<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 16, 1994
REGISTRATION NO. 33-53995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
J.M. PETERS COMPANY, INC.
AND OTHER REGISTRANTS (SEE TABLE OF OTHER REGISTRANTS BELOW)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 1521 95-2956559
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
3501 JAMBOREE ROAD, SUITE 200
NEWPORT BEACH, CALIFORNIA 92660
(714) 854-2500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S AND EACH CO-REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GREGORY R. PETERSEN
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
3501 JAMBOREE ROAD, SUITE 200
NEWPORT BEACH, CA 92660
(714) 854-2500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH A COPY TO:
ROBERT E. DEAN, ESQ.
GIBSON, DUNN & CRUTCHER
4 PARK PLAZA
IRVINE, CALIFORNIA 92714
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
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<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) PRICE(1) FEE
- -------------------------------------------------------------------------------------------------
12 3/4% Senior Notes Due May 1,
2002.............................. $100,000,000 100% $100,000,000 $34,483*
Guarantees of 12 3/4% Senior Notes
Due May 1, 2002................... $100,000,000 (2) (2) (2)
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</TABLE>
(1) Estimated pursuant to Rule 457(f) solely for the purpose of calculating the
registration fee.
(2) No additional consideration for the Guarantees of 12 3/4% Senior Notes Due
May 1, 2002 will be paid by the purchasers of Senior Notes. Pursuant to Rule
457(n), no separate fee is payable therefor.
* A registration fee of $34,483 has previously been paid by the Company.
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, AS AMENDED, 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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<PAGE> 2
TABLE OF OTHER REGISTRANTS
<TABLE>
<CAPTION>
STATE OR OTHER PRIMARY STANDARD IRS
JURISDICTION OF INDUSTRIAL EMPLOYER
EXACT NAME OF REGISTRANT INCORPORATION OR CLASSIFICATION CODE IDENTIFICATION
AS SPECIFIED IN ITS CHARTER ORGANIZATION NUMBER NO.
- --------------------------- ----------------- ------------------- --------------
<S> <C> <C> <C>
Durable Homes, Inc............................. Nevada 1521 88-0126127
Peters Ranchland............................... Delaware 1521 33-0524068
Company, Inc.
J.M. Peters Nevada, Inc........................ Delaware 1521 88-0306935
</TABLE>
<PAGE> 3
J. M. PETERS COMPANY, INC.
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K.
<TABLE>
<CAPTION>
ITEM IN FORM S-1 LOCATION IN PROSPECTUS
- ---------------- ----------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus......... Forepart of the Registration
Statement; Outside Front Cover Page
of the Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside Front Cover Page of
Prospectus; Outside Back Cover Page
of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges...................... Summary; Risk Factors; Selected
Consolidated Financial and
Operating Data
4. Use of Proceeds.................................. Use of Proceeds
5. Determination of Offering Price.................. Not Applicable
6. Dilution......................................... Not Applicable
7. Selling Security Holders......................... Not Applicable
8. Plan of Distribution............................. The Exchange Offer;
Plan of Distribution
9. Description of Securities to be Registered....... Summary; Description of the Notes
10. Interests of Named Experts and Counsel........... Not Applicable
11. Disclosure of Commission Position of
Indemnification For Securities Act
Liabilities.................................... Not Applicable
12. Information With Respect to the Registrant....... Summary; Risk Factors; Company
Background and Structure;
Capitalization; Selected
Consolidated Financial and
Operating Data -- The Company;
Selected Consolidated Financial and
Operating Data -- Durable;
Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Executive Compensation
and Other Information; Certain
Relationships and Related Party
Transactions; Shareholders of the
Company; Description of Capital
Stock; Consolidated Financial
Statements
</TABLE>
<PAGE> 4
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED AUGUST 16, 1994
PROSPECTUS
OFFER FOR ALL OUTSTANDING
12 3/4% SENIOR NOTES DUE 2002
IN EXCHANGE FOR
12 3/4% SENIOR NOTES DUE MAY 1, 2002
OF
J.M. PETERS COMPANY
UNCONDITIONALLY GUARANTEED BY
DURABLE HOMES, INC.
PETERS RANCHLAND COMPANY, INC.
AND
J.M. PETERS NEVADA, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON , 1994, UNLESS EXTENDED
J.M. Peters Company, Inc., a Delaware corporation (the "Company"), hereby
offers to exchange an aggregate principal amount of up to $100,000,000 of its
12 3/4% Senior Notes Due May 1, 2002 (the "New Notes") for a like principal
amount of its 12 3/4% Senior Notes Due 2002 (the "Old Notes") outstanding on the
date hereof upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"). The New Notes and Old Notes are collectively
hereinafter referred to as the "Notes." The terms of the New Notes are identical
in all material respects to those of the Old Notes except (i) for certain
transfer restrictions and registration rights relating to the Old Notes and (ii)
that, if by November 14, 1994, neither an Exchange Offer with respect to the Old
Notes has been consummated nor a Shelf Registration Statement (as defined) with
respect to such Notes has been declared effective, the interest rate on each Old
Note from and after November 14, 1994 shall be permanently increased to a rate
of 13 1/4% per annum. The New Notes will be issued pursuant to, and entitled to
the benefits of, the Indenture (as defined) governing the Old Notes. The Old
Notes and the New Notes are jointly, severally and unconditionally guaranteed by
Durable Homes, Inc., Peters Ranchland Company, Inc. and J.M. Peters Nevada, Inc.
(collectively, the "Guarantors"), each of which is a wholly-owned subsidiary of
the Company.
The New Notes will be senior unsecured indebtedness of the Company, ranking
pari passu in right of payment with the Company's other unsecured indebtedness.
At May 31, 1994, the Company had no indebtedness junior to the Old Notes and $10
million of secured indebtedness senior to Old Notes. Holders of future secured
indebtedness will be entitled to payment out of the proceeds of their collateral
prior to any holders of general unsecured indebtedness, including holders of the
Notes. See "Description of the Notes."
The New Notes will bear interest from and including the date of consummation
of the Exchange Offer. Interest on the New Notes will be payable in arrears on
May 1 and November 1 of each year commencing November 1, 1994. Additionally,
interest on the New Notes will accrue from the last interest payment date on
which interest was paid on the Old Notes surrendered in exchange therefor or, if
no interest has been paid on the Old Notes, from the date of original issue of
the Old Notes.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Notes Registration Rights Agreement
dated May 13, 1994 (the "Registration Agreement"), between the Company and
Morgan Stanley & Co. Incorporated, as the initial purchaser (the "Initial
Purchaser"), with respect to the initial sale of the Old Notes.
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of Old
Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date for the Exchange Offer. In the event the Company terminates the
Exchange Offer and does not accept for exchange any Old Notes with respect to
the Exchange Offer, the Company will promptly return such Old Notes to the
holders thereof. See "The Exchange Offer."
------------------------
Prior to the Exchange Offer, there has been no public market for the Old
Notes. If a market for the New Notes should develop, such New Notes could trade
at a discount from their principal amount. The Company currently does not intend
to list the New Notes on any securities exchange or to seek approval for
quotation through any automated quotation system and no active public market for
the New Notes is currently anticipated. There can be no assurance that an active
public market for the New Notes will develop.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange pursuant to the Exchange Offer.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT HOLDERS OF OLD
NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
------------------------
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 , 1994.
<PAGE> 5
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE GUARANTORS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE NEW NOTES OR OLD NOTES
BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO
MAKE SUCH AN OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR THE EXCHANGE PROPOSED TO BE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF. UNTIL , 1994, ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS.
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"), and, in accordance
therewith, is required to file reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and other information
can be inspected and copied at the principal office of the Commission at Room
1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and the
following Regional Offices of the Commission: Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60601 and New York Regional Office, Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material may also be obtained at
prescribed rates from the Public Reference Section of the Commission at its
principal office at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. In the event the Company is not required to be subject to the reporting
requirements of the Exchange Act in the future, the Company is required under
the Indenture to continue to file with the Commission, and to furnish the
Trustee (as defined) and the holders of the Notes with, the information,
documents and other reports specified in Sections 13 and 15(d) of the Exchange
Act.
The Company's Common Stock is traded on the American Stock Exchange under
the symbol "JMP." Reports, proxy material and other information concerning the
Company may be inspected at the office of the American Stock Exchange, Inc., 86
Trinity Place, New York, New York 10006-1881.
The Company and the Guarantors have filed with the Commission a
Registration Statement (which term includes any amendments thereto) on Form S-1
under the Securities Act with respect to the New Notes offered by this
Prospectus. This Prospectus does not contain all information set forth in the
Registration Statement and the exhibits thereto, to which reference is hereby
made. Statements made in this Prospectus as to the contents of any contract,
agreement, or other document are not necessarily complete. With respect to each
such contract, agreement, or other document filed as an exhibit to the
Registration Statement, reference is made to such exhibit for a more complete
description of the matter involved.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information................................. 2
Summary............................................... 3
Risk Factors.......................................... 14
Company Background.................................... 21
Use Of Proceeds....................................... 23
Capitalization........................................ 24
Selected Consolidated Financial And Operating
Data -- The Company................................. 26
Selected Consolidated Financial And Operating
Data -- Durable..................................... 28
Pro Forma Consolidated Income Statement............... 29
Management's Discussion And Analysis Of Financial
Condition And Results Of Operations................. 30
The Exchange Offer.................................... 42
<CAPTION>
PAGE
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<S> <C>
Business.............................................. 48
Management............................................ 66
Executive Compensation And Other Information.......... 68
Certain Relationships And Related Party
Transactions........................................ 69
Stockholders Of The Company........................... 71
Description of the Notes.............................. 72
Description Of Common Stock........................... 94
Certain Federal Income Tax Considerations............. 95
Plan Of Distribution.................................. 101
Legal Matters......................................... 101
Independent Public Accountants........................ 102
Index To Consolidated Financial Statements............ F-1
</TABLE>
------------------------------
The Indenture pursuant to which the New Notes will be issued contains a
covenant which requires the Company to provide to each Holder of record of the
Notes, upon request, and to the Trustee under the Indenture, annual reports
containing financial statements of the Company and certain financial information
of the Company audited by an independent auditor and management's discussion and
analysis of financial condition as well as quarterly reports for the first three
quarters of each year containing unaudited financial information.
2
<PAGE> 6
SUMMARY
The following information is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial statements
contained elsewhere in this Prospectus. As used in this Prospectus, the
"Company" or "Peters" refers to J.M. Peters Company, Inc., a Delaware
corporation, and its subsidiaries and consolidated partnerships (including the
Guarantors), unless the context requires otherwise.
THE COMPANY
The Company is one of the leading single family homebuilders in Orange
County, California and Las Vegas, Nevada, where it builds and sells homes
targeted to entry level and move-up buyers. Since 1975, the Company has built
and sold nearly 8,000 homes, principally in Orange County, but also in the
adjacent counties of Riverside, San Diego and Los Angeles. Since 1969, Durable
Homes, Inc. ("Durable"), a wholly-owned subsidiary that was acquired by the
Company in 1993, has built and sold nearly 7,000 homes, principally in Las
Vegas. The Company believes that in 1993 it was the 10th largest homebuilder in
Orange County and Durable was the 8th largest homebuilder in Las Vegas (in each
case, based on unit sales). During the fiscal year ended February 28, 1994, the
Company (including Durable's results on a pro forma basis for the full fiscal
year) closed 644 home sales at an average sales price of $159,000 (including 205
homes closed in California at an average sales price of $293,000 and 439 homes
closed in Nevada at an average sales price of $96,000). During the fiscal
quarter ended May 31, 1994, the Company closed 193 homes at an average price of
$158,500 and 6 custom lots at an average price of $192,000.
Recent market information indicates that the Orange County housing market
is improving and that the Las Vegas housing market remains quite strong. The
number of sales of new homes in Orange County was 15% higher during 1993 than
during 1992, and the overall inventory of unsold completed new homes in Orange
County decreased from an approximately 40 week supply in September 1990 to an
approximately 14 week supply in June 1994. The percentage of households in the
Orange County area that can afford a median priced home increased from 14% in
December 1989 to 42% in May 1994. Las Vegas, with an expanding job base and
relatively low median housing prices, was one of the fastest growing markets in
the United States for new home sales in 1993, with annual unit sales of 15,800,
40% greater than the 1992 level. The U.S. Census Bureau ranked Las Vegas as the
number one metropolitan area in percentage population growth between 1990 and
1992, with a 14% gain to 971,200 people. During the same period, Orange County
gained 106,000 new residents, an increase of over 4%.
While the Company believes that the housing market in California is
recovering and that the housing market in Nevada is holding strong, the Company
will continue to be affected by real estate market conditions in areas where its
development projects are located and in areas where its potential customers
reside. The residential homebuilding industry is cyclical and sensitive to
changes in general national and regional economic conditions, such as: levels of
employment; consumer confidence and income; availability of financing to
homebuilders for acquisitions, development and construction; availability of
financing to homebuyers for permanent mortgages; interest rate levels; the
condition of the resale market for used homes; and the general demand for
housing. Housing demand is particularly sensitive to changes in interest rates.
If mortgage interest rates increase significantly, thus affecting prospective
buyers' ability to obtain affordable financing for their home purchases, the
Company's sales and operating results may be adversely affected.
In August 1992, Capital Pacific Homes, Inc., a Delaware corporation ("CPH")
that is wholly owned by Hadi Makarechian, Chairman of the Board and Chief
Executive Officer of the Company, and Dale Dowers, President and Chief Operating
Officer of the Company (who have 35 years of combined financial, construction,
homebuilding and design experience), acquired control of the Company in a $47.25
million purchase (the "Acquisition") from The Resolution Trust Corporation (the
"RTC"). At the time of the Acquisition, the Company had an experienced
management team in place and almost 2,000 entitled lots in California (a
majority of which were still held by the Company as of May 31, 1994). The
Acquisition (and the Company's results of operations for the first six months of
fiscal year 1993) allowed the Company to significantly improve its balance
sheet, as debt was reduced by $215 million (from $263 million to $48 million),
stockholders' equity increased by $76 million to $51 million and the book value
of residential real
3
<PAGE> 7
estate inventories was written down 51% from $225 million to $111 million. Prior
to the Acquisition, the Company had already taken significant writedowns to its
land inventory. Such writedowns aggregated approximately $140.3 million during
fiscal years 1991 and 1992.
During much of the period of RTC control, new construction and acquisition
activity was halted in California as the RTC followed a strategy essentially
limited to liquidating inventory. Closings in California decreased from 775
homes in fiscal year 1990 (the year prior to RTC control) to 115 homes in fiscal
year 1993 (the last year that included any period of RTC control). At the time
of the Acquisition, construction activity had virtually ceased and there were
only 13 completed and 15 partially completed homes remaining at the Company.
Because of the time required to recommence active building operations after the
Acquisition, the Company did not begin closing a significant number of homes in
California until the third and fourth quarters of fiscal year 1994. Because of
the 22 months of RTC control, the period required to recommence California
operations and the acquisition of Durable in the middle of fiscal year 1994,
management of the Company does not believe that its historical operating results
prior to the third and fourth quarters of fiscal year 1994 are meaningful
indicators of its future performance.
Since the Acquisition, the Company has focused on: (i) recommencing
California building operations; (ii) diversifying its geographic markets to
include areas outside of Southern California; (iii) diversifying its product
offerings to include both entry level and move-up homes in order to appeal to a
broad customer base; (iv) improving and broadening its capital base and sources
of financial liquidity; (v) controlling costs while increasing operational
efficiency; and (vi) reducing land and inventory risk by avoiding speculative
building, constraining project sizes, avoiding entitlement risks and acquiring
land through the use of options, purchase contracts, development agreements and
joint ventures.
The Company believes that it has made progress in implementing the
strategic goals described above. Since the Acquisition, the Company has: (i)
recommenced active building operations in Southern California; (ii) become a
significant participant in the Las Vegas, Nevada residential housing market
through its acquisition of Durable (the "Durable Acquisition"); (iii) reduced
prices, largely as a result of its reduced land basis, on its California
products without adversely affecting its product design or quality; (iv)
obtained approximately $120 million of construction financing commitments, which
includes approximately $66 million from IHP Investment Fund I, L.P. (the
"CalPERS LP"), the limited partner in four California partnerships with the
Company (the "CalPERS Partnerships"), which amounts the Company has utilized in
the past but are presently not available to the Company as a result of
restrictions contained in the Indenture; (v) established new management control
systems and reduced overhead; and (vi) completed the sale and issuance of the
Old Notes and the Warrants.
While the Company believes that it has made progress in achieving its
strategic goals, the Company had significant operating losses during the 1991,
1992 and 1993 fiscal years, which included the 22-month period of RTC control
(November 1990 to August 1992). During much of the period of RTC control, the
operations of the Company essentially were limited to liquidating standing
inventory and, at the direction of its RTC-controlled board of directors, the
Company did not start any new projects or acquire land or options for land for
new projects. The Company was profitable during the 1994 fiscal year, but it did
incur losses during the first two quarters of such fiscal year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
At May 31, 1994, the Company was in various stages of development with
respect to 21 active projects, including 11 projects located in the Orange and
Riverside Counties of Southern California and in 10 projects located in Las
Vegas and Laughlin, Nevada. The Company is actively selling homes in 18 of these
projects. At May 31, 1994, the Company owned approximately 1,515 building sites
(946 in California and 569 in Nevada) and controlled an additional 1,396
building sites (639 in California and 757 in Nevada) through options and
purchase contracts.
The Company expects to start construction on approximately 14 new projects
during fiscal year 1995 and also expects that substantially all of the projects
that generated closings during the third and fourth quarters of fiscal year 1994
will be generating closings throughout fiscal year 1995. At May 31, 1994, the
Company had a total backlog of 279 homes sold with an aggregate sales value of
$55.1 million, which is moderately lower than
4
<PAGE> 8
the backlog at the start of the third and fourth quarters of fiscal year 1994.
The backlog at May 31, 1994 included 132 homes sold with an aggregate sales
value of $40.0 million in California and 147 homes sold with an aggregate sales
value of $15.1 million in Nevada.
The Company believes that its cancellation rate is consistent with that
experienced by other homebuilders in the markets the Company serves. The Company
attempts to minimize cancellations by pre-qualifying prospective home buyers,
allowing home buyers to upgrade their flooring and other amenities through
Newport Design Center at any early point in the purchase process and building
homes in a timely manner in order to minimize customers' waiting periods.
The Company was originally incorporated in California in 1975,
reincorporated in Nevada in 1987 and reincorporated in Delaware in 1993. Durable
was incorporated in Nevada in 1975. Peters Ranchland Company, Inc. was
incorporated in Delaware in 1992. J.M. Peters Nevada, Inc. was incorporated in
Delaware in 1993. The principal executive offices of the Company and each of the
Guarantors are located at 3501 Jamboree Road, Suite 200, Newport Beach,
California, 92660, and the telephone number is (714) 854-2500.
STRUCTURE OF THE COMPANY
The Company conducts its business directly and through its subsidiaries and
consolidated partnerships. As of May 31, 1994, approximately 76.0% of the
Company's assets were held directly at J.M. Peters Company, Inc, approximately
10.6% were held directly at Durable and approximately 13.4% were held through
Peters Ranchland, Inc. The following chart sets forth the structure of the
Company:
- -----------------------------------------------------------------------------
J.M. PETERS COMPANY,
INC.
a Delaware corporation
<TABLE>
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<S> <C> <C>
J.M. PETERS NEVADA, DURABLE HOMES, INC.* PETERS RANCHLAND
INC.* a Nevada corporation COMPANY, INC.*
a Delaware corporation Wholly Owned Subsidiary Wholly Owned Subsidiary
Wholly Owned Subsidiary a Delaware corporation
- ------------------------------------------------------------------------------------------------
- --------------------- ------------------------ ------------------------------------------
General Partner of: General Partner of: General Partner of:
Taos Estates, L.P. Las Hadas, L.P. Ranchland Montilla, Development, L.P.
Plateau Venture, L.P. Ranchland Alicanta Development, L.P.
Portraits Venture, L.P. Ranchland Fairway Estates Development, L.P.
Taos Estates, L.P. Ranchland Portola Development, L.P.
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
P.B. PARTNERS BAYHILL ESCROW, INC. NEWPORT DESIGN CAPITAL PACIFIC DURALE HOMES OF
a California a California corporation CENTER, INC. COMMUNITIES, INC. CALIFORNIA, INC.,
general partnership 50% the Company a California corporation a Delaware corporation a Delaware corporation
50% the Company 50% Bernard Selz Wholly Owned Subsidiary Wholly Owned Subsidiary Wholly Owned Subsidiary
50% Bramalea California, Inc.
</TABLE>
* Joint, several and unconditional guarantors of the Notes.
See "Business -- Joint Ventures" for additional information regarding each
subsidiary's interest in the
5
<PAGE> 9
THE EXCHANGE OFFER
SECURITIES OFFERED....Up to $100,000,000 aggregate principal amount of 12 3/4%
Senior Notes Due May 1, 2002. The terms of the New Notes
and Old Notes are identical in all material respects,
except for certain transfer restrictions and registration
rights relating to the Old Notes and except for certain
interest provisions relating to the Old Notes described
below under "-- Terms of the New Notes."
THE EXCHANGE OFFER....The New Notes are being offered in exchange for a like
principal amount of Old Notes. Old Notes may be exchanged
only in integral multiples of $1,000. The issuance of the
New Notes is intended to satisfy obligations of the
Company contained in the Registration Agreement.
EXPIRATION DATE;
WITHDRAWAL OF
TENDER..............The Exchange Offer will expire 5:00 p.m. New York City
time, on , 1994, or such later date and time to
which it is extended by the Company. The tender of Old
Notes pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date. Any Old Notes not
accepted for exchange for any reason will be returned
without expense to the tendering holder thereof as
promptly as practicable after the expiration or
termination of the Exchange Offer.
CERTAIN CONDITIONS TO
THE EXCHANGE
OFFERS..............The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. The
Company currently expects that each of the conditions will
be satisfied and that no waivers will be necessary. See
"The Exchange Offer -- Certain Conditions to the Exchange
Offer."
PROCEDURES FOR
TENDERING OLD NOTES Each holder of Old Notes wishing to accept the Exchange
Offer must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in accordance with
the instructions contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or such
facsimile, together with such Old Notes and any other
required documentation, to the Exchange Agent (as defined)
at the address set forth herein. See "The Exchange
Offer -- Procedures for Tendering Old Notes."
USE OF PROCEEDS.......There will be no proceeds to the Company from the exchange
of Notes pursuant to the Exchange Offer.
EXCHANGE AGENT........United States Trust Company of New York is serving as the
Exchange Agent in connection with the Exchange Offer.
FEDERAL INCOME TAX
CONSEQUENCES........The exchange of Notes pursuant to the Exchange Offer will
not be a taxable event for federal income tax purposes.
See "Certain Federal Income Tax Considerations."
CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, holders of Old Notes (other than any
holder who is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act) who exchange their Old Notes for New Notes pursuant to the
Exchange Offer generally may offer such New Notes for resale, resell such New
Notes, and otherwise transfer such New Notes without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
such New Notes are acquired in the ordinary course of the holder's business and
such holders have no arrangement with any person to participate in a
distribution of such New Notes. Each broker-dealer that receives New Notes for
its own account in exchange for Old Notes must acknowledge that it will deliver
a
6
<PAGE> 10
prospectus in connection with any resale of such New Notes. See "Plan of
Distribution". In addition, to comply with the securities laws of certain
jurisdictions, if applicable, the New Notes may not be offered or sold unless
they have been registered or qualified for sale in such jurisdiction or an
exemption from registration or qualification is available and is complied with.
The Company has agreed, pursuant to the Registration Agreement and subject to
certain specified limitations therein, to register or qualify the New Notes for
offer or sale under the securities or blue sky laws of such jurisdictions as any
holder of the Notes reasonably requests in writing. If a holder of Old Notes
does not exchange such Old Notes for New Notes pursuant to the Exchange Offer,
such Old Notes will continue to be subject to the restrictions on transfer
contained in the legend thereon. In general, the Old Notes may not be offered or
sold, unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. See "The Exchange Offer -- Consequences of
Failure to Exchange; Resales of New Notes."
The Old Notes were initially issued in units consisting of ten Old Notes
and 79 Warrants to purchase Company Common Stock (the "Warrants"). Upon
commencement of the Exchange Offer, the Old Notes and the Warrants will become
separately transferable. Following commencement of the Exchange Offer but prior
to its consummation, the Old Notes and the Warrants may be traded separately in
the Private Offerings, Resales and Trading through Automated Linkages ("PORTAL")
Market. Following consummation of the Exchange Offer, the Warrants will remain
eligible for PORTAL trading, but the New Notes will not be eligible for PORTAL
trading.
TERMS OF NEW NOTES
The terms of the New Notes are identical in all material respects to the
Old Notes, except (i) for certain transfer restrictions and registration rights
relating to the Old Notes and (ii) that, if by November 14, 1994, neither the
Exchange Offer has been consummated nor a Shelf Registration Statement with
respect to such Notes has been declared effective, the interest rate on each Old
Note from and after November 14, 1994 shall be permanently increased to a rate
of 13 1/4% per annum.
AGGREGATE PRINCIPAL
AMOUNT............. $100,000,000. For a discussion of the federal income tax
treatment of the New Notes, see "Certain Federal Income
Tax Considerations."
INTEREST PAYMENT
DATES.............. May 1 and November 1 of each year, commencing November 1,
1994.
MATURITY............. May 1, 2002.
GUARANTEES........... The New Notes will be unconditionally guaranteed by
Durable and certain of the Company's other subsidiaries.
Each of the guarantees will be a senior unsecured
obligation of such subsidiary and will rank pari passu in
right of payment with all existing and future senior
unsecured indebtedness of such subsidiary. See
"Description of the Notes -- The Subsidiary Guarantees."
OPTIONAL REDEMPTION.. Prior to May 1, 1997, the Company may use the proceeds of
one or more Public Equity Offerings (as defined) to redeem
up to 35% of the aggregate principal amount of the Notes
at 112.75% of their principal amount, plus accrued
interest. The New Notes will not otherwise be redeemable
at the option of the Company prior to May 1, 1999.
Thereafter, the New Notes will be redeemable at 106.375%
of their principal amount, declining ratably to par on and
after May 1, 2001, plus accrued interest.
OFFERS TO PURCHASE... In the event of a Change of Control, holders of the New
Notes will have the right to require the Company to
purchase the New Notes then outstanding at a purchase
price equal to 101% of the principal amount of the New
Notes, plus accrued interest to the date of purchase.
7
<PAGE> 11
In the event that for two consecutive fiscal quarters the
Company's Consolidated Tangible Net Worth (as defined) is
less than $37 million, the Company will be required to
offer to purchase 10% of the then outstanding principal
amount of the Notes at a purchase price equal to 100% of
the principal amount thereof, plus accrued interest to the
date of purchase. At February 28, 1994, after giving
effect to the issuance of the Old Notes and the Warrants
and the application of the estimated net proceeds thereof,
the Consolidated Tangible Net Worth of the Company would
have been $57.1 million.
In addition, under certain circumstances the Company will
be required to offer to purchase New Notes with the
proceeds of certain Asset Sales (as defined). For more
complete information regarding mandatory offers to
purchase the New Notes, see "Description of the
Notes -- Certain Covenants -- Maintenance of Consolidated
Tangible Net Worth," "Description of the Notes -- Certain
Covenants -- Limitation on Asset Sales" and "Description
of the Notes -- Repurchase of Notes upon a Change of
Control."
RANKING; SECURED
INDEBTEDNESS....... The New Notes will be senior unsecured indebtedness of the
Company, ranking pari passu in right of payment with all
existing and future unsecured indebtedness of the Company
that is not, by its terms, expressly subordinated in right
of payment to the Notes. At May 31, 1994, the Company had
no indebtedness junior to the Old Notes and $10 million of
secured indebtedness senior to the Old Notes.
The Company may Incur (as defined) each and all of the
following: (i) Indebtedness (as defined) outstanding at
any time in an aggregate principal amount not to exceed
the greater of (A) $15 million or (B)(1) 10% of the
Adjusted Consolidated Net Tangible Assets (as defined) if
Adjusted Consolidated Net Tangible Assets are less than
$200 million, or (2) 15% of Adjusted Consolidated Net
Tangible Assets if Adjusted Consolidated Net Tangible
Assets are equal to or greater than $200 million, in the
case of each of clauses (A) and (B), less any amount of
Indebtedness permanently repaid as provided under the
heading "Description of the
Notes -- Covenants -- Limitation on Asset Sales," (ii)
Indebtedness to any Restricted Subsidiary (as defined)
that is a Wholly Owned Subsidiary (as defined) of the
Company; (iii) Non-Recourse Indebtedness (as defined);
(iv) Refinancing Indebtedness (as defined), other than
with respect to Indebtedness Incurred under clause (i) of
this paragraph; and (v) Indebtedness under Interest Rate
Agreements (as defined).
The Indenture also permits the Company to grant liens to
secure additional Indebtedness permitted by the Indenture
so long as the amount of such secured Indebtedness (other
than Non-Recourse Indebtedness) does not exceed 40% of the
Adjusted Consolidated Net Tangible Assets (as defined) of
the Company and also permits certain other liens. See
"Description of the Notes -- Certain
Covenants -- Limitation on Liens." Holders of such secured
indebtedness will be entitled to payment out of the
proceeds of their collateral prior to any holders of
general unsecured indebtedness, including the holders of
Notes.
CERTAIN COVENANTS.... The Indenture contains certain covenants that, among other
things, limit the incurrence of additional indebtedness by
the Company and its Restricted Subsidiaries (as defined);
the payment of dividends; the repurchase of capital stock
and subordinated indebtedness; the making of certain other
distributions and of certain loans and investments; the
ability to create certain liens; the creation of
restrictions on the ability of Restricted Subsidiaries to
pay dividends or make
8
<PAGE> 12
other payments to the Company; and the ability to
enter into certain transactions with affiliates or
merge, consolidate or transfer substantially all
assets. See "Description of the Notes -- Certain
Covenants."
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of Notes
pursuant to the Exchange Offer.
RISK FACTORS
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT PROSPECTIVE
INVESTORS SHOULD CONSIDER PRIOR TO MAKING AN INVESTMENT IN THE SECURITIES.
9
<PAGE> 13
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents summary consolidated financial and operating
data of the Company on a historical and a pro forma basis. The summary pro forma
consolidated financial and operating data of the Company set forth below should
be read in conjunction with the Pro Forma Consolidated Income Statement and
notes thereto included elsewhere in this Prospectus. The "Pro Forma" columns set
forth below reflect pro forma results assuming the Durable Acquisition had
occurred as of March 1, 1993. The "Pro Forma As Adjusted" columns set forth
below reflect pro forma results assuming the Durable Acquisition had occurred as
of March 1, 1993 and assuming that the net proceeds from the sale of the Old
Notes and the Warrants were available to the Company on March 1, 1993 and were
used on such date. The "As Adjusted" column set forth in the Balance Sheet Data
below reflects pro forma results assuming that the net proceeds from the sale of
the Old Notes and the Warrants were available to the Company on February 28,
1994 and were used on such date. For federal and certain state income tax
purposes, prior to the Durable Acquisition, Durable had elected to be treated as
an S Corporation and, therefore, was not generally subject to tax on its
earnings. Both the "Pro Forma" and the "Pro Forma As Adjusted" columns have been
adjusted to reflect the taxes that would have been payable in respect of
Durable's earnings during the period from March 1, 1993 through August 31, 1993
if it had not elected to be treated as an S Corporation for such period. THE
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED FEBRUARY 28, 1991, FEBRUARY 29,
1992 AND FEBRUARY 28, 1993 INCLUDE THE 22-MONTH PERIOD OF RTC CONTROL OF THE
COMPANY (NOVEMBER 1990 TO AUGUST 1992). ADDITIONALLY, THE RESULTS OF OPERATIONS
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1994 DO NOT INCLUDE DURABLE'S RESULTS FOR
THE FULL YEAR DUE TO THE FACT THAT THE DURABLE ACQUISITION DID NOT OCCUR UNTIL
THE BEGINNING OF THE THIRD QUARTER OF FISCAL YEAR 1994. ACCORDINGLY, COMPANY
MANAGEMENT BELIEVES THE HISTORICAL OPERATING RESULTS FOR PERIODS PRIOR TO THE
THIRD AND FOURTH QUARTERS OF FISCAL YEAR 1994 ARE NOT MEANINGFUL INDICATORS OF
FUTURE PERFORMANCE. The results of operations of each of the Company's joint
ventures are consolidated in the Company's financial statements. See "Pro Forma
Consolidated Income Statement," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business -- Joint Ventures" and
the Consolidated Financial Statements and the related notes thereto.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1990 1991 1992 1993 1994(A)
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues................ $315,726 $ 215,535 $184,944 $ 75,702 $91,066
======== ========= ======== ======== =======
Gross profit.................. $ 65,415 $ 25,591 $ 12,341 $ 3,891 $14,792
Interest and other income,
net.......................... 9,274 5,272 2,274 3,554 2,926
Adjustments to carrying value
of real estate projects and
investments in
partnerships................. 1,055 84,327 56,016 75,476 --
Selling, general and
administrative expenses...... 29,010 26,213 15,579 9,764 12,322
Minority interest............. -- -- -- -- 4,332
Interest expense.............. 353 12,006 14,691 8,538 418
Adjustments to costs in excess
of net assets acquired....... -- 18,951 -- -- --
-------- --------- -------- -------- -------
Income (loss) before provision
(benefit) for income taxes
and extraordinary gain....... 44,271 (110,634) (71,671) (86,333) 646
Provision (benefit) for income
taxes........................ 18,937 (2,653) (13,895) (1,792) --
-------- --------- -------- -------- -------
Income (loss) before
extraordinary gain........... 25,334 (107,981) (57,776) (84,541) 646
Extraordinary gain............ -- -- -- -- 4,268
-------- --------- -------- -------- -------
Net income (loss)............. $ 25,334 $(107,981) $(57,776) $(84,541) $ 4,914
======== ========= ======== ======== =======
OPERATING DATA:
Net new orders (units)........ 759 430 326 126 478(d)
Homes closed (units)(e)....... 775 541 395 115 404
Backlog (units)(f)............ 261 150 81 92 305
Backlog....................... $114,427 $ 66,858 $ 28,795 $ 25,853 $55,816
Average price of homes closed. $ 395 $ 386 $ 347 $ 334 $ 201
Housing gross margin.......... 21.3% 12.2% 11.4% 10.1% 17.6%
G&A as % of housing revenues.. 6.2% 5.3% 5.4% 16.4% 7.6%
SG&A as % of housing
revenues..................... 9.5% 12.6% 11.4% 25.5% 15.2%
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
THREE THREE PRO FORMA AS ADJUSTED
MONTHS MONTHS FISCAL FISCAL
ENDED ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, FEBRUARY 28, FEBRUARY 28,
1993 1994 1994(B) 1994(C)
----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues................ $ 4,004 $32,770 $112,415 $112,415
======== ======= ======== ========
Gross profit.................. $ (157) $ 6,375 $ 19,182 $ 7,190
Interest and other income,
net.......................... 400 1,030 3,097 3,097
Adjustments to carrying value
of real estate projects and
investments in
partnerships................. -- -- -- --
Selling, general and
administrative expenses...... 1,918 4,545 15,263 5,889
Minority interest............. -- 1,531 4,539 3,277
Interest expense.............. 276 -- 418 3,034
Adjustments to costs in excess
of net assets acquired....... -- -- -- --
------- ------- -------- --------
Income (loss) before provision
(benefit) for income taxes
and extraordinary gain....... (1,951) 1,329 2,059 (1,913)
Provision (benefit) for income
taxes........................ -- 462 224 --
------- ------- -------- --------
Income (loss) before
extraordinary gain........... (1,951) 867 1,835 (1,913)
Extraordinary gain............ -- 3,075 -- --
------- ------- -------- --------
Net income (loss)............. $(1,951) $ 3,942 $ 1,835 $ (1,913)
======= ======= ======== ========
OPERATING DATA:
Net new orders (units)........ 46 173 695 695
Homes closed (units)(e)....... 17 199 644 644
Backlog (units)(f)............ 121 279 305 305
Backlog....................... $36,918 $55,073 $ 55,816 $ 55,816
Average price of homes closed. $ 212 $ 158 $ 159 $ 159
Housing gross margin.......... (4.4)% 20.0% 18.2% 16.3%
G&A as % of housing revenues.. 35.6% 6.3% 7.3% 7.9%
SG&A as % of housing
revenues..................... 53.2% 14.9% 14.9% 15.5%
(Footnotes on pages 12-13)
</TABLE>
10
<PAGE> 14
<TABLE>
<CAPTION>
AS OF
-------------------------------------------------------------------- AS OF AS ADJUSTED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, MAY 31, AS OF
1990 1991 1992 1993 1994(A) 1994 FEBRUARY 28, 1994(G)
------------ ------------ ------------ ------------ ------------ ----------- ---------------------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........ $594,759 $410,963 $250,822 $115,551 $121,954 $191,903 $171,879
======== ======== ======== ======== ======== ======== ========
Residential
inventories......... $474,687 $395,484 $224,566 $ 99,636 $105,696 $104,298 $112,953
======== ======== ======== ======== ======== ======== ========
Debt:
Notes payable...... $232,549 $160,638 $ 59,165 $ 38,433 $ 34,709 $ 9,956 --
Senior notes....... -- -- -- -- -- $100,000 $100,000
Due to parent...... 193,840 205,121 204,138 1,702 -- -- --
-------- -------- -------- -------- -------- -------- --------
Total debt.......... 426,389 365,759 263,303 40,135 34,709 109,956 100,000
Minority interest... -- -- -- 19,647 13,959 2,824 2,729
Stockholders' equity. 140,150 32,169 (25,607) 48,015 55,594 61,037(h) 57,095(h)
-------- -------- -------- -------- -------- -------- --------
Total capitalization. $566,539 $397,928 $237,696 $107,797 $104,262 $173,817 $159,824
======== ======== ======== ======== ======== ======== ========
Debt as % of total
capitalization...... 75% 92% 111% 37% 33% 63% 63%
</TABLE>
(Footnotes on pages 12-13)
11
<PAGE> 15
QUARTERLY PRO FORMA SUPPLEMENTAL DATA(I)
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
PRO FORMA AS ADJUSTED FISCAL QUARTER ENDED(C) FISCAL
-------------------------------------------------- YEAR ENDED
MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28, FEBRUARY 28,
1993 1993 1993 1994 1994(C)
------- ---------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Adjusted EBIT(j)................................. $ (315) $ 216 $ 3,196 $ 4,145 $ 7,242
Depreciation and amortization.................. 154 147 135 133 569
Other non-cash charges......................... 47 47 47 47 188(k)
------- ------- ------- ------- -------
Adjusted EBITDA(l)............................... $ (114) $ 410 $ 3,378 $ 4,325 $ 7,999
======= ======= ======= ======= =======
Interest:
Interest incurred(m)........................... $ 3,188 $ 3,187 $ 3,188 $ 3,187 $12,750
Interest capitalized(n)........................ 1,253 3,152 2,574 2,737 9,716
------- ------- ------- ------- -------
Interest expensed.............................. 1,935 35 614 450 3,034
Amortization of capitalized interest included
in cost of sales............................. 1,010 1,259 1,875 2,505 6,649
------- ------- ------- ------- -------
Total interest expensed and interest in cost of
sales........................................ $ 2,945 $ 1,294 $ 2,489 $ 2,955 $ 9,683
======= ======= ======= ======= =======
Capitalized interest included in inventory at end
of period...................................... $12,891 $14,784 $15,483 $15,715 $15,715
======= ======= ======= ======= =======
Adjusted EBITDA/Interest incurred................ 0.0x 0.1x 1.1x 1.4x 0.6x
OPERATING DATA:
Homes closed(e)
California (units)............................. 17 15 87 86 205
Nevada (units)................................. 121 119 78 121 439
Backlog(f)
California (units)............................. 121 158 117 124 124
California..................................... $36,918 $47,893 $36,478 $37,450 $37,450
Nevada (units)................................. 145 139 178 181 181
Nevada......................................... $14,318 $13,725 $17,576 $18,366 $18,366
</TABLE>
- ---------------
(a) The fiscal year ended February 28, 1994 includes Durable's results of
operations for only the six month period from September 1, 1993 (the
effective date of the Durable Acquisition) through February 28, 1994.
(b) The Pro Forma income statement and operating data is presented as if the
Durable Acquisition had been effected on March 1, 1993.
(c) The Pro Forma As Adjusted income statement and operating data is presented
as if the Durable Acquisition and the issuance of the Old Notes and the
Warrants, including the application of the net proceeds therefrom, had been
effected on March 1, 1993.
(d) Excludes 139 homes with a dollar value of $13.7 million in Durable's backlog
at August 31, 1993.
(e) "Homes closed" represents units for which the closing of the sale of a home
has occurred and the risk of ownership has been transferred to the buyer.
Revenue from such sales is recognized upon the closing thereof.
(f) The Company's backlog is the number of units subject to pending sales
contracts but not yet closed. Closings of units under pending sales
contracts are subject to numerous contingencies. No assurances can be given
that units under pending sales contracts will result in home closings.
12
<PAGE> 16
(g) The As Adjusted balance sheet data has been presented on a pro forma basis
to give effect to the sale of the Old Notes and the Warrants as if such
transaction had been effected on February 28, 1994. The following chart
represents the pro forma use of proceeds from the sale of the Old Notes and
the Warrants on such date:
<TABLE>
<CAPTION>
($000'S)
--------
<S> <C> <C>
(i) Repay all notes payable and accrued interest as of
February 28, 1994.................................... $ 36,846
(ii) Repay equity of the CalPERS LP in the CalPERS
Partnerships......................................... 11,230
(iii) Pay the estimated expenses of the offering........... 3,500
(iv) Remaining funds...................................... 48,424
--------
$100,000
========
</TABLE>
(h) Includes the estimated value of the Warrants issued in connection with the
Old Notes.
(i) The Quarterly Pro Forma Supplemental Data has been presented on a pro forma
basis to give effect to the Durable Acquisition and the sale of the Old
Notes and the Warrants as if such transactions had been effected on March 1,
1993.
(j) "Adjusted EBIT" means pro forma net income before (i) total interest
expensed and interest in cost of sales and (ii) income taxes. For this
purpose, "total interest expensed and interest in cost of sales" is
calculated in accordance with the definition of "Consolidated Interest
Expense" in the Indenture and set forth herein under "Description of the
Notes -- Certain Definitions." For purposes of this calculation, Adjusted
EBIT excludes profit on the sale of undeveloped land of $529,000 during
fiscal year 1994.
(k) Represents one year of amortization of the estimated value of the Warrants
issued in connection with the Old Notes.
(l) "Adjusted EBITDA" is calculated in accordance with the definition of
"Consolidated EBITDA" in the Indenture and set forth herein under
"Description of the Notes -- Certain Definitions." Adjusted EBITDA is not
intended to represent cash flow for the period nor has it been presented as
an alternative to net income as an indicator of operating performance.
(m) "Interest incurred" is calculated on a pro forma basis as if the Old Notes
had been issued on March 1, 1993. Interest incurred includes, in accordance
with the definition of "Consolidated Interest Incurred" in the Indenture,
(i) interest expensed plus (ii) interest capitalized plus (iii) other
interest actually incurred. See "Description of the Notes -- Certain
Definitions."
(n) "Interest capitalized" is calculated on a pro forma basis as if the Notes
had been issued on March 1, 1993.
13
<PAGE> 17
RISK FACTORS
Prospective investors in the New Notes should consider carefully the
factors set forth below as well as the other information contained in this
Prospectus before making an investment in the New Notes.
REAL ESTATE, ECONOMIC AND CERTAIN OTHER CONDITIONS
The Company is affected by real estate market conditions in areas where its
development projects are located and in areas where its potential customers
reside. The residential homebuilding industry is cyclical and sensitive to
changes in general national and regional economic conditions, such as: levels of
employment; consumer confidence and income; availability of financing to
homebuilders for acquisitions, development and construction; availability of
financing to homebuyers for permanent mortgages; interest rate levels; the
condition of the resale market for used homes; and the general demand for
housing. Housing demand is particularly sensitive to changes in interest rates.
If mortgage interest rates increase significantly, thus affecting prospective
buyers' ability to obtain affordable financing for their home purchases, the
Company's sales and operating results may be adversely affected.
The residential homebuilding industry has, from time to time, experienced
fluctuating lumber prices and supply and serious shortages of labor and
materials, including shortages of insulation, drywall, certain carpentry work
and cement. Delays in construction of homes due to these shortages or to
inclement weather conditions could have an adverse effect upon the Company's
homebuilding operations. Historically, the Company has experienced shortages of
material and labor but such shortages have not adversely affected the Company's
ability to deliver homes on a timely schedule. However, this may not be true
with respect to any future shortages of material or labor.
Several of the Company's projects are in master-planned developments. In
these projects, the Company attempts to minimize its development costs and
entitlement risks by relying upon the master-plan developer for substantially
all of the necessary infrastructure development (such as roads and utilities)
and sometimes common facilities (such as parks, pools and other recreation
facilities) outside the confines of the Company's project. Although this
approach results in a substantial reduction in the capital investment required
of the Company in a project, the Company may experience difficulty in obtaining
permits or approvals from governmental authorities or in marketing homes in a
project in the event the master-plan developer fails to complete the required
facilities on a timely basis. The master-plan developer's performance of its
obligations in this respect are generally bonded, but failure by the developer
to perform may result in a significant increase in costs and/or difficulty or
delays in marketing finished homes in the affected project. See "Business --
Developments in Process -- California," and "Business-- Developments in
Process -- Nevada."
California Risks. While the Company recently has diversified its
operations into Nevada, where the market for new housing has remained strong,
the Company currently conducts approximately 60% of its business (on an annual
revenue basis) in Southern California and intends to continue to conduct a
substantial portion of its future homebuilding activities in that region.
California real estate in general, and Southern California in particular, is
currently adversely impacted by a weak economy, resulting in reduced demand for
new homes and lower home selling prices than in the recent past. A substantial
amount of real estate in Southern California acquired upon foreclosure or in
satisfaction of loans is held for sale by banks and other financial
institutions, as well as by the RTC and the Federal Deposit Insurance
Corporation (the "FDIC"), or has been purchased recently from such agencies by
financial buyers. Efforts to sell such assets may further depress markets
generally, including markets in which the Company is developing and selling
homes or in which the Company holds property for development. The average sale
price of homes in most of the areas in Southern California in which the Company
does business has decreased over the past three years and there can be no
assurance that home sale prices will not decline more in the future. Since
mid-1990, California's job base has declined, predominantly in Southern
California, due in part to cutbacks in the defense industry and to the high cost
of doing business in the region. There can be no assurance that there will be
any significant recovery in the California economy in the near term and a
continued weak economy in Southern California would have a material adverse
effect on the Company.
14
<PAGE> 18
The climate and geology of the markets in Southern California in which the
Company operates present certain risks of natural disasters. To the extent that
earthquakes, floods, droughts, wildfires or other natural disasters or similar
events occur, the homebuilding industry in general, and the Company's business
in particular, may be adversely affected. The Company has substantial operations
in Southern California. Based upon its assessment, none of the Company's
projects was materially adversely affected by the Northridge, California
earthquake in January 1994.
Nevada Risks. Las Vegas is located in a desert environment and the
continued availability of property for development is materially affected by the
continued availability of an adequate water supply. For a short period beginning
in 1991, the Las Vegas Valley Water District imposed a moratorium on the
issuance of new water commitments to correct a then projected over-allocation of
water commitments. The moratorium was lifted in 1992 and, based on current
population growth forecasts, the Water District estimates that the Las Vegas
community's total supply of water for new commitments will not be exhausted
prior to the year 2007.
Until recently, the gaming industry was principally limited to the Nevada
and New Jersey markets. In an effort to raise revenues without increasing taxes,
however, a number of states have recently legalized casino gaming and other
forms of gaming. These additional gaming venues create alternative destinations
for gamblers and tourists who might otherwise visit Nevada, the result of which
may be fewer jobs in the gaming industry in Nevada. Legalization of casino
gaming in California would have a particularly adverse impact on the gaming
market in Nevada. Given the reliance of the Nevada economy in general, and the
Las Vegas economy in particular, on gaming, a material adverse change for the
Nevada gaming industry may have a material adverse effect on the Company's
Nevada operations.
The Las Vegas population has undergone significant growth in recent years.
While the population growth has had a positive impact on the demand for housing,
there has been a corresponding increase in the demand for infrastructure to
support the increased population and housing. If the infrastructure is unable to
keep pace with the growth in demand for services, additional development may be
limited, which may have an adverse effect on the Company's business.
RECENT OPERATING RESULTS AND CHANGE IN BUSINESS STRATEGY
Recent Losses. The Company had significant operating losses during the
1991, 1992 and 1993 fiscal years, which included the 22-month period of RTC
control (November 1990 to August 1992). During much of the period of RTC
control, the operations of the Company essentially were limited to liquidating
standing inventory and, at the direction of its RTC-controlled board of
directors, the Company did not start any new projects or acquire land or options
for land for new projects. The Company was profitable during the 1994 fiscal
year, but it did incur losses during the first two quarters of such fiscal year.
The Company was profitable for the first quarter of fiscal 1995. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Change in Business Strategy. As described above, during the period of RTC
control, operations of the Company were essentially limited to liquidating
standing inventory. Since the Acquisition, the Company's strategy has focused
on: (i) recommencing California building operations; (ii) diversifying its
geographic markets to include areas outside of Southern California; (iii)
diversifying its product offerings to include both entry level and move-up homes
in order to appeal to a broad customer base; (iv) improving and broadening its
capital base and sources of financial liquidity; (v) controlling costs while
increasing operational efficiency; and (vi) reducing land and inventory risk by
avoiding speculative building, constraining project sizes, avoiding entitlement
risks and acquiring land through the use of options, purchase contracts,
development agreements and joint ventures. While the Company believes that it
has made progress toward implementing these strategies, there can be no
assurance that the Company will continue to be successful in implementing its
strategies or that such strategies, once implemented, will be successful.
LEVERAGE AND ABILITY TO SERVICE DEBT
The Company has and will continue to have significant indebtedness. At May
31, 1994 the Company had total consolidated debt of $110.0 million, the
Company's ratio of total consolidated debt to stockholders'
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<PAGE> 19
equity was approximately 1.8 to 1.0 and its total consolidated debt as a
percentage of total debt and stockholders' equity was 63%. In addition, the
Company may borrow additional amounts under credit lines and project
construction loans available to the Company and its subsidiaries as required for
its business and as permitted by the Indenture. See "Capitalization," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The ability of the Company to meet its debt service obligations will be
dependent upon the future performance of the Company, which in turn will be
subject to general economic and financial conditions, competition and other
factors, including factors beyond the Company's control. The level of the
Company's indebtedness, as well as certain covenants described under
"Description of the Notes -- Certain Covenants," could restrict its flexibility
in responding to changing business and economic conditions. The Company believes
that its cash flow will be sufficient to cover its debt service requirements.
However, if the Company is at any time unable to generate sufficient cash flow
from operations to service its debt, it may be required to seek refinancing for
all or a portion of that debt or to obtain additional financing. There can be no
assurance that any such refinancing would be possible or that any additional
financing could be obtained on terms that are favorable or acceptable to the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
The credit agreements and certain joint venture agreements of the Company
impose restrictions on the Company's operations and require the Company to
achieve and maintain certain financial ratios. Such restrictions include, among
other things, limitations on the ability of the Company to incur additional
indebtedness, to pay dividends or make other distributions, to acquire
unentitled land and to enter into mergers and certain other transactions.
Obligations under the credit agreements of the Company are secured by liens on a
substantial portion of the Company's housing inventory and a portion of its
finished building lots. For information on the covenants and events of default
contained in the credit agreements and certain joint venture agreements of the
Company, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Business -- Joint
Ventures."
ABILITY TO FUND FUTURE GROWTH
The Company's homebuilding operations are dependent on the availability and
cost of construction and development financing and may be adversely affected by
any shortage or increased cost of such financing. The availability and cost of
financing may also be affected by the net worth of the Company and the amount
the Company can invest in a given project. If the Company is at any time
unsuccessful in obtaining capital to fund its planned project expenditures, its
projects at that time may be significantly delayed, as was the case in most of
fiscal years 1992 and 1993 while the Company was under the control of the RTC.
Any such delay could result in cost increases and adversely affect the Company's
future results of operations and cash flows. Moreover, any financing that is
available may be more difficult and costly to obtain than that which has been
available in the past because, among other reasons, traditional sources of
capital (savings and loan institutions, banks and insurance companies) are
currently restricting loans for the acquisition and development of real estate.
The Company believes that the enactment of the Financial Institutions
Reform, Recovery and Enforcement Act ("FIRREA") in 1989 which, among other
things, imposed additional limitations and requirements upon the lending
activities of financial institutions, has adversely affected the availability
and cost of borrowed funds for acquisition, development and construction. In
addition, the Company believes that increased regulations have caused delays in
completing financing, increased borrower equity requirements and increased
financing costs for the Company. Cash flow management is crucial due to the high
leverage and seasonal cycle of home sales, particularly as the number of the
Company's real estate projects increases, as is expected, for the Company. The
need to stage raw materials such as land and finished lots ahead of the start of
home construction requires homebuilders to commit working capital for longer
periods than traditional manufacturing companies.
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<PAGE> 20
LAND ACQUISITION AND HOUSING INVENTORIES
The Company acquires land for new projects in its geographic market areas.
The Company generally seeks to reduce its land risk by not purchasing land
without the necessary entitlements to build. Excess landholdings can have a
negative impact on earnings and liquidity due to the payment of required
carrying charges such as interest and real property taxes. Market conditions may
adversely affect the value of land owned by the Company, resulting in lower
margins or charges against earnings. The Company attempts to reduce these risks
through constraining project size and acquiring lots and land through the use of
options, development agreements and joint ventures where possible, thereby
enabling the Company to control lots with a smaller capital investment and to
reduce land holding periods. However, there can be no assurance that such
efforts will be successful. In addition, the Company believes that the supply of
home sites in the California market is constrained by, among other things,
reduced availability of financing, a burdensome regulatory environment,
infrastructure limitations in certain areas and a scarcity of available land
near employment centers. This constrained supply of home sites, coupled with the
Company's efforts to reduce inventory risk, could result in fewer home sites
being available to the Company.
In addition to land risk, the risk of holding completed housing inventory
is substantial for homebuilders due to the high inventory carrying costs. The
market value of housing inventories can change significantly over the life of a
project, reflecting shifting market conditions, and such changes can result in
material losses to the Company.
VARIABILITY OF RESULTS
The Company historically has experienced, and in the future expects to
continue to experience, variability in its unit sales and revenues on a
quarterly basis. Factors expected to contribute to this variability include,
among others: (i) the timing of home closings; (ii) the Company's ability to
continue to acquire land and options thereon on acceptable terms; (iii) the
timing of receipt of regulatory approvals for the construction of homes; (iv)
the condition of the real estate market and general economic conditions in
California and Nevada, especially in the Company's Southern California and Las
Vegas markets; (v) the cyclical nature of the homebuilding industry; (vi)
prevailing interest rates and the availability of mortgage financing; and (vii)
the cost and availability of materials and labor. The Company expects its
financial results to vary from project to project and from quarter to quarter.
COMPETITION
The residential homebuilding industry is highly competitive, with
homebuilders competing for desirable properties, financing, raw materials and
skilled labor. The Company currently competes with a number of homebuilding
companies, as well as resales of existing residential housing by individuals,
financial institutions and government agencies. Some of these companies are
larger than the Company and have greater financial resources. Additionally,
several large homebuilders have begun, or announced their intention to begin,
operations in the Company's Southern California and Las Vegas markets. Many
homebuilders have also begun to refocus their efforts towards the entry level
market.
