the Company. All issued and outstanding shares of Common Stock are validly
issued, fully paid and nonassessable.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of United States Federal income tax consequences of
ownership and disposition of the Convertible Notes to purchasers thereof
pursuant to this offering is based on the Internal Revenue Code of 1986, as
amended to the date hereof (the "Code"), existing and proposed treasury
regulations and applicable judicial and administrative determinations, all of
which are subject to change at any time by legislative, judicial, or
administrative action, possibly with retroactive effect. This summary discusses
only Convertible Notes held as capital assets within the meaning of the Code by
holders who are the original purchasers of the Convertible Notes. The tax
treatment of the holders of the Convertible Notes may vary depending upon their
particular situations. Certain holders (including insurance companies, tax
exempt organizations, financial institutions, broker-dealers, foreign entities
and individuals who are not citizens or residents of the United States) may be
subject to special rules not discussed below. EACH PURCHASER SHOULD CONSULT HIS
OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF PURCHASING,
HOLDING, CONVERTING AND DISPOSING OF CONVERTIBLE NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR FOREIGN TAX LAWS AND ANY
RECENT CHANGES IN APPLICABLE TAX LAWS.
DISPOSITION OF A CONVERTIBLE NOTE OR COMMON STOCK
In general, the holder of a Convertible Note or the Common Stock into which
it was converted will recognize gain or loss upon the sale, exchange,
redemption, retirement or other disposition of the Convertible Note or Common
Stock measured by the difference between the amount of cash and the fair market
value of property received (except to the extent the holder recognizes ordinary
income attributable to the payment of accrued interest), and the holder's tax
basis in the Convertible Note or Common Stock. The gain or loss on the sale or
redemption of a Convertible Note or Common Stock will be long-term capital gain
or loss, provided the Convertible Note or Common Stock was held as a capital
asset and had been held for more than one year, except as discussed below under
"Market Discount."
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MARKET DISCOUNT
The resale of a Convertible Note or Common Stock may be affected by the
"market discount" provisions of the Code. For this purpose, the market discount
on a Convertible Note will generally be equal to the amount, if any, by which
the stated redemption price at maturity of the Convertible Note immediately
after its acquisition exceeds the holder's tax basis in the note. Subject to a
de minimis exception, these provisions generally require a holder of a
Convertible Note acquired at a market discount to treat as ordinary income any
gain recognized on the disposition of such Convertible Note to the extent of
the "accrued market discount" on such Convertible Note at the time of
disposition.
In addition, any holder of Convertible Notes acquired at a market discount
may be required to defer the deduction of a portion of the interest on any
indebtedness incurred or maintained to purchase or carry the Convertible Notes
until the Convertible Notes are disposed of in a taxable transaction.
If a holder acquired the Convertible Notes at a market discount and receives
Common Stock upon conversion of the Convertible Notes, the amount of accrued
market discount with respect to the converted Convertible Notes through the
date of the conversion will be treated, under regulations to be issued, as
accrued market discount with respect to the Common Stock received. Therefore,
in that case, gain recognized on a taxable sale of the Common Stock may result
in ordinary income to the holder.
The above rule will not apply if the holder elects to include accrued market
discount in income currently.
CONVERSION OF CONVERTIBLE NOTES INTO COMMON STOCK
Except as discussed above under "Market Discount," generally, no gain or loss
will be recognized to a holder upon the conversion of a Convertible Note into
Common Stock of the Company, except with respect to cash received in lieu of
fractional shares. The holding period of the Common Stock received upon
conversion of a Convertible Note will generally include the period during which
the Convertible Note was held (provided the Convertible Note was held as a
capital asset), and the holder's aggregate tax basis in such Common Stock will
generally be equal to such holder's tax basis in the Convertible Note exchanged
therefor (less the portion thereof allocable to any fractional share).
A holder generally will recognize taxable gain or loss in connection with any
cash received in lieu of a fractional share of Common Stock in an amount equal
to the difference between the amount of cash received and the holder's tax
basis in such fractional share. Such gain or loss will be long-term capital
gain or loss if the Convertible Notes are capital assets in the hands of the
holder and have been held for more than one year.
ADJUSTMENTS TO CONVERSION PRICE
Adjustments in the conversion price of the Convertible Notes to reflect
distributions to holders of Common Stock may in certain circumstances result in
constructive distributions to holders of the Convertible Notes taxable as
dividends for Federal income tax purposes.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO FOREIGN HOLDERS
General
The following discussion summarizes certain Federal income tax consequences
generally applicable to the ownership and disposition of the Convertible Notes
(or the Common Stock into which the Convertible Notes are converted) by a
holder who is not a United States Person ("Non-U.S. Holder"). The term "United
States Person" means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any state thereof or an estate or trust, the income of which
is subject to Federal income taxation regardless of its source.
23
<PAGE>
Interest
Interest paid by the Company to a Non-U.S. Holder will not be subject to
withholding of United States Federal income tax if such interest is not
effectively connected with the conduct of a trade or business within the United
States by such Non-U.S. Holder and (i) the Non-U.S. Holder does not actually or
constructively own 10% or more of the total voting power of all voting stock of
the Company and is not a controlled foreign corporation with respect to which
the Company is a "related person" within the meaning of the Code and (ii) the
beneficial owner, under penalty of perjury, certifies that the beneficial owner
is not a United States person and provides the beneficial owner's name and
address. For purpose of the preceding sentence, the holder of a Convertible
Note would be deemed to own constructively the Common Stock into which it could
be converted.
Conversion
A Non-U.S. Holder generally will not be subject to Federal income tax on the
conversion of a Convertible Note into Common Stock, subject to the rules
discussed above for interest. To the extent a Non-U.S. Holder receives cash
received in lieu of a fractional share on conversion, such cash may give rise
to gain that would be subject to the rules described below for sale of the
Convertible Notes or Common Stock. Common Stock treated as issued for accrued
interest would be treated as interest under the rules described above for
interest.
Dividends
Dividends paid on Common Stock to a Non-U.S. Holder generally will be subject
to withholding of United States Federal income tax at the rate of 30% (unless
reduced by an applicable treaty) unless the dividend is effectively connected
with the conduct of a trade or business within the United States by the Non-
U.S. Holder, in which case the dividend will be subject to the United States
Federal income tax on net income that applies to United States persons
generally (and, with respect to corporate holders and under certain
circumstances, the branch profits tax). Non-U.S. Holders should consult any
applicable income tax treaties, which may provide for a lower rate of
withholding or other rules different from those described above. Under current
regulations, dividends paid to an address in a foreign country are presumed to
be paid to a resident of that country for the purpose of determining the
applicable treaty rate, but regulations issued pursuant to certain treaties may
require certain certification and proof of residence to be furnished to the
Company or its paying agent in order to claim treaty benefits or otherwise
claim a reduction of or exemption from withholding under the foregoing rules.
Sale of Notes or Common Stock
A Non-U.S. Holder generally will not be subject to United States Federal
income tax on gain recognized from a sale or other disposition (including a
redemption) of a Convertible Note (or the Common Stock into which a Convertible
Note was converted) unless (i) the gain is effectively connected with the
conduct of a trade or business within the United States by the Non-U.S. Holder,
(ii) in the case of a Non-U.S. Holder who is a nonresident alien individual,
such holder is present in the United States for a period or periods aggregating
183 days or more during the calendar year and certain other circumstances are
present, or (iii) the Non-U.S. Holder is subject to tax under the United States
real property holding company rules discussed below.
The Company expects to be treated as a United States real property holding
company for United States Federal income tax purposes because of its ownership
of substantial real estate assets in the United States. A Non-U.S. Holder who
holds Common Stock and Convertible Notes with a fair market value, in the
aggregate, of 5% or less of the fair market value of the outstanding Common
Stock generally will not be subject to tax under the United States real
property holding company rules. Nevertheless, unless an exemption is provided
under an applicable treaty, a Non-U.S. Holder who, directly or indirectly, (i)
holds, or has held at any time within five years of the sale or exchange
described below, more than 5% of the Common Stock of the Company, or (ii) holds
Convertible Notes with a fair market value, on the date of acquisition or
thereafter as the result of a subsequent acquisition, of more than 5% of the
fair market value of the outstanding Common Stock on such date will be subject
to United States Federal income tax on any gain realized from the sale or
24
<PAGE>
exchange of Common Stock or Convertible Notes. It is also possible that a Non-
U.S. Holder who, directly or indirectly, holds a combination of Common Stock
and Convertible Notes with a fair market value, in the aggregate, of more than
5% of the fair market value of the outstanding Common Stock will be subject to
these rules. Prospective investors are advised to consult their tax advisors
regarding the specific rules governing United States real property holding
companies.