REGULATORY AND ENVIRONMENTAL MATTERS
The Company and its competitors are subject to various local, state and
federal statutes, ordinances, rules and regulations concerning zoning, building
design, construction and similar matters, including local regulation that
imposes restrictive zoning and density requirements in order to limit the number
of homes that can eventually be built within the boundaries of a particular
area. Governmental agencies have broad discretion in administering such
requirements. The Company may also be subject to periodic delays in its
homebuilding projects due to building moratoria in the areas in which it
operates.
In recent years, several cities and counties in California and Nevada in
which the Company has projects have approved the inclusion of "slow growth"
initiatives and other election ballot measures that could impact the
affordability and availability of homes and land within those cities and
counties. Although the majority of these initiatives have been defeated, the
Company believes that if similar initiatives are introduced and
17
<PAGE> 21
approved in the future, residential construction by the Company and its
competitors could be negatively impacted in California and Nevada.
Periodically, the states of California and Nevada have experienced drought
conditions, resulting in certain water conservation measures and, in some cases,
rationing by local municipalities with which the Company does business. Although
curtailments of construction activity as a result of drought conditions have not
had a material impact on the Company's operations, restrictions on future
construction activity could have an adverse effect upon the Company's
homebuilding operations.
The Company and its competitors are also subject to a variety of local,
state and federal statutes, ordinances, rules and regulations concerning the
protection of health and the environment. The particular environmental laws that
apply to any given homebuilding site vary according to the site's location, the
site's environmental conditions and the present and former uses of the site and
adjoining properties. Environmental laws and conditions may result in delays,
may cause the Company to incur substantial compliance and other costs, and may
prohibit or severely restrict homebuilding activity in certain environmentally
sensitive regions or areas.
CONTROL OF THE COMPANY
At May 31, 1994, CPH owned 80.0% of the Company's Common Stock. CPH is
wholly-owned by Messrs. Makarechian and Dowers, executive officers of the
Company. Due to this ownership position, CPH (and, indirectly, Messrs.
Makarechian and Dowers) has, and following exercise of all of the Warrants will
continue to have, the ability to control the affairs and policies of the
Company. It has the ability to elect a sufficient number of directors to control
the Company's Board of Directors and to approve or disapprove any matters
submitted to a vote by stockholders. The Company's policy is that any material
transactions between the Company and CPH or any affiliate thereof are required
to be on terms no less favorable to the Company than could reasonably be
obtained in arms'-length transactions with independent third parties and must be
approved by a majority of the Company's outside directors who do not have a
financial interest in the transaction. The Indenture will impose certain
restrictions on the Company's and its Restricted Subsidiaries' ability to enter
into transactions with affiliates. See "Certain Relationships and Related
Transactions" and "Description of the Notes -- Certain Covenants -- Limitations
on Transactions with Shareholders and Affiliates."
POTENTIAL CONFLICTS OF INTEREST
Certain decisions concerning the operations or financial structure of the
Company may present conflicts of interest between the owners of the Company's
stock and the holders of the New Notes. For example, if the Company encounters
financial difficulties or is unable to pay its debts as they mature, the
interests of the Company's equity investors might conflict with those of the
holders of the New Notes. In addition, the equity investors may have an interest
in pursuing acquisitions, divestitures, financings or other transactions that,
in their judgment, could enhance their equity investment, even though such
transactions might involve risk to the holders of the Notes.
POTENTIAL ADVERSE TAX CONSEQUENCES OF DECONSOLIDATION
CPH and the Company file consolidated state and federal income tax returns.
If at any time CPH's ownership of the Company is diluted to below 80%, such
dilution would result in a deconsolidation for tax purposes. While such a
deconsolidation would not necessarily have an adverse effect on the Company, it
may trigger a significant tax liability to CPH. Thus, the Company will be
unlikely to issue any equity securities (including shares of Common Stock
issuable upon exercise of the Warrants) prior to an anticipated downstream
merger of CPH into the Company. The Indenture requires that CPH use its best
efforts to merge into the Company within 180 days after consummation of the
Exchange Offer or effectiveness of the Shelf Registration Statement (as
defined), as the case may be, and, in any event, to complete such merger by the
earlier of (i) one year thereafter or (ii) 18 months after the initial issuance
of the Old Notes. See "Description of the Notes -- Consolidation, Merger and
Sale of Assets."
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<PAGE> 22
DEPENDENCE ON SENIOR MANAGEMENT
The Company's future performance will depend to a significant extent upon
the efforts and abilities of certain members of senior management, in particular
those of Messrs. Makarechian and Dowers, who serve as Chairman of the Board and
Chief Executive Officer and President and Chief Operating Officer, respectively.
The loss of the services of one or more of its senior management could have a
material adverse effect on the Company's business. The Company does not have
employment contracts with any of its senior executives.
AMOUNT OF SECURED DEBT; STRUCTURAL SUBORDINATION
The New Notes will be unsecured obligations of the Company and will rank
pari passu in right of payment with all existing and future unsecured
indebtedness of the Company that is not, by its terms, expressly subordinated in
right of payment to the New Notes. Any current and future secured indebtedness
of the Company will have priority over the New Notes with respect to the assets
pledged as collateral therefor. The Indenture permits the Company to grant liens
to secure additional Indebtedness permitted by the Indenture so long as such
Indebtedness (other than Non-Recourse Indebtedness) does not exceed 40% of the
Adjusted Consolidated Net Tangible Assets of the Company and to grant certain
other liens. See "Description of the Notes -- Certain Covenants -- Limitation on
Liens." At May 31, 1994, the Company had no indebtedness junior to the Old Notes
and $10 million of secured indebtedness senior to the Old Notes.
In addition, many of the operations of the Company, including its joint
venture building operations, are conducted through subsidiaries and therefore
the Company is dependent on the cash flow of its subsidiaries to meet its debt
obligations, including its obligations under the New Notes. Except to the extent
the Company or the holders of the New Notes may be creditors with recognized
claims against such subsidiaries (including claims under the subsidiary
guarantees), the claims of creditors of the subsidiaries will have priority with
respect to the assets and earnings of the subsidiaries over the claims of
creditors of the Company, including holders of the New Notes. At May 31, 1994
the Company's subsidiaries had liabilities aggregating $10.9 million (primarily
consisting of trade payables), none of which constituted Indebtedness.
POSSIBLE UNENFORCEABILITY OF AND LIMITS ON GUARANTEES BY SUBSIDIARIES
Certain subsidiaries of the Company will guarantee the New Notes. As a
matter of law, a guarantee by a subsidiary of the obligation of its parent
corporation will be unenforceable, in whole or in part, if, among other things,
(i) the subsidiary received less than a reasonably equivalent value in exchange
for the guarantee and the subsidiary was insolvent on the date the guarantee was
made or became insolvent as a result of the guarantee or (ii) the subsidiary was
engaged or was about to engage in a business or transaction for which its
remaining property constituted unreasonably small capital. Whether either of
these tests are met as to any subsidiary of the Company is a question of fact,
as to the ultimate determination of which no assurance can be given.
Certain of the Company's subsidiaries have incurred and, to the extent
permitted under the Indenture, may in the future incur indebtedness that is
secured. Holders of such indebtedness will have a claim against the assets of
the subsidiary that secure such indebtedness which is prior to the claim of the
holders of the New Notes under the guarantees. At May 31, 1994 the Company's
subsidiaries that will guarantee the New Notes had no secured debt.
Certain recent decisions by federal courts have required that recipients of
guarantees from "insiders" be treated as "insiders" for bankruptcy purposes.
Under current judicial interpretations, the subsidiary guarantees may constitute
guarantees by insiders. As a result, holders of the New Notes may be treated as
"insiders" in a bankruptcy proceeding and would thus be subject to a one-year
preference period applicable to insiders rather than a 90-day preference period
applicable to general creditors. The "preference period" is the period of time
prior to the filing of the bankruptcy petition for which payments to the
affected creditor may be challenged as preferential payments. Thus, because of
the subsidiary guarantees, payments made to holders of the New Notes within one
year prior to the filing of any bankruptcy petition may be subject to challenge.
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<PAGE> 23
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
Under certain circumstances described in more detail below, a holder of a
New Note might be required to include in such holder's income for federal income
tax purposes the original issue discount with respect to the New Note as it
accrues. If a bankruptcy case is commenced by or against the Company under the
United States Bankruptcy Code after the issuance of the New Notes, the claim of
a holder of New Notes may be limited to an amount equal to the sum of the issue
price as determined by the bankruptcy court and that portion of the original
issue discount which is deemed to accrue from the issue date to the date of any
such bankruptcy filing. See "Certain Federal Income Tax Considerations."
ABSENCE OF PUBLIC MARKET
The New Notes are being offered to the holders of the Old Notes. The Old
Notes were issued in May 1994 to the Initial Purchaser and are eligible for
trading in the Private Offerings, Resales and Trading through Automatic Linkages
("PORTAL") market. The New Notes are new securities for which there currently is
no market. The Company does not intend to apply for listing of the New Notes on
any securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System. The Company has been advised by
the Initial Purchaser that it intends to make a market in the New Notes;
however, the Initial Purchaser is not obligated to do so, and any such market
making, if commenced, may be terminated at any time without notice to the
holders of the New Notes. Therefore, there can be no assurance that any active
market for the New Notes will develop. If a trading market develops for the New
Notes, future trading prices of such securities will depend on many factors,
including, among other things, prevailing interest rates, the Company's results
of operations and the market for similar securities. Depending on such factors,
such securities may trade at a discount from their principal amount.
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<PAGE> 24
COMPANY BACKGROUND
GENERAL
The Company is an Orange County, California based public homebuilding
company founded in 1975. Since it was founded, the Company has built and sold
nearly 8,000 homes throughout Southern California. Durable, a wholly-owned
subsidiary acquired by the Company as of September 1, 1993, has built and sold
nearly 7,000 homes since 1969, principally in Las Vegas, Nevada. The Company
currently has operations in Orange and Riverside Counties in California and in
Las Vegas and Laughlin, Nevada. The Company's stock currently is traded on the
American Stock Exchange under the symbol "JMP."
The RTC was appointed in November 1990 as receiver for San Jacinto Savings
Association ("San Jacinto"), which at that time held 85.8% of the capital stock
of the Company, and the RTC operated the Company for approximately 22 months
until the acquisition of the Company by CPH in August 1992. During the period of
RTC control, the Company followed a strategy generally limited to liquidating
inventory and virtually halted all new construction activity. After the
Acquisition, the Company's balance sheet was greatly enhanced as described below
and the Company recommenced construction activity in California. In addition,
the Company expanded its operations to Nevada through the acquisition of
Durable, the 8th largest homebuilder in Las Vegas (based on 1993 unit sales), as
of September 1, 1993.
PERIOD OF RTC OWNERSHIP
In 1985, the Company was acquired from its founder, James M. Peters, by San
Jacinto, a Texas savings and loan association and a wholly-owned subsidiary of
the Southmark Corporation ("Southmark"). Federal regulators assumed control of
San Jacinto in the fall of 1990, declared it insolvent, closed the institution
and appointed the RTC as receiver. At the time of the RTC's appointment as
receiver, San Jacinto provided approximately 52% of the $389 million of
financing at the Company. The RTC transferred substantially all of San Jacinto's
assets (including the Company's debt of approximately $202 million owing to San
Jacinto and 12,000,000 shares of the Company's common stock) to a newly-formed
federal mutual association, San Jacinto Savings Association, F.A. ("San Jacinto,
F.A."), which was placed into conservatorship by the Office of Thrift
Supervision immediately thereafter. On September 27, 1991, the RTC placed San
Jacinto F.A. into receivership.
During the period of RTC control, the RTC essentially limited the Company's
operations to liquidating inventory, virtually halting the Company's
construction and acquisition activity and bringing the Company from 775 homes
closed in fiscal year 1990 (the year prior to RTC control) to 115 homes closed
in fiscal year 1993 (the last year that included any period of RTC control).
During the period of RTC control, the number of employees at the Company
decreased from approximately 200 to 68, largely due to the RTC's closure of the
Los Angeles and San Diego divisions of the Company after liquidating
substantially all of the Company's assets in those markets. Additionally, during
the period of RTC control and at the direction of the Company's RTC-controlled
Board of Directors, the Company ceased making payments to its lenders, thereby
defaulting on approximately $185.5 million of indebtedness, most of which was
owed to San Jacinto. Pursuant to the terms of the Acquisition and through
subsequent negotiations with lenders, a majority of such defaults have been
cured. The Company has resolved all of these defaulted loans. See
"Business -- Default on Senior Indebtedness."
ACQUISITION BY CPH
In August 1992, CPH acquired control of the Company from the RTC for $47.25
million. The Acquisition included the purchase by CPH of (i) 12,000,000 shares
of common stock of the Company held by San Jacinto, F.A., representing 85.8% of
the total outstanding shares of common stock of the Company, and (ii) all debt
of the Company owed to San Jacinto, F.A., which at the time of the closing
(after giving effect to the debt restructuring described below) equaled $49
million (the "Restructured Debt").
Prior to the Acquisition, the indebtedness of the Company to San Jacinto,
F.A. equaled approximately $146 million. Immediately prior to the closing of the
Acquisition, San Jacinto, F.A. contributed approximately
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<PAGE> 25
$97 million of such indebtedness to the capital of the Company (the "Capital
Contribution"); the remaining $49 million constituted the Restructured Debt. The
Restructured Debt was evidenced by a Restated Secured Promissory Note (the
"Company Note") of the Company payable to CPH and was secured by the collateral
previously securing such indebtedness.
The consideration paid by CPH to San Jacinto, F.A. for the equity and debt
of the Company that was purchased was $47.25 million. At the closing of the
Acquisition, the Company paid CPH $43.69 million of the principal amount of the
Company Note, which included $16.61 million received by the Company from the
sale of four projects to the CalPERS Partnerships, $15.98 million received by
the Company in connection with sales of other properties and approximately
$11.10 million of cash held by the Company on the closing date. CPH used the
amounts paid to it by the Company, together with $3.56 million of its own cash,
to pay the $47.25 million consideration for the Acquisition to the RTC. The
$5.31 million unpaid balance of the Company Note remaining after the date of the
Acquisition was subsequently repaid by the Company.
In addition to the Capital Contribution described above, prior to the
Acquisition the RTC released $60.7 million of claims for reimbursement arising
out of a tax sharing arrangement among the Company, San Jacinto and Southmark.
This amount was treated as a capital contribution by the RTC to the Company.
As a result of the Acquisition (and the Company's results of operations for
the first six months of fiscal 1993), the Company's balance sheet was improved
significantly as debt was reduced by $215 million (from $263 million to $48
million), stockholders' equity was increased by $76 million to $51 million and
the book value of its residential real estate inventories was written down 51%
from $225 million to $111 million. The Company believes that its real estate
inventory currently has a book value at or below current market value.
While the RTC's liquidation strategy left the Company with only 13
completed homes and 15 partially completed homes under construction at the time
of the Acquisition, the Company did have substantial assets, including almost
2,000 owned and entitled lots, 365 lots under option, an experienced staff of 68
persons and operating and information systems to support ongoing homebuilding
operations.
POST-RTC OPERATIONS
Following the Acquisition, Mr. Makarechian, Mr. Dowers and other senior
management of CPH with extensive financial, construction, homebuilding and
design experience joined the Company and commenced a plan to restructure the
Company on a sound financial basis, recommence active building operations,
expand the Company's market areas and diversify its operations.
Since the Acquisition, the Company's strategy has focused on: (i)
recommencing California building operations; (ii) diversifying its geographic
markets to include areas outside of Southern California; (iii) diversifying its
product offerings to include both entry level and move-up homes in order to
appeal to a broad customer base; (iv) improving and broadening its capital base
and sources of financial liquidity, (v) controlling costs while increasing
operational efficiency and (vi) reducing land and inventory risk by avoiding
speculative building, constraining project sizes, avoiding entitlement risks and
acquiring land through the use of options, purchase contracts, development
agreements and joint ventures.
The Company believes that it has made progress in implementing the
strategic goals described above. Since the Acquisition, the Company has: (i)
recommenced active building operations in Southern California; (ii) become a
significant participant in the Las Vegas, Nevada residential housing market as a
result of the Durable Acquisition; (iii) reduced prices on its California
products without adversely affecting its product design or quality; (iv)
obtained approximately $120 million of construction financing commitments, which
includes approximately $66 million from the CalPERS LP, which amounts the
Company has utilized in the past but are presently not available to the Company
as a result of restrictions contained in the Indenture; (v) established new
management control systems and reduced overhead; and (vi) completed the sale and
issuance of the Old Notes and the Warrants.
As of May 31, 1994 the Company had 113 employees (42 in Nevada and 71 in
California). The Company believes that it has the management capacity to close
up to 1,000 home sales per year without materially increasing the number of
employees of the Company.
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<PAGE> 26
THE DURABLE ACQUISITION
As part of its strategy to expand into market areas beyond Southern
California and to broaden its product lines to include entry-level housing,
effective as of September 1, 1993 the Company acquired Durable, the 8th largest
homebuilder in Las Vegas (based on 1993 unit sales). Established in 1969,
Durable has developed a strong presence in the first and second time homebuyer
market, having built and sold nearly 7,000 homes in Nevada, principally in Las
Vegas, since 1969. Durable controls, through ownership or options, nearly 1,000
buildable lots in the Las Vegas metropolitan area and in Laughlin, Nevada.
Durable is an established homebuilder with strong market recognition in the
Las Vegas and Laughlin markets. A combination of similarities between operating
and information systems and an experienced management team has permitted Durable
to become quickly integrated into the Company. The management team at Durable
has remained unchanged since the Durable Acquisition. As of May 31, 1994,
Durable had approximately 42 employees. The top three executives of Durable have
an average of 18 years of homebuilding experience.
In exchange for his shares in Durable, Roger Nix, the former sole
stockholder of Durable, received a combination of $1.3 million in cash, a
$400,000 promissory note from Durable and 1,015,000 new shares of Company common
stock. The purchase price was approximately equal to the book value of Durable
and was approximately two times Durable's 1992 pre-tax earnings. The 1,015,000
new shares of the Company's common stock held by Mr. Nix represents a 6.8%
ownership interest in the Company. Mr. Nix is not active in the Company's
operations.
In the calendar year ended December 31, 1993, Durable closed 410 homes.
During the five months ended May 31, 1994 Durable closed 218 homes. Durable's
homes generally range in size from 867 to 2,287 square feet and have a selling
price from $77,000 to $147,000. In the year ended December 31, 1993, the average
selling price of homes sold by Durable was $94,000. In the five months ended May
31, 1994 Durable's average selling price was $105,000.
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of Notes
pursuant to the Exchange Offer.
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<PAGE> 27
CAPITALIZATION
The following table sets forth the historical consolidated capitalization
of the Company as of February 28, 1994 and May 31, 1994 and as adjusted as of
February 28, 1994 to give effect to (i) the issuance and sale of the Old Notes
and the Warrants and the application of the estimated net proceeds therefrom and
(ii) the exchange of all of the Old Notes for New Notes pursuant to this
Exchange Offer. This presentation should be read in conjunction with the "Pro
Forma Consolidated Income Statement," the Consolidated Financial Statements and
the notes thereto and the other information contained in this Prospectus.
<TABLE>
<CAPTION>
FEBRUARY 28, 1994 MAY 31, 1994
------------------------ ------------
ACTUAL AS ADJUSTED ACTUAL
-------- ----------- ------------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Unrestricted cash and cash equivalents.................. $ 10,001 $ 58,425 $ 71,679
========= ========= =========
Debt:
Secured notes payable.............................. $ 34,709(a) -- $ 9,956
Notes.............................................. -- $ 100,000 100,000
Secured line of credit............................. -- -- --
--------- --------- ---------
Total Debt.................................... 34,709 100,000 109,956
Minority interest....................................... 13,959 2,729 2,824
Stockholders' equity:
Common stock, par value $.10 per share, 15,000,000
shares authorized;
14,995,000 shares outstanding.................... 1,500 1,500 1,500
Additional paid-in capital......................... 210,387 211,888(b) 211,888
Accumulated deficit................................ (156,293) (156,293) (152,351)
--------- --------- ---------
Total stockholders' equity....................... 55,594 57,095 61,037
--------- --------- ---------
Total capitalization.......................... $ 104,262 $ 159,824 $ 173,817
========= ========= =========
</TABLE>
- ---------------
(a) Excludes $2,137,000 accrued interest on secured notes payable.
(b) Includes the estimated value of the Warrants issued in connection with
the Old Notes.
24
<PAGE> 28
(This page intentionally left blank)
25
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA -- THE COMPANY
The following tables present selected consolidated financial and operating
data of the Company on a historical and a pro forma basis. The pro forma
selected financial data should be read in conjunction with the Pro Forma
Consolidated Income Statement and notes thereto included elsewhere in this
Prospectus. The Company data (other than the Operating Data) for the fiscal
years ended February 29, 1992, February 28, 1993 and February 28, 1994 are
derived from the audited consolidated financial statements of the Company that
are contained elsewhere in this Prospectus. The Company data (other than the
Operating Data) for the fiscal years ended February 28, 1990 and 1991 are
derived from the consolidated financial statements of the Company for those
periods that have been audited by Kenneth Leventhal & Company. The "Pro Forma"
columns set forth below reflect pro forma results assuming the Durable
Acquisition had occurred as of March 1, 1993. The "Pro Forma As Adjusted"
columns set forth below reflect pro forma results assuming the Durable
Acquisition had occurred as of March 1, 1993 and assuming that the net proceeds
from the sale of the Old Notes and the Warrants were available to the Company on
March 1, 1993 and were used on such date. The "As Adjusted" column set forth in
the Balance Sheet Data below reflects pro forma results assuming that the net
proceeds from the sale of the Old Notes and the Warrants were available to the
Company on February 28, 1994 and were used on such date. For federal and certain
state income tax purposes, prior to the Durable Acquisition, Durable had elected
to be treated as an S Corporation and, therefore, was not generally subject to
tax on its earnings. Both the "Pro Forma" and the "Pro Forma As Adjusted"
columns have been adjusted to reflect the taxes that would have been payable in
respect of Durable's earnings during the period from March 1, 1993 through
August 31, 1993 if it had not elected to be treated as an S Corporation for such
period. THE RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED FEBRUARY 28, 1991,
FEBRUARY 29, 1992 AND FEBRUARY 28, 1993 INCLUDE THE 22-MONTH PERIOD OF RTC
CONTROL OF THE COMPANY (NOVEMBER 1990 TO AUGUST 1992). ADDITIONALLY, THE RESULTS
OF OPERATIONS FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1994 DO NOT INCLUDE
DURABLE'S RESULTS FOR THE FULL YEAR DUE TO THE FACT THAT THE DURABLE ACQUISITION
DID NOT OCCUR UNTIL THE BEGINNING OF THE THIRD QUARTER OF FISCAL YEAR 1994.
ACCORDINGLY, COMPANY MANAGEMENT BELIEVES THE HISTORICAL OPERATING RESULTS FOR
PERIODS PRIOR TO THE THIRD AND FOURTH QUARTERS OF FISCAL YEAR 1994 ARE NOT
MEANINGFUL INDICATORS OF FUTURE PERFORMANCE. See "Pro Forma Consolidated Income
Statement," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business -- Joint Ventures" and the Consolidated
Financial Statements and the related notes thereto.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED
-------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1990 1991 1992 1993 1994(A)
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Total revenues.......................................... $315,726 $ 215,535 $184,944 $ 75,702 $91,066
======== ========= ======== ======== =======
Gross profit............................................ $ 65,415 $ 25,591 $ 12,341 $ 3,891 $14,792
Interest and other income, net.......................... 9,274 5,272 2,274 3,554 2,926
Adjustments to carrying value of real estate
projects and investments in partnerships............... 1,055 84,327 56,016 75,476 --
Selling, general and administrative expenses............ 29,010 26,213 15,579 9,764 12,322
Minority interest....................................... -- -- -- -- 4,332
Interest expense........................................ 353 12,006 14,691 8,538 418
Adjustments to costs in excess of net assets acquired... -- 18,951 -- -- --
-------- --------- -------- -------- -------
Income (loss) before provision (benefit) for income
taxes and extraordinary gain........................... 44,271 (110,634) (71,671) (86,333) 646
Provision (benefit) for income taxes.................... 18,937 (2,653) (13,895) (1,792) --
-------- --------- -------- -------- -------
Income (loss) before extraordinary gain................. 25,334 (107,981) (57,776) (84,541) 646
Extraordinary gain...................................... -- -- -- -- 4,268
-------- --------- -------- -------- -------
Net income (loss)....................................... $ 25,334 $(107,981) $(57,776) $(84,541) $ 4,914
======== ========= ======== ======== =======
Ratio of earnings to fixed charges(d)................... 1.2x (e) (e) (e) 1.7x
OPERATING DATA:
Net new orders (units).................................. 759 430 326 126 478(f)
Homes closed (units)(g)................................. 775 541 395 115 404
Backlog (units)(h)...................................... 261 150 81 92 305
Backlog................................................. $114,427 $ 66,858 $ 28,795 $ 25,853 $55,816
Average price of homes closed........................... $ 395 $ 386 $ 347 $ 334 $ 201
Housing gross margin.................................... 21.3% 12.2% 11.4% 10.1% 17.6%
G&A as % of housing revenues............................ 6.2% 5.3% 5.4% 16.4% 7.6%
SG&A as % of housing revenues........................... 9.5% 12.6% 11.4% 25.5% 15.2%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PRO FORMA
THREE THREE PRO FORMA AS ADJUSTED
MONTHS MONTHS FISCAL FISCAL
ENDED ENDED YEAR ENDED YEAR ENDED
MAY 31, MAY 31, FEBRUARY 28, FEBRUARY 28,
1993 1994 1994(B) 1994(C)
----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
INCOME STATEMENT DATA:
Total revenues.......................................... $ 4,004 $32,770 $112,415 $112,415
======= ======= ======== ========
Gross profit............................................ $ (157) $ 6,375 $ 19,182 $ 17,190
Interest and other income, net.......................... 400 1,030 3,097 3,097
Adjustments to carrying value of real estate
projects and investments in partnerships............... -- -- -- --
Selling, general and administrative expenses............ 1,918 4,545 15,263 15,889
Minority interest....................................... -- 1,531 4,539 3,277
Interest expense........................................ 276 -- 418 3,034
Adjustments to costs in excess of net assets acquired... -- -- -- --
------- ------- -------- --------
Income (loss) before provision (benefit) for income
taxes and extraordinary gain........................... (1,951) 1,329 2,059 (1,913)
Provision (benefit) for income taxes.................... -- 462 224 --
------- ------- -------- --------
Income (loss) before extraordinary gain................. (1,951) 867 1,835 (1,913)
Extraordinary gain...................................... -- 3,075 -- --
------- ------- -------- --------
Net income (loss)....................................... $(1,951) $ 3,942 $ 1,835 $ (1,913)
======= ======= ======== ========
Ratio of earnings to fixed charges(d)................... (e) 1.8x 1.9x (e)
OPERATING DATA:
Net new orders (units).................................. 46 173 695 695
Homes closed (units)(g)................................. 17 199 644 644
Backlog (units)(h)...................................... 121 279 305 305
Backlog................................................. $36,918 $55,073 $ 55,816 $ 55,816
Average price of homes closed........................... $ 212 $ 158 $ 159 $ 159
Housing gross margin.................................... (4.4)% 20.0% 18.2% 16.3%
G&A as % of housing revenues............................ 35.6% 6.3% 7.3% 7.9%
SG&A as % of housing revenues........................... 53.2% 14.9% 14.9% 15.5%
</TABLE>
(Footnotes on following page)
26
<PAGE> 30
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
AS OF AS ADJUSTED
------------------------------------------------------------------------ AS OF AS OF
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, MAY 31, FEBRUARY 28,
1990 1991 1992 1993 1994(A) 1994 1994(I)
------------ ------------ ------------ ------------ ------------ ----------- -----------
(DOLLARS IN THOUSANDS) (UNAUDITED)
BALANCE SHEET DATA:
Total assets............. $594,759 $410,963 $250,822 $115,551 $121,954 $191,903 $171,879
======== ======== ======== ======== ======== ======== ========
Residential inventories... $474,687 $395,484 $224,566 $ 99,636 $105,696 $104,298 $112,953
======== ======== ======== ======== ======== ======== ========
Debt:
Notes payable........... $232,549 $160,638 $ 59,165 $ 38,433 $ 34,709 $ 9,956 --
Senior notes............ -- -- -- -- -- $100,000 $100,000
Due to parent........... 193,840 205,121 204,138 1,702 -- -- --
-------- -------- -------- -------- -------- -------- --------
Total debt................ 426,389 365,759 263,303 40,135 34,709 109,956 100,000
Minority interest......... -- -- -- 19,647 13,959 2,824 2,729
Stockholders' equity...... 140,150 32,169 (25,607) 48,015 55,594 61,037(j) 57,095(j)
-------- -------- -------- -------- -------- -------- --------
Total capitalization...... $566,539 $397,928 $237,696 $107,797 $104,262 $173,817 $159,824
======== ======== ======== ======== ======== ======== ========
Debt as % of total
capitalization.......... 75% 92% 111% 37% 33% 63% 63%
</TABLE>
- ---------------
(a) The fiscal year ended February 28, 1994 includes Durable's results of
operations only for the six month period from September 1, 1993 (the
effective date of the Durable Acquisition) through February 28, 1994.
(b) The Pro Forma income statement and operating data is presented as if the
Durable Acquisition had been effected on March 1, 1993.
(c) The Pro Forma As Adjusted income statement and operating data is presented
as if the Durable Acquisition and the issuance of the Old Notes and the
Warrants, including the application of the net proceeds therefrom, had been
effected on March 1, 1993.
(d) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income (loss) before income taxes plus fixed charges (excluding
capitalized interest). Fixed charges consist of interest expense,
amortization of debt expense and capitalized interest. The pro forma
computation of the ratio of earnings to fixed charges gives effect to the
estimated interest payments (assuming an interest rate of 12.75% on the
Notes), the amortization of issuance costs and the elimination of interest
on debt repaid as a result of the application of the net proceeds from the
sale of the Old Notes and the Warrants.
(e) Earnings were not adequate to cover fixed charges by $115,598,000,
$41,424,000, $62,329,000 and $2,465,000 during the fiscal years ended
February 28, 1991, February 29, 1992, February 28, 1993 and the three months
ended May 31, 1993, respectively, and by $5,606,000 for the fiscal year
ended February 28, 1994, as presented on a Pro Forma As Adjusted basis.
(f) Excludes 139 homes with a dollar value of $13.7 million in Durable's backlog
at August 31, 1993.
(g) "Homes closed" represents units for which the closing of the sale of a home
has occurred and the risk of ownership has been transferred to the buyer.
Revenue from such sales is recognized upon the closing thereof.
(h) The Company's backlog is the number of units subject to pending sales
contracts but not yet closed. Closings of units under pending sales
contracts are subject to numerous contingencies. No assurances can be given
that units under pending sales contracts will result in home closings.
(i) The As Adjusted balance sheet data includes proceeds from the issuance of
the Old Notes and the Warrants and the application thereof. See footnote (g)
to the "Summary Consolidated Financial and Operating Data."
(j) Includes the estimated value of the Warrants issued in connection with the
Old Notes.
27
<PAGE> 31
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA -- DURABLE
The following table presents selected consolidated financial and operating
data of Durable on a historical basis. The Durable data (other than the
Operating Data) for the fiscal years ended December 31, 1991, December 31, 1992
and December 31, 1993 are derived from the audited consolidated financial
statements of Durable that are contained elsewhere in this Prospectus. The
Durable data (other than the Operating Data) for the fiscal years ended December
31, 1989 and December 31, 1990 are derived from the financial statements of
Durable for those periods that have been audited by Price Waterhouse. For
federal and certain state income tax purposes, prior to the Durable Acquisition,
Durable had elected to be treated as an S Corporation and, therefore, was not
generally subject to tax on its earnings. Commencing September 1, 1993, the
effective date of the Durable Acquisition, Durable's taxable income was offset
by the tax operating losses and net operating loss carryforwards of the Company.
See Note 1 to the Consolidated Financial Statements of Durable included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1989 1990 1991 1992 1993
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues.......................... $40,719 $43,792 $31,495 $36,184 $38,678
======= ======= ======= ======= =======
Housing gross profit.................... $ 5,701 $ 7,712 $ 7,106 $ 7,407 $ 8,363
Other income............................ 343 186 34 207 220
Selling, general and administrative
expenses.............................. 2,976 3,660 4,587 5,082 5,924
Minority interest....................... -- -- -- -- 460
------- ------- ------- ------- -------
Income before taxes..................... 3,068 4,238 2,553 2,532 2,199
Provision for income taxes.............. -- -- -- -- --
------- ------- ------- ------- -------
Net income.............................. $ 3,068 $ 4,238 $ 2,553 $ 2,532 $ 2,199
======= ======= ======= ======= =======
OPERATING DATA:
Net new orders (units).................. 535 300 338 433 436
Homes closed (units).................... 405 427 348 363 410
Backlog (units)......................... 205 78 68 138 164
Backlog................................. $20,295 $ 7,956 $ 6,120 $13,731 $17,220
Average price of homes closed........... $ 100 $ 102 $ 90 $ 99 $ 94
Housing gross margin.................... 14.1% 17.7% 22.6% 20.6% 21.7%
G&A as % of housing revenues............ 3.7% 4.8% 6.7% 5.9% 6.3%
SG&A as % of housing revenues........... 7.4% 8.4% 14.6% 14.1% 15.4%
BALANCE SHEET DATA:
Total assets.................. $19,103 $16,451 $14,439 $18,592 $20,982
======= ======= ======= ======= =======
Residential inventories................. $15,562 $12,947 $11,359 $16,533 $18,697
======= ======= ======= ======= =======
Notes payable........................... $11,271 $ 7,471 $ 6,064 $ 8,830 $ 9,823
Minority interest....................... -- -- -- -- 2,006
Stockholders' equity.................... 3,033 5,429 5,784 5,605 5,101
------- ------- ------- ------- -------
Total capitalization.......... $14,303 $12,900 $11,848 $14,435 $16,930
======= ======= ======= ======= =======
</TABLE>
28
<PAGE> 32
PRO FORMA CONSOLIDATED INCOME STATEMENT
The pro forma consolidated income statement set forth below (the "Pro Forma
Statement") was prepared to illustrate the estimated effects of the Durable
Acquisition and the issuance of the Old Notes and the Warrants as if both the
Durable Acquisition and the issuance of the Old Notes and the Warrants had
occurred as of March 1, 1993, the beginning of the Company's most recently
completed fiscal year. The Company's consolidated balance sheet, included
elsewhere in this Prospectus, includes the accounts of Durable as a subsidiary
of the Company.
The Pro Forma Statement is provided for comparative purposes only and does
not purport to represent what the Company's results of operations would actually
have been if the Durable Acquisition and the issuance of the Old Notes and the
Warrants in fact had occurred on March 1, 1993 or to project the Company's
results of operations for any future period. The pro forma adjustments are based
upon available information and upon certain assumptions that the Company
believes are reasonable. The Pro Forma Statement and accompanying notes should
be read in conjunction with the historical financial statements of the Company,
including the notes thereto, and other financial information pertaining to the
Company, including "Capitalization" and the related notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
COMPANY FISCAL PRO FORMA FISCAL FISCAL YEAR
YEAR ENDED DURABLE YEAR ENDED ENDED
FEBRUARY 28, ACQUISITION FEBRUARY 28, OFFERING FEBRUARY 28,
1994 (AUDITED) ADJUSTMENTS(A) 1994 ADJUSTMENTS 1994
--------------- -------------- ----------------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales of homes........................ $81,202 $ 21,178 $ 102,380 -- $102,380
Sales of land......................... 6,938 -- 6,938 -- 6,938
Interest and other income, net........ 2,926 171 3,097 $ --(b) 3,097
--------------- -------------- ----------------- ----------- ------------
91,066 21,349 112,415 --(b) 112,415
Costs and expenses:
Cost of homes....................... 66,939 16,788 83,727 1,992(c) 85,719
Cost of land........................ 6,409 -- 6,409 -- 6,409
Selling, general and
administrative.................... 12,322 2,941 15,263 626(d) 15,889
Minority interest..................... 4,332 207 4,539 (1,262)(e) 3,277
Interest expense...................... 418 -- 418 2,616 3,034(c)
--------------- -------------- ----------------- ----------- ------------
Income (loss) before provision
(benefit) for income taxes and
extraordinary gain.................. 646 1,413 2,059 (3,972) (1,913)
Provision (benefit) for income
taxes............................... -- 224 224 (224) --
--------------- -------------- ----------------- ----------- ------------
Income (loss) before extraordinary
gain................................ $ 646 $ 1,189 $ 1,835 $(3,748) $ (1,913)
=============== ============== ================ =========== ===========
</TABLE>
- ---------------
(a) To reflect the inclusion of Durable's results of operations for the period
from March 1, 1993 to August 31, 1993.
(b) Although none is reflected, the Company could have earned approximately $1.1
million of interest income at an assumed yield of 4% per annum for the
twelve months ended February 28, 1994 on the excess cash of $27.0 million as
a result of the issuance of the Old Notes and the Warrants, as follows:
<TABLE>
<CAPTION>
($000'S)
--------
<S> <C>
Gross proceeds from issuance of the Old Notes and the Warrants.............. $100,000
Repay all notes payable as of March 1, 1993................................. (49,810)
Repay equity of the CalPERS LP in the CalPERS Partnerships.................. (19,647)
Pay the estimated expenses of the offering.................................. (3,500)
--------
Remaining funds invested at an assumed yield of 4% per annum................ $ 27,043
=========
</TABLE>
(c) As a result of the issuance of the Old Notes and the Warrants the Company,
on a Pro Forma As Adjusted basis, would have incurred interest of $12.75
million at an assumed rate of 12.75% for the period March 1, 1993 to
February 28, 1994. This interest has been reflected as follows:
<TABLE>
<CAPTION>
($000'S)
-------
<S> <C>
Interest incurred.................. $12,750
Amount capitalized to inventory.... (9,716)
-------
Amount expensed.................... $ 3,034
========
</TABLE>
As a result of the interest capitalized above, the Company would have had
additional interest included in cost of sales of $1,992,000.
(d) To reflect amortization of the estimated $3.5 million expenses connected
with the issuance of the Old Notes and the Warrants and the $1.5 million
deferred costs attributable to the estimated value of the Warrants amortized
over the eight year term of the Notes.
(e) To reflect reduction in the preferred return payable to the CalPERS LP
assuming that the equity of the CalPERS LP in the CalPERS Partnerships was
repaid as of March 1, 1993.
29
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Management of the Company believes that its historical operating results
prior to the third and fourth quarters of fiscal year 1994 are not meaningful
indicators of its future performance primarily because of (i) RTC's control
during fiscal year 1992 and most of fiscal year 1993, (ii) the period of time
needed to recommence California building operations in late fiscal year 1993 and
early fiscal year 1994 following the acquisition of the Company from the RTC
during fiscal year 1993 and (iii) the Durable Acquisition which occurred in the
middle of fiscal year 1994.
Throughout the 22-month period of the RTC's control of the Company (from
November 1990 to August 1992), the Company's operations were essentially limited
to liquidating inventory and the Company's construction and acquisition activity
was virtually halted. Immediately following the Acquisition, the Company began
the process of reactivating California operations stalled by the RTC. While the
RTC's liquidation strategy left the Company with only 13 completed homes and 15
homes under construction at the time of the Acquisition, the Company did have
substantial assets including almost 2,000 owned and entitled lots, 365 lots
under option, an experienced staff of 68 persons and operating and information
systems to support ongoing homebuilding operations. The Company was able to
commence meaningful construction on reactivated projects during the first two
quarters of fiscal year 1994, marketing the homes in advance of completion of
construction. The process of recommencing construction can be seen in the low
number of deliveries (completion of construction of a home as evidenced by the
receipt of a certificate of occupancy) in the three fiscal quarters immediately
after the Acquisition when there were only 13 home deliveries in California. The
Company's sales efforts were impaired during this period as a result of the lack
of completed inventory and the significant amount of time that buyers were
required to wait for construction to be started and completed.
The Company's current average construction period for a California home is
approximately six months. As a result, most of the home sales made during the
first and second quarters of fiscal year 1994 were not closed until the third
and fourth quarters of fiscal year 1994, when construction was completed and
closings occurred. The impact of this construction cycle is seen in the very low
number of units closed in California in the first two quarters of fiscal year
1994 (32 units) compared to the third and fourth quarters of fiscal year 1994
(173 units). The Company's revenues from home sales, which are recognized at
closing, increased significantly in the third and fourth quarters of fiscal year
1994 as construction was completed on projects recommenced during the first half
of the fiscal year.
Importantly, the Company's current backlog is at a level consistent with
the level of third and fourth quarter closings in fiscal year 1994. See
"Business -- Backlog and Inventory." Additionally, the same projects that
generated substantially all of the closings in fiscal year 1994 are still
actively selling homes at the start of fiscal year 1995. The Company expects to
start construction on approximately 14 new projects in fiscal year 1995 that
were not under construction during fiscal year 1994, 11 of which are currently
owned or in escrow. See "Business -- Developments in Process -- California" and
"Business -- Developments in Process -- Nevada."
30
<PAGE> 34
Although Durable, which was acquired by the Company as of September 1, 1993
(the start of the third quarter of fiscal year 1994), was a significant
contributing factor to the Company's performance during the last two quarters of
fiscal year 1994, the Company's California results of operations showed
significant improvements and a return to profitability on a stand-alone basis
during these two quarters, as shown below:
CALIFORNIA DIVISION
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED FISCAL YEAR
---------------------------------------------------- ENDED
MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28, FEBRUARY 28,
1993 1993 1993 1994 1994
-------- ---------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total revenues.......................... $ 4,004 $ 8,250 $29,122 $28,498 $69,874
======= ======= ======= ======= =======
Gross profit............................ $ (157) $ (26) $ 4,864 $ 5,205 $ 9,886
Interest and other income, net.......... 400 597 900 976 2,873
Selling, general and administrative
expenses.............................. 1,918 1,986 2,287 2,740 8,931
Minority interest....................... -- -- 2,095 1,838 3,933
Interest expense........................ 276 142 -- -- 418
------- ------- ------- ------- -------
Income (loss) before provision (benefit)
for income taxes and extraordinary
gains................................. (1,951) (1,557) 1,382 1,603 (523)
Provision (benefit) for income taxes.... -- -- -- -- --
------- ------- ------- ------- -------
Income before extraordinary gain........ (1,951) (1,557) 1,382 1,603 (523)
Extraordinary gain...................... -- -- 4,268 -- 4,268
------- ------- ------- ------- -------
Net income (loss)....................... $(1,951) $(1,557) $ 5,650 $ 1,603 $ 3,745
======= ======= ======= ======= =======
</TABLE>
31
<PAGE> 35
In addition to the Company's California operations, Durable had 199 home
closings and $21.1 million in revenue in the last two quarters of fiscal year
1994 (following the Durable Acquisition) compared to 240 home closings and $21.2
million in revenues during the first two quarters of fiscal year 1994, (prior to
the Durable Acquisition). The actual results of the Company's operations for
fiscal year 1994, including Durable's results of operations for only the third
and fourth quarters of fiscal year 1994 and the first quarter of fiscal year
1995, are set forth in the table below:
THE COMPANY(A)
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED FISCAL YEAR THREE MONTHS
----------------------------------------------------- ENDED ENDED
MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28, FEBRUARY 28, MAY 31,
1993 1993 1993 1994 1994 1994
-------- ---------- ------------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Total revenues............... $ 4,004 $ 8,250 $37,343 $41,469 $91,066 $32,770
======= ======= ======= ======= ======= =======
Gross profit................. $ (157) $ (26) $ 6,750 $ 8,225 $14,792 $ 6,375
Interest and other income,
net........................ 400 597 918 1,011 2,926 1,030
Selling, general and
administrative expenses.... 1,918 1,986 3,505 4,913 12,322 4,545
Minority interest............ -- -- 2,308 2,024 4,332 1,531
Interest expense............. 276 142 -- -- 418 --
------- ------- ------- ------- ------- -------
Income (loss) before
provision (benefit) for
income taxes and
extraordinary gain......... (1,951) (1,557) 1,855 2,299 646 1,329
Provision (benefit) for
income taxes............... -- -- -- -- -- 462
------- ------- ------- ------- ------- -------
Income before extraordinary
gain....................... (1,951) (1,557) 1,855 2,299 646 867
Extraordinary gain........... -- -- 4,268 -- 4,268 3,075
------- ------- ------- ------- ------- -------
Net income (loss)............ $(1,951) $(1,557) $ 6,123 $ 2,299 $ 4,914 $ 3,942
======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(a) Reflects Durable's results of operations for only the third and fourth
quarters of fiscal year 1994.
BACKLOG AND INVENTORY
The Company typically presells homes prior to and during construction
through sales contracts requiring cash deposits ranging from $1,000 to $10,000.
Generally, these contracts are cancelable if the customers are unable to sell
their existing homes, unable to qualify for financing or under certain other
circumstances. A home sale is placed in backlog status upon execution of the
above described contract and receipt of a deposit, and is removed from backlog
status when such contract is canceled as described above or the home sale is
closed. At May 31, 1994, the Company had a total backlog of 279 homes with an
aggregate sales value of $55 million, which is moderately lower than the backlog
of the Company at the start of the third and fourth quarters of fiscal year
1994. The Company had a backlog of 297 homes with an aggregate sales value of
$62 million at the end of the second quarter of fiscal year 1994 and 295 homes
with an aggregate sales value of $54 million at the end of the third fiscal
quarter of fiscal year 1994.
32
<PAGE> 36
Management believes that because of the Company's typical construction,
marketing and closing cycle, the Company's backlog is generally a good indicator
of the number of units that will be closed in the four months following a
particular measurement date. The following table shows cancellations and net new
orders (sales made less cancellations and credit rejections) and the ending
backlog relating to the Company and Durable for each quarter since the middle of
fiscal year 1993, including the four fiscal quarters prior to the Durable
Acquisition:
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA FISCAL QUARTER ENDED(A) FISCAL QUARTER ENDED FISCAL YEAR
-------------------------------------------------- ------------------------------------- ENDED
NOVEMBER 30, FEBRUARY 28, MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28, MAY 31, FEBRUARY 28,
1992 1993 1993 1993 1993 1994 1994 1994(A)
------------ ------------ ------- ---------- ------------ ------------ ------- ------------
(UNITS, EXCEPT AS NOTED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California
Starts(b)........... 13 2 101 64 78 65 117 308
Deliveries(c)....... 0 0 13 25 77 111 37 226
Closings(d)......... 16 9 17 15 87 86 62 205
Cancellations....... 18 14 58 62 57 43 51 220
Net new orders...... 22 73 46 52 46 93 70 237
Ending backlog...... 28 92 121 158 117 124 132 124
Ending backlog
($000)............ $ 6,474 $ 25,853 $36,918 $ 47,893 $ 36,478 $ 37,450 $39,987 $ 37,450
Nevada(a)
Starts(b)........... 106 52 127 105 140 120 138 492
Deliveries(c)....... 113 112 109 124 51 127 157 411
Closings(d)......... 100 100 121 119 78 121 137 439
Cancellations....... 88 76 57 75 59 46 62 237
Net new orders...... 146 72 104 113 117 124 103 458
Ending backlog...... 190 162 145 139 178 181 147 181
Ending backlog
($000)............ $ 18,525 $ 16,119 $14,318 $ 13,725 $ 17,576 $ 18,366 $15,086 $ 18,366
Total Ending backlog
Units............... 218 254 266 297 295 305 279 305
Dollars ($000)...... $ 24,999 $ 41,972 $51,236 $ 61,618 $ 54,054 $ 55,816 $55,073 $ 55,816
</TABLE>
- ---------------
(a) Includes information with respect to Durable's backlog on a pro forma basis
for the periods prior to consummation of the Durable Acquisition.
(b) Represents start of construction on a unit.
(c) Represents completion of construction and issuance of a certificate of
occupancy.
(d) Represents the close of escrow and delivery of the deed to the buyer of a
unit.
The same 13 projects that generated substantially all of the closings in
fiscal year 1994 were still actively selling homes at the start of fiscal year
1995. The Company expects to start construction on approximately 14 new projects
in fiscal year 1995 that were not under construction during fiscal year 1994, 11
of which are currently owned or in escrow. See "Business -- Developments in
Process -- California" and "Business -- Developments in Process -- Nevada."
VARIABILITY OF RESULTS AND SEASONALITY
The Company's results of operations reflect the cyclical nature of the
homebuilding industry and the Company's historical focus on the Southern
California housing market. The most recent peak in the industry cycle occurred
in 1988 and 1989, which was followed by a downturn in 1990 coinciding with the
national recession. California entered the recession later than other portions
of the country and, as a result, the Company's performance in fiscal year 1990
was quite strong. However, economic and real estate conditions in California and
Southern California in particular have been depressed during 1991, 1992 and
1993. The Company commenced a geographic diversification strategy in fiscal year
1993 in order to reduce its dependence on the Southern California real estate
market. Despite the national recession, the Las Vegas metropolitan area has
experienced significant growth in recent years, with unit sales and population
increases from year to year during the period from 1990 to 1992.
33
<PAGE> 37
The Company's results of operations for any period are affected by a number
of factors, including the number of home developments under construction, the
length of the development cycle of its projects, product mix, weather,
availability of financing, costs of materials and economic conditions in the
areas in which the Company operates. Product mix (both product line and size of
home) has a substantial effect on the average sales price of homes and the gross
margin from home sales because smaller homes generally have lower sales prices
and gross margins than larger homes. The average sales price of homes from
period to period fluctuates based on product line, home size, geographic mix and
changes in the market price of housing.
The homebuilding industry in California, and to a lesser extent Nevada, is
seasonal. Generally, new orders are higher in the spring and summer months,
constituting the Company's first and second fiscal quarters, with closings, and
therefore revenues, being higher in the fall and winter months, which represent
the Company's third and fourth fiscal quarters. While the Company's increased
revenue levels during the third and fourth quarters of fiscal year 1994 were
principally related to delivery of completed homes not previously available
rather than seasonality, the Company expects that seasonal variations will
continue in the future.
RESULTS OF OPERATIONS -- GENERAL
On November 30, 1990, San Jacinto was seized by federal regulators who
named the RTC as conservator. On December 14, 1990, the Office of Thrift
Supervision ("OTS") issued an order declaring San Jacinto insolvent and closed
the institution. The RTC was appointed receiver of San Jacinto. On the same
date, the RTC, as receiver, entered into a purchase and assumption agreement
transferring all of the assets of San Jacinto (including the Company's debt to
San Jacinto and 12,000,000 shares of the Company's common stock) to a
newly-formed federal mutual association, San Jacinto Savings Association, F.A.
("SJSA"). Immediately following this transfer of assets, OTS placed SJSA into
conservatorship and appointed the RTC as managing agent. On September 27, 1991,
SJSA was placed into receivership by the RTC.
At the time of San Jacinto's seizure by the OTS, San Jacinto provided
approximately 52% of the Company's $389 million of financing. During the period
of RTC control, the Company had no access to its former lines of credit with San
Jacinto, which it had previously utilized for both land acquisition and daily
working capital. The Company was thus forced to begin an aggressive program to
liquidate inventory of homes and lots to repay defaulted loans and to maintain
day-to-day operations. New construction and acquisition activity was virtually
halted during the period of RTC control, bringing the Company from 775 homes
closed in fiscal year 1990 (the year prior to RTC control) to 115 homes in
fiscal year 1993 (the last year that included any period of RTC control).
Additionally, at the time of the seizure the real estate market in Southern
California was rapidly deteriorating, causing management to continually evaluate
its inventory as it sought to liquidate such inventory for its survival.
Management made every attempt to keep currently abreast of declines in inventory
values and writedowns in value were taken when appropriate. The result was a
$56.0 million adjustment and a $75.5 million adjustment to inventory in fiscal
years 1992 and 1993, respectively. Sales prices on standing inventory and lots
that were liquidated were lowered as their values declined.
During fiscal years 1992 and 1993 earnings were not adequate to cover fixed
charges by $41.4 million and $62.3 million, respectively. This was primarily the
result of the effect on earnings of the adjustments to carrying values of
inventory mentioned above. On a proforma basis, earnings were not adequate to
cover fixed charges by $5.6 million for fiscal year 1994. This was due to very
few closings during the first six months of fiscal year 1994. The Company has
accelerated construction activity with proceeds from the sale of the Old Notes
during the first quarter of fiscal year 1995. This accelerated construction
activity should result in increased home closings which management believes will
provide sufficient earnings to cover fixed charges.
The results of operations of the Company for the fiscal year ended February
28, 1994 do not include the full year of Durable's results of operations due to
the fact that the Durable Acquisition did not occur until the start of the third
quarter of fiscal year 1994. Additionally, the results of operations of the
Company for the fiscal years ended February 29, 1992 and February 28, 1993
include the period of RTC control of the Company. Accordingly, Company
management believes that the historical operating results for those periods are
not meaningful indicators of future performance.
34
<PAGE> 38
A separate discussion and analysis of Durable's results of operations for
its three most recently completed fiscal years prior to its acquisition by the
Company is also included below. For federal and certain state income tax
purposes, prior to the Durable Acquisition, Durable had elected to be treated as
an S Corporation and, therefore, was not generally subject to tax on its
earnings. See Note 1 to the Consolidated Financial Statements of Durable
included elsewhere in this Prospectus. The Company and Durable are generally not
discussed separately in the discussions of liquidity and capital resources,
inflation and taxes included below.
RESULTS OF OPERATIONS -- THE COMPANY
Because revenues from home sales are not recognized until the sales are
closed, the recommencement of building operations by the Company following the
Acquisition did not result in material levels of home closings until the third
quarter of fiscal year 1994. Additionally, the Company's results of operations
for the periods prior to September 1, 1993 do not reflect the Durable
Acquisition. Accordingly, the Company believes that the historical operating
results for the full fiscal year presented herein are not as meaningful as the
quarterly results for the last two quarters of fiscal year 1994. The Company
incurred operating losses of $1.9 million and $1.6 million during the first two
quarters of fiscal year 1994 and returned to profitability in the third quarter
of fiscal year 1994 as home closings began to occur following completion of the
construction recommenced after the Acquisition. The Company's net income
(excluding extraordinary items) for the third and fourth quarters of fiscal year
1994 was $1.8 million and $2.3 million, respectively.
FIRST QUARTER OF FISCAL YEAR 1995 COMPARED WITH THE FIRST QUARTER OF FISCAL
YEAR 1994
Revenues from Sales of Homes. Revenues from housing sales for the first
quarter of fiscal year 1995 and the first quarter of fiscal year 1994 were $30.6
million and $3.6 million, respectively, reflecting an increase of $27.0 million
from the corresponding period of fiscal year 1994. The increase was due to
increased home closings. Home closings for the first quarter of fiscal year 1995
were 193 versus 17 homes during the first quarter of fiscal year 1994. Included
in this amount were 137 homes closed by Durable Homes, Inc. ("Durable") in Las
Vegas, Nevada. Gross profit on home sales of $6.1 million, or 20%, for the first
quarter of fiscal year 1995 increased $6.2 million over the comparable period of
fiscal year 1994. This was due to an increase in the number of homes closed (193
for the first quarter of fiscal year 1995 compared to only 17 for the first
quarter of fiscal year 1994).
Revenues from Sales of Land. Revenues from sales of land of $1.2 million
for the first quarter of fiscal year 1995 compares to no land sales during the
first quarter of fiscal year 1994. The land sales for the first quarter of
fiscal year 1995 represent the sale of 6 custom home lots in the La Quinta,
California project. Gross profit on these lot sales were $260,000, or 23%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the first quarter of fiscal year 1995 totaled $4.5
million, an increase of $2.6 million from the corresponding period of fiscal
year 1994. This increase was due primarily to the acquisition of Durable, whose
selling, general and administrative expense for the quarter was $1.9 million,
and increased Company activity in California.
Interest Expense. There was no interest expense for the first quarter of
fiscal year 1995, as the aggregate interest costs for such quarter of $1,543,000
were capitalized. This reflects a reduction of $276 thousand when compared to
the corresponding period of the prior fiscal year. This decrease was due
primarily to the increase in interest capitalization on increased construction
activity.
Extraordinary Gain. The Company posted an extraordinary gain of
approximately $4.7 million ($3.1 million net of income taxes) from the
retirement of a construction loan and interest due thereon at less than the book
amount of the liability thereof. The loan was previously in default.
Net Income. As a result of the foregoing factors, the Company posted an
after tax operating profit of $867,000 for the three months ended May 31, 1994.
This amount, when added to the $3.1 million extraordinary gain from the
resolution of project financing, resulted in net income for the quarter of $3.9
million.
35
<PAGE> 39
For the first quarter of fiscal year 1995 the Company recorded 160 net
orders (homes contracted for sales less cancellations) on home sales which was
114 homes greater than in the comparable quarter ended May 31, 1993. The Company
had 272 homes in its backlog (homes under contract but not closed) at May 31,
1994, which was an increase of 151 homes over the Company's backlog at May 31,
1993.
FISCAL YEAR 1994 (YEAR ENDED FEBRUARY 28, 1994) COMPARED TO FISCAL YEAR 1993
(YEAR ENDED FEBRUARY 28, 1993)
Net Income. The Company returned to profitability in fiscal year 1994
having net income of $4.9 million, or $0.34 per share, compared to a net loss of
$84.5 million, or $6.05 per share, for fiscal year 1993. These results were due
to the factors discussed below.
Revenues from Sales of Homes. Revenues from housing sales for fiscal year
1994 of $81.2 million increased $42.8 million, or 112%, from fiscal year 1993.
This increase was due to a greater number of home closings during the fiscal
year. Home closings for fiscal year 1994 were 404, compared to 115 homes for
fiscal year 1993, an increase of 289 homes. This increased activity was
primarily due to the Durable Acquisition, which contributed $21.1 million of
revenues and 199 home closings during the period from September 1, 1993, the
effective date of the Durable Acquisition, through February 28, 1994, and the
home closings from the projects developed by the four CalPERS Partnerships,
which contributed 155 home closings and approximately $46.8 million in revenues.
Gross profit on home sales of $14.3 million, or 17.6%, for fiscal year 1994
increased $9.8 million, over fiscal year 1993. The improved gross margins were
the result of the closing activity from the four CalPERS Partnerships and the
acquisition of Durable Homes.
Revenues from Sales of Land. Revenues from land sales for fiscal year 1994
of $6.9 million decreased $26.8 million from fiscal year 1993. In fiscal year
1993 CPH, as part of their acquisition of the Company, had a business plan which
included the sale of several parcels of land which were outside the area in
which the new management of the Company wanted to operate. The land sales
activity during fiscal year 1994 were the final land sales under this business
plan. Gross profit on land sales of $529 thousand, or 7.6%, in fiscal year 1994
compares to a loss of $543,000 in fiscal year 1993.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal year 1994 of $12.3 million increased $2.6
million over fiscal year 1993. This increase was primarily due to the effect of
the Durable Acquisition, which was consummated as of September 1, 1993.
Interest Expense. Interest expense of $418,000 for fiscal year 1994 was
approximately $8.1 million less than fiscal year 1993. This decrease was due
primarily to an increase in the amount of interest able to be capitalized as a
result of the increased level of construction activity and the Company's lower
level of debt as a result of the Acquisition and the associated restructuring of
debt.
Extraordinary Gain and Valuation Adjustments. During the fiscal year ended
February 28, 1994, the Company recorded a one-time gain of $4.3 million due to
the resolution of project financing at less than the face amount of the debt.
The Company's pre-tax net loss of $86.3 million for fiscal year 1993 was
primarily due to adjustments to the realizable value of assets of $75.5 million
resulting from the closing of the Acquisition.
During the fiscal year ended February 28, 1994, the Company recorded 478
net orders (home sales contracted for less cancellations), which was 352 homes
higher than fiscal year 1993. The Company had 305 homes in its backlog (homes
under contract but not closed) at February 28, 1994, which was an increase of
213 homes over the Company's backlog at February 28, 1993.
FISCAL YEAR 1993 (YEAR ENDED FEBRUARY 28, 1993) COMPARED TO FISCAL YEAR 1992
(YEAR ENDED FEBRUARY 29, 1992).
Net Income (Loss)/Valuation Adjustments. The Company had a net loss of
$84.5 million, or $6.05 per share, compared to a net loss of $57.8 million, or a
loss of $4.13 per share, for fiscal year 1992. This net loss
36
<PAGE> 40
was primarily as a result of downward adjustments to the net realizable value of
assets resulting from the closing of the Acquisition and a $10.9 million
operating loss.
Revenues from Sales of Homes. For the first three quarters of fiscal year
1993, the Company liquidated standing inventory and had virtually no
construction activity. Housing starts in the fourth fiscal quarter had not yet
begun to close by the end of the quarter and as a result revenue from housing
sales was down from $137.2 million in fiscal year 1992 to $38.4 million in
fiscal year 1993. There was a 71% reduction in the number of homes closed in
fiscal year 1993 compared to fiscal year 1992, which reduction resulted from the
RTC-controlled Board of Directors' direction that the Company liquidate
inventory and not commence any new construction activity. Gross profit on home
sales of $4.4 million, or 10.0%, for fiscal year 1993 compares to $15.7 million,
or 11.4%, for fiscal year 1992. The lower gross profit in fiscal year 1993 was
due to the sale of houses in less profitable projects as compared to fiscal year
1992.
Revenues from Sales of Land. Revenues from land sales for fiscal year 1993
of $33.8 million decreased $11.7 million from fiscal year 1992. The increased
land sale activity during fiscal year 1992 was the liquidation of inventory that
the Company required to maintain cash flow to support operations. As set forth
above, the fiscal year 1993 land sale activity was the result of the CPH
acquisition. During fiscal year 1993 the Company land sales resulted in losses
of $543,000 versus a loss of $3.4 million in fiscal year 1992.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $9.8 million for fiscal year 1993, down
from $15.6 million for fiscal year 1992. This decrease resulted primarily from
reduced efforts at marketing inventory during the RTC's control of the Company
and from extensive overhead reduction measures taken in order to conserve cash,
including the closure of the Los Angeles and San Diego divisions of the Company
at the direction of the RTC.
Interest Expense. Interest expense was $8.5 million for the fiscal year
ended February 28, 1993, compared to $14.7 million for the fiscal year ended
February 29, 1992. This reduction stems from debt reduction associated with
sales of land and inventory.
During the fiscal year ended February 28, 1993, the Company had 126 net new
orders (home sales contracted for less cancellations), which was lower than the
comparable period of fiscal year 1992 by 200 homes. However, the Company had 92
homes in its backlog at February 28, 1993 (homes under contract but not closed),
compared to 81 homes in its backlog at February 29, 1992.
37
<PAGE> 41
RESULTS OF OPERATIONS -- DURABLE
The following table summarizes certain information regarding revenues,
gross margins, average home selling prices, selling, general and administrative
expenses and homes closed for each of the three years ended December 31, 1993
for Durable only. See "Selected Consolidated Financial and Operating
Data -- Durable." For federal and certain state tax purposes, prior to the
Durable Acquisition, Durable had elected to be treated as an S Corporation and,
therefore, was not generally subject to tax on its earnings. See note 1 to the
Consolidated Financial Statements of Durable included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------------
DECEMBER 31, 1991 DECEMBER 31, 1992 DECEMBER 31, 1993
----------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total revenues........................... $31,495 $36,184 $38,678
Housing revenues......................... 31,461 35,977 38,458
Housing gross profit..................... 7,106 7,407 8,363
Selling, general & administrative
expenses............................... 4,587 5,082 5,924
Net income............................... 2,553 2,532 2,199
Housing gross margin..................... 22.6% 20.6% 21.7%
Selling, general and administrative
expenses as a percent of housing
revenues............................... 14.6% 14.1% 15.4%
Average home selling price............... $ 90 $ 99 $ 94
Homes closed (units)..................... 348 363 410
</TABLE>
FISCAL YEAR 1993 (YEAR ENDED DECEMBER 31, 1993) COMPARED TO FISCAL YEAR 1992
(YEAR ENDED DECEMBER 31, 1992)
Net Income. Durable's net income for fiscal year 1993 was $2.2 million,
compared to net income of $2.5 million for fiscal year 1992, a decrease of 13%.
These results were due to the factors discussed below.
Revenues from Sales of Homes. Revenues from housing sales for fiscal year
1993 of $38.5 million increased $2.5 million, or 7%, from fiscal year 1992. This
increase was due to a greater number of home closings during the year. Home
closings for fiscal year 1993 were 410 homes compared to 363 homes for fiscal
year 1992, an increase of 47 homes. This increased activity was primarily due to
the formation of three joint ventures during fiscal year 1993, which contributed
89 home closings and approximately $10.4 million in revenue in fiscal year 1993.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal year 1993 of $5.9 million increased by $.8
million over the corresponding period of fiscal year 1992, primarily as a result
of broker participation and increased professional fees. As a percentage of
total revenues, such expenses increased by 1.3%.
Minority Interest. Minority interest in the earnings of joint ventures was
$460,000 for fiscal year 1993; there was no minority interest expense for
1992.
Gross Margins. Gross margins increased from 20.6% in fiscal year 1992 to
21.7% in fiscal year 1993. The gross margin increased due to changes in product
mix and lower developer's fees.
During the fiscal year ended December 31, 1993, Durable recorded 436 net
new orders (homes contracted for less cancellations), which was three homes
higher than fiscal year 1992. Durable had 164 homes in its backlog (homes under
contract but not closed) at December 31, 1993, which was an increase of 26 homes
over its backlog at December 31, 1992.
38
<PAGE> 42
FISCAL YEAR 1992 (YEAR ENDED DECEMBER 31, 1992) COMPARED TO FISCAL YEAR 1991
(YEAR ENDED DECEMBER 31, 1991)
Net Income. Durable's net income for fiscal year 1992 was $2.5 million,
compared to net income of $2.6 million for fiscal year 1991. These results were
due to the factors discussed below.
Revenues from Sales of Homes. Revenues from housing sales for fiscal year
1992 of $36.0 million increased $4.5 million, or 14%, from 1991. This increase
was due to a higher average selling price of homes closed during the fiscal
year. Home closings for fiscal year 1992 were 363 homes compared to 348 homes
for fiscal year 1991. The increased prices were primarily due to a different mix
of products sold.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal year 1992 of $5.1 million increased by $0.5
million over the corresponding period of fiscal year 1991. The increase in
selling, general and administrative expenses was primarily attributable to
increased broker participation.
Gross Margins. Gross margins decreased from 22.6% in fiscal year 1991 to
20.6% in fiscal year 1992. The decrease in gross margins was attributable to a
1991 project that had a margin of 28% due to a very low land basis.
During the fiscal year ended December 31, 1992, the Company recorded 433
net new orders (home sales contracted for less cancellations), which was 95
homes higher than in fiscal year 1991. The Company had 138 homes in its backlog
(homes under contract) at December 31, 1992, an increase of 70 homes over the
Company's backlog at December 31, 1991.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal cash requirements are for the acquisition,
development, construction and marketing of its residential projects. The need to
stage the acquisition and use of raw materials such as land and finished lots
and the need, on certain projects, to construct community facilities ahead of
the start of home construction requires homebuilders such as the Company to
commit working capital for longer periods than many traditional manufacturing
companies. When building inventory, the Company uses substantial amounts of cash
that are generally obtained from borrowings, available cash flow from operations
and partners' contributions to joint ventures.
The principal uses of cash resources by the Company since the Acquisition
have been to recommence building operations in California, cure defaulted loans
and undertake land acquisition for future projects. Because there was very
little standing inventory and completed construction activity until the third
quarter of fiscal year 1994, the Company has principally relied upon borrowings
since the Acquisition due to the fact that cash flow from operations only began
to become significant in the third and fourth quarters of fiscal year 1994. The
Company's construction activities since the Acquisition have been constrained to
some extent by the amount of funds available to it for acquisition, development
and construction.
To date, the Company has principally used secured bank financing and
financing provided by the CalPERS LP for acquisition, development and
construction, with borrowings for individual projects or phases of projects
secured by such projects. In connection with the CalPERS Partnerships, the
CalPERS LP provided equity of $16.6 million and agreed to provide construction
financing for the four projects (with 346 originally planned units) owned by the
CalPERS Partnerships in an aggregate amount up to $66 million (the "CalPERS
Construction Financing"). Through February 28, 1994, the CalPERS LP had advanced
an aggregate of $37 million of the CalPERS Construction Financing. Under the
terms of the Indenture relating to the sale of the Notes, the Company is
prohibited from obtaining any further financing from the CalPERS LP with respect
to the four CalPERS Partnerships.
In May 1994 the Company successfully completed the sale of the Old Notes
and Warrants. The proceeds from the offering were used and are being used to
repay certain debt of the Company, acquire certain properties and for general
working capital purposes. The proceeds are expected to provide sufficient
available liquidity, when combined with additional financing permitted under the
Indenture and cash flow from
39
<PAGE> 43
operations, to fund the Company's current and projected acquisition, development
and construction activities for a period of at least two years.
The Company has also obtained a $25 million revolving credit facility (the
"Facility") with Bank One, Arizona, NA. ("BOAZ"). Interest on amounts
outstanding under the Facility accrues at BOAZ's prime rate then in effect plus
1.00%. Availability of funds under this Facility is subject to, among other
things, specific loan-to-value factors, appraisal reports and the satisfactory
underwriting by the lender on a project phase basis.
The Facility is secured by liens on various completed or under construction
homes and lots held by the Company (but not on homes or lots held by Durable or
any other Company subsidiary). Pursuant to the Facility, the Company is subject
to certain covenants, including covenants that require the Company to comply
with certain operating and reporting requirements and to maintain certain
financial levels and ratios. The major financial covenants are a maximum 2.20 to
1.00 consolidated liabilities to consolidated tangible net worth ratio, minimum
consolidated tangible net worth of the Company equal to 66% of the consolidated
tangible net worth of the Company on May 12, 1994, minimum cash on hand in an
amount of not less than 10% of consolidated liabilities and maximum cash
investment in land held for future development of 50% of consolidated net
tangible assets. The Company has also agreed that it will not suffer a net loss
in any fiscal quarter in excess of $1,000,000 or any net loss in any two
consecutive fiscal quarters. At May 31, 1994 the Company had a 2.09 to 1.00
consolidated liabilities to consolidated tangible net worth ratio. The Facility
also defines certain events that constitute events of default. BOAZ is entitled
to payment out of the proceeds of its collateral prior to any holders of
unsecured indebtedness, including the Notes.
Under specified circumstances, BOAZ has the right to reappraise all or part
of the property securing the Facility and may require mandatory prepayments if
the amount outstanding under the Facility exceeds a specified maximum
loan-to-value ratio. The term of the Facility is until June 30, 1996 with a
provision for one-year extensions at the option of the Company provided that
certain conditions are satisfied (including the payment of a commitment fee, the
absence of any default and the determination by BOAZ in its sole discretion that
the Company remains creditworthy). Following the termination date of the
Facility, the $25 million maximum aggregate commitment will be decreased on a
scheduled basis over the succeeding eighteen months (the "Conversion Period"),
reducing to $0 at the end of the 18th month. The maximum aggregate commitment
(as reduced over the 18-month period) will continue to be available to the
Company during the Conversion Period.
Subject to the restrictions contained in the Indenture, the Facility will
be available to augment cash flow from operations to fund the Company's
operations.
LEGAL PROCEEDINGS
The Company is named defendant in lawsuits filed from time to time
involving claims arising in the ordinary course of business. While certain of
these matters involve substantial amounts, management believes that the
Company's insurance with respect to such claims and lawsuits is sufficient and
that such claims and lawsuits as are currently pending will not have a
materially adverse effect on the Company's financial position or results of
operations. In connection with the settlement of such claims and lawsuits, the
Company is sometimes asked, as a "good faith" gesture, to contribute to the
settlement fund despite the sufficiency of insurance with respect to the claim
or lawsuit. The Company has reserved amounts on its balance sheet, which amounts
represent management's best estimate of the amount of such contributions
reasonably anticipated in connection with pending claims and lawsuits.
INTEREST RATES AND INFLATION
The long-term impact of inflation on the Company is manifested in increased
land, land development, construction and overhead costs, as well as in increased
sales prices. For several years prior to fiscal year 1989, the Company was able
to raise sales prices by amounts at least equal to its cost increases. Since
fiscal year 1989, however, overall sales prices have declined and the Company's
costs, including land acquisition costs, have generally decreased.
40
<PAGE> 44
The Company generally contracts for land significantly before development
and sales efforts begin and, accordingly, to the extent land acquisition costs
are fixed, increases or decreases in the sales prices of homes may affect the
Company's profits. Since the sales prices of homes are fixed at the time of sale
and the Company generally sells its homes prior to commencement of construction,
any inflation of costs in excess of those anticipated may result in lower gross
margins. The Company generally attempts to minimize that effect by entering into
fixed-price contracts with its subcontractors and material suppliers for
specified periods of time, which generally do not exceed one year.
Housing demand, in general, is adversely affected by increases in interest
costs, as well as in housing costs. Interest rates, the length of time that land
remains in inventory and the proportion of inventory that is financed affect the
Company's interest costs. If the Company is unable to raise sales prices enough
to compensate for higher costs, which had generally been the condition during
prior years, or if mortgage interest rates increase significantly, affecting
prospective buyers' ability to adequately finance a home purchase, the Company's
revenues, gross margins and net income would be adversely affected. Increases in
sales prices, whether the result of inflation or demand, may affect the ability
of prospective buyers to afford a new home.
TAXES
The Company is part of the CPH consolidated tax group. No written tax
sharing agreement with respect to taxes existed between the member companies of
the CPH consolidated tax group as of December 31, 1993. The CPH consolidated tax
group files on a calendar year basis, whereas the Company's financial statements
reflect a fiscal year ending on the last day of February. As of December 31,
1993, the Company estimates that it had a small federal and California tax
liability and a net operating loss carryforward to 1994, which the Company can
utilize to offset regular taxable income that may be generated after the 1993
tax year. The Indenture requires the merger of the Company with CPH, as a result
of which the Company will no longer be part of a consolidated group and will
file its own tax returns.
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<PAGE> 45
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER, PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on , 1994; provided, however, that if the Company has
extended the period of time for which the Exchange Offer is open, the term
"Expiration Date" means the latest time and date to which the Exchange Offer is
extended.
As of the date of this Prospectus, $100 million aggregate principal amount
of the Old Notes was outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1994, to all holders of
Old Notes known to the Company. The Company's obligation to accept Old Notes for
exchange pursuant to the Exchange Offer is subject to certain conditions as set
forth under "-- Certain Conditions to the Exchange Offer" below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving notice of such
extension to the holders thereof. During any such extension, all Old Notes
previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by the Company. Any Old Notes not accepted for exchange
for any reason will be returned without expense to the tendering holder thereof
as promptly as practicable after the expiration or termination of the Exchange
Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "-- Certain Conditions to the Exchange Offer." The Company
will give notice of any extension, amendment, non-acceptance or termination to
the holders of the Old Notes as promptly as practicable, such notice in the case
of any extension to be issued no later than 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law in connection with the Exchange Offer.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to United States Trust Company of New
York (the "Exchange Agent") at one of the addresses set forth below under
"Exchange Agent" on or prior to the Expiration Date. In addition, either (i)
certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal, or (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. WE ARE NOT ASKING YOU
FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
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<PAGE> 46
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instruction" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than a
signer of the Letter of Transmittal, the Old Notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sole discretion, duly executed by the registered holder with the signature
thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any holder who seeks to tender old Notes in
the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the Company
shall determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Old Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Old Notes, such Old Notes must be endorsed
or accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered holder or holders that appear on the Old
Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person receiving such New Notes,
whether or not such person is the holder, that neither the holder nor any such
other person has an arrangement or understanding with any person to participate
in the distribution of such New Notes and that neither the holder nor any such
other person is an "affiliate," as defined under Rule 405 of the Securities Act,
of the Company.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See "-- Certain Conditions to the Exchange Offer" below. For purposes
of the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Old Notes for exchange when, as and if the Company has given oral and
written notice thereof to the Exchange Agent.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. If by November 14, 1994, neither the Exchange Offer is consummated nor
a Shelf Registration Statement is declared effective, the interest rate on each
Old
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<PAGE> 47
Note, whether or not tendered for exchange, from and after November 14, 1994
shall be permanently increased to a rate of 13 1/4% per annum.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old Notes are submitted for a greater principal amount that the
holder desires to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering holder thereof (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described below, such non-exchanged Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility) as promptly as practicable
after the expiration of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof
with any required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "Exchange Agent" on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within five New York
Stock Exchange ("NYSE") trading days after the date of execution of the Notice
of Guaranteed Delivery, the certificates for all physically tendered Old Notes,
in proper form for transfer, or a Book-Entry Confirmation, as the case may be,
and any other documents required by the Letter of Transmittal will be deposited
by the Eligible Institution with the Exchange Agent and (iii) the certificates
for all physically tendered Old Notes, in proper form for transfer, or a
Book-Entry confirmation, as the case may be, and all other documents required by
the Letter of Transmittal are received by the Exchange Agent within five NYSE
trading days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount of such Old Notes), and (where
certificates for Old Notes have
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<PAGE> 48
been transmitted) specify the name in which such Old Notes are registered, if
different from that of the withdrawing holder. If certificates for Old Notes
have been delivered or otherwise identified to the Exchange Agent, then, prior
to the release of such certificates the withdrawing holder must also submit the
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution
unless such holder is an Eligible Institution. If Old Notes have been tendered
pursuant to the procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Old Notes and otherwise
comply with the procedures of such facility. All questions as to the validity,
form and eligibility (including time of receipt) of such notices will be
determined by the Company, whose determination shall be final and binding on all
parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old Notes which
have been tendered for exchange but which are not exchanged for any reason will
be returned to the holder thereof without cost to such holder (or, in the case
of Old Notes tendered by book-entry transfer into the Exchange Agent's account
at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Notes) as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "-- Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Old Notes and may terminate or amend the Exchange Offer if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for such Old Notes, the Company determines that the Exchange Offer
violates applicable law, any applicable interpretation of the Staff of the
Commission or any order of any governmental agency or court of competent
jurisdiction.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939 (the
"TIA"). In any such event the Company is required to use every reasonable effort
to obtain the withdrawal of any stop order at the earliest possible moment.
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<PAGE> 49
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at one of the addresses set forth below.
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<S> <C> <C>
By Hand/Overnight Express: By Mail: By Overnight Delivery:
(insured or registered (insured or registered (insured or registered
recommended) recommended) recommended)
United States Trust Company of United States Trust Company of United States Trust Company of
New York New York New York
65 Beaver Street P.O. Box 844 770 Broadway
Ground Floor Cooper Station 7th Floor
New York, NY 10005 New York, NY 10276 New York, New York 10003
Attn: Corporate Trust and Agency Attention: Corporate Trust and Attention: Corporate Trust and
Services Agency Services Agency Services
</TABLE>
Via Facsimile:
1-212-420-6152
For Information Call:
1-800-548-6565
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The Company will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
$170,000 which includes fees and expenses of the Trustee, accounting, legal,
printing and related fees and expenses.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is the principal amount as reflected in the Company's accounting records
on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized. The expenses of the Exchange Offer will be
capitalized for accounting purposes.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF NEW NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to the exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. Old Notes not exchanged pursuant to
the Exchange Offer will continue to accrue interest at 12 3/4% per annum and
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<PAGE> 50
will otherwise remain outstanding in accordance with their terms. In general,
the Old Notes may not be offered or sold unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act. Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, New Notes issued pursuant to the
Exchange Offer may be offered for resale, resold or otherwise transferred by
holders thereof (other than (i) any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act or (ii) any
broker-dealer that purchases Notes from the Company to resell pursuant to Rule
144A or any other available exemption) without compliance with the registration
and prospectus delivery provisions of the Securities Act provided that such New
Notes are acquired in the ordinary course of such holders' business and such
holders have no arrangement or understanding with any person to participate in
the distribution of such New Notes. If any holder has any arrangement or
understanding with respect to the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, such holder (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. A broker-dealer who holds Old
Notes that were acquired for its own account as a result of market making or
other trading activities may be deemed to be an "underwriter" within the meaning
of the Securities Act and must, therefore, deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of New Notes.
While the Company has an obligation under the Registration Agreement to update
this Prospectus by amendment or supplement for a period of 90 days following
consummation of the Exchange Offer, the Company has no obligation thereafter to
update the Prospectus and, therefore, holders required to deliver a prospectus
may not thereafter be able to resell because they may be unable to comply with
the prospectus delivery requirements described above.
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Agreement and subject to certain specified
limitations therein, to register or qualify the New Notes for offer or sale
under the securities or blue sky laws of such jurisdictions as any holder of the
Notes reasonably requests in writing.
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<PAGE> 51
BUSINESS
GENERAL
The Company is one of the leading single-family homebuilders in Orange
County, California and Las Vegas, Nevada, where it builds and sells homes
targeted to entry level and move-up buyers. Since 1975, the Company has built
and sold nearly 8,000 homes, principally in Orange County, but also in the
adjacent counties of Riverside, San Diego and Los Angeles. Since 1969, Durable
has built and sold nearly 7,000 homes, principally in Las Vegas. The Company
believes that in 1993 it was the 10th largest homebuilder in Orange County and
Durable was the 8th largest homebuilder in Las Vegas (in each case, based on
unit sales). During the fiscal year ended February 28, 1994, the Company
(including Durable's results on a pro forma basis for the full fiscal year)
closed 644 home sales at an average sales price of $159,000 (including 205 homes
closed in California at an average sales price of $293,000 and 439 homes closed
in Nevada at an average sales price of $96,000). During the fiscal quarter ended
May 31, 1994, the Company closed 193 homes at an average price of $158,500 and 6
custom lots at an average price of $192,000.
Recent market information indicates that the Orange County housing market
is improving and that the Las Vegas housing market remains quite strong. The
number of sales of new homes in Orange County was 15% higher during 1993 than
during 1992, and the overall inventory of unsold completed new homes in Orange
County decreased from an approximately 40 week supply in September 1990 to an
approximately 14 week supply in June 1994. The percentage of households in the
Orange County area that can afford a median priced home increased from 14% in
December 1989 to 42% in May 1994. Las Vegas, with an expanding job base and
relatively low median housing prices, was one of the fastest growing markets in
the United States for new home sales in 1993, with annual unit sales of 15,800,
40% greater than the 1992 level. The U.S. Census Bureau ranked Las Vegas as the
number one metropolitan area in percentage population growth between 1990 and
1992, with a 14% gain to 971,200 people. During the same period, Orange County
gained 106,000 new residents, an increase of over 4%.
While the Company believes that the housing market in California is
recovering and that the housing market in Nevada is holding strong, the Company
will continue to be affected by real estate market conditions in areas where its
development projects are located and in areas where its potential customers
reside. The residential homebuilding industry is cyclical and sensitive to
changes in general national and regional economic conditions, such as: levels of
employment; consumer confidence and income; availability of financing to
homebuilders for acquisitions, development and construction; availability of
financing to homebuyers for permanent mortgages; interest rate levels; the
condition of the resale market for used homes; and the general demand for
housing. Housing demand is particularly sensitive to changes in interest rates.
If mortgage interest rates increase significantly, thus affecting prospective
buyers' ability to obtain affordable financing for their home purchases, the
Company's sales and operating results may be adversely affected.
In August 1992, CPH acquired control of the Company from the RTC pursuant
to the Acquisition. At the time of the Acquisition, the Company had an
experienced management team in place and almost 2,000 entitled lots in
California (a majority of which were still held by the Company as of May 31,
1994). The Acquisition (and the Company's results of operations for the first
six months of fiscal 1993) allowed the Company to improve significantly its
balance sheet, as debt was reduced by $215 million (from $263 million to $48
million), stockholders' equity increased by $76 million to $51 million and the
book value of residential real estate inventories was written down 51% from $225
million to $111 million. Prior to the Acquisition, the Company had already taken
significant writedowns to its land inventory. Such write-downs aggregated
approximately $140.3 million during fiscal years 1991 and 1992.
During much of the period of RTC control, new construction and acquisition
activity was halted in California as the RTC followed a strategy essentially
limited to liquidating inventory. Closings in California decreased from a peak
of 775 homes in fiscal year 1990 (the year prior to RTC control) to 115 homes in
fiscal year 1993 (the last year that included any period of RTC control). At the
time of the Acquisition, California construction activity had virtually ceased
and there were only 13 completed and 15 partially completed homes remaining at
the Company. Because of the time required to recommence active building
operations after the Acquisition, the Company did not begin closing a
significant number of homes in California until the third and
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<PAGE> 52
fourth quarters of fiscal year 1994. Because of the 22 months of RTC control,
the period required to recommence California operations and the acquisition of
Durable in mid fiscal year 1994, management of the Company does not believe that
its historical operating results prior to the third and fourth quarters of
fiscal year 1994 are meaningful indicators of its future performance.
Since the Acquisition, the Company has focused on: (i) recommencing
California building operations; (ii) diversifying its geographic markets to
include areas outside of Southern California; (iii) diversifying its product
offerings to include both entry level and move-up homes in order to appeal to a
broad customer base; (iv) improving and broadening its capital base and sources
of financial liquidity; (v) controlling costs while increasing operational
efficiency; and (vi) reducing land and inventory risk by avoiding speculative
building, constraining project sizes, avoiding entitlement risks and acquiring
land through the use of options, purchase contracts, development agreements and
joint ventures.
The Company believes that it has made progress in implementing these
strategic goals. Since the Acquisition, the Company has: (i) recommenced active
building operations in Southern California; (ii) become a significant
participant in the Las Vegas, Nevada residential housing market through its
acquisition of Durable; (iii) reduced prices, largely as a result of its reduced
land basis, on its California products without adversely affecting its product
design or quality; (iv) obtained approximately $120 million of construction
financing commitments, which included approximately $66 million from the CalPERS
LP, which amounts the Company has utilized in the past but are presently not
available to the Company as a result of restrictions contained in the Indenture;
(v) established new management control systems and reduced overhead, and (vi)
completed the sale and issuance of the Old Notes and the Warrants.
While the Company has made progress in achieving its strategic goals, the
Company had significant operating losses during the 1991, 1992 and 1993 fiscal
years, which included the 22-month period of RTC control (November 1990 to
August 1992). During much of the period of RTC control, the operations of the
Company essentially were limited to liquidating standing inventory and, at the
direction of its RTC-controlled board of directors, the Company did not start
any new projects or acquire land or options for land for new projects. The
Company was profitable during the 1994 fiscal year, but it did incur losses
during the first two quarters of such fiscal year. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
At May 31, 1994, the Company was in various stages of development with
respect to 21 active projects, including 11 projects located in the Orange and
Riverside Counties of Southern California and in 10 projects located in Las
Vegas and Laughlin, Nevada. The Company is actively selling homes in 18 of these
projects. At May 31, 1994, the Company owned approximately 1,515 building sites
(946 in California and 569 in Nevada) and controlled an additional 1,396
building sites (639 in California and 757 in Nevada) through options and
purchase contracts.
The Company expects to start construction on approximately 14 new projects
during fiscal year 1995 and also expects that substantially all of the projects
that generated closings during the third and fourth quarters of fiscal year 1994
will be generating closings throughout fiscal year 1995. At May 31, 1994, the
Company had a total backlog of 279 homes sold with an aggregate sales value of
$55.1 million, which is moderately lower than the backlog at the start of the
third and fourth quarters of fiscal year 1994. The backlog at May 31, 1994
included 132 homes sold with an aggregate sales value of $40.0 million in
California and 147 homes sold with an aggregate sales value of $15.1 million in
Nevada.
STRATEGY
The Company's long-term strategy includes the following key elements:
(1) Diversifying its geographic markets. The Company believes that
geographic market diversification is a key element in achieving long-term
stability and growth. By acquiring Durable, the Company has expanded its
geographic reach beyond its Southern California markets to include Las
Vegas and Laughlin, Nevada. While the Company has no current plans to
expand outside the Nevada and Southern California markets, it may consider
expansion to other markets in the future.
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<PAGE> 53
(2) Diversifying its product. The Company builds homes targeted for
entry level buyers as well as move-up buyers so that it is able to deliver
cost-effective and quality homes to a broad segment of its potential
customer base. Within Nevada, Durable historically focused on entry level
and first time move-up buyers. Through its formation of J.M. Peters Nevada,
Inc. ("JMPN") in September 1993, the Company positioned itself to deliver
higher-end products in Nevada. Within Southern California, the Company
historically focused on second and third time move-up buyers. Since the
Acquisition in August 1992, the Company has lowered its overall price point
in Southern California (from $347,000 average price in fiscal year 1992 to
$334,000 and $293,000 in fiscal years 1993 and 1994, respectively),
enabling the Company to sell to first-time move-up buyers in Southern
California as well as the higher-end segments of that market. The Company
is currently expanding to the entry-level market in California through a
newly-formed wholly-owned subsidiary, Durable Homes of California, Inc.
("Durable-California"). Durable-California has only recently commenced
operations and is currently seeking opportunities to acquire lots on which
to build entry-level homes. The Company intends to utilize Durable's
well-established products and building methods in order to bring quality
homes to the entry-level market. The Company has hired J. Terrence Hanna,
an experienced homebuilder with over 12 years of experience in the real
estate industry, to serve as the President and Chief Executive Officer of
Durable-California.
During fiscal year 1993, the Company formed a new wholly-owned
subsidiary, Capital Pacific Communities, Inc. ("CPC"), to specialize in
acquiring and developing multi-family projects. The activities of CPC are
part of the Company's overall diversification strategy. Rental housing is a
significant component of the market for housing alternatives, representing
entry-level housing prior to, or as an alternative to, home ownership. The
Company currently anticipates that it will develop and hold its multi-
family projects, rather than pursuing a strategy of developing multi-family
projects that are sold to other parties or are packaged as part of a real
estate investment trust.
The Company currently expects to acquire or build one or two
multi-family housing projects (typically consisting of 150 to 200 units per
project) per fiscal year. The Company intends to finance these projects
through the use of non-recourse indebtedness.
(3) Enhancing the Company's capital base and sources of financial
liquidity. The Company is seeking to diversify its sources of financing. As
conventional real estate lending has decreased, the Company has expanded
its focus from traditional project specific financing to Company-wide
financing through public capital markets. Consistent therewith, in May 1994
the Company successfully completed the sale and issuance of the Old Notes
and the Warrants. The proceeds from the offering will be used to repay
certain debt of the Company, acquire certain properties and for general
working capital purposes. The Company has also obtained the Facility with
BOAZ to provide additional flexibility. The Company intends to maintain its
traditional lending relationships as an additional source of liquidity to
the extent permitted by the Indenture. The Company believes this financing
strategy will allow orderly growth and greater flexibility to react quickly
to changing market conditions.
(4) Controlling costs and maintaining operational efficiency. The
Company has implemented job cost, warranty tracking and construction
scheduling systems and other quality controls to control costs and to
reduce the effect of certain risks inherent in the homebuilding industry.
These systems and controls enable the Company to improve and monitor its
efficiencies.
(5) Minimizing land and inventory risk. The Company carefully manages
its land and inventory risk in a variety of ways. The Company monitors its
supply of owned, optioned and controlled land to ensure an adequate
pipeline of building lots in each of its markets while avoiding excess land
holdings. The Company purchases only entitled land, typically in parcels of
only 50 to 150 lots and makes use of options, seller financing and joint
ventures to reduce its capital commitment and exposure to risks. "Entitled"
land is generally defined as land that has received all necessary land use
approvals for residential development from the appropriate state, county
and local governments, including any required tract maps, subdivision
approvals, and grading and building permits. The Company generally tries to
limit its speculative building by commencing construction only after some
sales have been made and by
50
<PAGE> 54
limiting its construction to 10-15 units at a time. The Company generally
purchases and holds land in amounts sufficient to support home production
and sales over a 24 to 36 month period in California, and in amounts
sufficient to support home production and sales over an 18 to 24 month
period in Nevada. See "-- Joint Ventures."
GEOGRAPHIC MARKETS
At February 28, 1994, the Company was in various stages of development with
respect to 21 active projects, including 11 projects located in the Orange and
Riverside Counties of Southern California and 10 projects located in Las Vegas
and Laughlin, Nevada. The Company is actively selling homes in 18 of these
projects. The Company's homes currently range in size from 1,443 to 3,710 square
feet in Southern California and from 867 to 2,287 square feet in Nevada. The
Company's homes are currently priced from $175,000 to $530,000 in Southern
California and from $77,000 to $147,000 in Nevada. At May 31, 1994, the Company
owned approximately 1,515 building sites (946 in California and 569 in Nevada)
and controlled an additional 1,396 building sites (639 in California and 757 in
Nevada) through options and purchase contracts.
CALIFORNIA
The Company believes that favorable supply and demand characteristics for
homes in California offer an attractive opportunity for experienced homebuilders
having access to sources of financing. California is both the most populous
state and the largest housing market (measured by permits issued for housing
starts) in the United States.
According to the California Department of Finance, the population of
California increased from an estimated 26.7 million in 1986 to an estimated 32.0
million in 1993, an increase of almost 20%. During the period from January 1990
to January 1994, the California Department of Finance determined that the Los
Angeles/Riverside/San Bernardino/Orange County consolidated area gained over 1
million residents, rising 7% to approximately 14.8 million residents.
The California unemployment rate increased from 5.5% in January 1990 to
8.3% in December 1993, compared to the national average which was relatively
stable, increasing slightly from 5.9% to 6.0% during the same period. The
recession has been particularly acute in Southern California where the
unemployment rate has increased more dramatically. For example, the unemployment
rate in Los Angeles County rose from 5.9% in January 1990 to an average of 9.7%
in 1993, while in San Bernardino County the unemployment rate increased from
4.8% in January 1990 to an average of 9.5% in 1993. Currently, the Company has
no active projects in Los Angeles County or San Bernardino County. The
unemployment rate in Orange County, where the Company has substantial
operations, averaged 6.7% for 1993, but has fallen to 5.8% as of June 1994.
Single-family building permits for the decade 1980-1989 averaged 863,000
annual units for the United States compared to 113,000 annual units for
California during the same period, or 13.1% of the national total. California
accounted for approximately one in seven new homes sold in the United States
during the 1980s. Since 1989, California has experienced weakened economic
conditions which have adversely affected the California housing market.
Nonetheless, California has remained the state with the largest housing market
in the United States. California's single family building permits represented
8.4% of the national total for 1992 and 7.1% of the national total for 1993. The
pace of sales in California is showing signs of improvement. At the end of
calendar year 1993, the seasonally adjusted rate of sales of homes (which would
include existing homes) had accelerated by 36%, from 399,000 units in December
1990 to 543,000 units in December 1993, which exceeded the prior peak reached in
1989. The seasonably adjusted rate of sales of homes in June 1994 was 485,260.
The Company believes that the supply of home sites in the California market
is constrained by (i) a substantial reduction in the availability of development
capital from savings and loan institutions and banks; (ii) a regulatory approval
process that is among the most burdensome in the nation; (iii) infrastructure
limitations; and (iv) a scarcity of available land near employment centers.
51
<PAGE> 55
The depressed economic conditions in California have had the effect of
reducing the state's median home sales price and making homes more affordable in
California. The median sales price of homes in California has decreased from
$195,000 in January 1990 to $184,000 in December 1993. The median sales price of
homes in California was $185,450 in June 1994.
Orange County. Seven of the Company's eleven active Southern California
projects are located in Orange County. According to the California Department of
Finance, Orange County is the third most populous county in California.
According to the California Department of Finance, between January 1990 and
January 1994, the county's population grew by approximately 198,000 new
residents to approximately 2.6 million. While the population increased, the
number of residential building permits issued declined substantially from a high
of 24,672 in 1987 to 5,946 in 1992, according to the Construction Industry
Research Board. The unemployment rate in Orange County was only 6.7% in 1993,
compared to 9.2% and 6.8% for California and the United States, respectively,
according to the California Employment Development Department. The historically
low interest rates and the reduction in real estate prices since 1990 have led
to a substantial increase in the affordability index (a measure of the
percentage of households that, based upon median household incomes, can afford
to purchase the median priced home). The affordability index in Orange County
was 42% in May 1994, compared with 14% in January 1989 (but down slightly from
44% in December 1993). As of May 31, 1994, the Company owned land in sufficient
quantities to construct and sell 683 homes in Orange County and had options or
contracts to purchase land in sufficient quantities to construct and sell an
additional 274 homes in Orange County.
Riverside County. The Company currently has four projects in cities located
in Riverside County. Riverside County's proximity to job markets in Los Angeles,
Orange, San Bernardino and San Diego counties, and its comparatively low housing
costs, make it a significant affordable housing market for the local workforce.
As of May 31, 1994, the Company owned land in sufficient quantities to construct
and sell 260 homes in Riverside County and had contracts to purchase land in
sufficient quantities to construct and sell an additional 365 homes in Riverside
County.
The population of Riverside County, which includes among other communities
the communities of Palm Springs, Palm Desert, La Quinta, Rancho Mirage and
Temecula, increased from 669,801 to 1,195,400, or 78.5%, from 1980 to 1990,
making it California's seventh largest county. During the period from January 1,
1990 to December 31, 1993, Riverside County's population grew 18.6% to 1,357,400
and San Bernardino County's population grew 14.0% to 1,591,800; by comparison,
the total population of California grew only 6.6% during the same period. The
California Department of Finance projects that the population of Riverside
County will grow approximately 48.5% during the decade from 1990 to 2000, which
will make it among the fastest growing California counties during that period.
The affordability index in the combined Riverside/San Bernardino County area has
risen from 31% in 1989 to 42% in May 1994 (down slightly from 44% in December
1993).
NEVADA
Las Vegas. The Company currently has ten active projects in Las Vegas. The
Company believes that Nevada's favorable demand characteristics offer
substantial long-term prospects for homebuilders. Las Vegas is currently the
site of nine of the ten largest hotels in the world, including five hotels that
have opened within the last four years, of which three have opened within the
last two years. This increase of more than 17,000 hotel rooms translates into
approximately 40,000 new jobs, which the Company expects will increase the
demand for affordable, entry-level homes. Current estimates are that the
employment growth rate percent change from 1990 to 2000 for the City of Las
Vegas will be approximately 36%. In addition to the growing population base, Las
Vegas typically has a large number of visitors each year. Over 23.5 million
people visited Las Vegas during 1993 and current estimates are that the number
will increase to 29 million visitors during calendar year 1994. Total population
in the Las Vegas metropolitan area increased by 14% to 971,200, during the
period from 1990 through 1992. Approximately 15,800 new homes were sold in the
Las Vegas residential housing market during 1993, compared to approximately
11,300 new homes sold during 1992. During 1993, the median sales price of a
single family detached home was $114,000. As of May 31, 1994, the Company owned
land in sufficient quantities to construct and sell 569 homes in Nevada and had
options or contracts to purchase land in sufficient quantities to construct and
sell an additional 757 homes in Nevada.
52
<PAGE> 56
DEVELOPMENTS IN PROCESS--CALIFORNIA
The following table below sets forth certain information regarding projects
under development in California as of May 31, 1994.
<TABLE>
<CAPTION>
HOMES AVAILABLE FOR
UNDER CONSTRUCTION FUTURE
NAME AND TOTAL UNITS AT 5/31/94 CONSTRUCTION UNITS
LOCATION OF UNITS REMAINING ------------------------- --------------- CLOSED IN AVG. PRICE START OF
PROJECT PLANNED AT 5/31/94 SOLD MODEL SPEC(A) SOLD UNSOLD FY 1995 OF HOMES(B) CONSTRUCTION
- --------------- -------- ---------- ----- ------ -------- ----- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WHOLLY-OWNED:
The Courts
Palmia/Mission
Viejo
Orange
County......... 180 180 -- -- -- -- 180 -- $150,000(est.) FY95
Fullerton
Fullerton
Orange
County....... 143 143 -- -- -- -- 143 -- 380,000(est.) FY95
Newport Coast
Irvine
Orange
County....... 44 44 -- -- -- -- 44 -- N/A(c) FY95
The Villas
Palmia/Mission
Viejo
Orange
County......... 171 171 -- -- -- -- 171 -- 163,000(est.) FY95
Rancho Serrano
Temecula
Riverside
County....... 120 80 7 4 19 -- 50 10 221,000 FY94
Cozumel
La Quinta
Riverside
County....... 300(d) 291 7 5 9 4 266 1 482,000 FY94
Cayman
La Quinta
Riverside
County....... 188(d) 188 6 4 6 5 167 -- 348,000 FY94
Antigua
La Quinta
Riverside
County....... 76(d) 66 -- -- -- 7 59 6 179,000 FY94
----- ----- --- -- -- -- ----- --
SUBTOTAL
WHOLLY-
OWNED........ 1,222 1,163 20 13 34 16 1,080 17
----- ----- --- -- -- -- ----- --
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
JOINT VENTURES:
Crestmont(e)
Portola Hills
Orange
County....... 128 54 37 -- 13 -- 4 13 $293,000 FY94
Alicante
Rancho Santa
Margarita
Orange
County....... 62 26 18 -- 8 -- -- 10 202,000 FY94
Paragon
Rancho Santa
Margarita
Orange
County....... 94 50 29 -- 16 -- 5 15 312,000 FY94
Fairway Estates
Coto de Caza
Orange
County....... 62 15 11 -- 3 1 -- 7 375,000 FY94
----- ----- --- -- -- -- ----- --
SUBTOTAL JOINT
VENTURES..... 346 145 95 -- 40 1 9 45
----- ----- --- -- -- -- ----- --
TOTALS......... 1,568 1,308 115 13 74 17 1,089 62
===== ===== === == == == ===== ==
</TABLE>
- ---------------
(a) Speculative units are unsold homes under construction.
(b) Represents average price of homes closed for projects with units for sale on
May 31, 1994, and estimated average price for projects under development on
May 31, 1994.
(c) It is too early in the design development process for this project to
identify a specific average. Final approval is subject to master developer
approval.
(d) Includes 214 lots, 148 lots and 3 lots the Company has the right to acquire
under option contracts with the sellers for the Cozumel, Cayman and Antigua
projects, respectively. There can be no assurance that the Company will be
in a position to acquire or will choose to acquire such lots within the
option term.
53
<PAGE> 57
(e) Delivery of 34 units in this project requires that water service
commitments be obtained from a local water district (the "District"). While
there is currently a dispute between the master developer (which sold the
site to the Company) and the District that may affect the Company's ability
to obtain such water service commitments, the Company believes that an
arrangement will be reached in the near future for construction of certain
additional water facilities required by the district for such commitments
to be issued, but there can be no assurance that such an arrangement can be
reached or that the lack of a current commitment will not adversely delay
sales or closings or increase the Company's costs on this project.
54
<PAGE> 58
DEVELOPMENTS IN PROCESS -- NEVADA
The following table below sets forth certain information about projects
under development in Nevada as of May 31, 1994.
<TABLE>
<CAPTION>
HOMES UNDER AVAILABLE FOR
CONSTRUCTION AT 5/31/94 FUTURE UNITS
NAME AND TOTAL UNITS CONSTRUCTION CLOSED
LOCATION OF UNITS REMAINING ----------------------- -------------- IN AVG. PRICE START OF
PROJECT PLANNED AT 5/31/94 SOLD MODEL SPEC(A) SOLD UNSOLD FY 1995 OF HOMES(B) CONSTRUCTION
- -------------------------- -------- ---------- ----- ------ -------- ----- ------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WHOLLY-OWNED:
Windchime
Las Vegas
Clark County.............. 167 23 22 1 0 0 0 17 $ 85,000 FY93
Echoes at Hidden Canyon
North Las Vegas
Clark County.............. 194 15 13 0 2 0 0 28 104,000 FY93
Rosewalk
Las Vegas
Clark County.............. 138 111 27 3 9 10 62 16 93,000 FY94
White Cliffs
Las Vegas
Clark County.............. 287(c) 287 13 3 14 4 253 -- 99,000(e t.) FY94
The Falls at Hidden Canyon
North Las Vegas
Clark County.............. 241(d) 241 -- 4 -- 1 236 -- 110,000(e t.) FY95
Sequoia
Las Vegas
Clark County.............. 180(e) 180 -- -- -- -- 180 0 115,000(e t.) FY95
Country Lane
Las Vegas
Clark County.............. 228(e) 228 -- -- -- -- 228 0 115,000(e t.) FY95
Spinnaker Bay
Laughlin
Clark County.............. 108 36 10 2 6 1 17 9 125,000 FY93
----- ----- --- -- -- -- ----- ---
SUBTOTAL WHOLLY-OWNED..... 1,543 1,121 85 13 31 16 976 70
----- ----- --- -- -- -- ----- ---
JOINT VENTURES:
Taos Estates(f)
Las Vegas
Clark County.............. 91 91 -- -- -- -- 91 -- 238,000(e t.) FY94
Portraits
Las Vegas
Clark County.............. 54 21 10 1 9 0 1 9 156,000 FY94
Plateau
Las Vegas
Clark County.............. 156 26 21 1 3 0 1 35 117,000 FY94
Las Hadas
Las Vegas
Clark County.............. 94 67 15 2 14 -- 36 23 85,000 FY94
----- ----- --- -- -- -- ----- ---
SUBTOTAL JOINT VENTURES... 395 205 46 4 26 -- 129 67
----- ----- --- -- -- -- ----- ---
TOTALS.................... 1,938 1,326 131 17 57 16 1,105 137
===== ===== === == == == ===== ===
</TABLE>
- ---------------
(a) Speculative units are unsold homes under construction.
(b) Represents average price of homes closed for projects with units for sale on
February 28, 1994, and estimated average price for projects under
development on February 28, 1994.
(c) Durable owns 119 lots in the White Cliffs project, and holds options for the
remainder of the project anticipated to yield approximately 168 lots. There
can be no assurance that the Company will be in a position to acquire or
will choose to acquire such lots within the option term.
(d) At May 31, 1994, Durable held options anticipated to yield 241 lots. Sixty
of such lots were purchased in March, 1994 and sixty-nine of such lots were
purchased in June, 1994. There can be no assurance that the Company will be
in a position to acquire or will choose to acquire the remainder of such
lots within the option term.
(e) At May 31, 1994, Durable held options to acquire these lots.
(f) JMPN and Durable are general partners.
55
<PAGE> 59
JOINT VENTURES
The Company conducts its homebuilding operations as either wholly-owned
projects or through joint ventures in which the joint venture partner typically
provides capital financing and/or land required for the project. The Company has
utilized joint ventures in order to improve the financial condition of the
Company, to increase access to quality sites and to obtain construction
financing. Currently, the financial results of operations of substantially all
of the Company's joint ventures are consolidated in the Company's financial
statements. The Company expects to utilize joint ventures in the future on a
selective basis, taking into account other available sources of financing,
project risk and the potential return to the Company.
At May 31, 1994, the Company's joint ventures were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------
TOTAL UNITS CUMULATIVE UNITS UNITS REMAINING
PLANNED CLOSED AT 5/31/94 AT 5/31/94
----------- ----------------- ---------------
<S> <C> <C> <C>
PETERS RANCHLAND, INC.
Crestmont -- Orange County......................... 128 74 54
Alicante -- Orange County.......................... 62 36 26
Paragon -- Orange County........................... 94 44 50
Fairway Estates -- Orange County................... 62 47 15
--- --- ---
Sub-total.................................. 346 201 145
--- --- ---
DURABLE HOMES, INC.
Portraits -- Las Vegas............................. 54 33 21
Plateau -- Las Vegas............................... 156 130 26
Las Hadas -- Las Vegas............................. 94 27 67
--- --- ---
Sub-total.................................. 304 190 114
--- --- ---
J.M. PETERS NEVADA, INC.(A)
Taos Estates -- Las Vegas.......................... 91 -- 91
--- --- ---
Sub-total.................................. 91 -- 91
--- --- ---
Total................................................ 741 391 350
=== === ===
</TABLE>
- ---------------
(a) Durable is also a general partner in Taos Estates, L.P.
Southern California Joint Ventures. The Company's most significant joint
venture relationship was established effective upon the closing date of the
Acquisition in August 1992. On the closing date, Peters Ranchland Company, Inc.,
a wholly-owned subsidiary of the Company ("Ranchland") formed for the purpose of
acting as general partner, entered into four limited partnership agreements with
the CalPERS LP for the purpose of developing four of the Company's residential
projects in Southern California. In each of the CalPERS Partnerships, Ranchland
is the sole general partner and the CalPERS LP is the sole limited partner. Upon
formation of the CalPERS Partnerships, the CalPERS LP invested an aggregate of
$16.6 million to initially capitalize the CalPERS Partnerships, which initial
capital was used by the CalPERS Partnerships to acquire the four properties from
the Company. In addition to its initial capital contribution, the CalPERS LP
also subsequently agreed to fund the projected construction financing for each
of the CalPERS Partnerships through additional contributions or construction
loans in an aggregate amount of up to $66 million for the four projects, subject
to phase budget approvals. The Company has prepaid CalPERS LP $11.8 million with
the proceeds from the issuance of the Old Notes and the Warrants and under the
terms of the Indenture the Company is prohibited from obtaining any further
construction financing from the CalPERS LP with respect to the four CalPERS
Partnerships. It is the Company's intention to construct the balance of the
units in the CalPERS Partnerships with the proceeds from the sale and issuance
of the Old Notes and the Warrants.
Net proceeds from the sale of completed homes by the CalPERS Partnerships
are distributed on a project by project basis as follows: (1) first, to pay
outstanding interest and principal on any construction loans or advances by the
Company, (2) second, to pay a preferred return to the partners (on a pro rata
basis) on the capital contributed to the applicable CalPERS Partnership, (3)
third, to pay back the capital contributions made by the partners to the
applicable CalPERS Partnership on a pro rata basis, (4) fourth, to pay fees to
the CalPERS LP for the ongoing financing of certain model units for the CalPERS
Projects which have not been
56
<PAGE> 60
sold and leased-back by the CalPERS Partnership, which fees are approximately
$280,000 in the aggregate for the three CalPERS Projects that did not meet the
sale-leaseback deadline, and (5) fifth, any remaining proceeds to the partners
50% each, provided that the percentage payable to the CalPERS LP will be
increased to a maximum not to exceed 75% of such remaining proceeds of each
CalPERS Project to the extent necessary to maintain an internal rate of return
of 15% on all loans and capital contributions made by the CalPERS LP to the
CalPERS Partnerships on an aggregate basis (the "Minimum IRR Requirement").
Based upon current sales and projections, the Company anticipates that
Ranchland's share of proceeds from the CalPERS Partnerships will not be subject
to any reduction due to the CalPERS Minimum IRR Requirement. In connection with
each CalPERS Partnership, Ranchland and the Company have each guaranteed the
costs set forth in the approved project budgets.