Federal Estate Tax
Common Stock owned or treated as owned by an individual who is not a citizen
or resident (as specifically defined for United States Federal estate tax
purposes) of the United States at the date of death will be included in such
individual's estate for United States Federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise. If interest on the Convertible
Notes is exempt from withholding of United States Federal income tax, the
Convertible Notes will not be included in the estate of a deceased holder for
United States Federal estate tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Convertible Notes
Under current United States Federal income tax law, payments of principal and
interest made within the United States by the Company or its paying agent are
subject to information reporting and possible "backup" withholding at a 31%
rate. In the case of payments of interest to Non-U.S. Holders, temporary
Treasury regulations provide that the 31% backup withholding and other
reporting will not apply to such payments with respect to which either the
requisite certification, as described above, has been received or an exemption
has otherwise been established (provided that neither the Company nor its
payment agent has actual knowledge that the holder is a United States person or
that the conditions of any other exemption are not in fact satisfied). Under
temporary Treasury regulations, these information reporting and backup
withholding requirements will apply, however, to the gross proceeds paid to a
Non-U.S. Holder upon the disposition of the Convertible Notes by or through a
United States office of a United States or foreign broker, unless the holder
certifies to the broker under penalties of perjury as to its name, address, and
status as a foreign person or the holder otherwise establishes an exemption.
Information reporting requirements (but not backup withholding) will also apply
to a payment of the proceeds of a disposition of the Convertible Notes by or
through a foreign office of a United States broker, or foreign brokers with
certain types of relationships to the United States. Neither information
reporting nor backup withholding generally will apply to a payment of the
proceeds of a disposition of the Convertible Notes by or through a foreign
office of a foreign broker not subject to the preceding sentence. However, the
IRS has indicated that it is studying the possible application of backup
withholding in the case of foreign offices of such holders.
Common Stock
The Company must report annually to the IRS the total amount of Federal
income taxes withheld from dividends paid to Non-U.S. Holders. In addition, the
Company must report annually to the IRS and to each Non-U.S. Holder the amount
of dividends paid to and the tax withheld with respect to such holder. These
information reporting requirements apply regardless of whether withholding was
reduced by an applicable treaty.
The 31% backup withholding tax generally will not apply to dividends paid to
Non-U.S. Holders outside the United States that are subject to the 30%
withholding discussed above or that are not so subject because a tax treaty
applies that reduces or eliminates such withholding. In that regard, under
temporary Treasury regulations, dividends payable at an address located outside
of the United States to a foreign holder are not subject to the backup
withholding rules. These backup withholding and information reporting
requirements may apply to the gross proceeds paid by or through a broker to a
Non-U.S. Holder upon the disposition of shares of Common Stock under the rules
described above.
Refunds or Credits. Any amounts withheld under the backup withholding rules
from a payment to a Non-U.S. Holder will be allowed as a refund or a credit
against such holder's Federal income tax, provided that the required
information is furnished to the Internal Revenue Service.
25
<PAGE>
SELLING SECURITY HOLDERS
The following table provides certain information with respect to the
Convertible Notes held by each Selling Security Holder. Except as otherwise
noted, none of the Selling Security Holders listed below has had a material
relationship within the past three years with the Company or its subsidiaries,
other than as a result of the ownership or placement of the Convertible Notes.
Since the Selling Security Holders may sell all or some of their Convertible
Notes, no estimate can be made of the aggregate amount of the Convertible Notes
that are to be offered hereby or that will be owned by each Selling Security
Holder upon completion of the offering to which this Prospectus relates.
The Convertible Notes offered by this Prospectus may be offered from time to
time by the Selling Security Holders named below:
<TABLE>
<CAPTION>
AGGREGATE AMOUNT
OF CONVERTIBLE
NOTES
BENEFICIALLY
OWNED AND
NAME BEING REGISTERED
- ---- ----------------
<S> <C>
ACM Managed Income Fund, Inc. 6,000,000
Janus Growth and Income Fund 4,000,000
Perry Partners, L.P. 2,500,000
Fidelity Fixed-Income Trust: 2,400,000
Spartan High Income Fund
PaineWebber High Income Fund 2,000,000
Variable Insurance Products Fund: 1,100,000
High Income Portfolio
Farallon Capital Institutional Partners, L.P. 1,010,000
Yamaichi International (America), Inc. 1,000,000
Friedman, Billings, Ramsey & Co., Inc. 890,000
Delaware Group Dividend & Income Fund, Inc. 750,000
Legg Mason High Yield Portfolio 750,000
Farallon Capital Institutional Partners II, L.P. 600,000
Farallon Capital Partners, L.P. 500,000
George M. Hillenbrand II 500,000
George C. Hillenbrand 1974 Trust 500,000
FBO Elisabeth H. Burtschy
White Oak Partners 500,000
Sphere Investment Trust PLC 500,000
Angelo, Gordon & Co. 500,000
J. M. Hull Associates, L.P. 400,000
Die Erste Osterreichische Spar Casse Bank, AG 350,000
Paces Partners, Limited Partnership 250,000
Steven Mizel 250,000
Individual Retirement Account
Sonem Partners Ltd. 250,000
Tinicum Partners, L.P. 120,000
Farallon Capital Management, Inc. 120,000
FAO Consolidated Press International
Farallon Capital Management, Inc. 100,000
FAO The Common Fund
F/B/O Fidelity ARG 100,000
F/A/O John C. Wasmer, Jr. IRA
Farallon Capital Offshore Investors, Inc. 30,000
Farallon Capital Management, Inc. 20,000
FAO The Donald Fisher 1991 Charitable Remainder Trust #2
Council of Chief States School Officers National Teacher of
the Year Endowment 10,000
----------
Total 28,000,000
==========
</TABLE>
26
<PAGE>
PLAN OF DISTRIBUTION
The Company will receive none of the proceeds from this offering. The
Convertible Notes may be sold from time to time to purchasers directly by any
of the Selling Security Holders. Alternatively, the Selling Security Holders
may from time to time offer the Convertible Notes through underwriters, dealers
or agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Security Holders or the purchasers
of Convertible Notes for whom they may act as agent. The Selling Security
Holders and any underwriters, dealers or agents that participate in the
distribution of Convertible Notes may be deemed to be "underwriters" within the
meaning of the Securities Act and any profit on the sale of Convertible Notes
by them and any discounts, commissions or concessions received by any such
underwriters, dealers or agents might be deemed to be underwriting discounts
and commissions under the Securities Act.
At the time a particular offering of Convertible Notes is made, a Prospectus
Supplement, if required, will be distributed which will set forth the aggregate
amount and type of Convertible Notes being offered and the terms of the
offering, including the name or names of any underwriters, dealers or agent,
any discounts, commissions and other terms constituting compensation from the
Selling Security Holders and any discounts, commissions or concessions allowed
or reallowed or paid to dealers. The Selling Security Holders may use brokers
or dealers, including FBR, in connection with the sale of Convertible Notes
contemplated by this Prospectus and such brokers or dealers may receive fees or
commissions in connection therewith. The Convertible Notes may be sold from
time to time in one or more transactions at a fixed offering price, which may
be changed, at varying prices determined at the time of sale or at negotiated
prices.
To comply with the securities laws of certain jurisdictions, if applicable,
the Convertible Notes will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Convertible Notes may not be offered or sold unless they have
been registered or qualified for sale in such jurisdictions or an exemption
from registration or qualification is available and is complied with.
FBR has indicated to the Company that it intends to make a market in the
Convertible Notes and may, from time to time, purchase from one or more of the
Selling Security Holders a portion, and possibly a substantial portion, of the
Convertible Notes, but FBR has no obligation to do so and may discontinue to
make a market in the Convertible Notes at any time.