Pursuant to the terms of each of the CalPERS Partnerships, Ranchland's
obligations under the four partnerships are cross-collateralized and
cross-defaulted. Under the applicable provisions, the default by Ranchland under
any one of the CalPERS Partnerships will constitute a default under all of the
CalPERS Partnerships. Under certain circumstances the CalPERS LP has the right
to use proceeds otherwise payable to Ranchland under any one of the CalPERS
Partnerships to (1) provide a reserve for anticipated project cost overruns for
any of the CalPERS Partnerships, (2) to pay anticipated shortfalls of interest
on construction loans to any of the CalPERS Partnerships, (3) to provide a
reserve as necessary to assure the return of CalPERS capital contributions and
preferred returns under any of the CalPERS Partnerships, (4) to provide a
reserve for the Minimum IRR Requirement (but only to the extent set forth in the
immediately preceding paragraph) or (5) to remedy any damages caused by any
default of Ranchland under any of the CalPERS Partnerships.
Under the current limited partnership agreement governing each of the
CalPERS Partnerships, provided that Ranchland is not in default, Ranchland is
entitled to a general partner overhead fee equal to 3% of the gross unit sales
prices for the CalPERS Projects. The overhead fees are pro rated by phases for
each CalPERS Project and paid in equal monthly installments throughout such
phase. The Company currently anticipates that the cash flows from each of the
CalPERS Projects will be sufficient to allow for distributions to Ranchland.
Nevada Joint Ventures. Durable is a party to four joint ventures, including
one in which JMPN also is a party, in the Las Vegas area.
Durable is the general partner of Las Hadas, L.P., a limited partnership
formed for the purpose of developing the Las Hadas project. In May 1993, the
limited partner contributed land valued at $564,000 to the partnership and is
entitled to be repaid for such contribution at the rate of $8,000 per unit from
the proceeds of each unit closed until all the capital and preferred return are
paid in full plus interest on the amount of such contribution which has not been
repaid at 8% per annum for six months following the first closing. The aggregate
balance of outstanding preferred return and unreturned capital to the limited
partner was fully repaid at May 31, 1994. All profit goes to Durable after the
limited partner's capital contribution and preferred return are paid. Durable is
responsible for acquiring third party financing and for any cash flow shortages.
Durable is also the general partner in Plateau Venture, L.P., a limited
partnership formed for the purpose of developing the Plateau project. In
February 1993, the limited partner contributed $1,000,000 and Durable
contributed land at an agreed-upon value of $200,000 to the joint venture. The
partners have been repaid their original capital contributions. Durable is
responsible for securing third party financing and for any cash flow shortages.
Any loans by Durable to the joint venture are entitled to repayment prior to
distributions to the limited partner. The limited partner is entitled to 45% and
Durable is entitled to 55% of net cash flow when it becomes available.
Durable is the general partner and two other persons (including Dean E.
Cederquist, son of an officer of Durable) are the limited partners of Portraits
Venture, L.P., a limited partnership formed for the purpose of developing the
Portraits project. The limited partners contributed $500,000 and Durable
contributed land at a deemed value of $500 to the joint venture in June 1993. At
May 31, 1994, the balance of the limited partners' original capital
contributions had been fully repaid and the balance of Durable's original
capital contribution was $500. Durable is responsible for securing third party
financing for the project and for any cash flow
57
<PAGE> 61
shortages related to the joint venture. The limited partners are entitled to 31%
and Durable is entitled to 69% of net cash flow when it becomes available. See
"Certain Relationships and Related Party Transactions."
JMPN and Durable are general partners in Taos Estates L.P., a California
limited partnership formed to develop the Taos Estates project. Pursuant to the
terms of the partnership agreement for Taos Estates L.P., JMPN is required to
contribute 10% of the estimated capital needs of the partnership in an amount
anticipated not to exceed $188,800 and the limited partners are required to
contribute 90% of the estimated capital needs of the partnership up to a maximum
amount of $1,700,000. The Company has decided to fund the partnership activity
out of the proceeds from the Offering. As of May 31, 1994, JMPN had made
aggregate contributions to the partnership of $1,530,000 and the limited
partners had made aggregate contributions of $1,245,000. In the event of capital
needs in excess of the foregoing amounts, the partners may make a loan to the
partnership at a rate of 2% over the Bank of America prime rate. Net proceeds
from Taos Estates LP are distributed after payment of third party acquisition
and construction financing as follows: (1) first, to repay principal and
interest on any partner loans, (2) second, to pay JMPN a management fee of 3% of
the gross sales prices of closed units, (3) third, to repay the capital
contribution of JMPN and the limited partners on a pro rata basis, (4) fourth,
to pay the partners an accrued preferred return of 10% on their contributed and
unreturned capital on a pro rata basis, and (5) fifth, any remaining proceeds
are distributed 50% to the limited partners, 45% to JMPN and 5% to Durable.
LAND ACQUISITION
The Company generally purchases and holds entitled land in California only
in amounts sufficient to support home production and sales over a 24 to 36 month
period. The Company also tries to maintain an additional 18 month supply of
entitled land through options and other means. The Company generally purchases
and holds entitled land in Nevada only in amounts sufficient to support home
production and sales over an 18 month to 24 month period. The Company also tries
to maintain an additional 12 to 18 month supply of entitled land in Nevada
through options, purchase agreements, development agreements and joint ventures.
The Company does not acquire and hold land for speculative investment.
The following table sets forth the estimated number of lots owned, under
option and controlled as of May 31, 1994:
<TABLE>
<CAPTION>
ESTIMATED NUMBER OF HOUSING UNITS THAT COULD
BE
CONSTRUCTED ON LAND CONTROLLED AS OF MAY 31,
1994(A)
---------------------------------------------
UNDER
REGION OWNED OPTION CONTROLLED(B) TOTAL
- -------------------- ----- ------ ------------- ------
<S> <C> <C> <C> <C>
Southern
California........ 946 365 274 1,585
Nevada 569 349 408 1,326
----- ------ ------ ------
1,515 714 682 2,911
===== ===== ========== =====
</TABLE>
- ---------------
(a) Based upon current management estimates, which are subject to change.
(b) Controlled home sites include those properties for which the Company has
entered into a variety of contractual relationships including non-binding
letters of intent, binding purchase agreements with customary conditions
precedent and similar arrangements. There can be no assurance that the
Company will choose to acquire such properties.
The Company typically considers numerous factors including the following
when analyzing the suitability of land for acquisition and development:
proximity to existing developed areas; population growth patterns; availability
of existing community services (i.e., utilities, schools and transportation
facilities); employment growth rates; anticipated absorption rates for new
housing; and the estimated cost of development.
The Company currently does not have any unentitled land and does not expect
to purchase any unentitled land in the near future. The Company has agreed in
each of the limited partnership agreements with the CalPERS LP that it will not
acquire unentitled land without the prior written consent of the CalPERS LP,
which consent cannot be unreasonably withheld. The Company generally purchases
entitled land in order to reduce the risks associated with developing land for
which appropriate land use approval has not been
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obtained. Historically, the Company has purchased unfinished lots on entitled
land for which tentative or final maps have been approved. When favorable terms
are available, however, the Company will purchase finished lots. The Company
generally tries to negotiate into the purchase contract the right to enter upon
the land and commence development, marketing and sales before the close of
escrow in order to minimize the time between the closing of the land purchase
and the delivery of finished homes on the property.
The Company's profitability is affected by changing land prices, although
the Company attempts to minimize the risks caused by fluctuating land values by
acquiring a limited inventory of land. Owned land inventories generally are
limited to a level capable of providing a 24 to 36 month supply of lots in
California and an 18 to 24 month supply of lots in Nevada. However, there can be
no assurance that the Company's land inventories will not exceed a 36 month
supply as the Company is unable to accurately predict its future home sales.
Furthermore, the Company may, within the general parameters of its larger
operating strategy, choose to acquire parcels of land that might not be
developed within 36 months in certain special situations, for example when
management perceives land prices to be temporarily depressed. The Company also
has utilized rolling options and phased land purchases in order to control
larger amounts of land without the attendant financing and carrying costs. As a
result, the Company may from time to time "control" more than a 36 month supply
of land and thus may benefit from increasing land values.
The Company tries to avoid speculative building by constraining project
phase sizes to approximately 10-15 units, generally avoiding entitlement risks
by acquiring entitled properties and acquiring lots and land through the use of
options, development agreements and joint ventures with landowners when
appropriate. Additionally, by forming strategic alliances with equity partners,
the Company has been able to obtain access to additional capital and to spread
project risk, which has allowed the Company to minimize the risk of holding
undeveloped property and to preserve its capital.
In the past few years, land prices in the Company's Southern California
market have decreased because of economic recession, reduced availability of
credit caused by changing regulatory policies of financial institutions and the
demise of a number of savings and loan institutions. As a result, companies with
access to capital are in a position to take advantage of the availability of
lower priced land in attractive locations. Management believes that this will
allow the Company to achieve higher profit margins and more rapid inventory
turnover. Management believes that the proceeds from the issuance of the Old
Notes and the Warrants will permit the Company to capitalize on the
opportunities created by the current restrictive credit environment.
PRODUCT DESIGN
The Company, having received numerous industry design awards for its homes
and developments, is recognized as one of the premier homebuilders in Southern
California and Nevada. The Company's homes are noted for their innovative
design, attention to detail and quality construction.
Most of the Company's design work is performed by outside architects,
designers and engineers, whose work is overseen by the Company on a
project-by-project basis. While approximately ten of the Company's employees are
involved in the design process, the Company believes that the use of third
parties reduces its costs, increases design innovation and quality, and reduces
the risks of liability associated with the design process. The Company takes an
active role in monitoring and directing the work of outside architects,
designers and engineers. The Company believes it is critical to coordinate the
design process with the construction and sales and marketing efforts of the
Company to ensure an appropriate balance between market responsiveness, design
innovation and construction cost effectiveness.
The Company strives to create a variety of architectural styles within its
projects by offering numerous models and exterior styles. By doing so, the
Company hopes to enhance home values by creating diversified neighborhood looks
within its projects.
Generally, the Company designs the interior finish of homes sold. The
Company also offers home buyers the opportunity to engage interior design
consultants to personalize the interior of their homes. Such services are
offered at an additional cost to buyers through the Company's wholly owned
subsidiary, Newport Design
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<PAGE> 63
Center, Inc. ("Newport Design"). During fiscal year 1994, Newport Design had
total revenues of $2.8 million and a net profit of $323,000. For the fiscal
quarter ended May 31, 1994, Newport Design had total revenues of $581,000 and a
net profit of $50,000.
DEVELOPMENT AND CONSTRUCTION
The Company acts as the general contractor for the construction of its
projects. Virtually all construction work for the Company is performed by
subcontractors. The Company's employees supervise the construction of each
project, coordinate the activities of subcontractors and suppliers, subject
their work to quality and cost controls and assure compliance with zoning and
building codes. Subcontractors typically are retained on a phase-by-phase basis
to complete construction at a fixed price. Agreements with the Company's
subcontractors are generally entered into after competitive bidding on an
individual basis. The Company has established long-term relationships with a
large number of subcontractors. The Company is not dependent to any material
extent upon the services of any one subcontractor and believes that, if
necessary, it can generally retain sufficient qualified subcontractors for each
aspect of construction. The Company believes that conducting its operations in
this manner enables it not only to readily and efficiently adapt to changes in
housing demand, but also to avoid fixed costs associated with retaining
construction personnel.
The Company generally negotiates volume discounts with manufacturers and
suppliers in order to take advantage of its volume of production. The Company
believes that this materials purchasing strategy gives it an advantage in
offering homes at a lower price than some of its smaller competitors.
The Company develops its projects in several phases averaging approximately
15 homes per phase. From market studies, the Company determines the number of
homes to be built in the first phase, the appropriate price range for the market
and other factors. The first phase of home sales is typically small to reduce
risk while the Company measures consumer demand. Construction generally does not
begin until some sales have occurred. Subsequent phases are generally not
started until at least 50% of the homes in the previous phase have been sold.
Sales prices in the second phase are then adjusted to reflect market demand as
evidenced by sales experience in the first phase. With each subsequent phase,
the Company continues to accumulate market data which, along with information
such as time of year, the local labor situation and the availability of
materials and supplies, enables the Company to determine the pricing, timing and
size of subsequent phases. Although the time required to complete a phase varies
from development to development depending on the above factors, the Company
typically completes construction of a phase within one of its California
developments in approximately five to six months and within its Nevada Division
developments within three to four months.
SALES AND MARKETING
The Company normally builds, decorates, furnishes and landscapes model
homes for each project and maintains on-site sales offices, which typically are
open seven days a week. Management believes that model homes play a particularly
important role in the Company's marketing efforts. Consequently, the Company
expends a significant effort in creating an attractive atmosphere at its model
homes. Interior decorations vary among the Company's models and are carefully
selected based upon the lifestyles of targeted buyers. Structural changes in
design from the model homes generally are not permitted, but home buyers may
select various other optional construction and design amenities.
The Company sells virtually all of its homes through sales representatives,
who typically work from the sales offices located at the model homes used in
each subdivision or in on-site sales trailers. To a lesser extent, the Company
also uses community, regional and cooperative brokers to sell its homes. Company
representatives are available to assist prospective buyers by providing them
with floor plans, price information and tours of model homes, and by assisting
them with the selection of options. Sales representatives attend periodic
meetings at which they are given information regarding other products in the
area, the variety of financing programs available, construction schedules and
marketing and advertising plans. Sales representatives at Southern California
projects are employed by the Company. Sales representatives at Nevada projects
are
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<PAGE> 64
employed by a real estate brokerage firm retained by the Company for the
specific purpose of providing such sales representatives.
The Company generally opens on-site sales offices before the construction
of the model homes is completed. These on-site sales offices are utilized to
begin building a reservation book of potential customers. Potential home buyers
submit a refundable deposit (a "reservation fee") ranging from $500 to $10,000.
The Company does preliminary research into the credit status of the potential
home buyer in order to "pre-qualify" the home buyer. Once the prospective home
buyer has been "pre-qualified" and there is a strong indication that the home
buyer will qualify for a mortgage (although final loan approval is still
pending), the home buyer must then make an "earnest money deposit" ranging from
$1,000 to $10,000 for the purchase of its home and a sales contract is executed.
The Company attempts to keep its contract cancellation rate low by
pre-qualifying prospective home buyers, allowing home buyers to customize their
homes at an early point in the purchase process, and building homes rapidly in
order to minimize customers' waiting periods. When home purchase contracts are
canceled, damages are usually limited to a percentage of the purchase price of
the home and may be less pursuant to applicable law or the purchase contract.
The Company generally determines whether to seek to obtain such a penalty on a
case by case basis. When home purchase contracts are canceled the Company is
usually able to identify alternate home buyers. As a result, only a small
percentage of homes are not sold and closed within a few days after construction
is completed.
A majority of the Company's current Nevada communities meet applicable
Federal Housing Administration ("FHA") or Veterans Administration ("VA")
requirements. FHA and VA financing generally enables homebuyers to purchase
homes with lower down payments than the down payments required by conventional
mortgage lenders. The FHA generally permits loans for up to 90-95% of the value
of a home and the VA generally permits loans up to 100% of the value of a home.
The Company believes that the availability of FHA and VA financing broadens the
group of potential purchasers for the Company's homes. In fiscal year 1994, a
majority of the homes the Company delivered in Nevada were financed with
VA-backed or FHA-backed mortgages. None of the Company's California projects
qualifies for FHA or VA financing.
The Company makes extensive use of advertising and other promotional
activities, including newspaper and magazine advertisements, brochures, direct
mail and the placement of strategically located sign boards in the immediate
areas of its projects. Because the Company usually offers multiple projects
within a single market area, it is able to utilize regional advertising that
highlights all Company projects within that same market area.
The Company provides flooring and other amenities and upgrades to its
homebuyers in California through its wholly-owned subsidiary, Newport Design.
BACKLOG AND INVENTORY
The Company typically presells homes prior to and during construction
through sales contracts requiring cash deposits ranging from $1,000 to $10,000.
Generally, these contracts are cancelable if the customers are unable to sell
their existing homes, qualify for financing or under certain other
circumstances. A home sale is placed in backlog status upon execution of the
above described contract and receipt of a deposit and is removed when such
contracts are canceled as described above or the home sale is closed. At May 31,
1994, the Company had a backlog in California of 132 homes sold with an
aggregate sales value of $40.0 million, compared to a backlog of 121 homes sold
with an aggregate sales value of $36.9 million at May 31, 1993. At May 31, 1994,
the Company had a total backlog in Nevada of 147 homes sold with an aggregate
sales value of $15.1 million, compared to Durable's backlog of 145 homes sold
with an aggregate sales value of $14.3 million at May 31, 1993.
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The following table shows net orders (sales made less cancellation and
credit rejections), homes closed and ending backlog relating to sales of the
Company's homes and homes under contract for each quarter since the beginning of
fiscal year 1993. Management believes that the Company's backlog at any given
time is a good indicator of the number of units that will be closed in the four
months following such date:
<TABLE>
<CAPTION>
ENDING BACKLOG
NET NEW HOMES -----------------
ORDERS CLOSED UNITS ($000'S)
------- ----- ----- -------
<S> <C> <C> <C> <C>
Fiscal Year 1993
1st Quarter.................................... 26 45 62 $23,520
2nd Quarter.................................... 5 45 22 5,980
3rd Quarter.................................... 22 16 28 6,474
4th Quarter.................................... 73 9 92 25,853
--- ---
Total Fiscal Year 1993................. 126 115
=== ===
Fiscal Year 1994 (Actual)
1st Quarter.................................... 46 17 121 $36,918
2nd Quarter.................................... 52 15 158 47,893
3rd Quarter.................................... 163 165 295(a) 54,054(a)
4th Quarter.................................... 217 207 305 55,816
--- ---
Total Fiscal Year 1994................. 478 404
=== ===
Fiscal Year 1994 (Pro forma)(b)
1st Quarter.................................... 150 138 266 $51,236
2nd Quarter.................................... 165 134 297 61,618
3rd Quarter.................................... 163 165 295 54,054
4th Quarter.................................... 217 207 305 55,816
--- ---
Total Fiscal Year 1994 (Pro forma)..... 695 644
=== ===
Fiscal Year 1995
1st Quarter.................................... 173 199 279 $55,073
</TABLE>
- ---------------
(a) Includes 139 homes in Durable's backlog at August 31, 1993.
(b) Includes 12 months of Durable's operations on a pro forma basis.
HOMEOWNER WARRANTY
The Company provides homeowners with a limited one year warranty wherein
the Company will correct deficiencies due to faulty workmanship, defective
materials, or significant construction flaws in the structural components of the
home or in the lot on which the home is located. The warranty does not, however,
include items that are covered by manufacturer's warranties (such as appliances
and air conditioning) or items that are not installed by employees or
contractors of the Company (such as flooring installed by an outside contractor
employed by the homeowner). The Company also provides most Nevada homebuyers
with policies issued by Homeowner's Warranty ("HOW"), a national program
provided by a third-party that extends protection beyond the Company's warranty
period through the national HOW underwriters. Statutory requirements in the
states in which the Company does business may grant to homebuyers rights in
addition to those provided by the Company. California law establishes a ten-year
period during which a home buyer may seek redress for latent defects resulting
from the architectural design or actual construction of its new home.
Historically, the Company has not incurred any material expenses relating to
warranty claims or defects in construction. The Company maintains appropriate
reserves with respect to each unit sold for the purpose of covering warranty
claim expenses.
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BONDS AND OTHER OBLIGATIONS
The Company frequently is required to obtain performance or maintenance
bonds for the construction and maintenance of public improvements that are to be
located within its projects. The amount of such obligations outstanding at any
time varies in accordance with the Company's pending development activities.
Generally, the bonds are issued by insurance companies and backed by
certificates of deposit or other cash equivalents, guarantees or letters of
credit obtained from the Company's lenders. Once issued, the bonds are released
to the Company at the time the public improvements they are insuring are
completed in each community. If any such obligations were to be drawn upon, the
Company would be obligated to reimburse the issuing surety company. To date, the
Company has not had a performance or maintenance bond drawn upon by any
governmental agency.
ESCROW SERVICES
In addition to the various new entities formed or acquired in 1993, the
Company owns 50% of Bayhill Escrow, Inc. ("Bayhill"). Bayhill is the escrow
company through which the Company conducts most of its California escrow closing
activities.
COMPETITION
The homebuilding industry is highly competitive. In each of the areas in
which it operates, the Company competes in terms of location, design, quality
and price with numerous other residential construction firms, including large
national and regional firms, some of which have greater financial resources than
the Company. As the Company enters and until it develops a reputation in a new
market area, the Company can expect to face even more significant competitive
pressures.
REGULATION
The housing industry is subject to increasing environmental, building,
zoning and real estate sales regulations by various federal, state and local
authorities. Such regulations affect home building by specifying, among other
things, the type and quality of building materials that must be used, certain
aspects of land use and building design, as well as the manner in which the
Company conducts sales activities and otherwise deals with customers.
The Company must increasingly obtain the approval of numerous government
authorities which regulate such matters as land use and level of density, the
installation of utility services, such as water and waste disposal, and the
dedication of acreage for open space, parks, schools and other community
purposes. If such authorities determine that existing utility services will not
adequately support proposed development, building moratoriums may be imposed. As
a result, the Company devotes an increasing amount of time to evaluating the
impact of governmental restrictions imposed upon a new residential development.
Furthermore, as local circumstances or applicable laws change, the Company may
be required to obtain additional approvals or modifications of approvals
previously obtained. Such increasing regulation has resulted in a significant
increase in time between the Company's initial acquisition of land and the
commencement and completion of its developments.
EMPLOYEES
As of May 31, 1994, the Company employed 113 persons full-time, compared to
62 persons at May 31, 1993. Of these, 11 were in executive positions, 19 were
engaged in sales activities, 45 in project management activities and 38 in
administrative and clerical activities. None of the Company's employees are
represented by a union and the Company considers its employee relationships to
be good.
RAW MATERIALS
All of the raw materials and most of the components used in the Company's
business are readily available in the United States. Most are standard items
carried by major suppliers. However, a rapid increase in the number of houses
started could cause shortages in the availability of such materials, thereby
leading to delays in the delivery of homes under construction. In addition,
recent increases in the price of lumber have negatively impacted margins. In
order to maintain its quality standards while providing a product at good
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values, the Company has used and is considering the further use of alternative
materials, such as metal studs and framing in some of its projects.
DEFAULT ON SENIOR INDEBTEDNESS
During the period that the RTC controlled the Company, the Company
defaulted on most of its loans. Immediately prior to the Acquisition, the
Company had approximately $185.5 million in defaulted loans. Of these, only two
loans with a total principal balance of $10.4 million remained to be resolved at
February 28, 1994, which two loans were resolved as of May 16, 1994. All other
loans have been resolved since the Acquisition.
Of the two loans remaining at February 28, 1994, one was an acquisition and
development loan with an outstanding principal balance of $9.5 million secured
by 171 lots in Mission Viejo, California. The loan was originated on March 14,
1989. West Coast Land Fund L.P. ("West Coast"), the lender that held the loan,
commenced an action in Orange County Superior Court on October 22, 1993 against
the Company with respect to the loan (the "Action"). The Action sought to
collect the $9.5 million loan balance, plus interest and costs of collection,
owed by the Company to West Coast. In April 1994 the Company and West Coast
executed a Loan Pay-Off Agreement (the "Settlement Agreement") pursuant to which
they agreed to settle the Action for $7 million. Pursuant to the Settlement
Agreement, the Company made an initial payment of $350,000 towards the
settlement amount and paid the balance of $6,650,000 on May 16, 1994 in exchange
for dismissal with prejudice of the Action, termination of nonjudicial
foreclosure proceedings and a reconveyance of the property to the Company
pursuant to West Coast's deed of trust.
The second loan, a construction loan with an outstanding principal balance
of approximately $900,000, was held by The Bank of California and secured by 15
lots with foundations in place and one completed home. The loan originated on
December 18, 1991. The Bank of California foreclosed on the property on April 5,
1994, an action that the Company chose not to dispute. Although the Company
believed that it would not be economical to develop the property, the Company
believed that the value of the property exceeds the loan amount and the Company
thus does not anticipate any adverse financial impact from the foreclosure.
REINCORPORATION MERGER
The Company reincorporated under Delaware law on April 7, 1993.
PROPERTIES
The Company leases two facilities in California. Its principal offices
currently are located at 3501 Jamboree Road, Suite 200, Newport Beach,
California 92660, where the Company occupies approximately 22,313 square feet of
space. The Company's lease expires February 28, 1995. The Company also maintains
a 2,600 square foot design center in Newport Beach.
On May 25, 1994, the Company closed on the acquisition of a 45,389 square
foot headquarters building for a total purchase price of $3.2 million. The
purchase price was paid in full at the close of escrow. The Company will occupy
approximately 20,000 square feet and approximately 22,800 of the remaining
25,389 square feet are currently leased to tenants.
The Company leases one facility in Nevada where it occupies approximately
6,819 square feet of space.
LEGAL PROCEEDINGS
The Company settled, on May 16, 1994, litigation with West Coast regarding
a defaulted loan. See "-- Default on Senior Indebtedness" above.
On September 19, 1990, the Bay Ridge Park Homeowners Association filed suit
in Orange County Superior Court against the Bayridge Partnership (comprised of
the Company and Downey Savings (LOGO) Loan Service Company) alleging the
existence of certain construction defects with respect to the Bay Ridge Park
Condominiums in Newport Beach, California. The suit seeks an unspecified amount
of damages. Construction
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on this project was completed in 1987, several years before the Acquisition.
While discovery is ongoing with respect to the alleged defects and while the
outcome of litigation is always uncertain, Company management is of the opinion
that the suit will not have a material adverse impact on the Company's financial
condition or results of operations.
The Company is also involved in routine litigation arising in the ordinary
course of its business. While the outcome of litigation cannot be predicted with
certainty, in the opinion of management, none of the pending litigation will
have a material adverse effect on the Company's financial condition or results
of operations.
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<PAGE> 69
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names, ages and positions of the
directors, executive officers and certain other key officers of the Company and
Durable.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Hadi Makarechian 45 Chairman of the Board and Chief Executive Officer
Dale Dowers 38 President, Chief Operating Officer and Director
Gregory R. Petersen 39 Vice President and Chief Financial Officer
Robert J. Trapp 50 Vice President of Forward Planning and Land Acquisition
Robin V. Koenemann 36 Vice President of Construction
Marquis L. Cummings 55 Vice President, Director of Nevada Operations
Scott N. Coler 33 Vice President
Craig A. Foster 39 Vice President
Tim Hamilton 39 Vice President of Sales and Marketing
Donald J. Sajor 35 General Counsel
J. Terrence Hanna 38 President -- Durable Homes of California, Inc.
Duane Cerniglia 37 President and Chief Operating Officer -- Durable
James H. Cederquist 62 Chief Financial Officer and Treasurer -- Durable
Richard Priesing 39 Vice President of Forward Planning -- Durable
James M. Peters, Jr. 58 Director
Karl Kaiser 35 Director
Allan L. Acree 49 Director
</TABLE>
Mr. Makarechian has been Chairman of the Board of the Company since August
1992 and Chief Executive Officer of the Company since March 1993. Mr.
Makarechian is the founder and chairman of CPH. For more than ten years prior to
forming CPH in 1990, Mr. Makarechian served as President of Shamron Corporation
of Maryland, a privately-held company focusing on the development of residential
projects on the eastern coast of the United States. Mr. Makarechian has over 21
years' experience in the real estate industry.
Mr. Dowers was Executive Vice President and Chief Operating Officer of the
Company from August 1992 until March 1993, when he assumed his current position
of President and Chief Operating Officer. From December 1990 to August 1992, he
was the President of CPH . From July 1989 to December 1990, he was the President
of the Southern California division of Costain Homes, Inc., a developer of
single family housing located in Newport Beach, California. During the period
from March 1988 to June 1989, Mr. Dowers was the President, Irvine Division, of
Barratt American, Inc., a homebuilder located in Irvine, California. From
January 1987 to March 1988, Mr. Dowers served in various positions with the
Company. Mr. Dowers has been a director of the Company since 1992. Mr. Dowers
has over 14 years' experience in the real estate industry.
Mr. Petersen served as Vice President - Controller of the Company from 1989
until he assumed his current position in 1990. From 1986 until 1989, Mr.
Petersen served as Corporate Controller for the Company. Prior to joining the
Company, Mr. Petersen served in various capacities for the Mission Viejo Realty
Group, Inc., a wholly-owned subsidiary of the Phillip Morris Company, including
as Assistant Corporate Controller. Mr. Petersen has over 15 years' experience in
the real estate industry.
Mr. Trapp has been responsible for all of the Company's activities relating
to governmental regulations, civil engineering, offsite construction, utility
coordination, California Department of Real Estate processing and homeowners'
associations since 1980. Prior to joining the Company, Mr. Trapp was a Project
Manager with Van Dell & Associates, Inc. from 1978 to 1980 and was the Manager
of Development Services for the City of Irvine from 1973 to 1978. Mr. Trapp is a
registered civil engineer with over 20 years' experience in the real estate
profession.
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Mr. Koenemann has served as Vice President of Construction since joining
the Company in October 1992. Mr. Koenemann oversees all onsite and offsite
construction and the Customer Service Department. From December 1988 until
joining the Company, Mr. Koenemann was Project Manager for Barratt American,
Inc., a homebuilder in Irvine, California, where he was responsible for projects
in Los Angeles, the Inland Empire (San Bernardino and Riverside Counties),
Orange County and San Diego County. From July 1987 to December 1988, Mr.
Koenemann served as Executive Vice President and Division Manager for Richmond
Homes in Colorado Springs, Colorado and as Vice President of Construction for
Richmond Homes in Tampa, Florida. Mr. Koenemann has over 12 years' experience in
the real estate industry.
Mr. Cummings was Vice President - Finance & Administration for the San
Diego division of the Company from August 1987 until February 1991. He then
served as Vice President of the Company until October 1993 when he assumed his
current position as Vice President - Sales & Marketing. From July 1979 until
July 1987, he was the General Manager and Chief Financial Officer for
Christopher Homes Development, a developer of single family housing in Newport
Beach, California. Prior to 1979, he held several accounting and finance
management positions with developers of single family housing in the San Diego
and Newport Beach areas. Mr. Cummings has over 22 years' experience in the real
estate industry.
Mr. Coler has served as Vice President since joining the Company in August
1992. From May 1991 to August 1992 he served as Project Manager for CPH. Prior
to joining CPH, Mr. Coler was a Project Manager for Costain Homes, Inc., a
homebuilder in Newport Beach, California for four years. From 1985 to 1987, Mr.
Coler served as a Financial Analyst for Cambio Investments, Inc., analyzing and
structuring real estate syndications for income producing multi-unit residential
projects. Mr. Coler has over 9 years' experience in the real estate industry.
Mr. Foster serves as Vice President of Residential Finance and Escrow,
overseeing monthly projections and takeout financing and he is primarily
responsible for closing all escrows and insuring cash flow projections are met.
Mr. Foster has been with the Company since 1985. From 1983 to 1985, Mr. Foster
was Director of Construction for Kennedy/Wilson and Bank of America-REO. From
1981 to 1983, he was Director of Sales for Barratt American, Inc. and from 1978
to 1981 he was Director of Sales for Broadmoor Homes. Mr. Foster has over 18
years' experience in the real estate industry.
Mr. Hamilton joined the Company as Vice President -- Sales and Marketing in
May 1994. Since 1989 Mr. Hamilton has been a consultant to the real estate
industry. Prior to establishing his consulting firm Mr. Hamilton spent more than
13 years as Vice President of Sales and Marketing for Barratt American, a
homebuilder in Irvine, California.
Mr. Sajor joined the Company as General Counsel in June 1994. Mr. Sajor
served as Corporate Counsel with Catellus Development Corporation (one of the
largest publicly-owned real estate companies in the United States) from March
1992 to June 1994. From April 1987 to March 1992, Mr. Sajor specialized in
transactional real estate and environmental law as an associate with Pettis,
Tester, Kruse & Krinsky. Mr. Sajor was an associate with Gibson, Dunn & Crutcher
from September 1984 to April 1987. Mr. Sajor has over 10 years' experience in
real estate law.
Mr. Hanna joined the Company in July 1994 as the President of J.M. Peters'
newly formed Los Angeles Division and President and Chief Executive Officer of
Durable Homes of California, Inc., which will focus on the entry level and first
time move-up buyer. Prior to joining the Company, Mr. Hanna was the managing
director of development and operations for Kaufman and Broad Home Corp., in
which capacity he served as the liaison between the Company's division
presidents and its Chief Executive Officer. Prior to that, Mr. Hanna was the
President of The Flatiron Company, a builder of custom homes in Los Angeles
County. Mr. Hanna has over 12 years' experience in the real estate industry.
Mr. Cerniglia joined Durable in January 1988. Prior to 1988, Mr. Cerniglia
served in various capacities for U.S. Home Corporation, a publicly owned
homebuilding company, where he was an Executive Vice President at the time of
his departure at the end of 1987. Mr. Cerniglia has over 18 years' experience in
the real estate industry.
Mr. Cederquist is the Chief Financial Officer and Treasurer of Durable. Mr.
Cederquist joined Durable in 1989. From 1983 to 1989, Mr. Cederquist was the
General Manager and owner of Comfort Systems Industries, a wholesale distributor
and manufacturer of mobile home exterior products. From 1978 to 1983,
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Mr. Cederquist was the Executive Vice President-Administration and Secretary of
a retail plumbing and electric store chain. Mr. Cederquist is a certified public
accountant. Mr. Cederquist has over 22 years' experience in the real estate
industry.
Mr. Priesing is the Vice President of Forward Planning of Durable. Mr.
Priesing joined Durable in 1986. Mr. Priesing has over 13 years' experience in
the real estate industry.
Mr. Peters is currently retired. From 1975 until August 1992, Mr. Peters
was Chairman of the Board, President and Chief Executive Officer of the Company.
From August 1992 until his resignation as an officer of the Company in February
1993, he was President and Chief Executive Officer of the Company. Mr. Peters
sold the Company to San Jacinto in 1985. Mr. Peters has over 36 years'
experience in the real estate industry.
Mr. Kaiser is a management consultant with Friedli & Partner, a management
consulting firm in Switzerland. From January through August of 1992, he was Vice
President of Corporate Finance with Dai-Ichi Kangyo Bank in Zurich. From July
1984 through December of 1991, Mr. Kaiser was Vice President of Omni Holding AG,
a Zurich-based international holding company. Mr. Kaiser has been a Director of
the Company since 1993. Mr. Kaiser has over 10 years' experience in the real
estate industry.
Mr. Acree is a principal in A.L. Acree & Associates, a real estate
consulting firm based in Rockville, Maryland. Prior to forming A.L. Acree &
Associates in 1989, Mr. Acree was Vice President and Regional Manager of Goldome
Realty Credit Corporation for a period of more than five years. Mr. Acree has
been a Director of the Company since 1992. Mr. Acree has over 25 years'
experience in the real estate industry.
Directors are elected annually and each elected director holds office until
a successor is elected. Executive officers are chosen from time to time by vote
of the Board of Directors.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the cash compensation paid during the fiscal
years ended February 28, 1994, 1993 and 1992 to each of the five most highly
compensated officers of the Company in all capacities in which they served.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------- ALL OTHER
FISCAL SALARY BONUS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(A) ($)(A) ($)(B)
--------------------------- ------ -------- -------- ------------
<S> <C> <C> <C> <C>
Hadi Makarechian -- Chairman 1994 $225,000 -- --
and Chief Executive Officer 1993 117,692(c) -- --
1992 -- -- --
Dale Dowers -- President and 1994 225,000 -- --
Chief Operating Officer 1993 117,692(c) -- --
1992 -- -- --
Robert J. Trapp -- Vice President of 1994 118,078 $12,000 --
Forward Planning 1993 112,456 -- $3,000
1992 112,456 -- 6,000
Gregory R. Petersen -- Vice President 1994 115,500 10,000 --
and Chief Financial Officer 1993 110,056 -- 3,000
1992 110,414 -- 6,000
Robin V. Koenemann -- Vice President 1994 99,250 11,000 --
of Construction 1993 34,949(d) -- --
1992 -- -- --
</TABLE>
- ---------------
(a) Amounts shown include cash compensation earned and received by executive
officers.
(b) Car allowance that was discontinued in August 1992.
(c) Represents amounts paid from November 12, 1992 to February 28, 1993.
(d) Represents amounts paid from October 1992 to February 28, 1993.
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STOCK OPTIONS
The Company has adopted a stock option plan (the "Stock Option Plan") with
respect to the Company's common stock. The maximum number of shares subject to
option under the Stock Option Plan is 5,000 shares. Under the Stock Option Plan,
directors and key employees of the Company and key employees of the Company's
parent and any of its subsidiaries are eligible to receive options to purchase
Common Stock. The Board of Directors (or a committee thereof) administers the
Stock Option Plan and designates the recipients of options, the dates of grants,
the number of shares subject to options, the option price, the terms of payment
upon exercise of the options and the time period during which the options may be
exercised. The options may be either "Incentive Stock Options" (which qualify
for certain favorable tax treatment under the Internal Revenue Code) or
"Non-Incentive Stock Options" (which are non-qualified options). The option
price for Incentive Stock Options may not be less than the fair market value,
and for Non-Incentive Stock Options not less than 85% of the fair market value,
of the shares of Common Stock at the time the option is granted. No Incentive
Stock Option may exceed a term of ten years.
The Stock Option Plan also allows the Board of Directors to grant stock
appreciation rights ("SARs") in conjunction with options, which will allow the
grantee to receive in cash or Common Stock the difference between the option
exercise price and the fair market value of the Common Stock at the time of
exercise. The exercise of SARs will result in a reduction in the number of
shares of Common Stock covered by the option.
Currently, all options previously granted have either been exercised or
have expired.
The Company did not grant any options under the Stock Option Plan during
fiscal year 1994.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT, AND CHANGE IN CONTROL
ARRANGEMENTS
None of the executive officers has an employment agreement with the Company
and there are no change in control arrangements or agreements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to fiscal year 1994, the Company did not have a Compensation
Committee. From the establishment of the Committee on June 10, 1993 through
September 8, 1993, the Company's Compensation Committee was comprised of Messrs.
Inman and Acree. On September 8, 1994, Mr. Inman resigned from the Company's
Board of Directors. On September 10, 1993, Mr. Kaiser was appointed to the
Compensation Committee to replace Mr. Inman.
DIRECTOR COMPENSATION
Non-employee directors receive fees of $4,000 per year and $1,000
per meeting for serving as directors. Such directors also receive reimbursement
for reasonable travel and lodging expenses in connection with Board of Directors
and committee meetings. Directors serving on the audit committee receive an
additional $2,000 per year and directors serving on the Compensation Committee
receive an additional $500 per meeting.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
During fiscal year 1994, the Company reimbursed CPH for expenses
aggregating $150,000 in connection with the Durable Acquisition.
The Company has fully repaid the principal amount of its indebtedness to
CPH. Interest of approximately $67,000 was paid on this loan during the fiscal
year ended February 28, 1994. See "Company Background and Structure -- The
Acquisition."
During fiscal year 1993, the Company acquired an unimproved lot in Pomona,
California from CPH. The acquisition cost of the lot was $1,550,000 and a note
was carried back by CPH in the amount of $1,050,000. The note was subsequently
assigned by CPH to Mr. Makarechian, Chairman of the Board of the Company. All
principal and accrued interest were paid by the Company in full at February 28,
1993. Interest of $21,000
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<PAGE> 73
was paid on the note during the fiscal year ended February 28, 1993. During
fiscal year 1994, the lot was sold for $1,710,000 in cash.
Mr. Petersen purchased a home from the Company in fiscal year 1994 for
$425,000 (the market price at that time).
Kevin Wixted, the Company's Corporate Controller, purchased a home from the
Company for $368,000 in fiscal year 1993. The Company carried back a note in the
amount of $36,800 secured by a second deed of trust. The note, which the Company
believes was on market terms, is due and payable in November 1997.
Dean Cederquist, son of the CFO and Treasurer of Durable, is a limited
partner of Portraits Venture, L.P. Mr. Cederquist's acquisition of a limited
partnership interest was negotiated on an arm's-length basis.
Prior to the Durable Acquisition, Durable contracted for advertising
services with an advertising agency in which the sole shareholder of Durable had
a minority interest. Advertising costs incurred for services rendered by the
advertising agency for the years ended December 31, 1991, 1992 and 1993 were
$235,000, $477,000 and $427,000, respectively.
During 1993, prior to the Durable Acquisition, Durable distributed non-cash
assets, aggregating $788,000, to Roger Nix, its sole shareholder. The non-cash
assets distributed included advances and investments unrelated to the
residential home building business, certain related party notes receivable and
automobile equipment. The distribution was reflected as a reduction of
shareholder's equity.
The Company's policy is that all transactions between the Company and its
officers, directors and principal stockholder, and their respective affiliates,
must be on terms no less favorable to the Company than terms with unaffiliated
parties for similar transactions. All such transactions that are not in the
ordinary course of the Company's business must be approved by a majority of
independent directors who do not have a financial interest in the transaction.
In addition, the Indenture will impose certain restrictions on the Company's and
its Restricted Subsidiaries' ability to enter into transactions with affiliates.
See "Description of the Notes -- Certain Covenants -- Limitation on Transactions
with Shareholders and Affiliates."
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STOCKHOLDERS OF THE COMPANY
The following table sets forth as of May 31, 1994 the number of shares of
Common Stock beneficially owned by each person known to the Company to own more
than five percent of the outstanding shares of Common Stock, by each director of
the Company who owned shares of Common Stock on that date, and by all directors
and officers of the Company as a group.
<TABLE>
<CAPTION>
COMMON STOCK PERCENT OF
NAME AND ADDRESS BENEFICIALLY OWNED(A) CLASS(A)
----------------------------------------------- --------------------- ----------
<S> <C> <C>
Capital Pacific Homes, Inc. ................... 12,000,000 80.0%
3501 Jamboree Road, Suite 200
Newport Beach, California 92660
Hadi Makarechian............................... 9,946,800(b) 66.3
3501 Jamboree Road, Suite 200
Newport Beach, California 92660
Dale Dowers.................................... 2,053,200(c) 13.7
3501 Jamboree Road, Suite 200
Newport Beach, California 92660
Roger Nix(d)................................... 1,015,000 6.8
3501 Jamboree Road, Suite 200
Newport Beach, California 92660
Robert J. Trapp................................ 10,000 0.1
3501 Jamboree Road, Suite 200
Newport Beach, California 92660
James M. Peters, Jr. .......................... 100 --
3501 Jamboree Road, Suite 200
Newport Beach, California 92660
All directors and officers as a group (11
persons)..................................... 12,010,200 80.1
</TABLE>
- ---------------
(a) Unless otherwise indicated, the Company believes the beneficial owner has
sole voting and investment power over such shares. The percentage of shares
of Common Stock is calculated assuming that the beneficial owner has
exercised any options or other rights to subscribe held by such beneficial
owner that are currently exercisable or exercisable within 60 days, and that
no other options or rights to subscribe have been exercised by anyone else.
(b) Includes 9,946,800 shares of Common Stock held by CPH, in which Mr.
Makarechian may be deemed to have a beneficial ownership interest due to his
ownership interest in CPH. Mr. Makarechian and Mr. Dowers as a group could
be deemed beneficial owners of 12,000,000 shares of common stock of the
Company.
(c) Includes 2,053,200 shares of Common Stock held by CPH, in which Mr. Dowers
may be deemed to have a beneficial ownership interest due to his ownership
interest in CPH. Mr. Dowers and Mr. Makarechian as a group could be deemed
beneficial owners of 12,000,000 shares of common stock of the Company.
(d) Mr. Nix is the former sole stockholder of Durable. Mr. Nix has a consulting
agreement with the Company pursuant to which he receives $18,167 per month
through August 1994.
Pursuant to the terms of the Indenture, the Company is required to use its
best efforts to merge with CPH (the "Merger") within 180 days after consummation
of the exchange offer or effectiveness of the shelf registration statement with
respect to the Notes, as the case may be, and, in any event, to effect the
Merger by the earlier of (i) one year thereafter or (ii) 18 months after the
initial issuance of the Securities. The Merger is expected to be accomplished
through a tax-free downstream merger of CPH into the Company. Following the
Merger, the Company assumes that the Company common stock held by CPH will be
held directly or indirectly by Messrs. Makarechian and Dowers in the amounts
currently deemed beneficially owned by them in the table above.
The Merger is required pursuant to the terms of the Indenture because a
deconsolidation of CPH and the Company would potentially have a severe negative
tax consequence to CPH. The result of this potential consequence is that the
Company would as a practical matter not be likely to issue any new equity
securities if the result of such issuance would be to dilute CPH's interest
below 80% (thus triggering a deconsolidation).
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<PAGE> 75
DESCRIPTION OF THE NOTES
The Notes are to be issued under an Indenture, to be dated as of May 13,
1994 (the "Indenture"), among the Company, the Guarantors and United States
Trust Company of New York, as Trustee (the "Trustee"). The following summary of
certain provisions of the Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the provisions
of the Indenture, including the definitions of certain terms therein and those
terms made a part thereof by the Trust Indenture Act of 1939, as amended.
Whenever particular Sections or defined terms of the Indenture not otherwise
defined are referred to, such Sections or defined terms are incorporated herein
by reference. A copy of the Indenture is available upon request from the
Company.
GENERAL
The Notes are unsecured senior obligations of the Company, limited to $100
million aggregate principal amount, and will mature on May 1, 2002. The Notes
are guaranteed by each of the Guarantors pursuant to the guarantees (the
"Subsidiary Guarantees") described below. Each Note bears interest at the rate
per annum shown on the front cover of this Prospectus from May 13, 1994, or from
the most recent Interest Payment Date to which interest has been paid or
provided for, payable semiannually (to Holders of record at the close of
business on the April 15 or October 15 immediately preceding the Interest
Payment Date) on May 1 and November 1 of each year, commencing November 1, 1994.
Principal of, premium, if any, and interest on the Notes is payable, and
the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially will
be the corporate trust office of the Trustee at 114 West 47th Street, New York,
New York 10036); provided that, at the option of the Company, payment of
interest may be made by check mailed to the address of the Holders as such
address appears in the Security Register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount and any integral multiple thereof.
See "-- Book-Entry; Delivery and Form." No service charge will be made for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
OPTIONAL REDEMPTION
The Notes are redeemable, at the Company's option, in whole or in part, at
any time on or after May 1, 1999 and prior to maturity, upon not less than 30
nor more than 60 days' prior notice mailed by first class mail to each Holder's
last address as it appears in the Security Register, at the following Redemption
Prices (expressed in percentages of principal amount), plus accrued and unpaid
interest, if any, to the Redemption Date (subject to the right of Holders of
record on the relevant Regular Record Date to receive interest due on an
Interest Payment Date that is on or prior to the Redemption Date), if redeemed
during the 12-month period commencing May 1 of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
1999............................... 106.375%
2000............................... 103.188
2001 and thereafter................ 100.000
</TABLE>
In addition, at any time prior to May 1, 1997, the Company may redeem up to
an aggregate of 35% of the original aggregate principal amount of the Notes with
the proceeds of one or more Public Equity Offerings at any time as a whole, or
from time to time in part, at a redemption price of 112.75% of the principal
amount thereof plus accrued interest, if any, to the redemption date.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not listed on a national securities exchange, on a
pro rata basis, by lot or by such
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<PAGE> 76
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate; provided that no Note of $1,000 in principal amount or less shall
be redeemed in part. If any Note is to be redeemed in part only, the notice of
redemption relating to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the Redemption Date, interest
will cease to accrue on the Notes or portions thereof called for redemption.
RANKING; AMOUNT OF SECURED INDEBTEDNESS
The Notes are senior unsecured indebtedness of the Company, ranking pari
passu in right of payment with all existing and future unsecured indebtedness
that is not, by its terms, expressly subordinated in right of payment to the
Notes. At May 31, 1994, the Company had no indebtedness junior to the Old Notes
and $10 million of secured indebtedness senior to the Old Notes. The Indenture
permits the Company to grant liens to secure additional Indebtedness of the
Company permitted by the Indenture, provided that the aggregate amount of
Indebtedness so secured (other than Non-Recourse Indebtedness) does not exceed
40% of the Adjusted Consolidated Net Tangible Assets of the Company and also
permits certain other liens (including liens to secure Non-Recourse
Indebtedness). See "Description of the Notes -- Covenants -- Limitation on
Liens." Holders of secured indebtedness will be entitled to payment out of the
proceeds of their collateral prior to any holders of general unsecured
indebtedness, including the Notes. All liabilities of Subsidiaries of the
Company are effectively senior in right of payment to the Notes, except to the
extent such Subsidiary is a Guarantor. As of June 30, 1994 Subsidiaries of the
Company that are not Guarantors had liabilities aggregating approximately
$355,000, none of which constituted Indebtedness.
THE SUBSIDIARY GUARANTEES
Subject to certain limitations, each of the Guarantors will (so long as
they remain Subsidiaries of the Company) unconditionally guarantee the Company's
obligations under the Notes, including its obligations to pay principal,
premium, if any, and interest with respect to the Notes. Each Subsidiary
Guarantee will be an unsecured obligation of the Guarantor and will rank pari
passu with all existing and future unsecured Indebtedness of such Guarantor that
is not, by its terms, expressly subordinated in right of payment to the
Subsidiary Guarantee. Secured creditors of the Guarantors will have a claim on
the assets which secure the obligations of such Guarantors prior to claims of
Holders of the Notes against those assets. At June 30, 1994 the Guarantors would
not have had any indebtedness secured by liens on one or more of their projects.
See "Risk Factors -- Possible Unenforceability of and Limits on Subsidiary
Guarantees."
The Indenture provides that each Restricted Subsidiary (other than, in the
Company's discretion, any Restricted Joint Venture and any Restricted Subsidiary
the assets of which have a book value of not more than $2 million) will be a
Guarantor.
The Indenture provides that if all or substantially all of the assets of
any Guarantor or all of the Capital Stock of any Guarantor is sold (including by
issuance or otherwise) by the Company or any of its Subsidiaries in a
transaction constituting an Asset Sale in accordance with the covenant
"Limitation on Asset Sales," then such Guarantor (in the event of a sale or
other disposition of all of the Capital Stock of such Guarantor) or the
corporation acquiring such assets (in the event of a sale or other disposition
of all or substantially all of the assets of such Guarantor) shall be released
and discharged of its Subsidiary Guarantee obligations.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
"Adjusted Consolidated Net Income" is defined to mean, for any period, the
aggregate net income (or loss) of the Company and its Restricted Subsidiaries
for such period determined on a consolidated basis in conformity with GAAP;
provided that the following items shall be excluded in computing Adjusted
Consolidated Net Income (to the extent otherwise included therein) without
duplication: (i) the net income
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<PAGE> 77
of any Restricted Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by such Restricted Subsidiary of such net
income is not at the time permitted by the operation of the terms of its charter
or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary; (ii) solely
for the purposes of calculating the amount of Restricted Payments that may be
made pursuant to clause (D) of the first paragraph of the "Limitations on
Restricted Payments" covenant described below (and in such case, except to the
extent includable pursuant to the second proviso set forth at the end of this
definition), the net income (or loss) of any Person accrued prior to the date
such Person becomes a Restricted Subsidiary or is merged into or consolidated
with the Company or any of its Restricted Subsidiaries or all or substantially
all of the property and assets of such Person are acquired by the Company or any
of its Restricted Subsidiaries; and (iii) any gains (but not losses) realized
during such period resulting from (A) the acquisition of securities issued by
the Company or the extinguishment of Indebtedness of the Company or any of its
Restricted Subsidiaries, (B) Asset Sales, and (C) other extraordinary items;
provided that the Company will be entitled to take into consideration the tax
benefits associated with any loss described in clause (iii) above, but only to
the extent such tax benefits are actually recognized by the Company or by any of
its Restricted Subsidiaries during such period; and provided further that
"Adjusted Consolidated Net Income" shall include the amount of net income of any
Unrestricted Subsidiary and of any Person that is not a Subsidiary or that is
accounted for under the equity method of accounting only to the extent such net
income is actually received by the Company or any Restricted Subsidiary that is
a Wholly Owned Subsidiary in the form of cash dividends or similar cash
distributions during such period.
"Adjusted Consolidated Net Tangible Assets" is defined to mean, as of any
date, the total amount of assets of the Company and its Restricted Subsidiaries
(less applicable depreciation, amortization and other valuation reserves) on a
consolidated basis, except to the extent resulting from write-ups of capital
assets (excluding write-ups in connection with accounting for acquisitions in
conformity with GAAP), after deducting therefrom (i) all current liabilities of
the Company and its Restricted Subsidiaries (excluding intercompany items), (ii)
Intangible Assets, and (iii) minority interests of other Persons holding equity
investments in Restricted Subsidiaries, all as set forth on the most recently
available quarterly or annual consolidated balance sheet of the Company and its
Restricted Subsidiaries immediately preceding such date, prepared in conformity
with GAAP.
"Affiliate" is defined to mean, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, is defined to mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Asset Acquisition" is defined to mean (i) an investment by the Company or
any of its Restricted Subsidiaries in any other Person pursuant to which such
Person shall become a Restricted Subsidiary or shall be merged into or
consolidated with the Company or any of its Restricted Subsidiaries or (ii) an
acquisition by the Company or any of its Restricted Subsidiaries of all or
substantially all of the assets that constitute a division or line of business
of any Person other than the Company or any of its Restricted Subsidiaries.
"Asset Disposition" is defined to mean the sale or other disposition by the
Company or any of its Restricted Subsidiaries (other than to the Company or
another Restricted Subsidiary) of (i) all or substantially all of the Capital
Stock of any Restricted Subsidiary or (ii) all or substantially all of the
assets that constitute a division or line of business of the Company or any of
its Restricted Subsidiaries.
"Asset Sale" is defined to mean any sale, lease, conveyance, transfer or
other disposition (including by way of merger, consolidation or sale and
lease-back transaction, but excluding a disposition of property arising as a
result of a foreclosure on, or other settlement with respect to, such property
that results in the cancellation of the entire amount of Indebtedness secured by
Liens on such property) in one transaction or a series of related transactions
by the Company or any of its Restricted Subsidiaries to any Person, in which the
Company or any of its Restricted Subsidiaries receives cash and/or other
consideration (including, without
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<PAGE> 78
limitation, the unconditional assumption of Indebtedness of the Company or any
of its Restricted Subsidiaries) having an aggregate fair market value of
$500,000 or more as to each such transaction or series of related transactions,
of (i) all or any of the Capital Stock of any Restricted Subsidiary, or (ii) all
or any of the property or other assets of the Company or any of its Restricted
Subsidiaries, in each case, that is not governed by the provisions of the
Indenture applicable to mergers, consolidations and sales of assets; provided
that (A) sales of homes in the ordinary course of business will not constitute
Asset Sales, (B) sales, leases, sale-leasebacks, conveyances or other
dispositions, including, without limitation, exchanges or swaps, of real estate
and other assets in the ordinary course of business consistent with past
practice will not constitute Asset Sales, and (C) transactions between the
Company and any of its Restricted Subsidiaries which are Wholly Owned
Subsidiaries of the Company, or among such Restricted Subsidiaries which are
Wholly Owned Subsidiaries of the Company, will not constitute Asset Sales.
"Average Life" is defined to mean, at any date of determination with
respect to any Indebtedness or portion thereof, as the case may be, the quotient
obtained by dividing (i) the sum of the products of (a) the number of years from
such date of determination to the dates of each successive scheduled principal
payment of such Indebtedness and (b) the amount of such principal payment by
(ii) the sum of all such principal payments.
"Capital Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations, rights or other equivalents (however
designated, whether voting or non-voting) in the equity (which includes, but is
not limited to, common stock, preferred stock and partnership and joint venture
interests) of such Person.
"Capitalized Lease" is defined to mean, as applied to any Person, any lease
of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such Person;
and "Capitalized Lease Obligation" is defined to mean the rental obligations, as
aforesaid, under such lease.