Under applicable rules and regulations under the Exchange Act any person
engaged in a distribution of the Convertible Notes may not simultaneously
engage in market-making activities with respect to such Convertible Notes
during such distribution or for a period of nine business days prior to the
commencement of such distribution. In addition to and without limiting the
foregoing, each Selling Security Holder will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation rules 10b-2, 10b-5, 10b-6 and 10b-7, which
provisions may limit the timing of purchases and sales of any of the
Convertible Notes by the Selling Security Holders. All of the foregoing may
affect the marketability of the Convertible Notes and FBR's ability to engage
in market-making activities with respect to the Convertible Notes.
Pursuant to Registration Rights Agreements between the Company and each of
the Selling Security Holders, the Company will pay the expenses incident to the
offering and sale of the Convertible Notes to the public, other than
commissions, concessions and discounts of underwriters, dealers or agents. In
addition, the Selling Security Holders, and, if requested, any underwriter they
may utilize, including FBR, will be indemnified by the Company against certain
civil liabilities, including liabilities under the Securities Act.
The Company has also agreed not to effect any public sale or distribution of
any securities similar to the Convertible Notes, or any securities convertible
into or exchangeable or exercisable for such securities, during the fifteen day
period prior to, and during the thirty day period beginning on, the effective
date of the
27
<PAGE>
Registration Statement of which this Prospectus forms a part. The Registration
Rights Agreements contain similar restrictions on the Selling Security Holders
if and to the extent such restrictions are requested by the Company in the case
of a non-underwritten public offering or requested by the managing underwriter
or underwriters in an underwritten public offering.
LEGAL MATTERS
Certain matters with respect to the legality and binding nature of the
Convertible Notes and the Common Stock issuable upon conversion of the
Convertible Notes have been passed upon for the Company by Brownstein Hyatt
Farber & Strickland, P.C., Denver, Colorado.
EXPERTS
The financial statements incorporated in this Prospectus by reference to the
Annual Report on Form 10-K for the year ended December 31, 1993, have been so
incorporated in reliance on the report of Price Waterhouse, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
With respect to the unaudited condensed consolidated balance sheet of M.D.C.
Holdings, Inc. and subsidiaries as of March 31, 1994, and the related condensed
consolidated statements of income and of cash flows for the three-month periods
ended March 31, 1994 and 1993 incorporated by reference in this Prospectus,
Price Waterhouse reported that they have applied limited procedures in
accordance with professional standards for a review of such information.
However, their separate report dated April 26, 1994 incorporated by reference
herein states that they did not audit and they do not express an opinion on
that unaudited consolidated financial information. Price Waterhouse has not
carried out any significant or additional audit tests beyond those which would
have been necessary if their report had not been included. Accordingly, the
degree of reliance on their report on such information should be restricted in
light of the limited nature of the review procedures applied. Price Waterhouse
is not subject to the liability provisions of section 11 of the Securities Act
of 1933 for their report on the unaudited consolidated financial information
because that report is not a "report" or a "part" of the registration statement
prepared or certified by
Price Waterhouse within the meaning of sections 7 and 11 of the Act.
28
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UN-
DER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
Prospectus Summary......................................................... 3
Risk Factors............................................................... 7
Description of the Convertible Notes....................................... 10
Description of Common Stock................................................ 22
Certain Federal Income Tax Consequences.................................... 23
Selling Security Holders................................................... 26
Plan of Distribution....................................................... 27
Legal Matters.............................................................. 28
Experts.................................................................... 28
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$28,000,000
M.D.C. HOLDINGS, INC.
8 3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2005
----------------
PROSPECTUS
----------------
MAY 19, 1994
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable in connection
with the sale and distribution of the securities being registered. All amounts
are estimated except the Commission registration fees. Unless otherwise
indicated, all of the expenses below will be paid by the Company.