"Change of Control" is defined to mean such time as (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than
any of the Permitted Holders, is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 50%
of the total voting power of the Common Equity of the Company; (ii) individuals
who at the beginning of any period of two consecutive calendar years constituted
the Board of Directors (together with any new directors whose election by the
Board of Directors or whose nomination for election by the Company's
stockholders was approved by a vote of at least a majority of the members of the
Board of Directors then still in office who either were members of the Board of
Directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the members of the Board of Directors then in office; or (iii) all
or substantially all of the Company's assets shall be sold, leased, conveyed or
otherwise disposed of as an entirety or substantially as an entirety to any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act),
other than the Permitted Holders, in one or a series of transactions.
"Closing Date" is defined to mean the date on which the Old Notes were
originally issued under the Indenture.
"Common Equity" is defined to mean, with respect to any Person, all Capital
Stock of such Person that is generally entitled to (i) vote in the election of
directors of such Person, or (ii) if such Person is not a corporation, vote or
otherwise participate in the selection of the governing body, partners, managers
or others that will control the management and policies of such Person.
"Consolidated EBITDA" is defined to mean, for any period, the sum of the
amounts for such period (without duplication) of (i) Adjusted Consolidated Net
Income, (ii) Consolidated Interest Expense, (iii) income taxes, to the extent
such amount was deducted in calculating Adjusted Consolidated Net Income (other
than income taxes (either positive or negative) attributable to extraordinary
and non-recurring gains or losses or sales of assets), (iv) depreciation
expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (v) amortization expense, to the extent such amount was
deducted in
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calculating Adjusted Consolidated Net Income, and (vi) all other non-cash items
reducing Adjusted Consolidated Net Income, less all non-cash items increasing
Adjusted Consolidated Net Income, all as determined on a consolidated basis for
the Company and its Restricted Subsidiaries in conformity with GAAP.
"Consolidated Interest Coverage Ratio" is defined to mean, on any
Transaction Date, the ratio of (i) the aggregate amount of Consolidated EBITDA
for the four fiscal quarters for which financial information in respect thereof
is available immediately prior to such Transaction Date (the "Reference Period")
to (ii) the aggregate Consolidated Interest Incurred during such Reference
Period. In making the foregoing calculation, (A) pro forma effect shall be given
to (1) any Indebtedness Incurred subsequent to the end of the Reference Period
and prior to the Transaction Date (other than Indebtedness Incurred under a
revolving credit or similar arrangement in effect on the last day of such
Reference Period), (2) any Indebtedness Incurred during such period to the
extent such Indebtedness is outstanding at the Transaction Date and (3) any
Indebtedness to be Incurred on the Transaction Date, in each case as if such
Indebtedness had been Incurred on the first day of such Reference Period and
after giving pro forma effect to the application of the proceeds thereof as if
such application had occurred on such first day; (B) Consolidated Interest
Expense attributable to interest on any Indebtedness (whether existing or being
Incurred) computed on a pro forma basis and bearing a floating interest rate
shall be computed as if the rate in effect on the Transaction Date (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months) had been
the applicable rate for the entire period; (C) there shall be excluded from
Consolidated Interest Expense any Consolidated Interest Expense related to any
amount of Indebtedness that was outstanding during such Reference Period or
thereafter but that is not outstanding or is to be repaid on the Transaction
Date, except for Consolidated Interest Expense accrued (as adjusted pursuant to
clause (B)) during such Reference Period under a revolving credit or similar
arrangement to the extent of the commitment thereunder (or under any successor
revolving credit or similar arrangement) in effect on the Transaction Date; (D)
pro forma effect shall be given to Asset Dispositions and Asset Acquisitions
(including giving pro forma effect to the application of proceeds of any Asset
Disposition) that occur during such Reference Period or thereafter and on or
prior to the Transaction Date as if they had occurred and such proceeds had been
applied on the first day of such Reference Period; (E) with respect to any such
Reference Period commencing prior to the Closing Date, the issuance of the Notes
shall be deemed to have taken place on the first day of such period; and (F) pro
forma effect shall be given to asset dispositions and asset acquisitions
(including giving pro forma effect to the application of proceeds of any asset
disposition) that have been made by any Person that has become a Restricted
Subsidiary or has been merged with or into the Company or any Restricted
Subsidiary during such Reference Period or subsequent to such period and prior
to the Transaction Date and that would have constituted Asset Dispositions or
Asset Acquisitions had such transactions occurred when such Person was a
Restricted Subsidiary as if such asset dispositions or asset acquisitions were
Asset Dispositions or Asset Acquisitions that occurred on the first day of such
Reference Period; provided that to the extent that clause (D) or (F) of this
sentence requires that pro forma effect be given to an asset acquisition or
asset disposition, such pro forma calculation shall be based upon the four full
fiscal quarters immediately preceding the Transaction Date of the Person, or
division or line of business of the Person that is acquired or disposed for
which financial information is available.
"Consolidated Interest Expense" is defined to mean, for any period, without
duplication, the aggregate amount of interest which, in conformity with GAAP,
would be set opposite the caption "interest expense" or any like caption on a
consolidated income statement of the Company and its Restricted Subsidiaries
(including, without limitation, imputed interest on Capitalized Lease
Obligations, all commissions, discounts and other fees and charges owed with
respect to letters of credit securing financial obligations and bankers'
acceptance financing, the net costs associated with Interest Rate Agreements,
amortization of other financing fees and expenses, the interest portion of any
deferred payment obligation, amortization of discount or premium, if any, and
all other noncash interest expense other than interest and other charges
amortized to cost of sales) and including, with respect to the Company and its
Restricted Subsidiaries without duplication (including duplication of the
foregoing items), all interest included as a component of cost of sales for such
period.
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"Consolidated Interest Incurred" is defined to mean, for any period,
without duplication, the aggregate amount of interest which, in conformity with
GAAP, would be set opposite the caption "interest expense" or any like caption
on a consolidated income statement of the Company and its Restricted
Subsidiaries (including, without limitation, imputed interest included on
Capitalized Lease Obligations, all commissions, discounts and other fees and
charges owed with respect to letters of credit securing financial obligations
and bankers' acceptance financing, the net costs associated with Interest Rate
Agreements, amortization of other financing fees and expenses, the interest
portion of any deferred payment obligation, amortization of discount or premium,
if any, and all other noncash interest expense other than interest and other
charges amortized to cost of sales) and includes, with respect to the Company
and its Restricted Subsidiaries, without duplication, all interest capitalized
for such period, all interest attributable to discontinued operations for such
period to the extent not set forth under the caption "interest expense" or any
like caption, all interest actually paid by the Company or any Restricted
Subsidiary under any guarantee of Indebtedness (including, without limitation, a
guarantee of principal, interest or any combination thereof) of any Person
during such period and all Preferred Returns accrued by any Consolidated Joint
Venture that is a Restricted Subsidiary.
"Consolidated Joint Venture" is defined to mean, as of any date of
determination, any Joint Venture whose financial results are accounted for on a
consolidated basis with the Company or any Restricted Subsidiary in conformity
with GAAP and, as of the Closing Date, includes each Existing Joint Venture.
"Consolidated Tangible Net Worth" is defined to mean, at any date of
determination, stockholder's equity as set forth on the most recently available
quarterly or annual consolidated balance sheet of the Company and its Restricted
Subsidiaries (which shall be as of a date not more than 90 days prior to the
date of such computation), less any amounts attributable to Redeemable Stock,
less Intangible Assets reflected on such consolidated balance sheet of the
Company and its Restricted Subsidiaries, each item to be determined in
conformity with GAAP.
"Default" is defined to mean any event that is, or after notice or passage
of time or both would be, an Event of Default.
"Existing Joint Venture" is defined to mean each of Ranchland Alicante
Development L.P., Ranchland Portola Development L.P., Ranchland Fairway
Development L.P., Ranchland Montilla Development L.P., Taos Estates, L.P.,
Plateau Venture Limited Partnership, Las Hadas Limited Partnership, Tiara
Ventura, a Nevada Limited Partnership and Portraits Venture Limited Partnership.
"Fair Market Value" with respect to any asset or property means the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy.
"GAAP" is defined to mean generally accepted accounting principles in the
United States of America as in effect as of the date of the Indenture,
including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accounts and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
approved by a significant segment of the accounting profession.
"Guarantee" is defined to mean any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds or pledge assets for
the purchase or payment of or payment of interest on) such Indebtedness or other
obligation of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
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"Guarantors" means each of (i) Durable Homes, Inc., a Nevada corporation,
(ii) J.M. Peters Nevada, Inc., a Delaware corporation, (iii) Peters Ranchland
Company, Inc., a Delaware corporation, and (iv) each of the Company's other
Subsidiaries that becomes a guarantor of the Notes pursuant to the provisions of
the Indenture.
"Incur" is defined to mean, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for or with respect
to, or become responsible for, the payment of, contingently or otherwise, such
Indebtedness; provided that neither the accrual of interest (whether such
interest is payable in cash or in kind) nor the accretion of original issue
discount shall be considered an Incurrence of Indebtedness.
"Indebtedness" is defined to mean, with respect to any Person at any date
of determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes, letters of credit (excluding standby letters of credit) or
other similar instruments, (iii) all obligations of such Person in respect of
standby letters of credit, surety, payment and performance bonds, title
insurance, indemnity agreements, reimbursement agreements with homeowners'
associations and similar instruments (including reimbursement obligations with
respect thereto) to the extent that such obligations are drawn upon and remain
unpaid or constitute indebtedness of such Person in conformity with GAAP, (iv)
all obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after the
later of the date such obligation arises or the date of placing such property in
service or taking delivery and title thereto or the completion of such service,
except Trade Payables, (v) all obligations of such Person as lessee under
Capitalized Leases, (vi) all Indebtedness of other Persons secured by a Lien on
any asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided that, if such Indebtedness is not assumed by such Person, the
amount of such Indebtedness shall be the lesser of (A) the fair market value of
such asset at such date of determination and (B) the amount of such
Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such Person
to the extent such Indebtedness is Guaranteed by such Person, (viii) to the
extent not otherwise included in this definition, obligations under Interest
Rate Agreements, and (ix) all Redeemable Stock issued by such Person. The amount
of Indebtedness of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and, with respect
to contingent obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligations, provided that (i) the amount
outstanding at any time of any Indebtedness issued with original issue discount
is the face amount of such Indebtedness less the remaining unamortized portion
of the original issue discount of such Indebtedness at such time as determined
in conformity with GAAP and (ii) Indebtedness shall not include any liability
for federal, state, local or other taxes.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm that is, in the reasonable judgment of the Company's
Board of Directors, (i) qualified to perform the task for which it has been
engaged, and (ii) disinterested and independent, in a direct and indirect
manner, of the parties to the transaction with respect to which such firm has
been engaged.
"Intangible Assets" is defined to mean, with respect to the Company and the
Restricted Subsidiaries, all unamortized debt discount and expense, unamortized
deferred charges, goodwill, patents, trademarks, service marks, trade names,
copyrights and all other items that would be treated as intangibles on the
consolidated balance sheet of the Company and its Restricted Subsidiaries
prepared in accordance with GAAP.
"Interest Rate Agreement" is defined to mean any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement or other similar agreement or
arrangement designed to protect the Company or any of its Restricted
Subsidiaries against fluctuations in interest rates to or under which the
Company or any of its Restricted Subsidiaries is a party or a beneficiary on the
Closing Date or becomes a party or a beneficiary thereafter.
"Investment" is defined to mean, with respect to the Company and its
Restricted Subsidiaries, any direct or indirect advance, loan or other extension
of credit (other than advances to customers in the ordinary course of business
that are, in conformity with GAAP, recorded as accounts receivable on the
balance sheet of the Company or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other
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property to others or any payment for property or services for the account or
use of others), or any purchase or acquisition of Indebtedness, Capital Stock,
bonds, notes, debentures or other similar instruments issued by any other
Person, or guarantee of Indebtedness or other obligations of any other Person,
or any other items that would be classified as investments on the balance sheet
of the Company or a Restricted Subsidiary, as the case may be, in accordance
with GAAP.
"Joint Venture" means (i) a corporation of which 50% or less of the
aggregate voting power of all classes of Common Equity is owned by the Company
and the Restricted Subsidiaries and (ii) any entity other than a corporation in
which the Company and the Restricted Subsidiaries own 50% or less of the
aggregate voting power of all classes of Common Equity of such entity, provided
that such corporation or other entity is engaged in the businesses existing on
the date of the Indenture of the Company and the Restricted Subsidiaries or in
businesses reasonably related thereto.
"Lien" is defined to mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind, whether or not filed, recorded or
otherwise perfected under applicable law (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof, any sale with recourse against the seller or any Affiliate of the
seller, or any agreement to give any security interest).
"Net Cash Proceeds" is defined to mean, with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Subsidiary as a reserve against any liabilities
associated with such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale, all as determined in conformity with GAAP.
"Non-Recourse Indebtedness" is defined to mean, with respect to any Person,
Indebtedness of such Person for which (i) the sole legal recourse for collection
of principal and interest on such Indebtedness is against the specific property
identified in the instruments evidencing or securing such Indebtedness, (ii)
such property was acquired with the proceeds of such Indebtedness or such
Indebtedness was Incurred either within (A) 365 days after the acquisition of
such property if such property constitutes real property on which multi-family
housing is being constructed or (B) 90 days after the acquisition of such
property in all other cases and (iii) no other assets of such Person or of any
other Person may be realized upon or in collection of principal or interest on
such Indebtedness.
"Permitted Holder" means any of Hadi Makarechian, Dale Dowers, their
respective spouses and immediate family members and/or any corporation, limited
liability company or partnership of which such persons directly or indirectly
control not less than a majority of the aggregate voting power of all classes of
Common Equity of such entity and/or any trust controlled by or for the benefit
of either Hadi Makarechian, Dale Dowers, their respective spouses and members of
their immediate family.
"Permitted Liens" is defined to mean (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good faith by
appropriate legal proceedings instituted and diligently conducted and for which
a reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made; (ii) statutory Liens of landlords and
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens imposed by law and arising in the ordinary course of business and
with respect to amounts not yet delinquent or being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate
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provision, if any, as shall be required in conformity with GAAP shall have been
made; (iii) Liens (other than any Lien imposed by the Employee Retirement Income
Security Act of 1974, as amended) 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 or regulatory
obligations, surety and appeal bonds, progress payments, development
obligations, government contracts, performance and return-of-money bonds and
other obligations of a similar nature, in each case incurred in the ordinary
course of business (exclusive of obligations for the payment of borrowed money
or otherwise constituting a liability in accordance with GAAP); (v) with respect
to property of the Company, Liens granted on such property in favor of the
Person from whom the Company acquired such property which Liens secure the
payment of a contingent portion of the purchase price of such property so long
as such Liens are granted and such arrangement is entered into in the ordinary
course of business of the Company consistent with past practice; (vi) attachment
or judgment Liens not giving rise to a Default or Event of Default and which are
being contested in good faith by appropriate proceedings, (vii) easements,
rights-of-way, restrictions, homeowners association assessments and similar
charges or encumbrances that do not materially interfere with the ordinary
course of business of the Company or any of its Subsidiaries; (viii) zoning
restrictions, licenses, restrictions on the use of real property or minor
irregularities in title thereto, which do not materially impair the use of such
property in the ordinary course of business of the Company or any Subsidiary or
the value of such real property for the purpose of such business; (ix) Liens in
favor of the Company or any Restricted Subsidiary that is a Wholly Owned
Subsidiary of the Company; (x) Liens existing on the Closing Date; (xi) Liens
securing Non-Recourse Indebtedness of the Company or a Restricted Subsidiary
thereof; (xii) Liens with respect to the property or assets of the Company
securing Indebtedness permitted to be Incurred under the "Limitation on
Indebtedness" covenant; provided that the aggregate amount of Indebtedness
secured by such Liens (other than Non-Recourse Indebtedness secured by Liens)
will not exceed 40% of the Adjusted Consolidated Net Tangible Assets of the
Company; (xiii) Liens granted after the Closing Date on any assets or Capital
Stock of the Company or its Restricted Subsidiaries created in favor of the
Holders; (xiv) Liens with respect to the property or assets of a Restricted
Subsidiary granted by such Restricted Subsidiary to the Company to secure
Indebtedness owing to the Company; (xv) Liens securing Refinancing Indebtedness
which is Incurred to refinance secured Indebtedness and which is permitted to be
Incurred under clause (iv) of the second paragraph of the "Limitation on
Indebtedness" covenant; provided that such Liens constitute Permitted Liens
under this clause (xv) only to the extent that they do not extend to or cover
any property or assets of the Company or any Restricted Subsidiary other than
the property or assets securing the Indebtedness being refinanced; and (xvi)
leases or subleases granted to others not materially interfering with the
ordinary course of business of the Company or any of its Subsidiaries.
"Preferred Returns" has the meaning specified in each of the partnership
agreements to which Peters Ranchland Company, Inc. and IHP Investment Fund I,
L.P. are parties, in each case as in effect on the Closing Date, together with
all amounts of a similar character, howsoever designated, accrued or paid by any
Consolidated Joint Venture.
"Public Equity Offering" is defined to mean a primary underwritten public
offering of Common Equity of the Company pursuant to a registration statement
filed under the Securities Act.
"Redeemable Stock" is defined to mean any class or series of Capital Stock
of any Person that by its terms or otherwise is, in whole or in part, (i)
required to be redeemed, repaid or otherwise retired prior to the Stated
Maturity of the Notes, (ii) redeemable, or required to be repaid or otherwise
retired at the option of the holder of such class or series of Capital Stock at
any time prior to the Stated Maturity of the Notes or (iii) convertible into or
exchangeable for Capital Stock referred to in clause (i) or (ii) above or is
convertible into or exchangeable for Indebtedness having a scheduled maturity
prior to the Stated Maturity of the Notes; provided that any Capital Stock that
would not constitute Redeemable Stock but for provisions thereof giving holders
thereof the right to require such Person to repurchase or redeem such Capital
Stock upon the occurrence of an "asset sale" or "change of control" occurring
prior to the Stated Maturity of the Notes shall not constitute Redeemable Stock
if the "asset sale" or "change of control" provisions applicable to such Capital
Stock are no more favorable to the holders of such Capital Stock than the
provisions contained in the
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"Limitation on Asset Sales" and "Repurchase of Notes Upon a Change of Control"
covenants described below and such Capital Stock specifically provides that such
Person will not repurchase or redeem any such Capital Stock pursuant to such
provision prior to the Company's repurchase of such Notes as are required to be
repurchased pursuant to the "Limitation on Asset Sales" and "Repurchase of Notes
upon a Change of Control" covenants described below.
"Refinancing Indebtedness" means Indebtedness issued in exchange for, or
the net proceeds of which are used to refinance or refund, then outstanding
Indebtedness and any refinancings thereof to the extent that such amount does
not exceed the amount so refinanced or refunded (plus premiums, accrued
interest, fees and expenses); provided that (i) Indebtedness the proceeds of
which are used to refinance or refund the Notes or Indebtedness that is pari
passu with, or subordinated in right of payment to, the Notes or the Subsidiary
Guarantees, as the case may be, shall be permitted only if (A) in case the Notes
are refinanced in part or the Indebtedness to be refinanced is pari passu with
the Notes or the Subsidiary Guarantees, as the case may be, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is outstanding, is expressly made pari
passu with, or subordinate in right of payment to, the remaining Notes or the
Subsidiary Guarantees, as the case may be, (B) in case the Indebtedness to be
refinanced is subordinated in right of payment to the Notes or the Subsidiary
Guarantees, as the case may be, such new Indebtedness, by its terms or by the
terms of any agreement or instrument pursuant to which such new Indebtedness is
outstanding, is expressly made subordinate in right of payment to the Notes or
the Subsidiary Guarantees, as the case may be, at least to the extent that the
Indebtedness to be refinanced is subordinated to the Notes or the Subsidiary
Guarantees, as the case may be, and (C) such new Indebtedness, determined as of
the date of Incurrence of such new Indebtedness, does not mature prior to the
Stated Maturity of the Indebtedness to be refinanced or refunded, and the
Average Life of such new Indebtedness is at least equal to the remaining Average
Life of the Indebtedness to be refinanced or refunded, (ii) such Refinancing
Indebtedness is Incurred by the same Person that initially Incurred the
Indebtedness being refunded or refinanced, except that the Company may Incur
Refinancing Indebtedness to refund or refinance Indebtedness of any Wholly Owned
Restricted Subsidiary, and (iii) such Refinancing Indebtedness is Incurred
within 90 days after the Indebtedness being refunded or refinanced is so
refunded or refinanced.
"Restricted Joint Venture" is defined to mean, as of any date of
determination, any Restricted Subsidiary that is a Joint Venture and that is
prohibited, under the terms of such Restricted Subsidiary's partnership or joint
venture agreement, from providing a Subsidiary Guarantee.
"Restricted Subsidiary" is defined to mean any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"Significant Subsidiary" is defined to mean, at any date of determination,
any Subsidiary of the Company that, together with its Subsidiaries, (i) for the
most recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Subsidiaries or (ii) as of the end
of such fiscal year, was the owner of more than 10% of the consolidated assets
of the Company and its Subsidiaries, all as set forth on the most recently
available consolidated financial statements of the Company for such fiscal year.
"Stated Maturity" is defined to mean, (i) with respect to any debt
security, the date specified in such debt security as the fixed date on which
the final installment of principal of such debt security is due and payable and
(ii) with respect to any scheduled installment of principal of or interest on
any debt security, the date specified in such debt security as the fixed date on
which such installment is due and payable.
"Subsidiary" is defined to mean, with respect to any Person, (i) any
corporation of which more than 50% of the outstanding Common Equity is owned,
directly or indirectly, by such Person and one or more other Subsidiaries of
such Person, and (ii) any entity other than a corporation of which more than 50%
of the Common Equity is owned, directly or indirectly, by such Person and one or
more other Subsidiaries of such Person or with respect to which such Person and
one or more Subsidiaries of such Person have the power to elect a majority of
the Board of Directors or other governing body or is the managing general
partner of such entity; provided, however that each Consolidated Joint Venture
shall be deemed to be a Subsidiary of the Company.
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"Subsidiary Guarantee" means each guarantee of the Notes by a Guarantor
under the Indenture.
"Transaction Date" is defined to mean, with respect to the Incurrence of
any Indebtedness by the Company or any of its Restricted Subsidiaries, the date
such Indebtedness is to be Incurred and, with respect to any Restricted Payment,
the date such Restricted Payment is to be made.
"Unrestricted Subsidiary" is defined to mean (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Restricted Subsidiary of the Company (including any newly acquired or newly
formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, the Company or any Restricted Subsidiary; provided that (i) either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, that such designation would be
permitted under the "Limitation on Restricted Payments" covenant described
below, and (ii) after giving effect to the designation of such Restricted
Subsidiary as an Unrestricted Subsidiary, on a pro forma basis, the Company's
Consolidated Tangible Net Worth would not be less than the Minimum Consolidated
Tangible Net Worth. Notwithstanding the foregoing, for so long as Durable (or
any successor thereto) is a Significant Subsidiary, it shall not be an
Unrestricted Subsidiary. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary of the Company; provided that
immediately after giving effect to such designation (x) the Company could incur
$1.00 of additional Indebtedness under the first paragraph of the "Limitation on
Indebtedness" covenant described below, (y) no Default or Event of Default shall
have occurred and be continuing, and (z) after giving effect to the designation
of such Unrestricted Subsidiary as a Restricted Subsidiary, on a pro forma
basis, the Company's Consolidated Tangible Net Worth would not have been less
than the Minimum Consolidated Tangible Net Worth. Any such designation by the
Board of Directors shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions. At the Closing Date, the Company will not have any
Unrestricted Subsidiaries.
"Wholly Owned Subsidiary" is defined to mean, (i) with respect to any
Subsidiary of any Person which is a corporation, such Subsidiary if all of the
outstanding Common Equity or other similar equity ownership interests (but not
including Preferred Stock) in such Subsidiary (other than any director's
qualifying shares or certain minority interests owned by foreign nationals
mandated by applicable law 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) with respect to any
Subsidiary of any Person, other than a corporation, such Subsidiary if all of
the outstanding Common Equity in such Subsidiary is owned directly or indirectly
by such Person.
COVENANTS
Maintenance of Consolidated Tangible Net Worth
Under the terms of the Indenture, if the Company's Consolidated Tangible
Net Worth at the end of each of any two consecutive fiscal quarters (the last
day of such second fiscal quarter being referred to as the "Deficiency Date") is
less than $37 million (the "Minimum Consolidated Tangible Net Worth"), then the
Company shall make an offer to all Holders (a "Net Worth Offer") to acquire
Notes, for cash, in an aggregate principal amount equal to 10% of the initial
aggregate outstanding principal amount of the Notes (or if less than 10% of the
aggregate principal amount of the Notes originally issued are then outstanding,
all of the Notes outstanding at the time) (a "Net Worth Payment") at a purchase
price of 100% of principal amount, plus accrued and unpaid interest to the date
of purchase (the "Net Worth Payment Date"). Notes acquired or redeemed by the
Company or purchased by it in the open market subsequent to the Deficiency Date
other than by reason of a mandatory repurchase obligation may be credited
against any Net Worth Payment. The Company, however, may not credit a specific
Note against more than one Deficiency Payment and mandatory repurchase payment.
In no event shall the Company's failure to meet the Minimum Consolidated
Tangible Net Worth threshold at the end of any fiscal quarter be counted toward
the making of more than one Net
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Worth Offer. Prior to the mailing of the notice to Holders provided for in the
succeeding paragraph, but in any event within 30 days following a Deficiency
Date, the Company covenants to (i) repay in full all indebtedness of the Company
that would prohibit the repurchase of the Notes as provided for in the
succeeding paragraph or (ii) obtain any requisite consents under instruments
governing any such indebtedness of the Company to permit the repurchase of the
Notes as provided for in the succeeding paragraph. The Company shall first
comply with the covenant in the preceding sentence before it shall be required
to repurchase Notes pursuant to this "Maintenance of Consolidated Tangible Net
Worth" covenant. The Company shall notify the Trustee promptly after the
occurrence of any of the events specified in this covenant and, in addition, the
Company shall notify the Trustee in writing if the Company's Consolidated
Tangible Net Worth is equal to or less than the Minimum Consolidated Tangible
Net Worth for any fiscal quarter.
Within 30 days of a Deficiency Date, the Company shall mail a notice to the
Trustee and each Holder stating (i) that a Deficiency Date has occurred, that
the Net Worth Offer is being made pursuant to this "Maintenance of Consolidated
Tangible Net Worth" covenant and that all Notes validly tendered will be
accepted for payment (on a pro rata basis if required pursuant to the terms of
this "Maintenance of Consolidated Tangible Net Worth" covenant); (ii) the
purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed)
(the "Net Worth Payment Date"); (iii) that any Note not tendered will continue
to accrue interest pursuant to its terms; (iv) that, unless the Company defaults
in the payment of the Net Worth Payment, any Note accepted for payment pursuant
to the Net Worth Offer shall cease to accrue interest on and after the Net Worth
Payment Date; (v) that the Holders electing to have any Note or portion thereof
purchased pursuant to the Net Worth Offer will be required to surrender such
Notes, together with the form entitled "Option of the Holder to Elect Purchase"
on the reverse side of such Note completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the Business Day
immediately preceding the Net Worth Payment Date; (vi) that Holders will be
entitled to withdraw their election if the Paying Agent receives, not later than
the close of business on the third Business Day immediately preceding the Net
Worth Payment Date, a telegram, telex, facsimile transmission or letter setting
forth the name of such Holder, the principal amount of Notes delivered for
purchase and a statement that such Holder is withdrawing his election to have
such Notes purchased; and (vii) that Holders whose Notes are being purchased
only in part will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered; provided that each Note purchased
and each Note issued shall be in a principal amount of $1,000 or integral
multiples thereof.
On the Net Worth Payment Date, the Company shall: (1) accept for payment
Notes or portions thereof tendered pursuant to the Net Worth Offer; (2) deposit
with the Paying Agent money sufficient to pay the purchase price of all Notes or
portions thereof so accepted; and (3) deliver, or cause to be delivered, to the
Trustee, all Notes or portions thereof so accepted together with an Officers'
Certificate specifying the Notes or portions thereof accepted for payment by the
Company. The Paying Agent shall promptly mail to the Holders of the Notes so
accepted payment in an amount equal to the purchase price, and the Trustee shall
promptly authenticate and mail to such Holders new Notes equal in principal
amount to any unpurchased portion of the Notes surrendered; provided that each
Note purchased and each new Note issued shall be in a principal amount of $1,000
or an integral multiple thereof. In the event that the aggregate principal
amount of Notes surrendered by Holders exceeds the Net Worth Amount, the Company
will select the Notes to be purchased on a pro rata basis from all Notes so
surrendered, with such adjustments as may be deemed appropriate by the Company
so that only Notes in denominations of $1,000, or integral multiples thereof,
will be purchased. The Company will publicly announce the results of the Net
Worth Offer on or as soon as practicable after the Net Worth Payment Date. For
purposes of this "Maintenance of Consolidated Tangible Net Worth" covenant, the
Trustee shall act as Paying Agent.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in the event that a Deficiency Date occurs and the
Company is required to repurchase Notes under this "Maintenance of Consolidated
Tangible Net Worth" covenant.
If the Company is unable to repay all of its indebtedness that would
prohibit repurchase of the Notes or is unable to obtain the consents of the
holders of indebtedness, if any, of the Company outstanding at the time of
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a Deficiency Date whose consent would be so required to permit the repurchase of
Notes, then the Company will have breached such covenant. This breach will
constitute an Event of Default under the Indenture if it continues for a period
of 60 consecutive days after written notice is given to the Company by the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Notes outstanding. In addition, the failure by the Company to repurchase Notes
at the conclusion of the Net Worth Offer will constitute an Event of Default
without any waiting period or notice requirements.
There is no assurance that the Company will have sufficient funds available
to make a Net Worth Offer on a Deficiency Date. The above covenant requiring the
Company to repurchase the Notes will, unless the consents referred to above are
obtained, require the Company to repay all indebtedness then outstanding which
by its terms would prohibit such Note repurchase, either prior to or
concurrently with such Note repurchase.
Limitation on Indebtedness
Under the terms of the Indenture, the Company will not Incur any
Indebtedness (other than the Notes) unless, after giving effect to the
Incurrence of such Indebtedness and the receipt and application of the proceeds
therefrom, (i) the Consolidated Interest Coverage Ratio of the Company would be
at least 2.0 to 1, and (ii) the ratio of Indebtedness of the Company and its
Restricted Subsidiaries to Consolidated Tangible Net Worth of the Company would
be less than 2.5 to 1.
Notwithstanding the foregoing, the Company may Incur each and all of the
following: (i) Indebtedness outstanding at any time in an aggregate principal
amount not to exceed the greater of (A) $15 million or (B)(1) 10% of the
Adjusted Consolidated Net Tangible Assets if Adjusted Consolidated Net Tangible
Assets are less than $200 million, or (2) 15% of Adjusted Consolidated Net
Tangible Assets if Adjusted Consolidated Net Tangible Assets are equal to or
greater than $200 million, in the case of each of clauses (A) and (B), less any
amount of Indebtedness permanently repaid as provided under the "Limitation on
Asset Sales" covenant described below; (ii) Indebtedness to any Restricted
Subsidiary that is a Wholly Owned Subsidiary of the Company; (iii) Non-Recourse
Indebtedness; (iv) Refinancing Indebtedness, other than with respect to
Indebtedness Incurred under clause (i) of this paragraph; and (v) Indebtedness
under Interest Rate Agreements.
Restrictions on Restricted Subsidiary Indebtedness
The Indenture provides that the Company will not permit any Restricted
Subsidiary to, directly or indirectly, Incur any Indebtedness other than: (i)
Non-Recourse Indebtedness; (ii) Refinancing Indebtedness; (iii) any Guarantee of
Indebtedness of the Company under the Notes; and (iv) any Guarantee by a
Guarantor of Indebtedness of the Company that is pari passu in right of payment
with the Notes, provided that (A) such Indebtedness is permitted under the
Indenture and (B) such Guarantee is pari passu or subordinated in right of
payment with the Guarantee of the Notes by such Restricted Subsidiary.
Limitation on Liens
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien
(other than Permitted Liens) on any of its assets or properties, income or
profits thereon or any shares of Capital Stock or Indebtedness of any Restricted
Subsidiary, without making effective provision for all of the Notes and all
other amounts due under the Indenture to be directly secured equally and ratably
with (or prior to) the obligation or liability secured by such Lien.
Limitation on Restricted Payments
So long as any of the Notes are outstanding, the Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, (i) declare or
pay any dividend or make any distribution on its Capital Stock (other than
dividends or distributions payable solely in shares of its or such Restricted
Subsidiary's Capital Stock (other than Redeemable Stock) of the same class held
by such holders or in options, warrants or other rights to acquire such shares
of Capital Stock) held by Persons other than the Company or any
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Restricted Subsidiary that is a Wholly Owned Subsidiary of the Company, (ii)
purchase, redeem, retire or otherwise acquire for value any shares of Capital
Stock of the Company or any Restricted Subsidiary (including options, warrants
or other rights to acquire such shares of Capital Stock) held by Persons other
than the Company or any Restricted Subsidiary that is a Wholly Owned Subsidiary
of the Company, (iii) make any voluntary or optional principal payment, or
voluntary or optional redemption, repurchase, defeasance, or other acquisition
or retirement for value, of Indebtedness of the Company that is subordinated in
right of payment to the Notes, or (iv) make any Investment in any Affiliate of
the Company (other than a Restricted Subsidiary) (such payments or any other
actions described in clauses (i) through (iv) being collectively "Restricted
Payments") if, at the time of, and after giving effect to, the proposed
Restricted Payment: (A) a Default or Event of Default shall have occurred and be
continuing, (B) the Company could not Incur at least $1.00 of additional
Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant, (C) the Consolidated Tangible Net Worth of the Company would be less
than the Minimum Consolidated Tangible Net Worth or (D) the aggregate amount
expended for all Restricted Payments (the amount so expended, if other than in
cash, to be determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) on and
after March 1, 1994 shall exceed the sum of (1) 50% of the aggregate amount of
the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated Net
Income is a loss, minus 100% of such amount) (determined by excluding income
created by transfers of assets received by the Company or a Restricted
Subsidiary from an Unrestricted Subsidiary) accrued on a cumulative basis during
the period (taken as one accounting period) beginning on March 1, 1994 and
ending on the last day of the last fiscal quarter preceding the Transaction
Date, plus (2) the aggregate net proceeds (including the fair market value of
non-cash proceeds as determined in good faith by the Board of Directors)
received by the Company from the issuance and sale permitted by the Indenture of
its Capital Stock (other than Redeemable Stock) to a Person who is not a
Subsidiary of the Company, including an issuance or sale permitted by the
Indenture for cash or other property upon the conversion of any Indebtedness of
the Company subsequent to the Closing Date, or from the issuance of any options,
warrants or other rights to acquire Capital Stock of the Company (in each case,
exclusive of any Redeemable Stock or any options, warrants or other rights that
are redeemable at the option of the holder, or are required to be redeemed,
prior to the Stated Maturity of the Notes), plus (3) the amount of any
Investment returned to the Company or any Restricted Subsidiary by any Affiliate
(other than a Restricted Subsidiary) thereof, plus (4) $1 million plus (5)
solely for the purpose of making Investments in any Unrestricted Subsidiary or
Joint Venture that is not a Restricted Subsidiary, $14 million; provided that
any Restricted Payment made pursuant to this clause (5) shall not be subject to
the provisions of clause (B) of this paragraph and any such Restricted Payment
shall be evidenced to the Trustee by an Officers' Certificate certifying that
such Restricted Payment is being made pursuant to this clause (5).
The foregoing provision shall not take into account, and shall not be
violated by reason of: (i) the payment of any dividend within 60 days after the
date of declaration thereof if, at said date of declaration, such payment would
comply with the foregoing paragraph; (ii) the redemption, repurchase, defeasance
or other acquisition or retirement for value of Indebtedness that is
subordinated in right of payment to the Notes including premium, if any, and
accrued and unpaid interest, with the proceeds of, or in exchange for,
Indebtedness Incurred under clause (iv) of the second paragraph of the
"Limitation on Indebtedness" covenant; (iii) the repurchase, redemption or other
acquisition of Capital Stock of the Company in exchange for, or out of the
proceeds of a substantially concurrent offering (other than to a Subsidiary) of
shares of Capital Stock (other than Redeemable Stock) of the Company; (iv) the
acquisition of Indebtedness of the Company that is subordinated in right of
payment to the Notes in exchange for, or out of the proceeds of, a substantially
concurrent offering of, shares of Capital Stock of the Company (other than
Redeemable Stock); (v) payments or distributions pursuant to or in connection
with a consolidation, merger or transfer of assets that complies with the
provisions of the Indenture applicable to mergers, consolidations and transfers
of all or substantially all of the property and assets of the Company; (vi)
distributions required by the partnership agreements of each of the Existing
Joint Ventures, as in effect on the Closing Date; (vii) the return of capital on
the Closing Date to the CalPERS LP (IHP Investment Fund I, L.P.) by certain of
the Existing Joint Ventures; (viii) prior to the merger of CPH with and into the
Company and with respect to each period for which CPH pays its federal income
taxes, California franchise taxes and other state corporate income taxes on
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a consolidated or combined basis with the Company and its subsidiaries (the "CPH
Consolidated Group"), the payment by the Company to CPH of an amount with
respect to such taxes, to be paid by CPH on behalf of the CPH Consolidated
Group, for such period provided that such amount will not exceed the lesser of
(a) the aggregate amount of federal income taxes, California franchise taxes and
other state corporate income taxes payable by the CPH Consolidated Group for
such period, and (b) the aggregate amount of federal income taxes, California
franchise taxes and other state corporate income taxes that would be payable by
the Company and its subsidiaries for such period on a consolidated basis if the
Company and its subsidiaries were not part of the CPH Consolidated Group, taking
into account tax refunds or credits attributable to carrybacks or carryforwards
of tax benefits of the Company and its subsidiaries; and (ix) the repurchase of
Warrants pursuant to a Repurchase Offer (as defined in and required by the
Warrant Agreement); provided that, except in the case of clauses (i), (iv), (vi)
and (viii), no Default or Event of Default shall have occurred and be continuing
or occur as a consequence of the actions or payments set forth therein.
Notwithstanding the foregoing, in the event of an issuance of Capital Stock
of the Company and (1) the repurchase, redemption or other acquisition of
Capital Stock out of the proceeds of such issuance or (2) the acquisition of
Indebtedness that is subordinated in right of payment to the Notes out of the
proceeds of such issuance, then, in calculating whether the conditions of clause
(D) of the first paragraph of this "Limitation on Restricted Payments" covenant
have been met with respect to any subsequent Restricted Payments, the proceeds
of any such issuance shall be included under such clause (D) only to the extent
such proceeds are not applied as described in clause (1) or (2) of this
paragraph.
As of March 31, 1994, the aggregate amount available for Restricted
Payments would have been $14 million, the entire amount of which could be used
solely for the purpose of making Investments in any Unrestricted Subsidiary or
Joint Venture that is not a Restricted Subsidiary.
Limitation on Asset Sales
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, make any Asset Sale unless
(i) the Company or the Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value for the shares or assets sold or otherwise disposed of; provided that the
aggregate Fair Market Value of the consideration received from any Asset Sale
that is not in the form of cash or cash equivalents (in U.S. dollars or freely
convertible into U.S. dollars) will not, when aggregated with the Fair Market
Value of all other noncash consideration received by the Company and its
Restricted Subsidiaries from all previous Asset Sales since the Closing Date
that has not been converted into cash or cash equivalents (in U.S. dollars or
freely convertible into U.S. dollars), exceed 5% of the Adjusted Consolidated
Net Tangible Assets of the Company at the time of the Asset Sale under
consideration, and (ii) the Company will apply, or cause such Restricted
Subsidiary to apply, the aggregate Net Cash Proceeds received by the Company or
any Restricted Subsidiary from all Asset Sales occurring subsequent to the
Closing Date to (A) permanently repay unsubordinated Indebtedness of the Company
owing to a Person other than the Company or any of its Restricted Subsidiaries
or any Indebtedness of any Restricted Subsidiary, in each case within one year
after such Asset Sale or (B) invest an equal amount, or the amount not so
applied pursuant to clause (A) (or enter into a definitive agreement committing
to so invest within 12 months after the date of such agreement), in property or
assets of a nature or type or that are used in a business (or in a company
having property and assets of a nature or type, or engaged in a business)
similar or related to the nature or the property and assets of, or the business
of, the Company and its Restricted Subsidiaries existing on the date of such
investment (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution, within
one year after such Asset Sale). The amount of such Net Cash Proceeds required
to be applied (or to be committed to be applied) as set forth in the preceding
sentence and not applied as so required by the end of such period shall
constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined
below) totals at least $5.0 million, the Company must, not later than the
fifteenth Business Day of such month, make an offer (an "Excess Proceeds Offer")
to purchase from the Holders on a pro rata basis an aggregate principal amount
of Notes equal to the Excess Proceeds on
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such date, at a purchase price equal to 100% of the principal amount of the
Notes, plus, in each case, accrued and unpaid interest (if any) to the date of
purchase (the "Excess Proceeds Payment").
The Company shall commence an Exceeds Proceeds Offer by mailing a notice to
the Trustee and each Holder stating: (i) that the Excess Proceeds Offer is being
made pursuant to this "Limitation on Asset Sales" covenant and that all Notes
validly tendered will be accepted for payment on a pro rata basis; (ii) the
purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed
(the "Excess Proceeds Payment Date")); (iii) that any Note not tendered will
continue to accrue interest pursuant to its terms; (iv) that, unless the Company
defaults in the payment of the Excess Proceeds Payment, any Note accepted for
payment pursuant to the Excess Proceeds Offer shall cease to accrue interest on
and after the Excess Proceeds Payment Date; (v) that Holders electing to have a
Note purchased pursuant to the Excess Proceeds Offer will be required to
surrender the Note, together with the form entitled "Option of the Holder to
Elect Purchase" on the reverse side of the Note completed, to the Paying Agent
at the address specified in the notice prior to the close of business on the
Business Day immediately preceding the Excess Proceeds Payment Date; (vi) that
Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the third Business Day
immediately preceding the Excess Proceeds Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (vii) that Holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered; provided
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or integral multiples thereof.
On the Excess Proceeds Payment Date, the Company shall (i) accept for
payment on a pro rata basis Notes or portions thereof tendered pursuant to the
Excess Proceeds Offer; (ii) deposit with the Paying Agent money sufficient to
pay the purchase price of all Notes or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee all Notes or portions thereof
so accepted together with an Officers' Certificate specifying the Notes or
portions thereof accepted for payment by the Company. The Paying Agent shall
promptly mail to the Holders of Notes so accepted payment in an amount equal to
the purchase price, and the Trustee shall promptly authenticate and mail to such
Holders new Notes equal in principal amount to any unpurchased portion of the
Notes surrendered; provided that each Note purchased and each new Note issued
shall be in a principal amount of $1,000 or integral multiples thereof. The
Company will publicly announce the results of the Excess Proceeds Offer on or as
soon as practicable after the Excess Proceeds Payment Date. For purposes of this
"Limitation on Asset Sales" covenant, the Trustee shall act as the Paying Agent.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder, to the extent such laws and
regulations are applicable, in the event that such Excess Proceeds are received
by the Company under this "Limitation on Asset Sales" covenant and the Company
is required to repurchase Notes as described above.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
So long as any of the Notes are outstanding, the Company will not, and will
not permit any Restricted Subsidiary to, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any Restricted Subsidiary to (i) pay dividends or make any
other distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by the Company or any other Restricted Subsidiary,
(ii) pay any interest on or principal of any Indebtedness owed to the Company or
any other Restricted Subsidiary, (iii) make loans or advances to the Company or
any other Restricted Subsidiary or (iv) transfer any of its property or assets
to the Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict or prohibit any encumbrances or
restrictions: (i) existing on the Closing Date in the Indenture or any other
agreements in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of any of the foregoing; provided that the encumbrances
and
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restrictions in any such extensions, refinancings, renewals or replacements are
no less favorable in any material respect to the Holders than those encumbrances
or restrictions that are then in effect and that are being extended, refinanced,
renewed or replaced; (ii) existing under or by reason of applicable law; (iii)
existing with respect to any Person or the property or assets of such Person
acquired by the Company or any Restricted Subsidiary and existing at the time of
such acquisition, which encumbrances or restrictions are not applicable to any
Person or the property or assets of any Person other than such Person or the
property or assets of such Person so acquired, and any extensions, refinancings,
renewals or replacements of any of the foregoing; provided that the encumbrances
and restrictions in any such extensions, refinancings, renewals or replacements
are no less favorable in any material respect to the Holders than those
encumbrances or restrictions that are then in effect and that are being
extended, refinanced, renewed or replaced; or (iv) in the case of clause (iv) of
the first paragraph of this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant, (A) that restrict in a
customary manner the subletting, assignment or transfer of any property or asset
that is a lease, license, conveyance or contract or similar property or asset,
(B) existing by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by the Indenture or (C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Company or any Restricted Subsidiary in
any manner material to the Company or any Restricted Subsidiary. Nothing
contained in this "Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries" covenant shall prevent the Company or any
Restricted Subsidiary from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted by the "Limitation on Liens" covenant or (2)
restricting the sale or other disposition of property or assets of the Company
or any of its Restricted Subsidiaries that secure Indebtedness of the Company or
any of its Restricted Subsidiaries.
Limitation on Transactions with Shareholders and Affiliates
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, enter into, renew or
extend any transaction (including, without limitation, the investment, loan,
advance, guaranty or capital contribution in or to, or the purchase, sale,
lease, transfer, exchange or other disposition of property or assets, or the
rendering of any service) with or for the benefit of any holder (or any
Affiliate of such holder) of 10% or more of any class of Capital Stock of the
Company or with or for the benefit of any Affiliate of the Company or any
Restricted Subsidiary (each an "Affiliate Transaction"), except upon fair and
reasonable terms no less favorable to the Company or such Restricted Subsidiary
than could be obtained, at the time of such transaction or at the time of the
execution of the agreement providing therefor, in a comparable arm's-length
transaction with a Person that is not such a holder or an Affiliate.
In addition, the Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, (a) enter into any Affiliate
Transaction involving or having an amount of more than $1.0 million, unless in
each case such Affiliate Transaction has been approved by a majority of the
disinterested members of the Company's Board of Directors, or (b) enter into an
Affiliate Transaction involving or having a value of more than $5.0 million
unless the Company has delivered to the Trustee an opinion of an Independent
Financial Advisor to the effect that the transaction is fair to the Company or
the relevant Restricted Subsidiary, as the case may be, from a financial point
of view; provided, however, for purposes of this paragraph, "Affiliate
Transaction" shall not include any transaction between the Company or any
Restricted Subsidiary and any Person that is an Affiliate of the Company or such
Restricted Subsidiary solely by reason of such Person having an interest in a
Joint Venture that is a Restricted Subsidiary.
The foregoing limitation does not limit, and shall not apply to (i) any
transaction between the Company and any Restricted Subsidiary that is a Wholly
Owned Subsidiary of the Company or between Restricted Subsidiaries that are
Wholly Owned Subsidiaries of the Company; (ii) the payment of reasonable and
customary regular fees to directors who are not employees, and the provision of
reasonable indemnification benefits, to directors and officers of the Company;
or (iii) any Restricted Payments not prohibited by the "Limitation on Restricted
Payments" covenant.
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Preparation of Reports and Other Information
Under the terms of the Indenture, the Company will, while any Note is
outstanding, file with the Commission all such reports and other information as
would be required by Section 13(a), 13(c) or 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Within seven days after the same
are filed with the Commission, the Company will file with the Trustee, and
supply to each Holder, without cost to such Holder, copies of such reports or
other information.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder shall have the
right to require the repurchase of its Notes by the Company in cash pursuant to
the offer described below (the "Change of Control Offer") at a purchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest
(if any) to the date of purchase (the "Change of Control Payment"). Prior to the
mailing of the notice to Holders provided for in the succeeding paragraph, but
in any event within 30 days following any Change of Control, the Company
covenants to (i) repay in full all indebtedness of the Company that would
prohibit the repurchase of the Notes as provided for in the succeeding paragraph
or (ii) obtain any requisite consents under instruments governing any such
indebtedness of the Company to permit the repurchase of the Notes as provided
for in the succeeding paragraph. The Company shall first comply with the
covenant in the preceding sentence before it shall be required to repurchase
Notes pursuant to this "Repurchase of Notes upon a Change of Control" covenant.
Within 30 days of the Change of Control, the Company shall mail a notice to
the Trustee and each Holder stating: (i) that a Change of Control has occurred,
that the Change of Control Offer is being made pursuant to this "Repurchase of
Notes upon a Change of Control" covenant and that all Notes validly tendered
will be accepted for payment; (ii) the purchase price and the date of purchase
(which shall be a Business Day no earlier than 30 days nor later than 60 days
from the date such notice is mailed) (the "Change of Control Payment Date");
(iii) that any Note not tendered will continue to accrue interest pursuant to
its terms; (iv) that, unless the Company defaults in the payment of the Change
of Control Payment, any Note accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest on and after the Change of Control
Payment Date; (v) that Holders electing to have any Note or portion thereof
purchased pursuant to the Change of Control Offer will be required to surrender
such Note, together with the form entitled "Option of the Holder to Elect
Purchase" on the reverse side of such Note completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the Business
Day immediately preceding the Change of Control Payment Date; (vi) that Holders
will be entitled to withdraw their election if the Paying Agent receives, not
later than the close of business on the third Business Day immediately preceding
the Change of Control Payment Date, a telegram, telex, facsimile transmission or
letter setting forth the name of such Holder, the principal amount of Notes
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Notes purchased; and (vii) that Holders whose Notes are
being purchased only in part will be issued new Notes equal in principal amount
to the unpurchased portion of the Notes surrendered; provided that each Note
purchased and each new Note issued shall be in the principal amount of $1,000 or
an integral multiple thereof.
On the Change of Control Payment Date, the Company shall: (i) accept for
payment Notes or portions thereof tendered pursuant to the Change of Control
Offer; (ii) deposit with the Paying Agent money sufficient to pay the purchase
price of all Notes or portions thereof so accepted; and (iii) deliver, or cause
to be delivered, to the Trustee, all Notes or portions thereof so accepted
together with an Officers' Certificate specifying the Notes or portions thereof
accepted for payment by the Company. The Paying Agent shall promptly mail to the
Holders of Notes so accepted payment in an amount equal to the purchase price
and the Trustee shall promptly authenticate and mail to such Holders new Notes
equal in principal amount to any unpurchased portion of the Notes surrendered;
provided that each Note purchased and each new Note issued shall be in a
principal amount of $1,000 or an integral multiple 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. For purposes of this
"Repurchase of Notes upon a Change of Control" covenant, the Trustee shall act
as Paying Agent.
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The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in the event that a Change of Control occurs and the
Company is required to repurchase the Notes under this "Repurchase of Notes upon
a Change of Control" covenant.
If the Company is unable to repay all of its indebtedness that would
prohibit repurchase of the Notes or is unable to obtain the consents of the
holders of indebtedness, if any, of the Company outstanding at the time of a
Change of Control whose consent would be so required to permit the repurchase of
Notes, then the Company will have breached such covenant. This breach will
constitute an Event of Default under the Indenture if it continues for a period
of 60 consecutive days after written notice is given to the Company by the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Notes outstanding. In addition, the failure by the Company to repurchase Notes
at the conclusion of the Change of Control Offer will constitute an Event of
Default without any waiting period or notice requirements.
There can be no assurance that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
any such covenant that may be contained in other securities of the Company which
might be outstanding at the time). The above covenant requiring the Company to
repurchase the Notes will, unless the consents referred to above are obtained,
require the Company to repay all indebtedness then outstanding which by its
terms would prohibit such Note repurchase, either prior to or concurrently with
such Note repurchase.
EVENTS OF DEFAULT
The following events are defined as "Events of Default" in the Indenture:
(a) default in the payment of principal of (or premium, if any, on) any Note
when the same becomes due and payable at maturity, upon acceleration, redemption
or otherwise; (b) default in the payment of interest on any Note when the same
becomes due and payable, and such default continues for a period of 30 days; (c)
the Company or any Guarantor defaults in the performance of or breaches any
other covenant or agreement of the Company or such Guarantor in the Indenture or
in the Subsidiary Guarantees or under the Notes and such default or breach
continues for a period of 60 consecutive days after written notice by the
Trustee or the Holders of not less than 25% in aggregate principal amount of the
Notes; (d) there occurs with respect to any issue or issues of Indebtedness
(other than Non-Recourse Indebtedness) of the Company or any of its Significant
Subsidiaries having an outstanding principal amount of $5 million or more in the
aggregate for all such issues of all such Persons, whether such Indebtedness now
exists or shall hereafter be created, (A) an event of default has occurred that
has caused the holder thereof to declare such Indebtedness to be due and payable
prior to its Stated Maturity and/or (B) the failure to make any payment in
respect of such Indebtedness when due or during any applicable grace period and
the continuation of such failure for five business days; provided, however, that
the default which existed as of the Closing Date, as a result of the failure to
pay principal and interest, under the note dated March 14, 1989, payable to West
Coast Land Fund L.P. shall not constitute an Event of Default under this clause
(d); (e) one or more final judgments or orders for the payment of money in
excess of $3 million in the aggregate shall be rendered against the Company or
any of its Significant Subsidiaries and such final judgments or orders, shall
not have been satisfied, stayed, annulled or rescinded within 60 days of being
entered; (f) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company or any of its Significant
Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Company or any of its Significant Subsidiaries or for all or substantially
all of the property and assets of the Company or any of its Significant
Subsidiaries or (C) the winding up or liquidation of the affairs of the Company
or any of its Significant Subsidiaries and, in each case, such decree or order
shall remain unstayed and in effect for a period of 60 consecutive days; (g) the
Company or any Subsidiary of the Company (A) commences a voluntary case under
any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or consents to the entry of an order for relief in an involuntary case
under any such law, (B) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Company or any of its Significant Subsidiaries or for all or
substantially all of the property and assets of the
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Company or any Significant Subsidiary of the Company or (C) effects any general
assignment for the benefit of creditors; (h) any Restricted Joint Venture that
is not a Guarantor provides a Guarantee of Indebtedness of any other Person or
(i) any Subsidiary Guarantee ceases to be in full force and effect (other than
in accordance with the terms of such Guarantee and the Indenture) or is declared
null and void and unenforceable or found to be invalid or any Guarantor denies
its liability under its Subsidiary Guarantee (other than by reason of release of
a Guarantor from its Subsidiary Guarantee in accordance with the terms of the
Indenture and the Subsidiary Guarantee).
If an Event of Default (other than an Event of Default specified in clause
(f) or (g) above) occurs and is continuing under the Indenture, the Trustee or
the Holders of not less than 25% in aggregate principal amount of the Notes then
outstanding, by written notice to the Company (and to the Trustee if such notice
is given by the Holders (the "Acceleration Notice")), may, and the Trustee at
the request of such Holders shall, declare the principal of, premium, if any,
and accrued interest on the Notes to be immediately due and payable. Upon a
declaration of acceleration, such principal of, premium, if any, and accrued
interest shall be immediately due and payable. If an Event of Default specified
in clause (f) or (g) above occurs, the principal of, premium, if any, and
accrued interest on the Notes then outstanding shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. The Holders of not less than a majority in principal
amount of the outstanding Notes by written notice to the Company and to the
Trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if (i) all existing Events of Default, other
than the nonpayment of the principal of, premium, if any, and interest on the
Notes that have become due solely by such declaration of acceleration, have been
cured or waived and (ii) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction. For information as to the waiver of
defaults, see "-- Modification and Waiver."