<TABLE>
<CAPTION>
ITEM
----
<S> <C>
Registration fee................................................. $ 9,655
NYSE and PSE listing fees........................................ 9,000
Blue Sky fees and expenses....................................... 310
Printing and engraving expenses.................................. 32,000
Legal fees and expenses.......................................... 20,000
Accounting fees and expenses..................................... 5,000
Miscellaneous.................................................... 1,035
-------
Total........................................................ $77,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The By-Laws and Certificate of Incorporation of the Company provides for
indemnification of the officers and directors of the Company to the full
extent permitted by applicable law. Section 145 of the Delaware General
Corporation Law provides in part that a corporation shall have the power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (other than
an action by or in the right of the corporation) by reason of the fact that
such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Similar indemnity is authorized for such persons against expenses (including
attorneys's fees) actually and reasonably incurred in defense or settlement of
any threatened, pending or completed action or suit by or in the right of the
corporation, if such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation, and
provided further (unless a court of competent jurisdiction otherwise provides)
such person shall not have been adjudged liable to the corporation. Any such
indemnification may be made only as authorized in each specific case upon a
determination by the stockholders or disinterested directors that
indemnification is proper because the indemnitee has met the applicable
standard of conduct.
Additionally, the Certificate of Incorporation of the Company eliminates in
certain circumstances the monetary liability of directors for breach of their
fiduciary duty as directors. This provision does not eliminate the liability
of a director (i) for a breach of the director's duty of loyalty to the
respective corporation or its stockholders; (ii) for acts or omissions by the
director not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) for liability arising under Section 174 of the
Delaware General Corporation Law (relating to the declaration of dividends and
purchase or redemption of shares in violation of the Delaware General
Corporation Law); or (iv) for any transaction from which the director derived
an improper personal benefit.
II-1
<PAGE>
ITEM 16. EXHIBITS
Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
3.1(a) Form of Amendment to the Certificate of Incorporation of M.D.C.
Holdings, Inc. (hereinafter sometimes referred to as "MDC", the
"Company" or the "Registrant") regarding director liability, filed
with the Delaware Secretary of State on July 1, 1987 (incorporated
by reference to Exhibit 3.1(a) of the Company's Quarterly Report
on Form 10-Q dated June 30, 1987).
3.1(b) Form of Certificate of Incorporation of MDC, as amended
(incorporated herein by reference to Exhibit 3.1(b) of the
Company's Quarterly Report on Form 10-Q dated June 30, 1987).
4.1 Form of Certificate for shares of the Company's common stock
(incorporated herein by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-3, Registration No. 33-426).
4.2(a) Form of Indenture, dated as of June 15, 1984, between the Company
and The Royal Bank and Trust Company, with respect to the
Company's Subordinated Exchangeable Variable Rate Notes (the "1984
RBTC Indenture") (incorporated herein by reference to Exhibit 4.3
of the Company's Registration Statement on Form S-2, Registration
No. 2-90744).
4.2(b) First Supplemental Indenture, dated as of June 20, 1985, to the
1984 RBTC Indenture (incorporated herein by reference to Exhibit
4.13(a) of the Company's Registration Statement on Form S-3,
Registration No. 33-426).
4.2(c) Form of the Company's Subordinated Exchangeable Variable Rate
Notes (filed as Exhibits A and B to Exhibit 4.13 and incorporated
herein by reference to Exhibit 4.3 of the Company's Registration
Statement on Form S-2, Registration No. 2-90744).
4.3 Note Purchase Agreement, dated as of December 13, 1985, among the
Company, Yosemite Financial, Inc., a Colorado corporation and a
wholly-owned subsidiary of the Company, and City Investing Company
Liquidating Trust, including exhibits (incorporated herein by
reference to Exhibit 4.26 of the Company's Registration Statement
on Form S-2, Registration No. 33-2734).
4.4(a) Form of Senior Notes Indenture, dated as of December 15, 1993, by
and among the Company, the Guarantors and Pledgors named therein
and First Bank National Association, a National Association, as
Trustee, with respect to the Company's 11 1/8% Senior Notes due
2003, including form of Senior Note (the "Senior Notes Indenture")
(incorporated herein by reference to Exhibit 4.1 of the Company's
Form 8-K dated January 11, 1994).