The Holders of not less than a majority in aggregate principal amount of
the outstanding Notes may 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. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Notes. A Holder
may not pursue any remedy with respect to the Indenture, the Subsidiary
Guarantees or the Notes unless: (i) the Holder gives the Trustee written notice
of a continuing Event of Default; (ii) the Holders of not less than 25% in
aggregate principal amount of outstanding Notes make a written request to the
Trustee to pursue the remedy; (iii) such Holder or Holders offer the Trustee
indemnity satisfactory to the Trustee against any costs, liability or expense;
(iv) the Trustee does not comply with the request within 60 days after receipt
of the request and the offer of indemnity; and (v) during such 60-day period,
the Holders of a majority in aggregate principal amount of the outstanding Notes
do not give the Trustee a direction that is inconsistent with the request.
However, such limitations do not apply to the right of any Holder of a Note to
receive payment of the principal of, premium, if any, or interest on such Note
or to bring suit for the enforcement of any such payment on or after the due
date expressed in the Notes, which right shall not be impaired or affected
without the consent of the Holder.
The Indenture requires certain officers of the Company to certify, on or
before a date not more than 120 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company and its Restricted
Subsidiaries and the Company's and its Restricted Subsidiaries' performance
under the Indenture and that the Company has fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof. The
Company will also be obligated to notify the Trustee of any default or defaults
in the performance of any covenants or agreements under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company shall not, and shall not permit any Guarantor to, consolidate
with, merge with or into, or sell, convey, transfer, lease or otherwise dispose
of all or substantially all of its property and assets (as an entirety or
substantially as an entirety in one transaction or a series of related
transactions) to, any Person
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unless (i) the Company or such Guarantor, as the case may be, shall be the
continuing Person, or the Person (if other than the Company or such Guarantor,
as the case may be) formed by such consolidation or into which the Company or
such Guarantor, as the case may be, is merged or that acquired or leased such
property and assets of the Company or such Guarantor, as the case may be, shall
be a corporation organized and validly existing under the laws of the United
States of America, any state thereof or the District of Columbia and shall
expressly assume, by a supplemental indenture in form reasonably suitable to the
Trustee, executed and delivered to the Trustee, all of the obligations of the
Company or such Guarantor, as the case may be, on all of the Notes or such
Guarantor's Subsidiary Guarantee, as the case may be, and under the Indenture;
(ii) immediately after and giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing; (iii) immediately after
and giving effect to such transaction on a pro forma basis, the Company or any
Person becoming the successor obligor of the Notes (in the case of a transaction
involving the Company), as the case may be, shall have a Consolidated Tangible
Net Worth equal to or greater than the Consolidated Tangible Net Worth of the
Company immediately prior to such transaction; (iv) immediately after and giving
effect to such transaction, the Company or such other Person (in the case of a
transaction involving the Company), as the case may be, would be able to incur
at least $1.00 of additional Indebtedness pursuant to the first paragraph of the
covenant described under "Description of the Notes -- Certain
Covenants -- Limitations on Indebtedness" and (v) the Company delivers to the
Trustee an Officers' Certificate (attaching the arithmetic computations to
demonstrate compliance with clauses (iii) and (iv)) and Opinion of Counsel, in
each case stating that such consolidation, merger or transfer and such
supplemental indenture complies with this provision and that all conditions
precedent provided for herein relating to such transaction have been complied
with. The foregoing provisions shall not apply to a transaction involving the
consolidation or merger of a Guarantor with or into another person, or the sale,
lease, conveyance or other disposition of all or substantially all of the assets
of such Guarantor, that results in such Guarantor being released from its
Subsidiary Guarantee as provided under "The Subsidiary Guarantees" above.
Under the terms of the Indenture, the Company will use its best efforts to
merge with or into CPH within 180 days after consummation of the Exchange Offer
or effectiveness of the Shelf Registration Statement, as the case may be, and,
in any event, will complete such merger on or before the earlier of (i) one year
thereafter or (ii) 18 months after the initial issuance of the Notes.
Immediately after and giving effect to such merger, either (a) (i) the
Consolidated Interest Coverage Ratio of the Company will not be less than such
Consolidated Interest Coverage Ratio immediately prior to the merger, (ii) the
ratio of Indebtedness of the Company and its Restricted Subsidiaries to
Consolidated Tangible Net Worth of the Company will not be less than such ratio
immediately prior to such merger, and (iii) the Consolidated Tangible Net Worth
of the Company will not be less than such Consolidated Tangible Net Worth
immediately prior to such merger or (b) such merger will comply with the
covenants set forth in the first paragraph of this "Consolidation, Merger and
Sale of Assets" covenant.
DEFEASANCE
Defeasance and Discharge. The Indenture provides that the Company and the
Guarantors will be deemed to have paid and will be discharged from any and all
obligations in respect of the Notes on the 123rd day after the deposit referred
to below, and the provisions of the Indenture will no longer be in effect with
respect to the Notes (except for, among other matters, certain obligations to
register the transfer or exchange of the Notes, to replace stolen, lost or
mutilated Notes, to maintain paying agencies and to hold monies for payment in
trust) if, among other things, (i) the Company has deposited with the Trustee,
in trust, money and/or U.S. Government Obligations that through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium, if any,
and accrued interest on the Notes on the Stated Maturity of such payments in
accordance with the terms of the Indenture and the Notes, (ii) the Company has
delivered to the Trustee (A) either (x) an Opinion of Counsel to the effect that
Holders will not recognize income, gain or loss for federal income tax purposes
as a result of the Company's exercise of its option under this "Defeasance"
provision and will be subject to federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred, which Opinion of Counsel
must be based upon (and accompanied by a copy of) a ruling of the Internal
Revenue Service to the same effect unless there has been a
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change in applicable federal income tax law after the date of the Indenture such
that a ruling is no longer required or (y) a ruling directed to the Trustee
received from the Internal Revenue Service to the same effect as the
aforementioned Opinion of Counsel and (B) an Opinion of Counsel to the effect
that the creation of the defeasance trust does not violate the Investment
Company Act of 1940 and after the passage of 123 days following the deposit, the
trust fund will not be subject to the effect of Section 547 of the United States
Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law, (iii)
immediately after giving effect to such deposit on a pro forma basis, no Event
of Default, or event that after the giving of notice or lapse of time or both
would become an Event of Default, shall have occurred and be continuing on the
date of such deposit or during the period ending on the 123rd day after the date
of such deposit, and such deposit shall not result in a breach or violation of,
or constitute a default under, any other agreement or instrument to which the
Company is a party or by which the Company is bound, and (iv) if at such time
the Notes are listed on a national securities exchange, the Company has
delivered to the Trustee an Opinion of Counsel to the effect that the Notes will
not be delisted as a result of such deposit, defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further permits the Company to terminate all of its obligations under
the Notes and the Indenture, other than the obligation to pay the principal of,
premium, if any, and interest on the Notes, and certain other obligations, upon,
among other things, the deposit with the Trustee, in trust, of money and/or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
Notes on the Stated Maturity of such payments in accordance with the terms of
the Indenture and the Notes, the satisfaction of the provisions described in
clauses (ii)(B), (iii) and (iv) of the preceding paragraph and the delivery by
the Company to the Trustee of an Opinion of Counsel to the effect that, among
other things, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such deposit and defeasance of certain
covenants and Events of Default and will be subject to federal income tax on the
same amount and in the same manner and at the same time as would have been the
case if such deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Notes at the time of their Stated Maturity
but may not be sufficient to pay amounts due on the Notes at the time of the
acceleration resulting from such Event of Default. However, the Company will
remain liable for such payments.
MODIFICATION AND WAIVER
From time to time, the Company, the Guarantors and the Trustee, without
notice to or the consent of the Holders of the Notes may amend or supplement the
Indenture or the Notes for certain specified purposes, including curing
ambiguities, defects or inconsistencies, providing for uncertificated Notes,
maintaining the qualification of the Indenture under the Trust Indenture Act of
1939, as amended, to reflect the addition of a Guarantor, to reflect a Guarantor
ceasing to be liable on its Subsidiary Guarantee because it is no longer a
Subsidiary of the Company, or making any change that does not materially
adversely affect the rights of any Holder. Other amendments and modifications to
the Indenture and the Notes may be made with the consent of the Holders of not
less than a majority in aggregate principal amount of the outstanding Notes;
provided, however, that no such modification or amendment may, without the
consent of each Holder affected thereby, (i) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, (ii) reduce the
principal amount of, or premium, if any, or interest on any Note, (iii) change
the place or currency of payment of principal of, or premium, if any, or
interest on any Note, (iv) impair the right to institute suit for the
enforcement of any payment on or after the Stated Maturity (or, in the case of a
redemption, on or after the Redemption Date) of any Note, (v) reduce the
above-stated percentage of outstanding Notes the consent of whose Holders is
necessary to modify or amend the Indenture, (vi) waive a default in the payment
of principal of, premium, if any, or interest on the Notes or (vii) reduce the
percentage or aggregate principal amount of
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outstanding Notes the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults.
NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture, or in any of
the Notes or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator, shareholder, officer, director, employee
or controlling person of the Company or of any successor Person thereof. Each
Holder, by accepting the Notes, waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the Notes.
Such waiver may not be effective to waive liabilities under federal securities
laws and it is the view of the Commission that such a waiver is against public
policy.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, however, that if it acquires any
conflicting interest, it must eliminate such conflict or resign.
DESCRIPTION OF COMMON STOCK
The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock, par value $.10 per share. At May 31, 1994, there were
14,995,000 shares of Common Stock outstanding held of record by approximately
1,800 stockholders.
The holders of the Company's Common Stock are entitled to one vote per
share, to receive such dividends as legally may be declared by the Board of
Directors and to receive pro rata the net assets of the Company upon
liquidation. There are no cumulative voting, preemptive, conversion or
redemption rights applicable to the Common Stock. Stockholders casting a
majority of votes in the election of directors will be entitled to elect all of
the directors. In such event, the holders of the remaining shares of Common
Stock will not be able to elect any person as a director.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain United States federal income tax
consequences of the acquisition, ownership and disposition of the New Notes to a
person choosing to accept the Exchange Offer (a "Holder"). This summary is based
on the Internal Revenue Code of 1986, as amended to the date hereof (the
"Code"), administrative pronouncements, judicial decisions and existing and
proposed Treasury Regulations, changes to any of which subsequent to the date of
this Prospectus may affect the tax consequences described herein. This summary
discusses only New Notes held as capital assets within the meaning of Section
1221 of the Code. It does not discuss all of the tax consequences that may be
relevant to a Holder in light of such Holder's particular circumstances or to
Holders subject to special rules, such as certain financial institutions,
insurance companies or dealers in securities. Persons considering the Exchange
Offer should consult their tax advisors with regard to the application of the
United States federal income tax laws to their particular situations as well as
any tax consequences arising under the laws of any state, local or foreign
taxing jurisdiction.
As used herein, the term "United States Holder" means a Holder of New Notes
that is for United States federal income tax purposes, (i) a citizen or resident
of the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, or (iii) an estate or trust the income of which is subject
to United States federal income taxation regardless of its source. The term also
includes certain former citizens of the United States whose income and gain on
the New Notes will be taxable. As used herein, the term "Non-United States
Holder" means a Holder of Units that is not a United States Holder.
TAX CONSEQUENCES TO UNITED STATES HOLDERS
Exchange of Notes
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not be treated as an exchange or other taxable event for federal income
tax purposes because, under proposed Treasury Regulations, the New Notes should
not be considered to differ materially in kind or extent from the Old Notes.
Rather, the New Notes received by a United States Holder should be treated as a
continuation of the Old Notes in the hands of such United States Holder. As a
result, there should be no federal income tax consequences to United States
Holders exchanging Old Notes for New Notes pursuant to the Exchange Offer and a
United States Holder should have the same adjusted basis and holding period in
the New Notes as it had in the Old Notes immediately before the exchange. If the
IRS determines, contrary to the Company's conclusion, that the Old Notes were
issued with original issue discount in excess of de minimis original issue
discount, the consequences of such determination will likewise carry forward to
the New Notes. See "-- Original Issue Discount on the Notes."
Original Issue Discount on the Notes
The Old Notes and the Warrant were issued in units comprised of ten Old
Notes and 79 Warrants (the "Units"). Consequently, the issue price of a Unit was
initially allocated between the Old Notes and the Warrants. Under applicable
Treasury Regulations, the issue price of the Old Notes was equal to the first
price at which a substantial amount of the Units was sold (ignoring for this
purpose sales to bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters, placement agents or wholesalers), less
the amount allocable to the Warrants (based on the relationship of the fair
market value of each of the Old Notes and the Warrants to the fair market value
of the Old Notes and the Warrants taken together as a Unit). Based on the
foregoing, the Company treated each Old Note as having been issued with an
original issue price of $984.99 per $1,000 principal amount, and the attached
Warrants as having been issued with an issue price of $15.01 per $1,000
principal amount. No assurance can be given, however, that the IRS will not
challenge the Company's allocation of the issue price. Because the New Notes are
treated as a continuation of the Old Notes in the hands of each Holder, the New
Notes will be subject to the foregoing allocation and to the original issue
discount rules set forth below.
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Under applicable Treasury Regulations, the Company's allocation of the
issue price of the Units will be binding on a Holder, unless such Holder
discloses the use of a different allocation on a statement attached to such
Holder's federal income tax return for the year of acquisition of such Units
(or, following separation of the Old Notes and the Warrants, the year of
acquisition of Notes). If a Holder uses an allocation different from that of the
Company, or a Holder acquires a Note at a price different from that on which the
Company's allocation is based, such Holder may be treated as having acquired his
Note for a greater or lesser amount than the issue price, thereby resulting in
"acquisition premium" or "market discount," as defined below. Holders intending
to use an issue price allocation different from that used by the Company should
consult their tax advisors as to the consequences to them of their particular
allocation of the issue price.
In general, a holder of a debt instrument is required to recognize original
issue discount as ordinary income in advance of the receipt of the cash payments
to which such income is attributable. The amount of original issue discount on a
debt instrument generally is equal to the difference between the stated
redemption price at maturity of the debt instrument and the debt instrument's
issue price. However, if the original issue discount on a debt instrument is
less than 1/4 of 1 percent of the stated redemption price at maturity of the
debt instrument multiplied by the number of complete years to maturity, the
original issue discount on the debt instrument will be deemed to be zero. For
this purpose, the stated redemption price at maturity of a debt instrument will
equal the sum of all amounts provided under the debt instrument, regardless of
whether denominated as principal or interest, other than "qualified stated
interest" payments. For such purposes, "qualified stated interest" generally
means stated interest that is unconditionally payable in cash or property (other
than debt instruments of the issuer) at least annually at a single fixed rate.
For purposes of determining the amount of original issue discount with respect
to each Note, the Company has assumed that the periodic interest payments to be
made with respect to each Note (determined prior to any adjustment described
below in the section regarding "Contingent Interest on the Notes") constitute
"qualified stated interest" within the meaning of the applicable Treasury
Regulations.
A United States Holder must include original issue discount on the Notes
(other than de minimis original issue discount) as ordinary interest income as
it accrues (in advance of the receipt of any cash payments attributable to such
income) in accordance with a constant yield method based on a compounding of
interest, regardless of such Holder's regular method of tax accounting. Subject
to making an appropriate election, United States Holders generally will be
permitted to include all interest that accrues or is to be paid on the Notes
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount and
unstated interest as adjusted by any amortizable bond premium or acquisition
premium) in income under the constant yield method applicable to original issue
discount, subject to certain limitations and exceptions.
The Company believes that the Old Notes were, and the New Notes will be,
issued with de minimis original issue discount. Accordingly, the Company
believes that a United States Holder will not be subject to tax on original
issue discount under the constant yield method, but instead will only be taxed
on such original issue discount when it is received by the Holder. If, however,
the IRS determines that the issue price of the Old Notes (and thus the carryover
issue price of the New Notes) was significantly less than the amount determined
by the Company as described above with the effect that the original issue
discount on the Notes is no longer considered to be de minimis, the United
States federal income tax described above will apply.
A United States Holder will be subject to tax on qualified stated interest
on the Notes at the time such payments are accrued or are received (in
accordance with the Holder's regular method of accounting).
Redemption of the Notes. The Company may redeem all or a portion of the
Notes as described under "Description of the Notes -- Optional Redemption."
Under applicable Treasury Regulations, an issuer of a debt instrument having an
option to call the debt instrument will be presumed to exercise such option if
doing so would lower the yield to maturity of the debt instrument. The Company
will compute the yield and maturity of the Notes assuming that it will not
redeem all or a portion of the Notes because doing so would increase the yield
of the Notes. If, contrary to the presumption made under the Treasury
Regulations, the Company does redeem all or a portion of the Notes, the Notes
will be treated as reissued on the date of the
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redemption for an amount equal to its adjusted issue price on such date. Holders
should consult with their tax advisors with respect to the consequences of the
possible redemption of the Notes.
Market Discount. If a United States Holder acquires a Note for an amount
that is less than its "revised issue price," the amount of the difference will
be treated as "market discount" for federal income tax purposes, unless such
difference is less than a specified de minimis amount. For such purposes, the
"revised issue price" of a Note generally will be equal to the issue price of
the Note under the Company's allocation, as described under "-- Original Issue
Discount on the Notes" above, increased by the amounts of original issue
discount that were includable in income with respect to such Note by all
previous Holders for all periods prior to the acquisition of the Note by the
Holder.
Under the market discount rules of the Code, a United States Holder will be
required to treat any partial principal payment on a Note (or any other payment
that does not constitute a qualified stated interest payment with respect to
such Note), or any gain realized on the sale, exchange, retirement or other
disposition of a Note, as ordinary income to the extent of the lesser of (i) the
amount of such payment or realized gain or (ii) the market discount which has
not previously been included in income and is treated as having accrued on such
Note at the time of such payment or disposition. Market discount generally is
considered to accrue ratably during the period from the date of acquisition to
the maturity date of the Note, unless the Holder elects to accrue the market
discount on the basis of semiannual compounding. If a Note purchased by a Holder
with market discount is disposed of other than by a taxable sale, exchange or
retirement, the accrued market discount on the Note generally will be includible
as ordinary income to the Holder as if such Holder had sold the Note at its then
fair market value.
By reason of rules that allow a current deduction of interest expense on
any indebtedness incurred or maintained to purchase or carry a Note with market
discount only to the extent that the interest expense exceeds an allocable
portion of such market discount, a Holder may be required to defer the deduction
of all or a portion of the interest expense on any indebtedness incurred or
maintained to purchase or carry a Note with market discount until the maturity
of the Note or its earlier taxable disposition.
A United States Holder may elect to include market discount in income
currently as it accrues (either on a ratable or semiannual compounding basis),
in which case the rules described above regarding the treatment as ordinary
income of gain upon the disposition of the Note and upon the receipt of certain
of certain cash payments and regarding the deferral of interest deductions will
not apply. Generally, such currently included market discount will be treated as
ordinary interest income for United States federal income tax purposes.
Acquisition Premium. A United States Holder who acquires a Note for an
amount that is greater than its adjusted issue price but less than its stated
redemption price at maturity will be considered to have purchased such Note at
an "acquisition premium." (The adjusted issue price of a Note generally is equal
to the issue price of the Note determined under the Company's allocation as
described above, increased by all original issue discount previously includible
in the income of any Holder with respect to the Note and reduced by the amount
of any payments previously made with respect to the Note other than payments of
qualified stated interest.) Under the acquisition premium rules of the Code and
the applicable Treasury Regulations, the amount of original issue discount which
such Holder must include in its gross income with respect to such Note for any
taxable year will be reduced by the portion of such acquisition premium properly
allocable to such year.
If a United States Holder acquires a Note for an amount that is greater
than its stated redemption price at maturity, such Holder generally will not be
required to include any original issue discount in its gross income.
Amortizable Bond Premium. In general, if a United States Holder purchases a
Note for an amount that is greater than is stated redemption price at maturity,
such Holder will be considered to have purchased such Note with "amortizable
bond premium" equal to such excess. (If it results in a smaller amortizable bond
premium, the amount of amortizable bond premium is determined with reference to
the amount payable on the earlier call date of the Note.) A United States Holder
may elect to amortize such premium using a constant yield method over the
remaining term of the Note and may offset interest otherwise required to be
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included in respect of the Note during any taxable year by the amortized amount
of such excess for the taxable year.
Sale, Exchange or Retirement of the Notes. Upon the sale, exchange
(excluding the Exchange Offer) or retirement of a Note, a United States Holder
will recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement and such Holder's adjusted tax
basis in the Note. A United States Holder's adjusted tax basis in a Note
generally will equal the cost of the Note to such Holder, increased by the
amounts of any original issue discount and accrued market discount previously
included in income by the Holder with respect to such Note, and decreased by the
amounts of any payments, other than qualified stated interest payments, actually
received by such Holder with respect to such Note and by any amounts previously
deducted by the Holder with respect to such Note as amortizable bond premium.
Except to the extent attributable to "market discount" as described above,
the gain or loss recognized by a United States Holder on the sale, exchange or
retirement of a Note will be capital gain or loss and will be long-term capital
gain or loss if at the time of sale, exchange or retirement the Note has been
held for more than one year. Under current law the excess of net long-term
capital gains over net short-term capital losses is taxed at a lower rate than
ordinary income for certain non-corporate taxpayers. The distinction between
capital gain or loss and ordinary income or loss is also relevant for purposes
of, among other things, limitations on the deductibility of capital losses.
TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
Exchange of Notes
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not be treated as an exchange or other taxable event for federal income
tax purposes because, under proposed Treasury Regulations, the New Notes should
not be considered to differ materially in kind or extent from the Old Notes.
Rather, the New Notes received by Non-United States Holders should be treated as
a continuation of the Old Notes in the hands of such Non-United States Holders.
As a result, there should be no federal income tax consequences to Non-United
States Holders who exchange Old Notes for New Notes pursuant to the Exchange
Offer and any such Non-United States Holders should have the same adjusted basis
and holding period in the New Notes as it had in the Old Notes immediately
before the exchange.
Trade or Business Income; Interest on Notes
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) Payments of principal and interest (including original issue discount)
and premium on the Notes by the Company or any paying agent to any Non-United
States Holder will not be subject to United States federal withholding tax,
provided that, in the case of amounts paid with respect to interest or accrued
original issue discount, (i) such Holder does not own, actually or
constructively, 10 percent or more of the total combined voting power of all
classes of stock of the Company entitled to vote, is not a controlled foreign
corporation related, directly or indirectly, to the Company through stock
ownership, and is not a bank receiving interest described in Section
881(c)(3)(A) of the Code and (ii) the beneficial owner thereof fulfills the
statement requirement set forth in Section 871(h) or Section 881(c) of the Code
(described below);
(b) Subject to the discussion below of gain recognized on the disposition
of Units prior to the date on which the Notes become separately transferable
from the Warrants or disposition of Notes after such date under "Tax
Consequences to Non-United States Holders -- FIRPTA Treatment of Non-United
States Holders," a Non-United States Holder of a Note will not be subject to
United States federal income tax on gain realized on the sale, exchange or other
disposition of such Note, unless (i) such Holder is an individual who is present
in the United States for 183 days or more in the taxable year of disposition,
and either (a) such individual has a "tax home" (as defined in Section 91l(d)(3)
of the Code) in the United States (unless such gain is attributable to a fixed
place of business in a foreign country maintained by such individual and has
been subject to foreign tax of at least 10%) or (b) the gain is attributable to
an office or other fixed place of business
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maintained by such individual in the United States or (ii) such gain is
effectively connected with the conduct by such Holder of a trade or business in
the United States; and
(c) A Note held by an individual who is not a citizen or domiciliary of the
United States at the time of his death will not be subject to United States
federal estate tax as a result of such individual's death, provided that the
individual does not own, actually or constructively, 10 percent or more of the
total combined voting power of all classes of stock of the Company entitled to
vote and, at the time of such individual's death, payments with respect to such
Note would not have been effectively connected to the conduct by such individual
of a trade or business in the United States.
Sections 871(h) and 881(c) of the Code require that, in order to obtain the
portfolio interest exemption from withholding tax described in paragraph (a)
above, either the beneficial owner of the Note or a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "Financial
Institution") and that is holding the Note on behalf of such beneficial owner,
files a statement with the withholding agent to the effect that the beneficial
owner of the Note is not a United States Holder. Under temporary Treasury
Regulations, such requirement will be fulfilled if the beneficial owner of a
Note certifies on Internal Revenue Service Form W-8, under penalties of perjury,
that it is not a United States Holder and provides its name and address, or any
Financial Institution holding the Note on behalf of the beneficial owner, files
a statement with the withholding agent to the effect that it has received such a
statement from the Holder (and furnishes the withholding agent with a copy
thereof).
If a Non-United States Holder of a Note is engaged in a trade or business
in the United States, and if interest on the Note is effectively connected with
the conduct of such trade or business, the Non-United States Holder, although
exempt from the withholding tax discussed in the preceding paragraph, will
generally be subject to regular United States income tax on interest (including
any original issue discount) and on any gain realized on the sale, exchange or
other disposition of a Note in the same manner as if it were a United States
Holder. See "Tax Consequences to United States Holders" above. In lieu of the
certificate described in the preceding paragraph, such a Holder will be required
to provide annually to the Company a properly executed Internal Revenue Service
Form 4224 in order to claim an exemption from withholding tax. In addition, if
such Non-United States Holder is a foreign corporation, it may be subject to a
branch profits tax equal to 30% of its effectively connected earnings and
profits for the taxable year, subject to certain adjustments. For purposes of
the branch profits tax, interest including original issue discount on and any
gain recognized on the sale, exchange or other disposition of a Note will be
included in the earnings and profits of such Non-United States Holder if such
interest is effectively connected with the conduct by the Non-United States
Holder of a trade or business in the United States.
FIRPTA Treatment of Non-United States Holders
Under the Foreign Investment in Real Property Tax Act of 1980, as amended
("FIRPTA"), foreign persons generally are subject to United States federal
income tax on capital gain realized on the disposition of any interest (other
than solely as a creditor) in a corporation that is a United States real
property holding corporation (a "USRPHC"). For this purpose, a foreign person is
defined as any Holder who is a foreign corporation (other than certain foreign
corporations that elect to be treated as domestic corporations), a non-resident
alien individual, a non-resident fiduciary of a foreign estate or trust, or a
foreign partnership. Under FIRPTA, a corporation is a USRPHC if the aggregate
fair market value of the United States real property interests held by the
corporation is 50 percent or more of the aggregate fair market value of certain
assets of the corporation.
Under current Treasury Regulations, an interest in a USRPHC is excepted
from FIRPTA, and is therefore not subject to United States federal income tax,
if any class of stock of the USRPHC is regularly traded on an established
securities market. The exception does not apply to any foreign person that owns,
or has owned, directly or indirectly, more than 5 percent of the total fair
market value of such regularly traded interest at any time during the shorter of
(i) the period during which the foreign person owned such interest in the USRPHC
and (ii) the 5-year period ending on the disposition of an interest by the
foreign person (a "5-Percent Owner"). The Company is a USRPHC; however, shares
of Common Stock of the Company are
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currently traded on an established securities market. Accordingly, a foreign
person that holds Warrants or shares of Common Stock of the Company and that is
not a 5-Percent Owner will not be subject to United States federal income tax.
In contrast, a 5-Percent Owner that holds Warrants, or shares of the Common
Stock of the Company acquired pursuant to the exercise of such Warrants,
generally will be subject to United States federal income tax on a sale or
disposition of the Warrants or shares of Common Stock (generally at a rate of up
to 35% in the case of corporations and up to 28% in the case of individuals).
Further, in the event that a 5-Percent Owner disposes of Units or Notes, it is
possible that such Owner will be subject to United States federal income tax in
the manner described in the preceding sentence with respect to the gain
recognized on such disposition.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Certain noncorporate United States Holders may be subject to backup
withholding at a rate of 31% on payments of principal and interest (including
original issue discount) and premium on, and the proceeds of disposition of, a
Note. Backup withholding will apply only if the Holder (i) fails to furnish its
Taxpayer Identification Number ("TIN") which, for an individual, would be his
Social Security number, (ii) furnishes an incorrect TIN and the IRS notifies the
payor that such TIN is incorrect, (iii) is notified by the IRS that it has
failed to properly report payments of interest and dividends or (iv) under
certain circumstances, fails to certify, under penalty of perjury that it has
furnished a correct TIN and has not been notified by the IRS that it is subject
to backup withholding for failure to report interest and dividend payments.
Under current Treasury Regulations, backup withholding will not apply to
payments of principal, premium or interest made outside the United States on the
Notes if the certifications required by Sections 871(h) and 881(c) of the Code
are received, provided in each case that the Company or such paying agent, as
the case may be, does not have actual knowledge that the payee is a United
States person.
Under current Treasury Regulations, if payments of principal and interest
(including original issue discount) or premium are made to or through the
foreign office of a custodian, nominee or other agent acting on behalf of a
beneficial owner of a Note, such custodian, nominee or other agent will not be
required to apply backup withholding to such payments made to such beneficial
owner and generally will not be subject to information reporting requirements.
Under proposed Treasury Regulations, backup withholding may apply to any payment
which such custodian, nominee or other agent is required to report if such
custodian, nominee or other agent has actual knowledge that the payee is a
United States person.
Under current Treasury Regulations, payments on the sale, exchange or other
disposition of a Note made to or through a foreign office of a broker generally
will not be subject to backup withholding. However, if such broker is a United
States person, a controlled foreign corporation for United States tax purposes
or a foreign person 50 percent or more of whose gross income is effectively
connected with a United States trade or business for a specified three-year
period, information reporting will be required unless the broker has in its
records documentary evidence that the beneficial owner is not a United States
person and certain other conditions are met or the beneficial owner otherwise
establishes an exemption. Under proposed Treasury Regulations, backup
withholding may apply to any payment which such broker is required to report if
such broker has actual knowledge that the payee is a United States person.
Payments to or through the United States office of a broker will be subject to
backup withholding and information reporting unless the Holder certifies, under
penalties of perjury, that it is not a United States person or otherwise
establishes an exemption.
The Company will compute original issue discount and report to the IRS and
to each holder of record (other than, in general, for certain holders for which
reporting is not required, such as corporations) such information regarding
original issue discount with respect to the Notes as may be required under
applicable regulations. No assurance can be given that the IRS will not
challenge the accuracy of the reported information. Moreover, if a Holder uses
an allocation of the issue price of the Unit between the Note and the Warrant
comprising such Unit different from that used by the Company, the computation of
original issue discount with respect to such Holder's Note may differ from that
reported by the Company to the IRS and to such Holder.
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Holders of Notes should consult their tax advisers regarding the
application of information reporting and backup withholding in their particular
situations, the availability of an exemption therefrom, and the procedure for
obtaining such an exemption, if available. Any amounts withheld from a payment
to a Holder under the backup withholding rules will be allowed as a credit
against such Holder's United States federal income tax liability and may entitle
such Holder to a refund, provided that the required information is furnished to
the IRS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that for a period of 90 days after
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until (90 days after the date of this Prospectus),
all dealers effecting transactions in the New Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal.
The Company has agreed in the Registration Rights Agreement to indemnify
each broker-dealer reselling New Notes pursuant to this Prospectus, and their
officers, directors and controlling persons, against certain liabilities in
connection with the offer and sale of the New Notes, including liabilities under
the Securities Act, or to contribute to payments that such broker-dealers may be
required to make in respect thereof.
LEGAL MATTERS
Certain legal matters relating to the legality of the New Notes are being
passed upon for the Company by Gibson, Dunn & Crutcher.
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INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of the Company as of February 28,
1993 and February 28, 1994, and for each of the two years in the period ended
February 28, 1994 and the financial statements of Durable for the year ended
December 31, 1993, included in this Prospectus, have been audited by Arthur
Andersen & Co SC, independent public accountants, as indicated in their reports
included herein. The financial statements of the Company for the period ended as
of February 29, 1992 included in this Prospectus, have been audited by Kenneth
Leventhal & Company, independent public accountants, as indicated in their
report included herein. The financial statements of Durable for the periods
ended as of December 31, 1991 and December 31, 1992, included in this
Prospectus, have been audited by Price Waterhouse, independent public
accountants, as indicated in their reports included herein.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
J.M. PETERS COMPANY, INC.
Report of Independent Public Accountants............................................ F-2
Independent Auditors' Reports....................................................... F-3
Consolidated Balance Sheets......................................................... F-8
Consolidated Statements of Operations............................................... F-9
Consolidated Statements of Stockholders' Equity..................................... F-10
Consolidated Statements of Cash Flows............................................... F-11
Notes to Consolidated Financial Statements.......................................... F-12
DURABLE HOMES, INC.
Reports of Independent Public Accountants........................................... F-24
Consolidated Statements of Income................................................... F-26
Consolidated Statements of Cash Flows............................................... F-27
Notes to Consolidated Financial Statements.......................................... F-28
</TABLE>
F-1
<PAGE> 107
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of J.M. Peters Company, Inc.:
We have audited the accompanying consolidated balance sheets of J.M. PETERS
COMPANY, INC. and subsidiaries, (a Delaware corporation) as of February 28, 1993
and 1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the financial statements of the Joint Ventures (Note 1), which statements
reflect 18 percent of consolidated assets at February 28, 1993 and assets and
revenues of 15 and 33 percent, respectively, of the consolidated totals at
February 28, 1994. Those statements were audited by other auditors whose report
has been furnished to us and our opinion, insofar as it relates to the amounts
included for those entities, is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of J.M. Peters Company, Inc. and subsidiaries as of
February 28, 1993 and 1994, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN & CO.
Irvine, California
March 11, 1994
F-2
<PAGE> 108
INDEPENDENT AUDITORS' REPORT
To the Partners
Ranchland Montilla Development, L.P.
We have audited the accompanying balance sheets of Ranchland Montilla
Development, L.P. (the "Partnership"), a California limited partnership, as of
December 31, 1992 and 1993, and the related statements of operations, partners'
capital and cash flows for the year ended December 31, 1993 and the period
August 12, 1992 (inception) through December 31, 1992. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ranchland Montilla
Development, L.P. as of December 31, 1993 and 1992, and the results of its
operations and its cash flows for the year ended December 31, 1993 and the
period August 12, 1992 (inception) through December 31, 1992, in conformity with
generally accepted accounting principles.
KENNETH LEVENTHAL & COMPANY
Newport Beach, California
February 14, 1994
F-3
<PAGE> 109
INDEPENDENT AUDITORS' REPORT
To the Partners
Ranchland Alicante Development, L.P.
We have audited the accompanying balance sheets of Ranchland Alicante
Development, L.P. (the "Partnership"), a California limited partnership, as of
December 31, 1993 and 1992, and the related statements of operations, partners'
capital and cash flows for the year ended December 31, 1993 and the period
August 12, 1992 (inception) through December 31, 1992. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ranchland Alicante
Development, L.P. as of December 31, 1993 and 1992, and the results of its
operations and its cash flows for the year ended December 31, 1993 and the
period August 12, 1992 (inception) through December 31, 1992, in conformity with
generally accepted accounting principles.
KENNETH LEVENTHAL & COMPANY
Newport Beach, California
February 14, 1994
F-4
<PAGE> 110
INDEPENDENT AUDITORS' REPORT
To the Partners
Ranchland Portola Development, L.P.
We have audited the accompanying balance sheets of Ranchland Portola
Development, L.P. (the "Partnership"), a California limited partnership, as of
December 31, 1993 and 1992, and the related statements of operations, partners'
capital and cash flows for the year ended December 31, 1993 and the period
August 12, 1992 (inception) through December 31, 1992. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ranchland Portola
Development, L.P. as of December 31, 1993 and 1992, and the results of its
operations and its cash flows for the year ended December 31, 1993 and the
period August 12, 1992 (inception) through December 31, 1992, in conformity with
generally accepted accounting principles.
KENNETH LEVENTHAL & COMPANY
Newport Beach, California
February 14, 1994
F-5
<PAGE> 111
INDEPENDENT AUDITORS' REPORT
To the Partners
Ranchland Fairway Development, L.P.
We have audited the accompanying balance sheets of Ranchland Fairway
Development, L.P. (the "Partnership"), a California limited partnership, as of
December 31, 1993 and 1992, and the related statements of operations, partners'
capital and cash flows for the year ended December 31, 1993 and the period
August 12, 1992 (inception) through December 31, 1992. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ranchland Fairway
Development, L.P. as of December 31, 1993 and 1992, and the results of its
operations and its cash flows for the year ended December 31, 1993 and the
period August 12, 1992 (inception) through December 31, 1992, in conformity with
generally accepted accounting principles.
KENNETH LEVENTHAL & COMPANY
Newport Beach, California
February 14, 1994
F-6
<PAGE> 112
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows of J. M. Peters Company, Inc. (the
"Company") for the year ended February 29, 1992. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our report dated May 15, 1992, we disclaimed an opinion on the February
29, 1992 financial statements because of the possible material effects that the
outcome of an 85.8% change in the Company's ownership coupled with substantial
doubt about the Company's ability to continue as a going concern may have had on
those financial statements. As discussed in Note 1 -- Organization, an 85.8%
ownership interest was purchased by Capital Pacific Homes, Inc. on August 12,
1992 and approximately $98 million of indebtedness was contributed to equity.
Accordingly, our present opinion on the February 29, 1992 financial statements,
as presented herein, differs from that previously expressed.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of the Company for the year ended February 29, 1992, in
conformity with generally accepted accounting principles.
KENNETH LEVENTHAL & COMPANY
Newport Beach, California
May 15, 1992, except as to the third paragraph
above and Note 1 -- Organization, which are as
of March 11, 1994
F-7
<PAGE> 113
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
MAY 31,
FEBRUARY 28, FEBRUARY 28, 1994
1993 1994 (UNAUDITED)
------------ ------------ ------------
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS.............................. $ 9,454 $ 10,001 $ 71,679
RESTRICTED CASH........................................ 1,888 1,483 1,404
ACCOUNTS AND NOTES RECEIVABLE.......................... 1,905 1,650 2,078
REAL ESTATE PROJECTS................................... 99,636 105,696 104,298
PREPAID EXPENSES AND OTHER ASSETS...................... 2,668 3,124 12,444
--------- --------- ---------
TOTAL ASSETS............................ $ 115,551 $ 121,954 $ 191,903
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES............... $ 7,754 $ 17,692 $ 18,086
NOTES PAYABLE.......................................... 38,433 34,709 9,956
SENIOR UNSECURED NOTES PAYABLE......................... -- -- 100,000
DUE TO CAPITAL PACIFIC HOMES, INC...................... 1,702 -- --
--------- --------- ---------
Total liabilities............................ 47,889 52,401 128,042
--------- --------- ---------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN JOINT VENTURES.................... 19,647 13,959 2,824
STOCKHOLDERS' EQUITY:
Common stock, par value $.10 per share;
15,000,000 shares authorized;
13,980,000, 14,995,000 and 14,995,000 issued and
outstanding at February 28, 1993, February 28,
1994 and May 31, 1994, respectively............... 1,398 1,500 1,500
Additional paid-in capital........................... 207,824 210,387 211,888
Accumulated deficit.................................. (161,207) (156,293) (152,351)
--------- --------- ---------
Total stockholders' equity................... 48,015 55,594 61,037
--------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................ $ 115,551 $ 121,954 $ 191,903
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 114
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE YEARS ENDED ---------------------------
------------------------------------------ MAY 31, MAY 31,
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, 1993 1994
1992 1993 1994 (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales of homes and land............ $182,670 $ 72,148 $ 88,140 $ 3,604 $ 31,740
Interest and other income, net..... 2,274 3,554 2,926 400 1,030
-------- -------- -------- -------- --------
184,944 75,702 91,066 4,004 32,770
-------- -------- -------- -------- --------
COSTS AND EXPENSES:
Cost of homes and land............. 170,329 68,257 73,348 3,761 25,365
Adjustments to carrying value of
real estate projects and
investments in partnerships..... 56,016 75,476 -- -- --
Selling, general and
administrative.................. 15,579 9,764 12,322 1,918 4,545
Minority interest.................. -- -- 4,332 -- 1,531
Interest........................... 14,691 8,538 418 276 --
-------- -------- -------- -------- --------
256,615 162,035 90,420 5,955 31,441
-------- -------- -------- -------- --------
Income (loss) before provision
(benefit) for income taxes and
extraordinary gain................. (71,671) (86,333) 646 (1,951) 1,329
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. (13,895) (1,792) -- -- 462
-------- -------- -------- -------- --------
Income (loss) before extraordinary
gain............................... (57,776) (84,541) 646 (1,951) 867
EXTRAORDINARY GAIN, NET.............. -- -- 4,268 -- 3,075
-------- -------- -------- -------- --------
Net income (loss).................... $(57,776) $(84,541) $ 4,914 $ (1,951) $ 3,942
======== ======== ======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE:
Before extraordinary gain.......... $ (4.13) $ (6.05) $ .04 $ (.14) $ .06
Extraordinary gain................. -- -- .30 -- .20
-------- -------- --------- -------- --------
Net income (loss).................. $ (4.13) $ (6.05) $ .34 $ (.14) $ .26
======== ======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES.... 13,980 13,980 14,488 13,980 14,995
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 115
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED FEBRUARY 28, 1994 AND THE THREE MONTHS ENDED MAY 31,
1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
------ ---------- --------- --------
<S> <C> <C> <C> <C>
BALANCE, February 28, 1991...................... $1,398 $ 49,661 $ (18,890) $ 32,169
Net loss...................................... -- -- (57,776) (57,776)
------ ---------- --------- --------
BALANCE, February 29, 1992...................... 1,398 49,661 (76,666) (25,607)
Capital contribution related to purchase debt
restructuring.............................. -- 97,510 -- 97,510
Capital contribution related to tax sharing
claims..................................... -- 60,653 -- 60,653
Net loss...................................... -- -- (84,541) (84,541)
------ ---------- --------- --------
BALANCE, February 28, 1993...................... 1,398 207,824 (161,207) 48,015
Shares issued in connection with acquisition
of
Durable Homes, Inc......................... 102 2,563 -- 2,665
Net income.................................... -- -- 4,914 4,914
------ ---------- --------- --------
BALANCE, February 28, 1994...................... 1,500 210,387 (156,293) 55,594
Issuance of warrants in connection with note
offering................................... -- 1,501 -- 1,501
Net income.................................... -- -- 3,942 3,942
------ ---------- --------- --------
UNAUDITED BALANCE, MAY 31, 1994................. $1,500 $ 211,888 $(152,351) $ 61,037
====== ======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 116
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FOR THE
FOR THE YEAR ENDED QUARTER QUARTER
------------------------------------------ ENDED ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, MAY 31, 1993 MAY 31, 1994
1992 1993 1994 (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).................................. $ (57,776) $(84,541) $ 4,914 $(1,951) $ 3,942
Adjustments to reconcile net income (loss) to net
cash provided by operating activities --
Extraordinary gain............................... -- -- (4,268) -- (4,713)
Depreciation and amortization.................... 281 195 131 44 16
Adjustments to carrying value of real estate
projects and investments in partnerships....... 56,016 75,476 -- -- --
Adjustment to state tax liability................ (13,895) -- -- -- --
Changes in Assets and Liabilities
Net of the Effects of the Purchase of Durable
Homes, Inc.:
Decrease in accounts and notes receivable...... 116 1,562 259 316 (428)
(Increase) decrease in real estate projects.... 115,367 49,454 226 (4,938) 1,398
(Increase) decrease in prepaid expenses and
other assets................................ 989 (459) (393) (101) (635)
(Decrease) increase in accounts payable and
accrued liabilities......................... 3,386 (2,478) 6,209 3,079 (36)
Gain related to debt restructuring............. -- (1,225) -- -- --
------------ ------------ ------------ ------------- -------------
Net cash provided by (used in) operating
activities................................ 104,424 37,984 7,864 (3,551) (456)
------------ ------------ ------------ ------------- -------------
INVESTING ACTIVITIES:
Acquisition of Durable Homes, Inc.................. -- -- (1,500) -- --
Purchases of property and equipment, net........... (2) (56) (68) (15) (3,216)
(Increase) decrease in investments in
partnerships..................................... 493 (139) (45) (66) (14)
------------ ------------ ------------ ------------- -------------
Net cash provided by (used in) investing
activities................................ 491 (195) (1,613) (81) (3,230)
------------ ------------ ------------ ------------- -------------
FINANCING ACTIVITIES:
Proceeds from construction notes................... 32,266 6,241 39,374 -- --
Principal payments of construction notes........... (133,739) (28,642) (35,574) (1,373) (20,040)
Advances from San Jacinto.......................... 12,821 3,025 -- -- --
Payments to San Jacinto............................ (3,204) -- -- -- --
Proceeds from Senior Unsecured Notes Payable,
net.............................................. -- -- -- -- 96,539
Principal payments to Capital Pacific Homes,
Inc.............................................. -- (47,298) (1,702) (421) --
Minority interest in Joint Ventures................ -- 19,647 (7,802) 2,081 (11,135)
------------ ------------ ------------ ------------- -------------
Net cash provided by (used in) financing
activities................................ (91,856) (47,027) (5,704) 287 65,364
------------ ------------ ------------ ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................ 13,119 (9,238) 547 (3,345) 61,678
CASH AND CASH EQUIVALENTS, beginning of period....... 5,573 18,692 9,454 9,454 10,001
------------ ------------ ------------ ------------- -------------
CASH AND CASH EQUIVALENTS, end of period............. $ 18,692 $ 9,454 $ 10,001 $ 6,109 $ 71,679
=========== =========== =========== ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH AND NONCASH
ACTIVITIES:
Distribution of property from partnership.......... $ 24,248 $ -- $ -- $ -- $ --
Amount paid during the period for interest, net of
amount capitalized............................... 3,583 878 1,101 280 809
Income tax refund and related interest............. -- 3,150 -- -- --
San Jacinto contribution of capital................ -- 158,163 -- -- --
Decrease in due to San Jacinto (tax-sharing
claims).......................................... -- 60,653 -- -- --
Decrease in due to San Jacinto advances............ -- 145,499 -- -- --
Increase in due to Capital Pacific Homes........... -- 49,000 -- -- --
Residential inventory surrendered in exchange for
debt forgiveness................................. -- -- 9,980 -- --
Note payable and accrued interest reduced by
debt forgiveness................................. -- -- 14,248 -- 4,713
Common stock issued in connection with the
acquisition of Durable Homes, Inc................ -- -- 2,665 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 117
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
On July 1, 1992, Capital Pacific Homes, Inc. (CPH), a Delaware corporation,
entered into a definitive purchase agreement (the Purchase Agreement), pursuant
to which CPH acquired from San Jacinto F.A. (San Jacinto) (i) 12,000,000 shares
of J.M. Peters, Inc. (the Company) common stock (the Purchased Shares)
representing 85.8 percent of the total outstanding shares of common stock of the
Company and (ii) all debt of the Company owed to San Jacinto which, at the time
of the closing and after giving effect to debt restructuring, equaled
$49,000,000. Utilizing the proceeds from the sale of real estate projects to
third parties, cash received from the joint ventures discussed below and cash on
hand, the Company has repaid this debt to CPH at February 28, 1994. The closing
of the purchase transaction occurred on August 12, 1992. The indebtedness of the
Company to San Jacinto equaled approximately $146,000,000 prior to the purchase
transaction. Pursuant to a debt restructuring agreement, and prior to the
closing, San Jacinto contributed to the capital of the Company $97,510,000 of
the indebtedness.
Acquisition of Durable Homes, Inc.
On October 15, 1993, with an effective date of September 1, 1993, the
Company acquired all of the common stock of Durable Homes, Inc. (Durable) for a
total purchase price, including $200,000 direct costs of the acquisition, of
$4.2 million. The Company paid $1.5 million cash and issued 1,015,000 shares of
its common stock to the seller. The transaction was accounted for as a purchase.
The income of Durable has been included in the consolidated financial statements
of the Company from the effective date of the acquisition. Durable builds single
family homes and condominiums in Nevada.
The allocation of purchase price at September 1, 1993, was as follows (in
thousands):
<TABLE>
<S> <C>
Cash and cash equivalents.................................................. $ 335
Real estate inventories.................................................... 16,655
Other assets............................................................... 467
Accounts payable and other liabilities..................................... (3,880)
Notes payable.............................................................. (6,523)
Minority interest in Joint Ventures........................................ (2,114)
Excess of fair value of net assets acquired over purchase price (negative
goodwill)................................................................ (726)
-------
Total................................................................. $ 4,214
=======
</TABLE>
Negative goodwill is being amortized on a straight line basis over a five
year period.
The following summary, prepared on a pro forma basis, combines the
consolidated results of operations as if Durable had been acquired as of the
beginning of the fiscal years presented, after including the impact of certain
adjustments, including the reduction of interest income attributable to the cash
paid, tax provision of Durable which was an S corporation and the tax benefit
attributable to filing a consolidated tax return with the
F-12
<PAGE> 118
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company, including the utilization of certain net operating losses. The
information set forth below includes Durable data for its fiscal years ended
December 31, 1992 and 1993.
<TABLE>
<CAPTION>
1993 1994
(UNAUDITED) (UNAUDITED)
----------- -----------
(EXPRESSED IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Sales and revenues.................................. $ 111,886 $ 108,552
========= =========
Net income (loss) before extraordinary gain......... $ (82,320) $ 1,427
========= =========
Net income (loss) per share before extraordinary
gain.............................................. $ (5.49) $ .09
========= =========
</TABLE>
The proforma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire periods
presented, nor are they intended to be a reflection of future results.
Principles of Consolidation and Minority Interest
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries and investments for which it has control.
Fifty-percent owned Joint Ventures are also consolidated, since the Company is
the sole General Partner and has control of the major operating and financial
policies of such Joint Ventures. In addition, as of May 31, 1994, the Company
acquired the equity interests in each of the CalPERS Joint Ventures. All other
investments (See Note 5) are accounted for on the equity method. All significant
intercompany balances and transactions have been eliminated in consolidation.
Effective upon the closing date of the purchase transaction with San
Jacinto, Peters Ranchland Company, Inc., a wholly owned subsidiary of the
Company, as general partner, entered into four limited partnership agreements
with IHP Investment Fund I, L.P. (a CalPERS advisor), as limited partner (Joint
Ventures) to pursue the development of various real properties of the Company,
with such properties transferred to the joint ventures concurrently with the
closing. Approximately $16,610,000 in proceeds from the transfer of the
foregoing properties to the Joint Ventures was applied by the Company against
repayment of the Company's note and CPH delivered these proceeds to San Jacinto,
which were applied against repayment of the CPH note payable to San Jacinto.
Prior to the transfer of these four properties to the joint ventures, the
properties had a carrying value of $41,946,000 and were written down by
$25,336,000. Peters Ranchland Company, Inc. and IHP Investment Fund I,
L.P.(IHP), each have a 50% interest in each Joint Venture. The financial
statements of the Joint Ventures have been consolidated herein.
The partnership agreements provide that profits from the Joint Ventures are
allocated first, to the partners to recover previous net loss allocations;
second, to the extent of any preferred return; the balance to the partners in
accordance with their percentage interests. Net losses are generally allocated
first, to the partners in accordance with percentage interests until the limited
partner's capital account is reduced to zero; the balance is allocated to the
general partner.
The partnership agreements provide that distributions from the Joint
Ventures are generally allocated first, to the partners for preferred return on
additional capital and for additional capital contributions; second, for payment
of limited partner preferred returns; third, for payment of limited partner
capital contributions; the balance is allocated to the partners in accordance
with their respective percentage interests.
The Partnership Agreement provides, among other things, that the partners
shall be entitled to receive a preferred return on contributed capital computed
at prime plus three percent. As of February 28, 1993, the Partnership had
unaccrued and unpaid preferred returns on capital contributions of $889,000 to
IHP. Payments for preferred returns were $2,854,000 during fiscal year ended
February 28, 1994.
F-13
<PAGE> 119
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Commitment fees totaling $988,000 and $1,033,000 were paid to IHP and
capitalized to the real estate being developed by joint ventures during the
period August 12, 1992 (inception) through February 28, 1993 and fiscal 1994,
respectively. These capitalized fees are included in cost of sales as the units
are sold.
Property and Equipment
Property and equipment are recorded at cost and are depreciated over their
estimated useful lives using the straight-line method. Total property and
equipment were $222,000 and $159,000 (net of accumulated depreciation of
$2,074,000 and $2,152,000, respectively) as of February 28, 1993 and 1994,
respectively, and are included in prepaid expenses and other assets in the
consolidated balance sheets.
Real Estate Projects
Real estate projects are carried at the lower of cost or estimated net
realizable value. Estimated net realizable value represents management's
estimates, based on management's present plans and intentions, of sale prices
less development and disposition costs, assuming that the development and
disposition occurs in the normal course of business. It is the Company's policy
to include property taxes and insurance but exclude postcompletion interest
costs in the calculation of net realizable value. Net realizable values for real
estate projects under or held for development are generally based on an
assumption of the completion of housing units within a project and the sale of
such units to home buyers or, to a lesser extent, sale of lots to other home
builders.
All direct and indirect land costs, offsite and onsite improvements, model
amortizable costs and applicable interest and carrying charges are capitalized
to real estate projects under development; marketing costs are expensed in the
period incurred. Land and land development costs are accumulated by project and
are allocated to individual phases using the relative sales value method.
Revenue Recognition
The Company's accounting policies follow specific provisions of the
Statement of Financial Accounting Standards No. 66, "Accounting for Sales of
Real Estate," which specifies minimum down payment requirements, financing terms
and other certain requirements for sales of real estate.
Income from sales is recognized when title has passed, the buyer has met
minimum down payment requirements and the terms of any notes received by the
Company satisfy continuing investment requirements. At the time of sale,
accumulated costs are relieved from real estate projects and charged to cost of
sales on a relative sales value basis.
Income Taxes
Effective March 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109. Accordingly, for the year ended
February 28, 1994, all disclosures are in accordance with SFAS No. 109. Under
the provisions of SFAS No. 109, the Company elected not to restate prior years'
consolidated financial statements. The cumulative effect of initial adoption on
prior years' retained earnings deficit was not significant. Additionally, the
effect of the adoption of SFAS No. 109 upon income before taxes for fiscal 1994
was not significant.
The Company files a consolidated federal and combined state income tax
return with CPH. As of February 28, 1993 and 1994, the Company has substantial
net operating loss ("NOL") carryforwards, the utilization of which will be
insignificant due to the purchase transaction by CPH on August 12, 1992, which
resulted in an "ownership change" of the Company within the meaning of Internal
Revenue Code Section 382(g). When an ownership change occurs, Internal Revenue
Code (IRC) Section 382 and the regulations
F-14
<PAGE> 120
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
thereunder, provide an annual limitation on the utilization of certain loss
carryforwards of the acquired company. Such loss carryforwards include tax net
operating loss carryforwards and certain "built-in loss" assets, as defined by
IRC Section 382(h), existing at the ownership change date. Therefore, due to the
IRC Section 382 limitation imposed on the utilization of the tax NOL's and
"built-in loss" assets, the NOL carryforwards are insignificant.
No written tax sharing agreement with respect to taxes exists between the
member companies of the CPH consolidated tax group as of December 31, 1993.
However, the income taxes reflected in the financial statements are computed on
a separate return basis for the Company and its subsidiaries. The CPH
consolidated tax group files on a calendar year basis, whereas the Company's
financial statements reflect a February 28 fiscal year end. As of December 31,
1993, the Company estimates that it has a projected federal and California tax
liability of approximately $5,000 and a net operating loss carryforward to 1994,
which the Company can utilize to offset regular taxable income that may be
generated after the 1993 tax year.