4.4(b) First Supplemental Indenture, dated as of February 2, 1994, to the
Senior Notes Indenture (incorporated herein by reference to
Exhibit 4.4(b) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
4.5 Form of Convertible Notes Indenture, dated as of December 15,
1993, by and between the Company and First Bank National
Association, a National Association, as Trustee, with respect to
the Company's 8 3/4% Convertible Subordinated Notes due 2005,
including form of Convertible Note (incorporated herein by
reference to Exhibit 4.2 of the Company's Form 8-K dated January
11, 1994).
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
4.6 Form of Senior Notes Registration Rights Agreement, dated as of
December 28, 1993, by and among the Company, the Guarantors named
therein and the Purchasers who are signatories thereto, with
respect to the Company's Senior Notes (incorporated herein by
reference to Exhibit 4.3 of the Company's Form 8-K dated January
11, 1994).
4.7 Form of Convertible Notes Registration Rights Agreement, dated as
of December 28, 1993, by and between the Company and the
Purchasers who are signatories thereto, with respect to the
Company's Convertible Subordinated Notes (incorporated herein by
reference to Exhibit 4.4 of the Company's Form 8-K dated January
11, 1994).
5 Opinion of Brownstein Hyatt Farber & Strickland, P.C.
12 Statement regarding the earnings to fixed charges of the Company.
15 Letter regarding unaudited interim financial information.
23.1 Consent of Price Waterhouse.
23.2 Consent of Brownstein Hyatt Farber & Strickland, P.C. (filed as
part of Exhibit 5 above).
*24 Power of Attorney.
*25 Statement of eligibility and qualification on Form T-1 of First
Bank National Association, dated February 8, 1994.
99 Agreement and Plan of Merger, dated February 2, 1994 between
Richmond Acquisitions, Inc. and Richmond Homes (incorporated
herein by reference to Exhibit 99 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993).
</TABLE>
- --------
*Previously filed.
(b) Financial Statement Schedules
Schedule II
--Amounts Receivable From Related Parties and Underwriters,
Promoters and Employees Other Than Related Parties (incorporated
herein by reference to Schedule II to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993).
Schedule
VIII
--Valuation and Other Qualifying Accounts (incorporated herein by
reference to Schedule VIII to the Company's Annual Report on Form
10-K for the year ended December 31, 1993).
Schedule IX
--Short-Term Borrowings (incorporated herein by reference to
Schedule IX to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
Schedule
XII
--Mortgage Loans (incorporated herein by reference to Schedule XII
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding), is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-3
<PAGE>
The undersigned registrant hereby undertakes: (1) to file, during any period
in which offers or sales are being made, a post-effective amendment to this
registration statement: (i) to include any prospectus required by section
10(a)(3) of the Securities Act; (ii) to reflect in the prospectus any facts or
events arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement; (iii) to include any material information with respect
to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement; (2) that, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and (3) to remove from registration by means of a post-
effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
THE CITY OF DENVER, STATE OF COLORADO, ON MAY 19, 1994.
M.D.C. Holdings, Inc.
/s/ Paris G. Reece III
By: __________________________________
Paris G. Reece III
Vice President, Secretary, Treasurer
and Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
Chairman of the
*Larry A. Mizel Board and Chief May 19, 1994
- ------------------------------------ Executive Officer [/R]
Larry A. Mizel
President, Chief
*Spencer I. Browne Operating Officer May 19, 1994
- ------------------------------------ and Director [/R]
Spencer I. Brown
/s/ David D. Mandarich Executive Vice May 19, 1994
- ------------------------------------ President--Real [/R]
Estate and
David D. Mandarich Director [/R]
/s/ Paris G. Reece III Vice President,
- ------------------------------------ Secretary, May 19, 1994
Paris G. Reece III Treasurer and
Chief Financial
Officer (principal
financial and
accounting
officer)
II-5
<PAGE>
SIGNATURE TITLE DATE
Director
*Gilbert Goldstein May 19, 1994
- ------------------------------------ [/R]
Gilbert Goldstein
Director
*William B. Kemper May 19, 1994
- ------------------------------------ [/R]
William B. Kemper
Director
*Steven J. Borick May 19, 1994
- ------------------------------------ [/R]
Steven J. Borick
/s/ Herbert T. Buchwald Director [/R] May 19, 1994
- ------------------------------------ [/R]
Herbert T. Buchwald
*By /s/ Paris G. Reece III
---------------------------------
Paris G. Reece III
As Attorney-in-Fact
II-6
<PAGE>
(LETTERHEAD OF BROWNSTEIN HYATT FARBER & STRICKLAND, P.C.