Prior to August 12, 1992, San Jacinto and its subsidiaries, including the
Company, were members of a consolidated federal income tax return group. Prior
to February 28, 1993, the Company had recorded income tax payable as due to San
Jacinto. During fiscal year 1993, San Jacinto reduced the amount payable under
the tax sharing arrangement by $60,653,000. This amount is reflected as a
capital contribution in the accompanying consolidated financial statements.
Statements of Cash Flows
For purposes of the consolidated statements of cash flows, short-term
investments which have a maturity of 90 days or less from the date of purchase
are considered cash equivalents.
Reclassifications
Reclassifications have been made to certain prior year balances in order to
conform with the current year presentation.
Unaudited Consolidated Interim Financial Statements
The unaudited consolidated financial statements as of and for the three
months ended May 31, 1993 and 1994 include all normal, recurring adjustments
which are, in the opinion of management, necessary to a fair presentation in
accordance with generally accepted accounting principles of the Company's
consolidated financial position and results of operations for the interim
periods presented.
2. RESTRICTED CASH
The Company has restricted cash totaling $1,888,000, $1,483,000, and
$1,404,000 as of February 28, 1993, February 28, 1994, and May 31, 1994,
respectively. Included in these amounts is $1,000,000, $750,000, and $750,000 as
of February 28, 1993, February 28, 1994, and May 31, 1994, respectively, which
is held as collateral for the Company's bonding obligations. The balance of
restricted cash are deposits to various municipalities, banks, and utilities to
guarantee future performance.
F-15
<PAGE> 121
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. REAL ESTATE PROJECTS
Real estate projects consist of the following at February 28, 1993,
February 28, 1994, and May 31, 1994 (in thousands):
<TABLE>
<CAPTION>
MAY 31,
FEBRUARY 28, FEBRUARY 28, 1994
1993 1994 (UNAUDITED)
------------- ------------- -------------
<S> <C> <C> <C>
Land held for future development or
sale............................... $47,255 $ 21,131 $ 547
Land and improvements under
construction....................... 44,996 70,632 89,078
Completed residential homes.......... 1,430 6,472 6,212
Completed model homes................ 5,955 7,461 8,461
------- -------- --------
$99,636 $105,696 $104,298
======= ======== ========
</TABLE>
Total interest cost incurred during the years ended February 28, 1992, February
28, 1993, February 28, 1994, and the three months ended May 31, 1994 was
$21,383,000, $8,871,000, $2,532,000, $1,543,000 respectively, of which
$6,692,000, $333,000, $2,114,000, and $1,543,000 respectively, was capitalized.
4. DHI JOINT VENTURES
During 1993 Durable entered into three joint venture arrangements as a
general partner for the development of various real properties. Each of the
three joint ventures are consolidated in the Company's financial statements. The
Company shares in the cash flows and the profits of these joint ventures in
accordance with the percentages set forth in the respective agreements, which
are 100% for Las Hadas, 69% for Portraits and 55% for the Plateau joint
ventures. The limited partners receive a preferred return or a return of capital
prior to the Company's receipt of cash from these joint ventures. The Company
accrues for its respective share of profits, after any preferred returns to the
limited partner, in accordance with its percentage interest in each of the joint
ventures.
5. INVESTMENTS IN UNCONSOLIDATED ENTITIES
The Company is a general partner and has a 50 percent ownership in two
insignificant unconsolidated entities. The Company's investments are as follows
at February 28, 1993, February 28, 1994 and May 31, 1994 (in thousands):
<TABLE>
<CAPTION>
MAY 31,
1994
1993 1994 (UNAUDITED)
---- ---- ------------
<S> <C> <C> <C>
P.B. Partners................................... $ 23 $ 65 $ 66
Bay Hill Escrow................................. 144 147 165
---- ---- ----
$167 $212 $231
==== ==== ====
</TABLE>
The Company uses the equity method of accounting for its investments in
these unconsolidated 50 percent-owned entities. The accounting policies of the
entities are substantially the same as those of the Company. Investments in
entities are included in prepaid expenses and other assets in the consolidated
balance sheets.
F-16
<PAGE> 122
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Following is summarized, unaudited combined financial information for the
unconsolidated entities at February 28, 1993, February 28, 1994 and May 31, 1994
(in thousands):
ASSETS
<TABLE>
<CAPTION>
MAY 31, 1994
1993 1994 (UNAUDITED)
---- ---- -------------
<S> <C> <C> <C>
Cash...................................... $376 $345 $ 369
Accounts receivable....................... 29 -- 10
Other assets.............................. 56 68 60
---- ---- ------
$461 $413 $ 439
==== ==== ======
LIABILITIES AND EQUITY
Accounts payable and other liabilities.... $110 $ 5 $ 3
---- ---- ------
Equity
The Company............................. 167 212 231
Others.................................. 184 196 205
---- ---- ------
351 408 436
---- ---- ------
$461 $413 $ 439
==== ==== ======
INCOME STATEMENT
Bayhill Escrow Company fee (Loss)
Income, Net............................. $ (2) $ 9 $ 38
==== ==== ======
</TABLE>
The change in the net equity between periods shown is the result of net
income net of distributions to partners.
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following at
February 28, 1993, February 28, 1994, and May 31, 1994 (in thousands):
<TABLE>
<CAPTION>
MAY 31, 1994
1993 1994 (UNAUDITED)
------ ------- -------------
<S> <C> <C> <C>
Accounts payable...................... $1,091 $10,809 $12,366
Compensation.......................... 170 345 426
Litigation............................ 557 536 516
Warranty.............................. 701 450 520
Interest.............................. 2,862 2,137 638
Property taxes........................ 1,045 1,618 --
Income taxes payable.................. -- -- 2,100
Other................................. 1,328 1,797 1,520
------ ------- --------
$7,754 $17,692 $18,086
====== ======= ========
</TABLE>
F-17
<PAGE> 123
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. NOTES PAYABLE
Notes payable consist of the following at February 28, 1993 and 1994, and
May 31, 1994 (in thousands):
<TABLE>
<CAPTION>
MAY 31, 1994
1993 1994 (UNAUDITED)
------- ------- -------------
<S> <C> <C> <C>
Construction notes matured.............. $24,495 $10,402 $ --
Construction notes maturing in one to
two years............................. -- 9,229 --
Promissory notes collateralized by deeds
of trust, including interest at prime
plus one percent due quarterly........ 13,938 11,123 9,956
Promissory note collateralized by deed
of trust, including interest at prime
plus 1.5 percent...................... -- 2,015 --
Model loans collateralized by deeds of
trust including interest at prime plus
3.0 percent........................... -- 1,940 --
------- ------- ------
$38,433 $34,709 $9,956
======= ======= ======
</TABLE>
At February 28, 1993 February 28, 1994, and May 31, 1994, the aggregate
carrying value of assets collateralizing the above notes was $17,407,000,
$61,379,000 and $29,654,000, respectively.
Construction notes maturing in one to two years have interest rates ranging
from the prime rate plus .75 percent to the prime rate plus 3.0 percent and
notes aggregating $1.8 million are at a fixed rate of 20%. The prime rate was 6
percent at February 28, 1993 and 1994 and 7.25% at May 31, 1994. Notes are
collateralized by deeds of trust on real property.
The construction loans which have matured in the amount of $24.5 million
and $10.4 million at February 28, 1993 and 1994, respectively, are acquisition
and development loans which originated in 1989, were previously restructured and
extended and matured in early 1992. During fiscal 1994, the Company surrendered
certain real estate collateral in settlement of approximately $14 million of
debt in default at February 28, 1993. The Company recorded an extraordinary gain
of approximately $4.3 million in connection with this transaction. Two loans,
aggregating approximately $10.4 million, remain in default as of February 28,
1994.
Of the two loans in default at February 28, 1994, one was an acquisition
and development loan with an outstanding principal balance of $9.5 million
secured by 171 lots in Mission Viejo, California. The loan was originated on
March 14, 1989. West Coast Land Fund L.P. ("West Coast"), the lender that held
the loan, commenced an action in Orange County Superior Court on October 22,
1993 against the Company with respect to the loan (the "Action"). The Action
sought to collect the $9.5 million loan balance, plus interest and costs of
collection, owed by the Company to West Coast. In April 1994 the Company and
West Coast executed a Loan Pay-Off Agreement (the "Settlement Agreement")
pursuant to which they agreed to settle the Action for $7 million. Pursuant to
the Settlement Agreement, the Company made an initial payment of $350,000
towards the settlement amount and paid the balance of $6,650,000 on May 16, 1994
in exchange for dismissal with prejudice of the Action, termination of
nonjudicial foreclosure proceedings and a reconveyance of the property to the
Company pursuant to West Coast's deed of trust. The Company recorded an
extraordinary gain of approximately $4.7 million ($3.1 million net of income
taxes) in connection with this transaction.
The second loan, a construction loan with an outstanding principal balance
of approximately $900,000, was held by The Bank of California and secured by 15
lots with foundations in place and one completed home. The loan originated on
December 18, 1991. The Bank of California foreclosed on the property on April 5,
1994, an action that the Company chose not to dispute. Although the Company
believed that it would not be
F-18
<PAGE> 124
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
economical to develop the property, the Company believed that the value of the
property exceeds the loan amount and the Company thus does not anticipate any
adverse financial impact from the foreclosure. No gain or loss was recognized as
a result of this foreclosure because the property had previously been written
down.
Prior to February 28, 1993, the Company entered into an agreement with its
lender which modified the terms of its promissory notes. As a result of the
agreement, the maturity date of the notes was extended from December 26, 1993
and August 14, 1994, respectively to January 8, 1995 for both notes. All
remaining unpaid principal is due January 8, 1995 for both notes. Additionally,
accrued interest totaling $2,949,000 was forgiven by the lender, resulting in a
gain of $1,225,000. This transaction has been accounted for as a troubled debt
restructuring. Accordingly, the obligation as shown as of February 28, 1993 and
1994, reflects the total cash to be paid to the lender. Under the accounting for
a troubled debt restructuring, no interest expense will be recorded by the
Company on this obligation through maturity. The gain of $1,225,000, which is
immaterial to 1993 operations, is included in interest and other income in the
accompanying 1993 consolidated financial statements.
During the years ended February 29, 1992, February 28, 1993 and 1994, the
highest month-end balance on construction loans was $139,482,000, $46,709,000
and $38,030,000, respectively, and the weighted average outstanding balance was
$80,964,000, $33,027,000 and $23,804,000, respectively. The weighted average
interest rates on construction loans during the years ended February 29, 1992,
February 28, 1993 and 1994, were 9.3 percent, 8.8 percent and 10.6 percent,
respectively. The weighted average interest rates on construction loans at
February 29, 1992, February 28, 1993 and 1994, were 7.39 percent, 8.76 percent
and 10.9 percent, respectively.
The aggregate scheduled principal maturities of notes payable are as
follows (in thousands):
<TABLE>
<CAPTION>
AS OF
AS OF MAY 31, 1994
FEBRUARY 28, 1994 (UNAUDITED)
------------------ -------------
<S> <C> <C>
Years ending February 28:
Notes matured.................................. $ 10,402 $ --
1995........................................... 19,582 9,956
1996........................................... 2,795 --
Thereafter..................................... 1,930 --
--------- --------
$ 34,709 $ 9,956
========= ========
</TABLE>
8. SENIOR UNSECURED NOTES PAYABLE
<TABLE>
<CAPTION>
MAY 31, 1994
(UNAUDITED)
-------------
<S> <C>
Senior Unsecured Notes Payable (in thousands)................... $ 100,000
==========
</TABLE>
Senior Unsecured Notes Payable consist of $100,000,000 of unsecured senior
notes due and payable on May 1, 2002 including interest at 12 3/4% due
semi-annually in May and November.
F-19
<PAGE> 125
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES
The expense (benefit) for income taxes consists of the following for the
years ended February 29, 1992, February 28, 1993 and 1994 and the quarter ended
May 31, 1994 (in thousands):
<TABLE>
<CAPTION>
MAY 31, 1994
1992 1993 1994 (UNAUDITED)
-------- ------- ----- ------------
<S> <C> <C> <C> <C>
Current
Federal......................... $ -- $ -- $ 100 $ 330
State........................... (13,895) (1,792) 210 132
-------- ------- ----- ------------
(13,895) (1,792) 310 462
-------- ------- ----- ------------
Deferred
Federal......................... -- -- (100) --
State........................... -- -- (210) --
-------- ------- ----- ------------
-- -- (310) --
-------- ------- ----- ------------
Provision for income taxes on
income before extraordinary
item............................ (13,895) (1,792) -- 462
Provision for income taxes on
extraordinary item.............. -- -- -- 1,638
-------- ------- ----- ------------
Provision for income taxes........ $(13,895) $(1,792) $ -- $2,100
======== ======= ===== ==========
</TABLE>
The deferred income tax benefit at February 28, 1994 and May 31, 1994
results from the following temporary differences between financial and tax
reporting (in thousands):
<TABLE>
<CAPTION>
MAY 31,
FEBRUARY 28, 1994
1994 (UNAUDITED)
------------- -----------
<S> <C> <C>
Accrued expenses.................................. $ (3) $ 40
Construction period expenses...................... 9 (5)
Utilization of NOL carryforward................... (265) (1,037)
Change in valuation allowance..................... (53) 853
State taxes (net of federal effect)............... 2 168
Depreciation...................................... -- (19)
------------- -----------
$(310) $ --
========= =========
</TABLE>
The components of the deferred income taxes are:
<TABLE>
<CAPTION>
MAY 31,
FEBRUARY 28, 1994
1994 (UNAUDITED)
------------ ------------
<S> <C> <C>
Depreciation........................................ $ 140 $ 121
Accrued expenses.................................... 1,234 1,274
Construction period expenses........................ 1,009 1,004
NOL carryforward.................................... 1,037 --
State taxes (net of federal effect)................. 2 170
Valuation allowance................................. (3,422) (2,569)
------------ ------------
$ 0 $ 0
========= ==========
</TABLE>
The income tax benefit for the year ended February 28, 1993, represents a
refund received during the year for state income taxes paid in a previous year.
Associated interest income of $1,358,000 was also received in connection with
this refund and is included in interest and other income in the 1993
consolidated statement of operations.
F-20
<PAGE> 126
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The state income tax benefit of $13,895,000, for the year ended February
29, 1992, represents a reversal of accrued state income taxes. The Company
previously provided for state income taxes assuming that it would be taxed by
the state on a stand-alone basis. During the year ended February 29, 1992, the
Franchise Tax Board examined the combined franchise tax returns of the former
parent and its subsidiaries, including the Company, for the tax years ended in
1987, 1988 and 1989, and advised the Company that the former parent and its
subsidiaries, including the Company, were found to be engaged in a single
unitary business. Based on such examination and finding, the Company believes
that it is not liable for the previously accrued state income taxes.
A reconciliation of income taxes (benefit) computed at the federal
statutory rate and the income tax benefit for financial reporting purposes for
the years ended February 29, 1992, February 28, 1993 and 1994 and May 31, 1994,
is as follows:
<TABLE>
<CAPTION>
MAY 31,
1994
1992 1993 1994 (UNAUDITED)
--- --- --- -----------
<S> <C> <C> <C> <C>
Income taxes at statutory rate............ (34)% (34)% 34% 34%
State income taxes, net of federal tax
benefit................................. (19) (2) 6 4
Loss for which no benefit is allowed...... 34 34 -- --
Utilization of net operating loss
carryforwards........................... -- -- (39) (3)
Increase in valuation allowance........... -- -- (1) --
--- --- --- ---
(19)% (2)% --% 35%
=== === === =========
</TABLE>
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109), effective for fiscal years beginning after December 15, 1992. The
Company adopted SFAS No. 109 on March 1, 1993. Under SFAS No. 109, deferred
taxes are based on a balance sheet approach whereby the ending deferred
liability and/or asset is determined by applying the enacted tax rates to the
difference between the tax basis of assets and liabilities and their basis for
financial reporting purposes.
10. NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is based upon the weighted average
number of common shares outstanding of 13,980,000, 13,980,000, 14,488,000, and
14,995,000 at February 29, 1992, February 28, 1993 and 1994 and May 31, 1994,
respectively. The effect of stock options was antidilutive in all years
presented, and has not been included in the computation of net income (loss) per
common share. The effect of the Warrants issued on May 13, 1994 is immaterial to
net income per share data for the three months ended May 31, 1994.
11. STOCK OPTION PLAN
In April 1987, the Company adopted its 1987 Stock Option Plan (the Plan),
covering options to purchase a maximum of 1,350,000 shares of its common stock.
On October 5, 1993, the Plan was amended to provide that the maximum number of
shares that may be issued under the Plan be reduced to 5,000 shares. Under the
Plan, directors and key employees of the Company, former parent and any of its
subsidiaries are eligible to receive options to purchase common stock under
either incentive or non incentive stock options. No option may exceed a term of
10 years. The option price for incentive stock options may not be less than the
fair market value of the shares at the time the option is granted.
F-21
<PAGE> 127
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock option activity under the plan is as follows for the years ended
February 29, 1992, February 28, 1993, February 28, 1994 and May 31, 1994,
respectively.
<TABLE>
<CAPTION>
MAY 31, 1994
1992 1993 1994 (UNAUDITED)
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
Exercised............................ -- -- -- --
Expired or forfeited................. 145,620 109,060 488,925 --
Outstanding at end of year........... 597,985 488,925 -- --
Exercisable at end of year........... 522,925 488,925 -- --
Available for grant at end of year... 254,300 254,300 5,000 5,000
Exercise price of options
outstanding........................ $ 6.00 $ 6.00 $ -- $ --
</TABLE>
12. RELATED PARTY TRANSACTIONS
During fiscal 1994, the Company reimbursed CPH for expenses aggregating
$150,000 in connection with the acquisition of Durable.
During fiscal 1993, the Company acquired an unimproved lot from CPH. The
acquisition cost of the lot was $1,550,000 and the Company issued a note payable
to CHP in the amount of $1,050,000. This note was subsequently assigned by CPH
to the chairman of the board of the Company. All principal and accrued interest
were paid by the Company in full at February 28, 1993. During fiscal 1994, this
lot was sold for $1,710,000.
The corporate controller of the Company purchased a home from the Company
for $368,000 in fiscal 1993. The Company carried back a second trust deed in the
amount of $36,800. The note, which the Company believes was on market terms, is
due and payable in November 1997.
An officer of the Company purchased a home from the Company in fiscal year
1994 for $425,000 (the market price at that time).
13. COMMITMENTS AND CONTINGENCIES
General
Approximately $21,467,000, $23,185,000, and $25,260,000 of performance
bonds were outstanding at February 28, 1993, 1994 and May 31, 1994,
respectively. The beneficiaries of these bonds are certain municipalities. The
Company has outstanding letters of credit totaling $672,000, $552,000, and
$472,000 to ensure performance on various agreements at February 28, 1993, 1994
and May 31, 1994, respectively. The Company has pledged a certificate of deposit
in a like amount as collateral for the obligation under the letter of credit.
The Company has entered into agreements to lease certain office facilities
under operating leases which expire at various dates through fiscal year 1995.
The leases generally provide that the Company shall pay property taxes,
insurance and other items. Minimum payments under noncancelable leases at
February 28, 1994, are as follows:
<TABLE>
<CAPTION>
YEARS ENDING FEBRUARY 28 (IN THOUSANDS):
----------------------------------------
<S> <C>
1995........................... $704
1996........................... 7
Thereafter....................... --
----
$711
====
</TABLE>
F-22
<PAGE> 128
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Total rent expense was $632,000, $599,000, $629,000, and $137,000 for the
years ended February 29, 1992, February 28, 1993, 1994 and for the three months
ended May 31, 1994, respectively.
As discussed in Notes 1, 4 and 5, the Company is a general partner in
several joint venture partnerships. As a general partner, the Company is liable
for all debts of the partnerships without limitation to the respective
partnership interest.
Dividends
No dividends were declared or paid for the years ended February 29, 1992,
February 28, 1993 or 1994, or the three months ended May 31, 1994.
Legal Proceedings
The Company is named as a defendant in lawsuits filed from time to time
involving claims arising in the ordinary course of the Company's business. While
certain of these matters involve substantial amounts, management believes that
the Company's insurance with respect to such claims and lawsuits is sufficient
and that such claims and lawsuits as are currently pending will not have a
materially adverse effect on the Company's financial position or results of
operations. In connection with the settlement of such claims and lawsuits, the
Company is sometimes asked, as a "good faith" gesture, to contribute to the
settlement fund despite the sufficiency of insurance with respect to the claim
or lawsuit. The Company has reserved amounts on its balance sheet, which amounts
represent management's best estimate of the amount of such contributions
reasonably anticipated in connection with pending claims and lawsuits.
14. UNAUDITED QUARTERLY FINANCIAL DATA
Summarized quarterly financial data for the years ended February 28, 1993
and 1994 is as follows (in thousands except for per share data):
<TABLE>
<CAPTION>
QUARTER
-------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1994:
Total revenues............................... $ 4,004 $ 8,250 $37,343 $41,469 $ 91,066
Gross profit on sales of homes and land...... (157) (26) 6,750 8,225 14,792
Extraordinary gain........................... -- -- 4,268 -- 4,268
Net income (loss)............................ $(1,951) $ (1,557) $ 6,123 $ 2,299 $ 4,914
======= ======== ======= ======= ========
Net income (loss) per common share
Before extraordinary gain............... $ (0.14) $ (.11) $ 0.12 $ .15 $ .04
Extraordinary gain...................... -- -- .29 -- .30
Net income (loss)....................... $ (0.14) $ (.11) $ 0.41 $ .15 $ .34
======= ======== ======= ======= ========
1993:
Total revenues............................... $16,675 $ 37,547 $13,873 $ 7,607 $ 75,702
Gross profit on sales of homes and land...... 3,247 1,343 2,373 (3,072) 3,891
Adjustment to carrying value of real
estate.................................... -- (75,036) -- (440) (75,476)
Net income (loss)............................ $(2,297) $(79,314) $ 1,991 $(4,921) $(84,541)
======= ======== ======= ======= ========
Net income (loss) per common share........... $ (0.16) $ (5.67) $ 0.14 $ (0.36) $ (6.05)
======= ======== ======= ======= ========
</TABLE>
F-23
<PAGE> 129
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholder of Durable Homes, Inc.:
We have audited the accompanying consolidated statements of income and cash
flows of DURABLE HOMES, INC. and subsidiaries (a Nevada corporation) for the
year ended December 31, 1993. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Durable
Homes, Inc. and subsidiaries for the year ended December 31, 1993, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Irvine, California
March 7, 1994
F-24
<PAGE> 130
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholder
of Durable Homes, Inc.:
In our opinion, the accompanying statements of income and of cash flows
present fairly, in all material respects, the results of operations and cash
flows of Durable Homes, Inc. for the years ended December 31, 1991 and 1992, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above. We have not audited the financial statements of Durable Homes, Inc. for
any period subsequent to December 31, 1992.
PRICE WATERHOUSE LLP
Salt Lake City, Utah
February 25, 1993
F-25
<PAGE> 131
DURABLE HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1991 1992 1993
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES (Note 1)
Sales............................................... $31,461 $35,977 $38,458
Other............................................... 34 207 220
------- ------- -------
31,495 36,184 38,678
------- ------- -------
COSTS AND EXPENSES:
Cost of sales....................................... 24,121 28,395 29,921
Developer fees (Note 2)............................. 234 175 174
Selling, general and administrative................. 4,494 4,955 5,844
Depreciation (Note 1)............................... 93 127 80
Minority interest (Note 1).......................... -- -- 460
------- ------- -------
28,942 33,652 36,479
------- ------- -------
INCOME BEFORE TAXES................................... 2,553 2,532 2,199
PROVISION FOR INCOME TAXES (Note 1)................... -- -- --
------- ------- -------
NET INCOME............................................ $ 2,553 $ 2,532 $ 2,199
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-26
<PAGE> 132
DURABLE HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1991 1992 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 2,553 $ 2,532 $ 2,199
Adjustments to reconcile net income to net cash (used
in) provided by operating activities:
Depreciation....................................... 93 127 80
Loss on sale of property and equipment............. -- 22 --
Gain on sale of other assets....................... (29) -- --
Change in assets and liabilities
(Increase) decrease in receivables.............. 14 (206) 157
(Increase) decrease in inventories.............. 1,588 (5,174) (2,829)
(Increase) decrease in prepaid expenses and
deposits...................................... 36 (80) --
Decrease in other assets........................ -- 50 --
Increase (decrease) in construction payables.... (581) 1,578 (57)
Decrease in accounts payable and accrued
expenses...................................... (379) (12) (49)
-------- -------- --------
Net cash (used in) provided by operating
activities................................. 3,295 (1,163) (499)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................... (233) (138) (80)
Proceeds from sale of other assets...................... 218 38 --
Purchase of other assets................................ (49) (38) --
Payments received on notes receivable................... 79 -- --
Issuance of notes receivable............................ (77) (24) --
-------- -------- --------
Net cash provided by (used in) investing
activities................................. (62) (162) (80)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings................................ 24,779 33,382 31,789
Repayment of borrowings................................. (26,186) (30,616) (30,796)
Distributions to shareholder............................ (2,198) (2,481) (1,915)
Minority interest....................................... -- -- 2,007
-------- -------- --------
Net cash provided by (used in) financing
activities................................. (3,605) 285 1,085
-------- -------- --------
NET INCREASE (DECREASE) IN CASH........................... $ (372) $ (1,040) $ 506
======== ======== ========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Distributions to the shareholder of the Company during the year ended
December 31, 1992 include receivables of $139,000, other assets of $35,000 and
property and equipment of $56,000.
Distributions to the former shareholder of the Company during the year
ended December 31, 1993 include non cash amounts of $788,000.
The accompanying notes are an integral part of these consolidated statements.
F-27
<PAGE> 133
DURABLE HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Durable Homes, Inc. (Durable) is engaged in the development, construction
and sale of residential real estate. Effective September 1, 1993, all of the
outstanding common stock of Durable was acquired by J.M. Peters Company, Inc.
(J.M. Peters).
During 1993, Durable entered into three joint venture arrangements as a
general partner for the development of various real properties. Durable shares
in the cash flows and the profits of these joint ventures in accordance with the
percentages set forth in the respective agreements, which range from 100 percent
to 55 percent. The limited partners receive a preferred return or a return of
capital prior to Durable's receipt of cash from these joint ventures. Durable
accrues for its respective share of profits, after any preferred returns to the
limited partner, in accordance with its percentage interest in each of the joint
ventures.
The consolidated financial statements include the accounts of Durable and
the three joint ventures. All significant intercompany balances have been
eliminated in the consolidated financial statements. A summary of significant
accounting policies follows:
Inventories
Inventories, comprising land held for development and single-family homes
and condominiums under construction, are stated at the lower of cost or market.
Property and equipment
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is determined using accelerated methods over the useful lives of
the assets which range from three to seven years. Expenditures for maintenance
and repairs are charged to expense as incurred.
Revenue recognition
Revenue from the sale of residential properties is recognized when legal
title passes to the purchaser at closing.
Capitalized interest
Interest on construction loans is capitalized in inventory during the
development and construction period and relieved through cost of sales when the
real estate is sold. During the years ended December 31, 1992 and 1993, total
interest of $592,000 and $1,580,000, respectively, was incurred and capitalized.
Income taxes
For 1991 and 1992, Durable was taxed as a S-corporation whereby the income
tax effects of Durable's activities accrued directly to the shareholder.
Commencing September 1, 1993, the effective date of the acquisition of the
common stock of Durable by J.M. Peters, Durable's taxable income is offset by
the tax operating losses and net operating loss carry forwards of J.M. Peters.
2. DEVELOPER FEES
Durable purchased certain undeveloped land from a corporation during the
time that a director of Durable was a shareholder. As partial consideration for
the purchase, Durable assigned to the corporation an undivided interest in the
net profits derived from the sale of certain real estate. The corporation's
share of net profits for the years ended December 31, 1991, 1992 and 1993 was
$166,000, $115,000 and $174,000, respectively, and is included in developer
fees.
F-28
<PAGE> 134
DURABLE HOMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 1991, Durable purchased the escrow position in certain undeveloped
land from a corporation in which the brother of the shareholder of Durable was a
shareholder. As partial consideration, Durable assigned to the corporation an
undivided 20 percent interest in the net profits derived from the sale of
certain inventories. All of the real estate was sold at December 31, 1992. The
corporation's share of net profits for the year ended December 31, 1991 and 1992
was $68,000 and $60,000, respectively, and is included in developer fees.
3. PROFIT SHARING PLAN
Durable administers a defined contribution profit sharing plan for eligible
employees. Employees begin participating in the plan after completing one year
of service and attaining the age of 21. Under the provisions of the plan, the
Board of Directors determines the annual contribution to the plan. Profit
sharing expense for each of the years ended December 31, 1991, 1992 and 1993 was
$125,000, $125,000 and $75,000, respectively.
4. RELATED PARTY TRANSACTIONS
Prior to the acquisition of Durable by J.M. Peters, Durable contracted for
advertising services with an advertising agency in which shareholders had a
minority interest. Advertising costs incurred for services rendered by the
advertising agency for the years ended December 31, 1991, 1992 and 1993 were
$235,000, $477,000 and $427,000, respectively.
During 1993, prior to the acquisition of Durable by J.M. Peters, Durable
distributed non-cash assets, aggregating $788,000, to the previous shareholder.
The non cash assets distributed included advances and investments unrelated to
the residential home building business, certain related party notes receivable
and automobile equipment. The distribution was reflected as a reduction of
shareholder's equity.
F-29
<PAGE> 135
O.B.C. -- [LOGO ONLY]
<PAGE> 136
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the
Company in connection with the offering of New Notes. All amounts are estimates
except the registration fees.
<TABLE>
<S> <C>
Registration fees......................................... $ 34,483
Printing.................................................. 75,000
Legal expenses............................................ 15,000
Trustee's fees............................................ 5,000
Accounting fees........................................... 30,000
Miscellaneous............................................. 10,000
---------
Total........................................... $ 169,483
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each of the Company's and each Guarantor's Certificate of Incorporation and
Bylaws provide for indemnification of its directors, officers, employees and
agents consistent with the provisions of Section 145 of the Delaware General
Corporation Law (as to the Company, Peters Ranchland Company, Inc. and J.M.
Peters Nevada, Inc.) and Section 78.751 of the Nevada General Corporation Law
(as to Durable Homes, Inc).
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company's 12 3/4% Senior Notes due 2002 (the "Old Notes") were issued
on May 13, 1994 for aggregate consideration of $100,000,000. Morgan Stanley &
Co. Incorporated acted as placement agent with respect to the offering, which
was made pursuant to Rule 144A.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- ----------------------------------------------------------------------------
<C> <S>
3.1 (a) Certificate of Incorporation of the Company (incorporated by reference to
Exhibit 3.1 of the Company's Annual Report on Form 10-K for the fiscal year
ended February 28, 1994).
3.1 (b) Articles of Incorporation of Villa Bonita Oeste (now known as Durable Homes,
Inc.)
3.1 (c) Certificate of Amendment of Articles of Incorporation of Villa Bonita Oeste
(changing name to Durable Homes, Inc.)
3.1 (d) Certificate of Incorporation of Peters Ranchland Company, Inc.
3.1 (e) Certificate of Incorporation of J.M. Peters Nevada, Inc.
3.2 (a) Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the
Company's Annual Report on Form 10-K for the fiscal year ended February 28,
1994).
3.2 (b) Bylaws of Durable Homes, Inc.
3.2 (c) Certificate of Amendment of the Restated Bylaws of Durable Homes, Inc.
3.2 (d) Bylaws of Peters Ranchland Company, Inc.
3.2 (e) Bylaws of J.M. Peters Nevada, Inc.
4.1 Indenture agreement by and between J.M. Peters Company, Inc., as Issuer,
Durable Homes, Inc., J.M. Peters Nevada, Inc., and Peters Ranchland, Inc.,
as Guarantors, and United States Trust Company of New York, as Trustee,
dated as of May 13, 1994 (incorporated by reference to Exhibit 10.15 of
Registrant's Annual Report on Form 10-K for the fiscal year ended February
28, 1994).
</TABLE>
II-1
<PAGE> 137
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<S> <C>
4.2 Notes Registration Rights Agreement by and between J.M. Peters Company, Inc.
and Morgan Stanley & Co. Incorporated dated as of May 13, 1994 (incorporated
by reference to Exhibit 10.18 of Registrant's Annual Report on Form 10-K for
the fiscal year ended February 28, 1994).
5.1 Opinion of Gibson, Dunn & Crutcher as to the legality of the New Notes.***
10.1 Agreement of Limited Partnership of Ranchland Fairway Development L.P., a
California limited partnership, dated as of August 12, 1992 by and between
Peters Ranchland Company Inc., a Delaware corporation, and IHP Investment
Fund I, L.P., a California limited partnership (incorporated by reference to
Exhibit 26 of Schedule 13D*).
10.2 Agreement of Limited Partnership of Ranchland Montilla Development L.P., a
California limited partnership, dated as of August 12, 1992 by and between
Peters Ranchland Company Inc., a Delaware corporation, and IHP Investment
Fund I, L.P., a California limited partnership (incorporated by reference to
Exhibit 27 of Schedule 13D*).
10.3 Agreement of Limited Partnership of Ranchland Portola Development L.P., a
California limited partnership, dated as of August 12, 1992 by and between
Peters Ranchland Company Inc., a Delaware corporation, and IHP Investment
Fund I, L.P., a California limited partnership (incorporated by reference to
Exhibit 28 of Schedule 13D*).
10.4 Agreement of Limited Partnership of Ranchland Alicante Development L.P., a
California limited partnership, dated as of August 12, 1992 by and between
Peters Ranchland Company Inc., a Delaware corporation, and IHP Investment
Fund I, L.P., a California limited partnership (incorporated by reference to
Exhibit 29 of Schedule 13D*).
10.5 First Amended and Completely Restated Agreement of Limited Partnership of
Ranchland Fairway Development L.P., a California Limited Partnership, dated
as of May 19, 1993 by and between Peters Ranchland Company, Inc., a Delaware
Corporation, and IHP Investments Fund I, L.P., a California Limited
Partnership (incorporated by reference to Exhibit 10.8 of the Company's
Annual Report on Form 10-K for the fiscal year ended February 28, 1993).
10.6 First Amended and Completely Restated Agreement of Limited Partnership of
Ranchland Montilla Development L.P., a California Limited Partnership, dated
as of May 19, 1993 by and between Peters Ranchland Company, Inc., a Delaware
Corporation, and IHP Investment Fund I, L.P., a California Limited
Partnership (incorporated by reference to Exhibit 10.9 of the Company's
Annual Report on Form 10-K for the fiscal year ended February 28, 1993).
10.7 First Amended and Completely Restated Agreement of Limited Partnership of
Ranchland Portola Development L.P., a California Limited Partnership, dated
as of May 19, 1993 by and between Peters Ranchland Company, Inc., a Delaware
Corporation, and IHP Investment Fund I, L.P., a California Limited
Partnership (incorporated by reference to Exhibit 10.10 of the Company's
Annual Report on Form 10-K for the fiscal year ended February 28, 1993).
10.8 First Amended and Completely Restated Agreement of Limited Partnership of
Ranchland Alicante Development L.P., a California Limited Partnership, dated
as of May 19, 1993 by and between Peters Ranchland Company, Inc., a Delaware
Corporation, and IHP Investment Fund I, L.P., a California Limited
Partnership (incorporated by reference to Exhibit 10.11 of the Company's
Annual Report on Form 10-K for the fiscal year ended February 28, 1993).
10.9 Form of Construction Loan Agreement by and between Ranchland Portola
Development L.P., a California Limited Partnership and IHP Investment Fund
I, L.P., a California Limited Partnership (incorporated by reference to
Exhibit 10.12 of the Company's Annual Report on Form 10-K for the fiscal
year ended February 28, 1993).
10.10 Form of Construction Loan Promissory Note by and between Ranchland Portola
Development L.P., a California Limited Partnership and IHP Investment Fund
I, L.P., a California Limited Partnership (incorporated by reference to
Exhibit 10.13 of the Company's Annual Report on Form 10-K for the fiscal
year ended February 28, 1993).
</TABLE>
II-2
<PAGE> 138
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- ----------------------------------------------------------------------------
<C> <S>
</TABLE>
<TABLE>
<C> <S>
10.11 Form of Construction Deed of Trust, Assignment of Leases and Security
Agreement by and between Ranchland Portola Development L.P., a California
Limited Partnership and IHP Investment Fund I, L.P., a California Limited
Partnership (incorporated by reference to Exhibit 10.14 of the Company's
Annual Report on Form 10-K for the fiscal year ended February 28, 1993).
10.12 Form of Land Loan Agreement by and between Ranchland Portola Development
L.P., a California Limited Partnership and IHP Investment Fund I, L.P., a
California Limited Partnership (incorporated by reference to Exhibit 10.15
of the Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1993).
10.13 Form of Land Loan Promissory Note by and between Ranchland Portola
Development L.P., a California Limited Partnership and IHP Investment Fund
I, L.P., a California Limited Partnership (incorporated by reference to
Exhibit 10.16 of the Company's Annual Report on Form 10-K for the fiscal
year ended February 28, 1993).
10.14 Form of Land Deed of Trust, Assignment of Leases and Security Agreement by
and between Ranchland Portola Development L.P., a California Limited
Partnership and IHP Investment Fund I, L.P., a California Limited
Partnership (incorporated by reference to Exhibit 10.17 of the Company's
Annual Report on Form 10-K for the fiscal year ended February 28, 1993).
10.15 Indenture agreement by and between J.M. Peters Company, Inc., as Issuer;
Durable Homes, Inc., J.M. Peters Nevada, Inc., and Peters Ranchland, Inc.,
as Guarantors, and United States Trust Company of New York, as Trustee,
dated as of May 13, 1994 (incorporated by reference to Exhibit 10.15 of the
Company's Annual Report on Form 10-K for the fiscal year ended February 28,
1994).
10.16 Warrant Agreement by and between J.M. Peters Company, Inc., and United
States Trust Company of New York, Warrant Agent, dated as of May 13, 1994
(incorporated by reference to Exhibit 10.16 of the Company's Annual Report
on Form 10-K for the fiscal year ended February 28, 1994).
10.17 Warrant Registration Rights Agreement by and between J.M. Peters Company,
Inc., and Morgan Stanley & Co. Incorporated dated as of May 13, 1994
(incorporated by reference to Exhibit 10.17 of the Company's Annual Report
on Form 10-K for the fiscal year ended February 28, 1994).
10.18 Notes Registration Rights Agreement by and between J.M. Peters Company,
Inc., and Morgan Stanley & Co. Incorporated dated as of May 13, 1994
(incorporated by reference to Exhibit 10.18 of the Company's Annual Report
on Form 10-K for the fiscal year ended February 28, 1994).
**10.19 Loan Agreement by and between J.M. Peters Company, Inc. and Bank One
Arizona, N.A. dated as of May 12, 1994.
21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 of
the Company's Annual Report on Form 10-K for the fiscal year ended February
28, 1994).
23.1 Independent Auditor's Consent of Arthur Andersen & Co. SC.
23.2 Independent Auditor's Consent of Kenneth Leventhal & Company.
23.3 Independent Auditor's Consent of Price Waterhouse.
23.4 Independent Auditor's Consent of Arthur Andersen & Co. SC.
***23.5 Consent of Gibson, Dunn & Crutcher (to be included in their opinion filed as
Exhibit 5.1).
24.1 Power of Attorney (included on pages II-5 to II-8).
**25.1 United States Trust Company of New York Form T-1 Statement of Eligibility
Under the Trust Indenture Act of 1939 of a Corporation Designated to Act as
a Trustee.
**99.1 Form of Letter of Transmittal.
**99.2 Form of Notice of Guaranteed Delivery.
**99.3 Form of Letter to Holders.
99.4 Company's Letter to the Securities and Exchange Commission
</TABLE>
II-3
<PAGE> 139
- ---------------
* "Schedule 13D" means the Schedule 13D filed with the Securities and Exchange
Commission on August 21, 1992 by Capital Pacific Homes, Inc., Hadi
Makarechian, Barbara Makarechian and Dale Dowers, as a group, reporting
beneficial ownership in excess of 5% of J.M. Peters Company, Inc.
** Previously filed.
*** To be filed by Amendment.
(b) Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the applicable instructions
or are inapplicable and therefore have been omitted.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company or any Guarantor pursuant to the provisions described under Item 14
or otherwise, the Company and each Guarantor has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company or any Guarantor of
expenses incurred or paid by a director, officer or controlling person of the
Company or any Guarantor in the successful defense of any action, suit or
proceeding) is asserted by such director, officer nor controlling person in
connection with the securities being registered, the Company or such Guarantor
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 of 1933 and will be governed by the final
adjudication of such issue.
(b) The Company and each Guarantor hereby undertakes that:
(1) Each undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), each registrant undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(2) Each registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act and is
used in connection with an offering of securities subject to Rule 415, will
be filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, 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.
II-4
<PAGE> 140
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Newport Beach, State of
California, on August 15, 1994.
J. M. PETERS COMPANY, INC.
By: /s/ HADI MAKARECHIAN*
--------------------------------------
Hadi Makarechian
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on August 15, 1994.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
/s/ HADI MAKARECHIAN* Chairman of the Board and
- ------------------------------------------ Chief Executive Officer
Hadi Makarechian (Principal Executive Officer)
/s/ DALE DOWERS* President, Chief Operating Officer and
- ------------------------------------------ Director
Dale Dowers
/s/ GREGORY R. PETERSEN* Vice President and Chief Financial Officer
- ------------------------------------------ (Principal Financial and Accounting
Gregory R. Petersen Officer)
/s/ JAMES M. PETERS* Director
- ------------------------------------------
James M. Peters
Director
- ------------------------------------------
Allan Acree
Director
- ------------------------------------------
Karl Kaiser
*By: GREGORY R. PETERSEN
- ------------------------------------------
Gregory R. Petersen
Attorney-in-fact
</TABLE>
II-5
<PAGE> 141
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Durable Homes,
Inc. has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Newport Beach, State
of California, on August 15, 1994.
DURABLE HOMES, INC.
By: /s/ HADI MAKARECHIAN
-------------------------------------
Hadi Makarechian
Chairman of the Board
POWER OF ATTORNEY
We, the undersigned directors and officers of Durable Homes, Inc., and each
of us, do hereby constitute and appoint Hadi Makarechian, Dale Dowers and
Gregory R. Petersen, or any one of them, our true and lawful attorneys and
agents, each with power of substitution, to do any and all acts and things in
our name and on our behalf in our capacities as directors and officers and to
execute any and all instruments for us and in our names in the capacities
indicated below, as said attorneys and agents, or any one of them, may deem
necessary or advisable to enable said corporation to comply with the Securities
Act of 1933, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this Registration
Statement, including specifically but without limitation, the power and
authority to sign for us or any of us our names in the capacities indicated
below, any and all amendments (including post-effective amendments) hereto; and
we do hereby ratify and confirm all that the said attorneys and agents, or his
substitute or substitutes, or any one of them, shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on August 15, 1994.
<TABLE>
<CAPTION>
NAME TITLE
- ----------------------------------------------- --------------------------------------------
<C> <S>
/s/ HADI MAKARECHIAN
- ---------------------------------------------- Chairman of the Board and Director
Hadi Makarechian (Principal Executive Officer)
/s/ DALE DOWERS
- ---------------------------------------------- Vice Chairman of the Board
Dale Dowers
/s/ DUANE CERNIGLIA
- ---------------------------------------------- President, Chief Operating Officer and
Duane Cerniglia Director
/s/ MARQUIS L. CUMMINGS
- ---------------------------------------------- Secretary and Director
Marquis L. Cummings
/s/ JAMES H. CEDERQUIST
- ---------------------------------------------- Chief Financial Officer, Treasurer,
James H. Cederquist Assistant Secretary and Director
(Principal Financial and Accounting
Officer)
</TABLE>
II-6
<PAGE> 142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Peters
Ranchland Company, Inc. has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Newport Beach, State of California, on August 15, 1994.
PETERS RANCHLAND COMPANY, INC.
By: /s/ HADI MAKARECHIAN
---------------------------------------------
Hadi Makarechian
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Peters Ranchland Company,
Inc., and each of us, do hereby constitute and appoint Hadi Makarechian, Dale
Dowers and Gregory R. Petersen, or any one of them, our true and lawful
attorneys and agents, each with power of substitution, to do any and all acts
and things in our name and on our behalf in our capacities as directors and
officers and to execute any and all instruments for us and in our names in the
capacities indicated below, as said attorneys and agents, or any one of them,
may deem necessary or advisable to enable said corporation to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with this Registration
Statement, including specifically but without limitation, the power and
authority to sign for us or any of us our names in the capacities indicated
below, any and all amendments (including post-effective amendments) hereto; and
we do hereby ratify and confirm all that the said attorneys and agents, or his
substitute or substitutes, or any one of them, shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on August 15, 1994.
<TABLE>
<CAPTION>
NAME TITLE
- ----------------------------------------------- --------------------------------------------
<C> <S>
/s/ HADI MAKARECHIAN
- ---------------------------------------------- Chairman of the Board and Chief Executive
Hadi Makarechian Officer (Principal Executive Officer)
/s/ GREGORY R. PETERSEN
- --------------------------------------------- Vice President, Chief Financial Officer and
Gregory R. Petersen Secretary (Princpal Financial and
Accounting Officer)
</TABLE>
II-7
<PAGE> 143
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, J.M. Peters
Nevada, Inc. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Newport
Beach, State of California, on August 15, 1994.
J.M. PETERS NEVADA, INC.
By:
------------------------------------------
Hadi Makarechian
Chairman of the Board
POWER OF ATTORNEY
We, the undersigned directors and officers of J.M. Peters Nevada, Inc., and
each of us, do hereby constitute and appoint Hadi Makarechian, Dale Dowers and
Gregory R. Petersen, or any one of them, our true and lawful attorneys and
agents, each with power of substitution, to do any and all acts and things in
our name and on our behalf in our capacities as directors and officers and to
execute any and all instruments for us and in our names in the capacities
indicated below, as said attorneys and agents, or any one of them, may deem
necessary or advisable to enable said corporation to comply with the Securities
Act of 1933, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this Registration
Statement, including specifically but without limitation, the power and
authority to sign for us or any of us our names in the capacities indicated
below, any and all amendments (including post-effective amendments) hereto; and
we do hereby ratify and confirm all that the said attorneys and agents, or his
substitute or substitutes, or any one of them, shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on August 15, 1994.
<TABLE>
<CAPTION>
NAME TITLE
- ----------------------------------------------- --------------------------------------------
<C> <S>
- ----------------------------------------------- Chairman of the Board
Hadi Makarechian (Principal Executive Officer)
- ----------------------------------------------- Secretary, Treasurer and Director
Dale Dowers
- ----------------------------------------------- President and Director
Marquis L. Cummings
- ----------------------------------------------- Chief Financial Officer and Director
Gregory R. Petersen (Principal Financial and Accounting
Officer)
</TABLE>
II-8
<PAGE> 144
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------- ------------------------------------------------------------------ ------------
<C> <S> <C>
3.1 (a) Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 of the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1994).
3.1 (b) Articles of Incorporation of Villa Bonita Oeste (now known as
Durable Homes, Inc.)
3.1 (c) Certificate of Amendment of Articles of Incorporation of Villa
Bonita Oeste (changing name to Durable Homes, Inc.)
3.1 (d) Certificate of Incorporation of Peters Ranchland Company, Inc.
3.1 (e) Certificate of Incorporation of J.M. Peters Nevada, Inc.
3.2 (a) Bylaws of the Company (incorporated by reference to Exhibit 3.2 of
the Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1994).
3.2 (b) Bylaws of Durable Homes, Inc.
3.2 (c) Certificate of Amendment of the Restated Bylaws of Durable Homes,
Inc.
3.2 (d) Bylaws of Peters Ranchland Company, Inc.
3.2 (e) Bylaws of J.M. Peters Nevada, Inc.
</TABLE>
<TABLE>
<C> <S> <C>
4.1 Indenture agreement by and between J.M. Peters Company, Inc., as
Issuer, Durable Homes, Inc., J.M. Peters Nevada, Inc., and Peters
Ranchland, Inc., as Guarantors, and United States Trust Company of
New York, as Trustee, dated as of May 13, 1994 (incorporated by
reference to Exhibit 10.15 of Registrant's Annual Report on Form
10-K for the fiscal year ended February 28, 1994).
4.2 Notes Registration Rights Agreement by and between J.M. Peters
Company, Inc. and Morgan Stanley & Co. Incorporated dated as of
May 13, 1994 (incorporated by reference to Exhibit 10.18 of
Registrant's Annual Report on Form 10-K for the fiscal year ended
February 28, 1994).
5.1 Opinion of Gibson, Dunn & Crutcher as to the legality of the New
Notes.***
10.1 Agreement of Limited Partnership of Ranchland Fairway Development
L.P., a California limited partnership, dated as of August 12,
1992 by and between Peters Ranchland Company Inc., a Delaware
corporation, and IHP Investment Fund I, L.P., a California limited
partnership (incorporated by reference to Exhibit 26 of Schedule
13D*).
10.2 Agreement of Limited Partnership of Ranchland Montilla Development
L.P., a California limited partnership, dated as of August 12,
1992 by and between Peters Ranchland Company Inc., a Delaware
corporation, and IHP Investment Fund I, L.P., a California limited
partnership (incorporated by reference to Exhibit 27 of Schedule
13D*).
10.3 Agreement of Limited Partnership of Ranchland Portola Development
L.P., a California limited partnership, dated as of August 12,
1992 by and between Peters Ranchland Company Inc., a Delaware
corporation, and IHP Investment Fund I, L.P., a California limited
partnership (incorporated by reference to Exhibit 28 of Schedule
13D*).
10.4 Agreement of Limited Partnership of Ranchland Alicante Development
L.P., a California limited partnership, dated as of August 12,
1992 by and between Peters Ranchland Company Inc., a Delaware
corporation, and IHP Investment Fund I, L.P., a California limited
partnership (incorporated by reference to Exhibit 29 of Schedule
13D*).
10.5 First Amended and Completely Restated Agreement of Limited
Partnership of Ranchland Fairway Development L.P., a California
Limited Partnership, dated as of May 19, 1993 by and between
Peters Ranchland Company, Inc., a Delaware Corporation, and IHP
Investments Fund I, L.P., a California Limited Partnership
(incorporated by reference to Exhibit 10.8 of the Company's Annual
Report on Form 10-K for the fiscal year ended February 28, 1993).
</TABLE>
<PAGE> 145
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------- ----------- ------------
<C> <S> <C>
10.6 First Amended and Completely Restated Agreement of Limited
Partnership of Ranchland Montilla Development L.P., a California
Limited Partnership, dated as of May 19, 1993 by and between
Peters Ranchland Company, Inc., a Delaware Corporation, and IHP
Investment Fund I, L.P., a California Limited Partnership
(incorporated by reference to Exhibit 10.9 of the Company's Annual
Report on Form 10-K for the fiscal year ended February 28, 1993).
10.7 First Amended and Completely Restated Agreement of Limited
Partnership of Ranchland Portola Development L.P., a California
Limited Partnership, dated as of May 19, 1993 by and between
Peters Ranchland Company, Inc., a Delaware Corporation, and IHP
Investment Fund I, L.P., a California Limited Partnership
(incorporated by reference to Exhibit 10.10 of the Company's
Annual Report on Form 10-K for the fiscal year ended February 28,
1993).
10.8 First Amended and Completely Restated Agreement of Limited
Partnership of Ranchland Alicante Development L.P., a California
Limited Partnership, dated as of May 19, 1993 by and between
Peters Ranchland Company, Inc., a Delaware Corporation, and IHP
Investment Fund I, L.P., a California Limited Partnership
(incorporated by reference to Exhibit 10.11 of the Company's
Annual Report on Form 10-K for the fiscal year ended February 28,
1993).
10.9 Form of Construction Loan Agreement by and between Ranchland
Portola Development L.P., a California Limited Partnership and IHP
Investment Fund I, L.P., a California Limited Partnership
(incorporated by reference to Exhibit 10.12 of the Company's
Annual Report on Form 10-K for the fiscal year ended February 28,
1993).
10.10 Form of Construction Loan Promissory Note by and between Ranchland
Portola Development L.P., a California Limited Partnership and IHP
Investment Fund I, L.P., a California Limited Partnership
(incorporated by reference to Exhibit 10.13 of the Company's
Annual Report on Form 10-K for the fiscal year ended February 28,
1993).
10.11 Form of Construction Deed of Trust, Assignment of Leases and
Security Agreement by and between Ranchland Portola Development
L.P., a California Limited Partnership and IHP Investment Fund I,
L.P., a California Limited Partnership (incorporated by reference
to Exhibit 10.14 of the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1993).
10.12 Form of Land Loan Agreement by and between Ranchland Portola
Development L.P., a California Limited Partnership and IHP
Investment Fund I, L.P., a California Limited Partnership
(incorporated by reference to Exhibit 10.15 of the Company's
Annual Report on Form 10-K for the fiscal year ended February 28,
1993).
10.13 Form of Land Loan Promissory Note by and between Ranchland Portola
Development L.P., a California Limited Partnership and IHP
Investment Fund I, L.P., a California Limited Partnership
(incorporated by reference to Exhibit 10.16 of the Company's
Annual Report on Form 10-K for the fiscal year ended February 28,
1993).
10.14 Form of Land Deed of Trust, Assignment of Leases and Security
Agreement by and between Ranchland Portola Development L.P., a
California Limited Partnership and IHP Investment Fund I, L.P., a
California Limited Partnership (incorporated by reference to
Exhibit 10.17 of the Company's Annual Report on Form 10-K for the
fiscal year ended February 28, 1993).
10.15 Indenture agreement by and between J.M. Peters Company, Inc., as
Issuer; Durable Homes, Inc., J.M. Peters Nevada, Inc., and Peters
Ranchland, Inc., as Guarantors, and United States Trust Company of
New York, as Trustee, dated as of May 13, 1994 (incorporated by
reference to Exhibit 10.15 of the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1994).
</TABLE>
<PAGE> 146
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------- ------------------------------------------------------------------ ------------
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
10.16 Warrant Agreement by and between J.M. Peters Company, Inc., and
United States Trust Company of New York, Warrant Agent, dated as
of May 13, 1994 (incorporated by reference to Exhibit 10.16 of the
Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1994).
10.17 Warrant Registration Rights Agreement by and between J.M. Peters
Company, Inc., and Morgan Stanley & Co. Incorporated dated as of
May 13, 1994 (incorporated by reference to Exhibit 10.17 of the
Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1994).
10.18 Notes Registration Rights Agreement by and between J.M. Peters
Company, Inc., and Morgan Stanley & Co. Incorporated dated as of
May 13, 1994 (incorporated by reference to Exhibit 10.18 of the
Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1994).
**10.19 Loan Agreement by and between J.M. Peters Company, Inc. and Bank
One Arizona, N.A. dated as of May 12, 1994.
21.1 Subsidiaries of the Company (incorporated by reference to Exhibit
21.1 of the Company's Annual Report on Form 10-K for the fiscal
year ended February 28, 1994).
23.1 Independent Auditor's Consent of Arthur Andersen & Co. SC.
23.2 Independent Auditor's Consent of Kenneth Leventhal & Company.
23.3 Independent Auditor's Consent of Price Waterhouse.
23.4 Independent Auditor's Consent of Arthur Andersen & Co. SC.
***23.5 Consent of Gibson, Dunn & Crutcher (to be included in their
opinion filed as Exhibit 5.1).
24.1 Power of Attorney (included on pages II-5 to II-8).
**25.1 United States Trust Company of New York Form T-1 Statement of
Eligibility Under the Trust Indenture Act of 1939 of a Corporation
Designated to Act as a Trustee.