APPEARS HERE)
May 18, 1994
M.D.C. Holdings, Inc.
3600 South Yosemite Street
Suite 900
Denver, Colorado 80237
Ladies and Gentlemen:
M.D.C. Holdings, Inc. (the "Company") has filed with the Securities and
Exchange Commission a registration statement (the "Registration Statement") on
Form S-3 (No. 33-52241), as amended, which relates to (i) the public offering by
the Selling Security Holders (as defined in the Registration Statement) of up to
$28,000,000 principal amount of 8 3/4% Convertible Subordinated Notes due 2005
of the Company (the "Convertible Notes"), which were issued on December 28, 1993
under the private offering exemption afforded by Section 4(2) of the Securities
Act of 1933, as amended, and (ii) the registration of the shares of Common Stock
of the Company issuable upon conversion of the Convertible Notes (the "Shares").
We have examined such corporate records of the Company and such other
documents as we have deemed appropriate to render this opinion.
Based upon the foregoing, we are of the opinion that (i) the Convertible
Notes have been duly authorized and, when sold as contemplated by the
Registration Statement, will be legally issued, fully paid and non-assessable
and will be binding obligations of the Company, and (ii) the Shares have been
duly authorized and reserved for issuance upon conversion of the Convertible
Notes and, upon issuance of the Shares upon valid conversion of the Convertible
Notes, will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the use of our name in the Prospectus that is a
part of the Registration Statement under the caption "Legal Matters."
Very truly yours,
Brownstein Hyatt Farber & Strickland, P.C.
/s/ Brownstein Hyatt Farber &
Strickland, P.C.
[14199]
<PAGE>
M.D.C. HOLDINGS, INC.
STATEMENT REGARDING THE EARNINGS TO FIXED CHARGES OF THE COMPANY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1993 1992 1991 1990 1989
------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Operating Income (Loss) Before
Income Taxes....................... $15,032 $ 6,520 $(14,119) $(12,565) $(116,417)
Add Back Previously Capitalized Home
Building Interest Expense Included
in Cost of Sales................... 19,810 21,339 13,719 20,581 33,762
Corporate and Home Building Interest
Expense............................ 11,454 13,359 12,905 16,551 34,803
Other Debt Related Expenses......... 3,425 1,967 1,975 2,699 3,344
------- ------- -------- -------- ---------
Earnings Before Interest and
Taxes........................... $49,721 $43,185 $ 14,480 $ 27,266 $ (44,508)
======= ======= ======== ======== =========
Interest Incurred................... $25,505 $24,802 $ 25,534 $ 34,726 $ 70,152
Other Debt Related Expenses......... 3,425 1,967 1,975 2,699 3,344
------- ------- -------- -------- ---------
Total Fixed Charges............... $28,930 $26,769 $ 27,808 $ 37,425 $ 73,496
======= ======= ======== ======== =========
Ratio of Earnings to Fixed Charges.. 1.72 1.61 0.53 0.73 N/A
======= ======= ======== ======== =========
</TABLE>
<PAGE>
(PRICE WATERHOUSE LETTERHEAD AND LOGO APPEARS HERE)
Exhibit No. 15
May 19, 1994
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
We are aware that M.D.C. Holdings, Inc. has included our report dated
April 26, 1994 (issued pursuant to the provisions of Statement on Auditing
Standards No. 71) in the Prospectus constituting part of its Registration
Statement on Form S-3 to be filed on or about May 19, 1994. We are also
aware of our responsibilities under the Securities Act of 1933.
Yours very truly,
/s/ Price Waterhouse
Price Waterhouse
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of
M.D.C. Holdings, Inc. of our report dated February 10, 1994 appearing
on page F-2 of M.D.C. Holdings, Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1993. We also consent to the reference to
us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE
Los Angeles, California
May 19, 1994