**99.1 Form of Letter of Transmittal.
**99.2 Form of Notice of Guaranteed Delivery.
**99.3 Form of Letter to Holders.
99.4 Company's Letter to the Securities and Exchange Commission
</TABLE>
- ---------------
* "Schedule 13D" means the Schedule 13D filed with the Securities and Exchange
Commission on August 21, 1992 by Capital Pacific Homes, Inc., Hadi
Makarechian, Barbara Makarechian and Dale Dowers, as a group, reporting
beneficial ownership in excess of 5% of J.M. Peters Company, Inc.
** Previously filed.
*** To be filed by Amendment.
<PAGE> 1
EXHIBIT 3.1(b)
F I L E D
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
ARTICLES OF INCORPORATION
APRIL 30, 1975
OF
WM. SWACKHAMER-
VILLA BONITA OESTE SECRETARY OF STATE
/s/ William Swackhamer
No. 1265-75
KNOW ALL MEN BY THESE PRESENTS: ------------
That we, the undersigned, have this day voluntarily associated
ourselves together for the purpose of forming a corporation under and pursuant
to the laws of the State of Nevada, and we do hereby certify that:
I.
The name of this corporation shall be:
VILLA BONITA OESTE
II.
The principal office and place of business in Nevada of this
corporation shall be located at 516 S. Third Street, Las Vegas, Clark County,
Nevada.
Offices for the transaction of any business of the corporation, and
where meetings of the Board of Directors and of the stockholders may be held,
may be established and maintained in any other part of the State of Nevada, or
in any other state, territory, or possession of the United States of America,
or in any foreign country.
III.
The nature of the business and objects and purposes proposed to be
transacted, promoted or carried on by the corporation are:
(a) to engage in any lawful activity.
IV.
The total authorized capital stock of the corporation shall consist of
Two Thousand (2,000) shares with no par value, all of which shall be entitled
to voting power.
Page 1 of 3 pages
<PAGE> 2
V.
The members of the governing board of the corporation shall be styled
Directors, and the number thereof at the inception of this corporation shall be
three (3) or more. The number of directors may from time to time be increased
or decreased in such manner as shall be provided by the By-Laws of the
corporation and the statutes of the State of Nevada. Directors need not be
shareholders, but shall be of full age and at least one shall be a citizen of
the United States. The names and post office addresses of the first Board of
Directors, which shall consist of three (3) persons, and who shall hold office
until their successors are duly elected and qualified, are as follows:
<TABLE>
<CAPTION>
NAMES POST OFFICE ADDRESSES
----- ---------------------
<S> <C>
FLOYD M. WRIGHT 4501 Rochelle Avenue, Las Vegas, Nevada
BRIAN K. WRIGHT 4501 Rochelle Avenue, Las Vegas, Nevada
JOHN H. MIDBY 3700 Las Vegas Bl.S., Las Vegas, Nevada
</TABLE>
VI.
The capital stock of the corporation, after the amount of the
subscription price has been paid in money, property, or services, as the
directors shall determine, shall not be subject to assessment to pay the debts
of the corporation, nor for any other purpose, and no stock issued as fully
paid shall ever be assessable or assessed, and the Articles of Incorporation
shall not be amended in this particular.
VII.
This corporation shall have perpetual existence.
VIII.
The names and addresses of the incorporators signing these Articles of
Incorporation are as follows:
<TABLE>
<CAPTION>
NAMES POST OFFICE ADDRESSES
----- ---------------------
<S> <C>
FLOYD M. WRIGHT 4501 Rochelle Avenue, Las Vegas, Nevada
BRIAN K. WRIGHT 4501 Rochelle Avenue, Las Vegas, Nevada
JOHN H. MIDBY 3700 Las Vegas Bl.S., Las Vegas, Nevada
</TABLE>
Page 2 of 3 pages
<PAGE> 3
IN WITNESS HEREOF, the undersigned incorporators have executed these
Articles of Incorporation this 18th day of April, 1975.
---- -----
/s/ FLOYD M. WRIGHT
----------------------------
FLOYD M. WRIGHT
/s/ BRIAN K. WRIGHT
----------------------------
BRIAN K. WRIGHT
/s/ JOHN H. MIDBY
----------------------------
JOHN H. MIDBY
STATE OF NEVADA )
) SS:
COUNTY OF CLARK )
On this 18th day of April, 1975, personally appeared before me, a Notary
Public, FLOYD M. WRIGHT, BRIAN K. WRIGHT and JOHN H. MIDBY, who acknowledged to
me that they executed the foregoing Articles of Incorporation, and they
acknowledged to me that they executed the same freely and voluntarily and for
the uses and purposes therein mentioned.
/s/ DANIEL F. BYRON
---------------------------
NOTARY PUBLIC
(SEAL)
Page 3 of 3 pages
<PAGE> 4
Office of FILED
WM. D. SWACKHAMER May 15 3 21PH '75
Secretary of State Loretta Bowman
Clerk
David Purcell
THE STATE OF NEVADA
(SEAL)
DEPARTMENT OF STATE
I, Wm. D. Swackhamer, the duly elected, qualified and acting Secretary of
State of the State of Nevada, do hereby certify that the annexed is a true, and
correct transcript of the original Articles of Incorporation of
VILLA BONITA OESTE
as the same appears on file and on record in this office.
IN WITNESS WHEREOF, I have hereunto set my
hand and affixed the Great Seal of State,
at my office in Carson City, Nevada, this
(SEAL) 30th day of April, A. D., 1975
WM. D. SWACKHAMER
-----------------------------------
Secretary of State
By
--------------------------------
Deputy
Form 4
<PAGE> 1
EXHIBIT 3.1(c)
CERTIFICATE OF AMENDMENT OF ARTICLES
OF INCORPORATION OF
VILLA BONITA OESTE
We, the undersigned, DANIEL F. BYRON and JOHN H. MIDBY, President and
Secretary-Treasurer, respectively, of VILLA BONITA OESTE, a Nevada corporation,
do hereby certify as follows:
1. That at a July held meeting of the Board of Directors of said
corporation, said Board, by unanimous vote, adopted a resolution declaring the
advisability of amending Article I of said corporation's Articles of
Incorporation to read as follows:
"The name of this corporation shall be DURABLE HOMES, INC."
2. That pursuant to resolution adopted at the aforesaid meeting of the
Board of Directors of Villa Bonita Oeste, a special stockholders meeting was
called and set for February 20, 1984 at 9:30 a.m. for purposes of obtaining
stockholder approval or disapproval of the said proposed amendment to the
corporation's Articles of Incorporation.
3. That after appropriate notice to each of the corporation's
stockholders and upon said stockholder's consent, a special meeting of the
stockholders of VILLA BONITA OESTE, was held on the 20th day of February, 1984,
at which time such stockholders approved the said amendment to the Articles of
Incorporation of VILLA BONITA OESTE.
4. That as of the date of the special stockholders' meeting, there
were 1420 shares of the common capital stock of said corporation issued,
outstanding and entitled to vote for or against such amendment; and that in
person stockholders holding 1420 shares of the capital stock of said
corporation voted in favor of such amendment.
IN WITNESS WHEREOF, said corporation has caused this
<PAGE> 2
certificate to be signed by its President and Secretary this 2 day of March,
1994.
/s/ DANIEL F. BYRON
-------------------------------------
DANIEL F. BYRON, President
/s/ JOHN H. MIDBY
-------------------------------------
JOHN H. MIDBY, Secretary
STATE OF NEVADA )
) SS:
COUNTY OF CLARK )
On this 2 day of March, 1981 personally appeared before me, a Notary
Public in and for said County and State, DANIEL F. BYRON and JOHN H. MIDBY,
known to me to be the persons described in and who executed the foregoing
instrument who acknowledged to me that they executed the same freely and
voluntarily and for the uses and purposes therein mentioned.
/s/ NANCY A. GORDON
-------------------------------------
NOTARY PUBLIC
NANCY A. GORDON
NOTARY PUBLIC - STATE OF NEVADA
COUNTY OF CLARK
<PAGE> 1
EXHIBIT 3.1(d)
CERTIFICATE OF INCORPORATION
OF
PETERS RANCHLAND COMPANY, INC.
ARTICLE I
NAME OF CORPORATION
The name of the Corporation is:
PETERS RANCHLAND COMPANY, INC.
ARTICLE II
REGISTERED OFFICE
The address of the registered office of the corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of the registered agent of the Corporation at such address is
The Corporation Trust Company.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
AUTHORIZED CAPITAL STOCK
The total number of shares which the Corporation shall have authority to
issue is One Thousand (1,000), and each such share shall have a par value of
one cent ($.01). All such shares shall be of one class and shall be designated
Common Stock.
ARTICLE V
DIRECTORS
5.01 Business and Affairs Managed By Directors. The business and
affairs of the Corporation shall be managed by or under the direction of the
Board of Directors.
<PAGE> 2
5.02 Number. The number of the directors of the Corporation shall be
fixed from time to time by, or in the manner provided in, the Bylaws, as the
same may be amended from time to time.
5.03 Election Need Not Be By Written Ballot. The directors need not be
elected by ballot unless required by the Bylaws of the Corporation.
ARTICLE VI
BYLAWS
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, repeal, alter, amend
and rescind the by-laws of this corporation.
ARTICLE VII
LIMITATION OF DIRECTOR LIABILITY
To the fullest extent permitted by the Delaware General Corporation Law
as the same exists or may hereafter be amended, a director of this corporation
shall not be liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director.
ARTICLE VIII
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the power and right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors, and officers are subject to this
reservation.
2
<PAGE> 3
ARTICLE IX
INCORPORATOR
The name and mailing address of the incorporator of the Corporation is:
Sharyl D. Hughes
18881 Von Karman Avenue, Suite 1600
Irvine, California 92715
THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation under the laws of the State of Delaware does
make and file this Certificate of Incorporation.
/s/ SHARYL D. HUGHES
--------------------------------
Sharyl D. Hughes
-3-
<PAGE> 1
EXHIBIT 3.1(e)
CERTIFICATE OF INCORPORATION
OF
J.M. PETERS NEVADA, INC.
ARTICLE FIRST
NAME
The name of the corporation (hereinafter referred to as the
"Corporation") is J.M. Peters Nevada, Inc.
ARTICLE SECOND
REGISTERED OFFICE AND AGENT
The location of the registered office of the Corporation in the State
of Delaware is at 1013 Centre Road, City of Wilmington, County of New Castle
19805. The registered agent of the Corporation at such address is Corporation
Service Company.
ARTICLE THIRD
PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
ARTICLE FOURTH
CAPITAL STOCK
The aggregate number of shares which the Corporation shall have the
authority to issue is 1,000 shares of the par value of $0.01 per share. All
such shares shall be of one class and shall be designated "common stock."
ARTICLE FIFTH
INCORPORATOR
The name and mailing address of the incorporator is as follows:
Hadi Makarechian
J.M. Peters Company, Inc.
3501 Jamboree Road, Suite 200
Newport Beach, CA 92660
<PAGE> 2
-2-
ARTICLE SIXTH
DIRECTORS
The powers of the incorporator shall terminate upon the filing of this
Certificate of Incorporation. The names and mailing addresses of the persons who
are to serve as directors of the Corporation until the first annual meeting of
stockholders of the Corporation or until their successors are elected and
qualify are as follows:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Dale Dowers J.M. Peters Company, Inc.
3501 Jamboree Road, Suite 200
Newport Beach, CA 92660
Hadi Makarechian J.M. Peters Company, Inc.
3501 Jamboree Road, Suite 200
Newport Beach, CA 92660
</TABLE>
ARTICLE SEVENTH
BY-LAWS
For the management of the business and the conduct of the affairs of the
Corporation, it is further provided that:
(i) the number of directors of the Corporation shall be fixed by,
or in the manner provided in, the by-laws of the Corporation;
(ii) in furtherance and not in limitation of the powers conferred
by the laws of the State of Delaware, the board of directors of the Corporation
is expressly authorized and empowered to adopt, amend or repeal the by-laws of
the Corporation in any manner not inconsistent with the laws of the State of
Delaware or this Certificate of Incorporation, subject to the power of the
stockholders of the Corporation having voting power to adopt, amend or repeal
the by-laws of the Corporation;
(iii) in addition to the power and authority herein or by statute
expressly conferred upon it, the board of directors of the Corporation may
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, subject, nevertheless, to the provisions of the laws
of the State of Delaware, of this Certificate of Incorporation and of the
by-laws of the Corporation; and
(iv) unless and except to the extent that the by-laws of the
Corporation shall so require, the election of directors of the Corporation need
not be by written ballot.
<PAGE> 3
-3-
ARTICLE EIGHTH
LIABILITY OF DIRECTORS
To the fullest extent permitted by the Delaware General Corporation Law,
as amended from time to time, no director of the Corporation shall be liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty. No amendment or repeal of this Article shall adversely affect
any right or protection of a director of the Corporation with respect to any
acts or omissions of such director prior to the time of such repeal or
amendment.
ARTICLE NINTH
RESERVATION OF RIGHT TO AMEND
The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
IN WITNESS WHEREOF the undersigned, being the incorporator named
hereinabove, does hereby execute this Certificate of Incorporation for the
purpose of forming a corporation pursuant to the Delaware General Corporation
Law, and does hereby certify that the facts hereinabove set forth are true and
correct, this 13th day of September, 1993.
----
/s/ HADI MAKARECHIAN
----------------------------------------
Hadi Makarechian
Incorporator
<PAGE> 1
EXHIBIT 3.2(b)
RESTATED
BYLAWS
OF
DURABLE HOMES, INC.
ARTICLE I
STOCKHOLDERS
Section 1.01 Annual Meeting. The annual meeting of the stockholders of
the corporation shall be held at 2:00 o'clock in the afternoon on the second
Thursday of May in each year, but if such date is a legal holiday then on the
next succeeding business day, for the purpose of electing directors of the
corporation to serve during the ensuing year and for the transaction of such
other business as may properly come before the meeting. If the election of the
directors is not held on the day designated herein for any annual meeting of
the stockholders, or at any adjournment thereof, the president shall cause the
election to be held at a special meeting of the stockholders as soon thereafter
as is convenient.
Section 1.02 Special Meetings. Special meetings of the stockholders may
be called by the president or the Board of Directors and shall be called by the
president at the written request of the holders of not less than 51% of the
issued and outstanding shares of capital stock of the corporation.
All business lawfully to be transacted by the stockholders may be
transacted at any special meeting or at any adjournment thereof. However, no
business shall be acted upon at a special meeting except that referred to in
the notice calling the meeting, unless all of the outstanding capital stock of
the corporation is represented either in person or by proxy. Where all of the
capital stock is represented, any lawful business may be transacted and the
meeting shall be valid for all purposes.
Section 1.03 Place of Meetings. Any meeting of the stockholders of the
corporation may be held at its principal office in the State of Nevada or at
such other place in or out of the United States as the Board of Directors may
designate. A waiver of notice signed by the stockholders entitled to vote may
designate any place for the holding of such meeting.
Section 1.04 Notice of Meetings.
(a) The secretary shall sign and deliver to all stockholders of
record written or printed notice of any meeting at least ten (10) days, but not
more than sixty (60) days, before the date of such meeting; which notice shall
state the place, date, and time of the meeting, the general nature of the
business to be transacted, and, in the case of any meeting at which directors
are to be elected, the names of nominees, if any, to be presented for election.
<PAGE> 2
(b) In the case of any meeting, any proper business may be
presented for action, except that the following items shall be valid only if
the general nature of the proposal is stated in the notice or written waiver of
notice:
(1) Action with respect to any contract or transaction
between the corporation and one or more of its directors or another firm,
association, or corporation in which one or more of its directors has a
material financial interest;
(2) Adoption of amendments to the Articles of
Incorporation; or
(3) Action with respect to the merger, consolidation,
reorganization, partial or complete liquidiation, or dissolution of the
corporation.
(c) The notice shall be personally delivered or mailed by first
class mail to each shareholder of record at the last known address thereof, as
the same appears on the books of the corporation, and the giving of such notice
shall be deemed delivered the date the same is deposited in the United States
mail, postage prepaid. If the address of any shareholder does not appear upon
the books of the corporation, it will be sufficient to address any notice to
such shareholder at the principal office of the corporation.
(d) The written certificate of the person calling any meeting,
duly sworn, setting forth the substance of the notice, the time and place the
notice was mailed or personally delivered to the several stockholders, and the
addresses to which the notice was mailed shall be prima facie evidence of the
manner and fact of giving such notice.
Section 1.05 Waiver of Notice. If all of the stockholders of the
corporation shall waive notice of a meeting, no notice shall be required, and,
whenever all of the stockholders shall meet in person or by proxy, such meeting
shall be valid for all purposes without call or notice, and at such meeting any
corporate action may be taken.
Section 1.06 Determination of Stockholders of Record.
(a) The Board of Directors may at any time fix a future date as
a record date for the determination of the stockholders entitled to notice of
any meeting or to vote or entitled to receive payment of any dividend or other
distribution or allotment of any rights or entitled to exercise any rights in
respect of any other lawful action. The record date so fixed shall not be more
than sixty (60) days prior to the date of such meeting nor more than sixty (60)
days prior to any other action. When a record date is so fixed, only
stockholders of record on that date are entitled to notice of and to vote at
the meeting or to receive the dividend, distribution or allotment of rights, or
to exercise their rights, as the case may be, notwithstanding any
-2-
<PAGE> 3
transfer of any shares on the books of the corporation after the record date.
(b) If no record date is fixed by the Board of Directors, then (1) the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the business day
next preceding the day on which notice is given or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; (2) the record date for determining stockholders entitled to give consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors is necessary, shall be the day on which written consent is
given; and (3) the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto, or the sixtieth (60th) day
prior to the date of such other action, whichever is later.
Section 1.07 Quorum; Adjourned Meetings.
(a) At any meeting of the stockholders, a majority of the issued and
outstanding shares of the corporation represented in person or by proxy, shall
constitute a quorum.
(b) If less than a majority of the issued and outstanding shares are
represented, a majority of shares so represented may adjourn from time to time
at the meeting, until holders of the amount of stock required to constitute a
quorum shall be in attendance. At any such adjourned meeting at which a quorum
shall be present, any business may be transacted which might have been
transacted as originally called. When a shareholder's meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken, unless the adjournment is for more than ten (10) days in which event
notice thereof shall be given.
Section 1.08 Voting
(a) Each shareholder of record, such shareholder's duly authorized
proxy or attorney-in-fact shall be entitled to one (1) vote for each share of
stock standing registered in such shareholder's name on the books of the
corporation on the record date.
(b) Except as otherwise provided herein, all votes with respect to
shares standing in the name of an individual on the record date (included
pledged shares) shall be cast only by that individual or such individual's duly
authorized proxy or attorney-in-fact. With respect to shares held by a
representative of the estate of a deceased shareholder, guardian, conservator,
custodian or trustee, votes may be cast by such holder upon proof of capacity,
even though the shares do not stand in the name of such holder. In the case of
shares under
-3-
<PAGE> 4
the control of a receiver, the receiver may cast votes carried by such shares
even though the shares do not stand in the name of the receiver provided that
the order of the court of competent jurisdiction which appoints the receiver
contains the authority to cast votes carried by such shares. If shares stand in
the name of a minor, votes may be cast only by the duly appointed guardian of
the estate of such minor if such guardian has provided the corporation with
written notice and proof of such appointment.
(c) With respect to shares standing in the name of a corporation on the
record date, votes may be cast by such officer or agent as the bylaws of such
corporation prescribe or, in the absence of an applicable bylaw provision, by
such person as may be appointed by resolution of the Board of Directors of such
corporation. In the event no person is so appointed, such votes of the
corporation may be cast by any person (including the officer making the
authorization) authorized to do so by the Chairman of the Board of Directors,
President or any Vice-President of such corporation.
(d) Notwithstanding anything to the contrary herein contained, no votes
may be cast by shares owned by this corporation or its subsidiaries, if any. If
shares are held by this corporation or its subsidiaries, if any, in a fiduciary
capacity, no votes shall be cast with respect thereto on any matter except to
the extent that the beneficial owner thereof possesses and exercises either a
right to vote or to give the corporation holding the same binding instructions
on how to vote.
(e) With respect to shares standing in the name of two or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in
common, husband and wife as community property, tenants by the entirety, voting
trustees, persons entitled to vote under a shareholder voting agreement or
otherwise and shares held by two or more persons (including proxy holders)
having the same fiduciary relationship respect in the same shares, votes may be
cast in the following manner:
(1) If only one such person votes, the vote of such person binds
all.
(2) If more than one person casts votes, the act of the majority so
voting binds all.
(3) If more than one person casts votes, but the vote is evenly
split on a particular matter, the votes shall be deemed cast
proportionately, as split.
(f) Any holder of shares entitled to vote on any matter may cast a
portion of the votes in favor of such matter and refrain from casting the
remaining votes or cast the same against the proposal, except in the case of
elections of directors. If such holder entitled to vote fails to specify the
number of affirmative votes, it will be conclusively presumed
-4-
<PAGE> 5
that the holder is casting affirmative votes with respect to all shares held.
(g) If a quorum is present, the affirmative vote of holders of a
majority of the shares represented at the meeting and entitled to vote on any
matter shall be the act of the stockholders, unless a vote of greater number or
voting by classes is required by the laws of the State of Nevada, the Articles
of Incorporation or these Bylaws.
Section 1.09 Proxies. At any meeting of stockholders, any holder of
shares entitled to vote may authorize another person or persons to vote by
proxy with respect to the shares held by an instrument in writing and
subscribed to by the holder of such shares entitled to vote. No proxy shall be
valid after the expiration of six (6) months from the date of execution
thereof, unless coupled with an interest or unless otherwise specified in the
proxy. In no event shall the term of a proxy exceed seven (7) years from the
date of its execution. Every proxy shall continue in full force and effect
until its expiration or revocation. Revocation may be effected by filing an
instrument revoking the same or a duly executed proxy bearing a later date with
the secretary of the corporation.
Section 1.10 Order of Business. At the annual stockholder's meeting,
the regular order of business shall be as follows:
1. Determination of stockholders present and existence of quorum;
2. Reading and approval of the minutes of the previous meeting or
meetings;
3. Reports of the Board of Directors, the president, treasurer and
secretary of the corporation, in the order named;
4. Reports of committees;
5. Election of directors;
6. Unfinished business;
7. New business;
8. Adjournment.
Section 1.11 Absentees Consent to Meetings. Transactions of any
meeting of the stockholders are as valid as though had at a meeting duly held
after regular call and notice if a quorum is present, either in person or by
proxy, and if, either before or after the meeting, each of the persons entitled
to vote, not present in person or by proxy (and those who, although present,
either object at the beginning of the meeting to the transaction of any
business because the meeting has not been lawfully called or convened or
expressly object at the meeting to the consideration of matters not included in
the notice which are legally required to be included therein), signs a written
waiver of notice and/or consent to the holding of the meeting or an approval of
the minutes thereof. All such waivers, consents, and approvals shall be filed
with the corporate records and made a part of the minutes of the meeting.
Attendance of a person at a meeting
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shall constitute a waiver of notice of such meeting, except when the person
objects at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened and except that
attendance at a meeting is not a waiver of any right to object to the
consideration of matters not included in the notice if such objection is
expressly made at the beginning. Neither the business to be transacted at nor
the purpose of any regular or special meeting of stockholders need be specified
in any written waiver of notice, except as otherwise provided in Section
1.04(b) of these Bylaws.
Section 1.12 Action Without Meeting. Any action, except the election
of directors, which may be taken by the vote of the stockholders at a meeting
may be taken without a meeting if consented to by the holders of a majority of
the shares entitled to vote or such greater proportion as may be required by
the laws of the State of Nevada, the Articles of Incorporation, or these
Bylaws. Whenever action is taken by written consent, a meeting of stockholders
need not be called or noticed.
Section 1.13 Telephonic Meetings. Meetings of the Stockholders may be
held through the use of a conference telephone or similar communications
equipment so long as all members participating in such meeting can hear one
another at the time of such meeting. Participation in such a meeting
constitutes presence in person at such meeting.
ARTICLE II
DIRECTORS
Section 2.01 Number, Tenure, and Qualifications. Except as otherwise
provided herein, the Board of Directors of the corporation shall consist of at
least three (3) persons, who shall be elected at the annual meeting of the
stockholders of the corporation and who shall hold office for one (1) year or
until their successors are elected and qualify. If, at any time, the number of
stockholders of the corporation is less than three (3), the Board of Directors
may consist of fewer persons, but shall not be less than the number of
stockholders. A director need not be a shareholder of the corporation.
Section 2.02 Resignation. Any director may resign effective upon
giving written notice to the chairman of the Board of Directors, the president,
or the secretary of the corporation, unless the notice specifies a later time
for effectiveness of such resignation. If the Board of Directors accepts the
resignation of a director tendered to take effect at a future date, the Board
or the stockholders may elect a successor to take office when the resignation
becomes effective.
Section 2.03 Reduction in Number. No reduction of the number of
directors shall have the effect of removing any director prior to the
expiration of his term of office.
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Section 2.04 Removal.
(a) The Board of Directors or the stockholders of the
corporation, by majority vote, may declare vacant the office of a director who
has been declared incompetent by an order of a court of competent jurisdiction
or convicted of a felony.
Section 2.05 Vacancies.
(a) A vacancy in the Board of Directors because of death,
resignation, removal, change in number of directors, or otherwise may be filled
by the stockholders at any regular or special meeting or any adjourned meeting
thereof (but not by written consent) or the remaining director(s) by the
affirmative vote of a majority thereof. Each successor so elected shall hold
office until the next annual meeting of stockholders or until a successor shall
have been duly elected and qualified.
(b) If, after the filling of any vacancy by the directors, the
directors then in office who have been elected by the stockholders shall
constitute less than a majority of the directors then in office, any holder or
holders of an aggregate of five percent (5%) or more of the total number of
shares entitled to vote may call a special meeting of stockholders to be held
to elect the entire Board of Directors. The term of office of any director
shall terminate upon such election of a successor.
Section 2.06 Regular Meetings. Immediately following the adjournment
of, and at the same place as, the annual meeting of the stockholders, the Board
of Directors, including directors newly elected, shall hold its annual meeting
without notice, other than this provision, to elect officers of the corporation
and to transact such further business as may be necessary or appropriate. The
Board of Directors may provide by resolution the place, date, and hour for
holding additional regular meetings.
Section 2.07 Special Meetings. Special meetings of the Board of
Directors may be called by the chairman and shall be called by the chairman
upon the request of any two (2) directors or the president of the corporation.
Section 2.08 Place of Meetings. Any meeting of the directors of the
corporation may be held at its principal office in the State of Nevada or at
such other place in or out of the United States as the Board of Directors may
designate. A waiver of notice signed by the directors may designate any place
for the holding of such meeting.
Section 2.09 Notice of Meetings. Except as otherwise provided in
Section 2.06, the chairman shall deliver to all directors written or printed
notice of any special meeting, at least three (3) days before the date of such
meeting, by delivery of such notice personally or mailing such notice first
class mail or by telegram. If mailed, the notice shall be deemed delivered
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two (2) business days following the date the same is deposited in the United
States mail, postage prepaid. Any director may waive notice of any meeting, and
the attendance of a director at a meeting shall constitute a waiver of notice
of such meeting, unless such attendance is for the express purpose of objecting
to the transaction of business thereat because the meeting is not properly
called or convened.
Section 2.10 Quorum; Adjourned Meetings.
(a) A majority of the Board of Directors in office shall
constitute a quorum.
(b) At any meeting of the Board of Directors where a quorum is
not present, a majority of those present may adjourn, from time to time, until
a quorum is present, and no notice of such adjournment shall be required. At
any adjourned meeting where a quorum is present, any business may be transacted
which could have been transacted at the meeting originally called.
Section 2.11 Action without Meeting. Any action required or permitted
to be taken at any meeting of the Board of Directors or any committee thereof
may be taken without a meeting if a written consent thereto is signed by all of
the members of the Board of Directors or of such committee. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board of Directors or committee. Such action by written consent shall have the
same force and effect as the unanimous vote of the Board of Directors or
committee.
Section 2.12 Telephonic Meetings. Meetings of the Board of Directors
may be held through the use of a conference telephone or similar communications
equipment so long as all members participating in such meeting can hear one
another at the time of such meeting. Participation in such a meeting
constitutes presence in person at such meeting.
Section 2.13 Board Decisions. The affirmative vote of a majority of
the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors.
Section 2.14 Powers and Duties.
(a) Except as otherwise provided in the Articles of
Incorporation or the laws of the State of Nevada, the Board of Directors is
invested with the complete and unrestrained authority to manage the affairs of
the corporation, and is authorized to exercise for such purpose as the general
agent of the corporation, its entire corporate authority in such manner as it
sees fit. The Board of Directors may delegate any of its authority to manage,
control or conduct the current business of the corporation to any standing or
special committee or to any officer or agent and to appoint any persons to be
agents of the corporation with such powers, including the power to subdelegate,
and upon such terms as may be deemed fit.
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(b) The Board of Directors shall present to the stockholders at annual
meetings of the stockholders, and when called for by a majority vote of the
stockholders at a special meeting of the stockholders, a full and clear
statement of the condition of the corporation, and shall, at request, furnish
each of the stockholders with a true copy thereof.
(c) The Board of Directors, in its discretion, may submit any contract
or act for approval or ratification at any annual meeting of the stockholders
or any special meeting properly called for the purpose of considering any such
contract or act, provided a quorum is present. The contract or act shall be
valid and binding upon the corporation and upon all the stockholders thereof,
if approved and ratified by the affirmative vote of a majority of the
stockholders at such meeting.
Section 2.15 Compensation. The directors shall be allowed and paid
all necessary expenses incurred in attending any meetings of the Board, but
shall not receive any compensation for their services as directors until such
time as the corporation is able to declare and pay dividends on its capital
stock.
Section 2.16 Board Officers.
(a) At its annual meeting, the Board of Directors shall elect, from
among its members, a chairman to preside at meetings of the Board of Directors.
The Board of Directors may also elect such other board officers and for such
term as it may, from time to time, determine advisable.
(b) Any vacancy in any board office because of death, resignation,
removal or otherwise may be filled by the Board of Directors for the unexpired
portion of the term of such office.
Section 2.17 Order of Business. The order of business at any meeting
of the Board of Directors shall be as follows:
1. Determination of members present and existence of quorum;
2. Reading and approval of the minutes of any previous meeting or
meetings;
3. Reports of officers and committeemen;
4. Election of officers;
5. Unfinished business;
6. New business;
7. Adjournment.
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ARTICLE III
OFFICERS
Section 3.01 Election. The Board of Directors, at its first meeting
following the annual meeting of stockholders, shall elect a president, a
secretary and a treasurer to hold office for one (1) year next coming and until
their successors are elected and qualify. Any person may hold two or more
offices. The Board of Dirctors may, from time to time, by resolution, appoint
one or more vice-presidents, assistant secretaries, assistant treasurers and
transfer agents of the corporation as it may deem advisable; prescribe their
duties; and fix their compensation.
Section 3.02 Removal; Resignation. Any officer or agent elected or
appointed by the Board of Directors may be removed by it whenever, in its
judgment, the best interests of the corporation would be served thereby. Any
officer may resign at any time upon written notice to the corporation without
prejudice to the rights, if any, of the corporation under any contract to which
the resigning officer is a party.
Section 3.03 Vacancies. Any vacancy in any office because of death,
resignation, removal or otherwise may be filled by the Board of Directors for
the unexpired portion of the term of such office.
Section 3.04 President. The president shall be the general manager and
executive officer of the corporation, subject to the supervision and control of
the Board of Directors, and shall direct the corporate affairs, with full power
to execute all resolutions and orders of the Board of Directors not especially
entrusted to some other officer of the corporation. The president shall preside
at all meetings of the stockholders and shall sign the certificates of stock
issued by the corporation, and shall perform such other duties as shall be
prescribed by the Board of Directors.
Unless otherwise ordered by the Board of Directors, the president shall
have full power and authority on behalf of the corporation to attend and to
act and to vote at any meetings of the stockholders of any corporation in which
the corporation may hold stock and, at any such meetings, shall possess and may
exercise any and all rights and powers incident to the ownership of such stock.
The Board of Directors, by resolution from time to time, may confer like powers
on any person or persons in place of the president to represent the corporation
for these purposes.
Section 3.05 Vice-President. The Board of Directors may elect one or
more vice-presidents who shall be vested with all the powers and perform all
the duties of the president whenever the president is absent or unable to act,
including the signing of the certificates of stock issued by the corporation,
and the vice-president shall perform such other duties as shall be prescribed
by the Board of Directors.
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Section 3.06 Secretary. The secretary shall keep the minutes of all
meetings of the stockholders and the Board of Directors in books provided for
that purpose. The secretary shall attend to the giving and service of all
notices of the corporation, may sign with the president in the name of the
corporation all contracts authorized by the Board of Directors or appropriate
committee, shall have the custody of the corporate seal, shall affix the
corporate seal to all certificates of stock duly issued by the corporation,
shall have charge of stock certificate books, transfer books and stock ledgers,
and such other books and papers as the Board of Directors or appropriate
committee may direct, and shall, in general, perform all duties incident to the
office of the secretary. All corporate books kept by the secretary shall be
open for examination by any director at any reasonable time.
Section 3.07 Assistant Secretary. The Board of Directors may appoint
assistant secretary who shall have such powers and perform such duties as may
be prescribed for him by the secretary of the corporation or by the Board of
Directors.
Section 3.08 Treasurer. The treasurer shall be the chief financial
officer of the corporation, subject to the supervision and control of the Board
of Directors, and shall have custody of all the funds and securities of the
corporation. When necessary or proper, the treasurer shall endorse on behalf of
the corporation for collection checks, notes, and other obligations, and shall
deposit all monies to the credit of the corporation in such bank or banks or
other depository as the Board of Directors may designate, and shall sign all
receipts and vouchers for payments made by the corporation. Unless otherwise
specified by the Board of Directors, the treasurer shall sign with the
president all bills of exchange and promissory notes of the corporation, shall
also have the care and custody of the stocks, bonds, certificates, vouchers,
evidence of debts, securities, and such other property belonging to the
corporation as the Board of Directors shall designate, and shall sign all
papers required by law, by these Bylaws, or by the Board of Directors to be
signed by the treasurer. The treasurer shall enter regularly in the books of
the corporation, to be kept for that purpose, full and accurate accounts of all
monies received and paid on account of the corporation and, whenever required
by the Board of Directors, the treasurer shall render a statement of any or all
accounts. The treasurer shall at all reasonable times, exhibit the books of
account to any directors of the corporation and shall perform all acts incident
to the position of treasurer subject to the control of the Board of Directors.
The treasurer shall, if required by the Board of Directors, give bond
to the corporation in such sum and with such security as shall be approved by
the Board of Directors for the faithful performance of all the duties of
treasurer and for restoration to the corporation, in the event of the
treasurer's death, resignation, retirement or removal from office, of all
books, records, papers, vouchers, money and other property belonging to the
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corporation. The expense of such bond shall be borne by the corporation.
Section 3.09 Assistant Treasurer. The Board of Directors may appoint an
assistant treasurer who shall have such powers and perform such duties as may
be prescribed by the treasurer of the corporation or by the Board of Directors,
and the Board of Directors may require the assistant treasurer to give a bond
to the corporation in such sum and with such security as it may approve, for
the faithful performance of the duties of assistant treasurer, and for
restoration to the corporation, in the event of the assistant treasurer's
death, resignation, retirement or removal from office, of all books, records,
papers, vouchers, money and other property belonging to the corporation. The
expense of such bond shall be borne by the corporation.
ARTICLE IV
CAPITAL STOCK
Section 4.01 Issuance. Shares of capital stock of the corporation shall
be issued in such manner and at such times and upon such conditions as shall be
prescribed by the Board of Directors.
Section 4.02 Certificates. Ownership in the corporation shall be
evidenced by certificates for shares of stock in such form as shall be
prescribed by the Board of Directors, shall be under the seal of the
corporation and shall be signed by the president or the vice-president and also
by the secretary or an assistant secretary. Each certificate shall contain the
name of the record holder, the number, designation, if any, class or series of
shares represented, a statement of summary of any applicable rights,
preferences, privileges or restrictions thereon, and a statement that the
shares are assessable, if applicable. All certificates shall be consecutively
numbered. The name and address of the shareholder, the number of shares, and
the date of issue shall be entered on the stock transfer books of the
corporation.
Section 4.03 Surrender; Lost or Destroyed Certificates. All
certificates surrendered to the corporation, except those representing shares
of treasury stock, shall be cancelled and no new certificate shall be issued
until the former certificate for a like number of shares shall have been
cancelled, except that in case of a lost, stolen, destroyed or mutilated
certificate, a new one may be issued therefor. However, any shareholder
applying for the issuance of a stock certificate in lieu of one alleged to have
been lost, stolen, destroyed or mutilated shall, prior to the issuance of a
replacement, provide the corporation with his, her or its affidavit of the
facts surrounding the loss, theft, destruction or mutilation and an indemnity
bond in any amount and upon such terms as the treasurer, or the Board of
Directors, shall require. In no case shall the bond be in an amount less than
twice the current market value of the stock and it shall
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indemnify the corporation against any loss, damage, cost or inconvenience
arising as a consequence of the issuance of a replacement certificate.
Section 4.04 Replacement Certificate. When the Articles of
Incorporation are amended in any way affecting the statements contained in the
certificates for outstanding shares of capital stock of the corporation or it
becomes desirable for any reason, including, without limitation, the merger or
consolidation of the corporation with another corporation or the reorganization
of the corporation, to cancel any outstanding certificate for shares and issue
a new certificate therefor conforming to the rights of the holder, the Board of
Directors may order any holders of outstanding certificates for shares to
surrender and exchange the same for new certificates within a reasonable time
to be fixed by the Board of Directors. The order may provide that a holder of
any certificate(s) ordered to be surrendered shall not be entitled to vote,
receive dividends or exercise any other rights of stockholders until the holder
has complied with the order provided that such order operates to suspend such
rights only after notice and until compliance.
Section 4.05 Transfer of Shares. No transfer of stock shall be valid as
against the corporation except on surrender and cancellation of the certificate
therefor, accompanied by an assignment or transfer by the registered owner made
either in person or under assignment. Whenever any transfer shall be expressly
made for collateral security and not absolutely, the collateral nature of the
transfer shall be reflected in the entry or transfer on the books of the
corporation.
Section 4.06 Transfer Agent. The Board of Directors may appoint one or
more transfer agents and registrars of transfer and may require all
certificates for shares of stock to bear the signature of such transfer agent
and such registrar of transfer.
Section 4.07 Stock Transfer Books. The stock transfer books shall be
closed for a period of ten (10) days prior to all meetings of the stockholders
and shall be closed for the payment of dividends as provided in Article V
hereof and during such periods as, from time to time, may be fixed by the Board
of Directors, and, during such periods, no stock shall be transferable.
Section 4.08 Miscellaneous. The Board of Directors shall have the power
and authority to make such rules and regulations not inconsistent herewith as
it may deem expedient concerning the issue, transfer, and registration of
certificates for shares of the capital stock of the corporation.
ARTICLE V
DIVIDENDS
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Section 5.01 Dividends may be declared, subject to the provisions of
the laws of the State of Nevada and the Articles of Incorporation, by the Board
of Directors at any regular or special meeting and may be paid in cash,
property, shares of corporate stock, or any other medium. The Board of
Directors may fix in advance a record date, as provided in Section 1.06 of
these Bylaws, prior to the dividend payment for the purpose of determining
stockholders entitled to receive payment of any dividend. The Board of
Directors may close the stock transfer books for such purpose for a period of
not more than ten (10) days prior to the payment date of such dividend.
ARTICLE VI
OFFICES; RECORDS; REPORTS; SEAL; AND FINANCIAL MATTERS
Section 6.01 Principal Office. The principal office of the corporation
in the State of Nevada shall be at 600 East Charleston Boulevard, Las Vegas,
Nevada, and the corporation may have an office in any other state or territory
as the Board of Directors may designate.
Section 6.02 Records. The stock transfer books and a certified copy of
the Bylaws, Articles of Incorporation, any amendments thereto, and the minutes
of the proceedings of stockholders, the Board of Directors, and committees of
the Board of Directors shall be kept at the principal office of the corporation
for the inspection of all who have the right to see the same and for the
transfer of stock. All other books of the corporation shall be kept at such
places as may be prescribed by the Board of Directors.
Section 6.03 Financial Report on Request. Any shareholder or
stockholders holding at least five percent (5%) of the outstanding shares of
any class of stock may make a written request for an income statement of the
corporation for the three (3) month, six (6) month, or nine (9) month period of
the current fiscal year ended more than thirty (30) days prior to the date of
the request and a balance sheet of the corporation as of the end of such
period. In addition, if no annual report for the last fiscal year has been
sent to stockholders, such shareholder or stockholders may make a request for a
balance sheet as of the end of such fiscal year and an income statement and
statement of changes in financial position for such fiscal year. The statements
shall be delivered or mailed to the person making the request within thirty
(30) days thereafter. A copy of the statements shall be kept on file in the
principal office of the corporation for twelve (12) months, and such copies
shall be exhibited at all reasonable times to any shareholder demanding an
examination of them or a copy shall be mailed to each shareholder. Upon request
by any shareholder, there shall be mailed to the shareholder a copy of the last
annual, semiannual, or quarterly income statement which it has prepared and a
balance sheet as of the end of the period. The financial statements referred to
in this Section 6.03 shall be accompanied by the
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report thereon, if any, of any independent accountants engaged by the
corporation or the certificate of an authorized officer of the corporation that
such financial statements were prepared without audit from the books and records
of the corporation.
Section 6.04 Right of Inspection.
(a) The accounting books and records and minutes of
proceedings of the stockholders and the Board of Directors and committees of
the Board of Directors shall be open to inspection upon the written demand of
any shareholder or holder of a voting trust certificate at any reasonable time
during usual business hours for a purpose reasonably related to such holder's
interest as a shareholder or as the holder of such voting trust certificate.
This right of inspection shall extend to the records of the subsidiaries, if
any, of the corporation. Such inspection may be made in person or by agent or
attorney, and the right of inspection includes the right to copy and make
extracts.
(b) Every director shall have the absolute right at any
reasonable time to inspect and copy all books, records, and documents of every
kind and to inspect the physical properties of the corporation and/or its
subsidiary corporations. Such inspection may be made in person or by agent or
attorney, and the right of inspection includes the right to copy and make
extracts.
Section 6.05 Corporate Seal. The Board of Directors may, by
resolution, authorize a seal, and the seal may be used by causing it, or a
facsimile, to be impressed or affixed or reproduced or otherwise. Except when
otherwise specifically provided herein, any officer of the corporation shall
have the authority to affix the seal to any document requiring it.
Section 6.06 Fiscal Year. The fiscal year-end of the corporation shall
be fixed by subsequent resolution of the Board of Directors.
Section 6.07 Reserves. The Board of Directors may create, by
resolution, out of the earned surplus of the corporation such reserves as the
directors may, from time to time, in their discretion, think proper to provide
for contingencies, or to equalize dividends or to repair or maintain any
property of the corporation, or for such other purpose as the Board of
Directors may deem beneficial to the corporation, and the directors may modify
or abolish any such reserves in the manner in which they were created.
ARTICLE VII
INDEMNIFICATION
Section 7.01 In General. Subject to the laws of the State of Nevada,
the corporation shall indemnify any director, officer, employee or agent of the
corporation, or any person serving in any such capacity of any other entity or
enterprise at the
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request of the corporation, against any and all legal expenses (including
attorney's fees), claims and/or liabilities arising out of any action, suit or
proceeding, except an action by or in the right of the corporation.
Section 7.02 Lack of Good Faith; Criminal Conduct. The corporation
shall not be required to indemnify any person unless such person acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, where there was no reasonable cause to believe the conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order
or settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, there was reasonable cause to believe that the conduct was
unlawful. Moreover, the corporation shall not indemnify any person adjudged to
be liable for negligence or misconduct in the performance of a duty to the
corporation unless and only to the extent that the court in which such action
or suit was brought determines upon application that, despite the adjudication
of liability, such person is fairly and reasonably entitled to indemnity for
such expenses as the court deems proper.
Section 7.03 Successful Defense of Actions. The corporation shall
reimburse or otherwise indemnify any director, officer, employee, or agent
against legal expenses (including attorneys' fees) actually and reasonably
incurred in connection with defense or any action, suit, or proceeding
hereinabove referred to, to the extent such person is successful on the merits
or otherwise.
Section 7.04 Authorization. Indemnification shall be made by the
corporation only when authorized in the specific case and upon a determination
that indemnification is proper by:
(1) The stockholders;
(2) A majority vote of a quorum of the Board of Directors,
consisting of directors who were not parties to the action, suit, or
proceeding; or
(3) Independent legal counsel in a written opinion, if a quorum
of disinterested directors orders or if a quorum of disinterested directors
cannot be obtained.
Section 7.05 Advancing Expenses. Expenses incurred in defending any
action, suit, or proceeding may be paid by the corporation in advance of the
final disposition, when authorized by the Board of Directors, upon receipt of
an undertaking by or on behalf of the person defending to repay such advances
if indemnification is not ultimately available under these provisions.
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Section 7.06 Other Rights; Continuing Indemnification. The
indemnification provided by these Bylaws does not exclude any other rights to
which the person seeking indemnification may be entitled under the law and
shall continue as to a person who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
Section 7.07 Insurance. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the corporation or who is or was serving at the request of the
corporation in any capacity against any liability asserted.
ARTICLE VIII
BYLAWS
Section 8.01 Amendment. These Bylaws may only be altered, amended, or
repealed at a meeting of the stockholders at which a quorum is present by the
affirmative vote of the holders of two-thirds (2/3rds) of the capital stock of
the corporation entitled to vote or by the consent of the stockholders in
accordance with Section 1.12 of these Bylaws.
Section 8.02 Additional Bylaws. Additional bylaws not inconsistent
herewith may be adopted by the Board of Directors at any meeting of the Board
of Directors at which a quorum is present by an affirmative vote of a majority
of the directors present or by the unanimous consent of the Board of Directors
in accordance with Section 2.11 of these Bylaws. Any bylaws so adopted shall be
presented to the stockholders for alteration, amendment, or repeal in
accordance with Section 8.01 of these Bylaws.
CERTIFICATION
I, the undersigned, being the duly elected secretary of the
corporation, do hereby certify that the foregoing Bylaws were adopted by the
Board of Directors the 27th day of June, 1994.
/s/ JOHN H. MIDBY
-----------------------------------
John H. Midby, Secretary
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EXHIBIT 3.2(c)
CERTIFICATE OF AMENDMENT
OF THE RESTATED BYLAWS
OF DURABLE HOMES, INC.,
a Nevada corporation
The undersigned, Gregory R. Petersen, hereby certifies that he is the
duly appointed and acting Secretary of Durable Homes, Inc., a Nevada
corporation (the "Company") and that set forth below is a true and correct copy
of a resolution duly adopted by unanimous written consent of the shareholder of
the Company on October 15, 1993:
NOW, THEREFORE, BE IT RESOLVED, that Article II, Section 2.01 of the
Restated Bylaws of the Company is hereby amended to read in its entirety as
follows:
Section 2.01 Number, Tenure, and Qualifications. Except as
otherwise provided herein, the Board of Directors of the corporation
shall not be less than three (3) nor more than nine (9). The Board of
Directors shall be elected at the annual meeting of the stockholders of
the corporation and shall hold office for one (1) year or until their
successors are elected and qualified; provided, however, that the
stockholders may remove any director at any time by resolution of the
stockholders. The exact number of directors shall be fixed from time to
time, within the limits specified, by resolution of the stockholders.
Subject to the foregoing provisions for changing the exact number of
directors, the number of directors of this corporation shall be six
(6). A director need not be a stockholder of the corporation.
RESOLVED FURTHER, that Article III, Sections 3.01, 3.02, 3.03 and 3.04
of the Restated Bylaws of the Company are hereby amended to read in their
entirety as follows:
Section 3.01 Election. The Board of Directors, at its first
meeting following the annual meeting of stockholders, shall elect a
president, a secretary and a treasurer to hold office for one (1) year
next coming and until their successors are elected and qualified. Any
person may hold two or more offices. The Board of Directors may, from
time to time, by resolution, appoint a chairman of the board, vice
chairman of the board and one or more vice presidents, assistant
secretaries, assistant treasurers, and such other officers and agents
as may be deemed necessary; prescribe their duties; and fix their
compensation.
<PAGE> 2
Section 3.02 Removal; Resignations; Vacancies. Any officer or agent
elected or appointed by the Board of Directors may be removed by it whenever,
in its judgment, the best interests of the corporation would be served
thereby. Any officer may resign at any time upon written notice to the
corporation without prejudice to the rights, if any, of the corporation under
any contract to which the resigning officer is a party. Any vacancy in any
office because of death, resignation, or removal or otherwise may be filled by
the Board of Directors for the unexpired portion of the term of such office.
Section 3.03 Chairman and Vice Chairman of the Board. The chairman of
the board shall be the chief executive officer of the corporation, subject to
the supervision and control of the Board of Directors, and shall direct the
corporate affairs, with full power to execute all resolutions and orders of the
Board of Directors not especially entrusted to some other officer of the
corporation. The chairman shall preside at all meetings of the stockholders and
shall perform such other duties as shall be prescribed by the Board of
Directors.
Unless otherwise ordered by the Board of Directors, the chairman shall
have full power and authority on behalf of the corporation to attend and to act
and to vote at any meetings of the stockholders of any corporation which the
corporation may hold stock and, at any such meetings, shall possess and may
exercise any and all rights and powers incident to the ownership of such stock.
The Board of Directors, by resolution from time to time, may confer like powers
on any person or persons in place of the chairman to represent the corporation
for these purposes.
The vice chairman of the board shall act as chairman in the chairman's
absence or incapacity and shall perform such duties of the chairman of the
board as may be delegated from time to time by the chairman of the board and
such other duties as shall be prescribed by the Board of Directors.
Section 3.04 President. The president shall be the general manager and
chief operating officer of the corporation, subject to the supervision and
control of the chairman of the board and Board of Directors, and shall sign the
certificates of stock issued by the corporation, and perform such other duties
as shall be prescribed by the Board of Directors.
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Except as amended in the manner set forth above, the Restated Bylaws of
the Company have not been amended, modified or repealed and remain in full
force and effect.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment as of this 15th day of October, 1993.
/s/ GREGORY R. PETERSEN
--------------------------------
Gregory R. Petersen, Secretary
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<PAGE> 1
EXHIBIT 3.2(d)
BYLAWS
OF
PETERS RANCHLAND COMPANY, INC.,
(A DELAWARE CORPORATION)
ARTICLE I
MEETINGS OF STOCKHOLDERS
1.01 Annual Meetings. Annual meetings of the stockholders of the
Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at such
time and date as the Board of Directors ("Board") shall determine by
resolution.
1.02 Place of Meetings. All meetings of the stockholders shall be held
at such places, within or without the State of Delaware, as may from time to
time be designated by resolution of the Board.
1.03 Quorum. In the absence of a quorum at any meeting or any
adjournment thereof, a majority in voting interest of the stockholders present
in person or by proxy and entitled to vote thereat or, in the absence therefrom
of all the stockholders, any officer entitled to preside at, or to act as
secretary of, such meeting may adjourn such meeting from time to time until a
quorum shall be present.
1.04 Conduct of Meetings. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or in the Chairman's absence by the
Vice Chairman of the Board, if any, or in the Vice Chairman's absence by the
President, or in President's absence by a Vice President, or in the absence of
the foregoing persons by a chairman designated by the Board of Directors, or in
the absence of any such designation by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in the Secretary's absence
the chairman of the meeting may appoint any person to act as secretary of the
meeting. Subject to the requirements of applicable law, all annual and special
meetings of stockholders shall be conducted in accordance with such rules and
procedures as the Board may establish and, as to matters not governed by such
rules and procedures, as the chairman of such meeting shall determine.
1.05 Voting.
(a) Stock having voting power standing of record in the names of two or
more persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, tenants by the entirety or otherwise, or with respect to
which two or more persons (including proxyholders) have the same fiduciary
relationship, shall be voted in accordance with the provisions of Section 217
of the Delaware General Corporation Law ("DGCL").
<PAGE> 2
(b) Any voting rights may be exercised by the stockholder entitled
thereto in person or by the stockholder's proxy appointed by an instrument in
writing, subscribed and dated by such stockholder or by the stockholder's
attorney thereunto authorized and delivered to the secretary of the meeting
prior to the meeting. The attendance at any meeting of a stockholder who may
theretofore have given a proxy shall not have the effect of revoking the same
unless the stockholder shall in writing so notify the secretary of the meeting
prior to the voting of the proxy.
(c) Shares withdrawn from a meeting prior to a vote of stockholders
shall not be deemed present at the meeting for purposes of determining the
number of shares necessary to approve any action taken at the meeting
subsequent to the withdrawal of the shares. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of a sufficient number of shares, whether initially present in
person or by proxy, to leave less than a quorum, provided that any action
taken, other than adjournment, is approved by at least a majority of the
required quorum for such meeting or by such greater number as may be required
by law or these Bylaws.
(d) The vote at any meeting of the stockholders on any question need
not be by ballot, unless so directed by the chairman of the meeting.
Notwithstanding the foregoing, elections of directors shall be by written
ballot. On a vote by ballot each ballot shall be signed by the stockholder
voting, or by the stockholder's proxy, if there be such proxy, and it shall
state the number of shares voted.
1.06 Inspectors of Election. In advance of any meeting of stockholders
the Board may appoint an inspector or inspectors of election to act with
respect to such vote. If no inspectors are appointed by the Board, or if any
persons so appointed shall fail to appear or refuse to act, then the chairman
of the meeting may appoint an inspector or inspectors of election. Each
inspector of election so appointed shall execute the duties of an inspector of
election at such meeting with strict impartiality and according to the best of
the inspector's ability. The inspectors of election shall decide upon the
qualification of the voters and shall report the number of shares represented
at the meeting and entitled to vote on such question, shall conduct and accept
the votes, and, when the voting is completed, shall ascertain and report the
number of shares voted respectively for and against the question. Reports of
inspectors of election shall be in writing and subscribed and delivered by the
inspectors to the Secretary of the Corporation. The inspectors of election need
not be stockholders of the Corporation, and any officer of the Corporation may
be an inspector of election on any question other than a vote for or against a
proposal in which the officer shall have a material interest.
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<PAGE> 3
ARTICLE II
BOARD OF DIRECTORS
2.01 Number. The number of directors of the Corporation which shall be
not less than one (1) nor more than five (5). Until shares are issued, the
number of directors may be one (1) or two (2).
2.02 Vacancies. Any vacancy in the Board, whether because of death,
resignation, disqualification, an increase in the number of directors, removal,
or any other cause, may be filled by vote of the majority of the remaining
directors, although less than a quorum. Each director so chosen to fill a
vacancy shall hold office until the director's successor shall have been
elected and shall qualify or until the director shall resign or shall have been
removed.
2.03 Regular Meetings. Regular meetings of the Board may be held at
such times as the Board shall from time to time by resolution determine. If any
day fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting shall be held at the same hour and
place on the next succeeding business day not a legal holiday. Except as
provided by law, notice of regular meetings need not be given.
2.04 Special Meetings. Special meetings of the Board shall be held
whenever called by the Chairman of the Board, the President or by a majority of
the authorized number of directors. Except as otherwise provided by law or by
these Bylaws, notice of the time and place of each such special meeting shall
be mailed to each director, addressed to the director at the director's
residence or usual place of business, at least five (5) days before the day on
which the meeting is to be held, or shall be sent to the director at such place
by telegraph, cable or overnight courier or be delivered personally not less
than forty-eight (48) hours before the time at which the meeting is to be held.
Except where otherwise required by law or by these Bylaws, notice of the
purpose of a special meeting need not be given.
2.05 Quorum. In the absence of a quorum, a majority of directors
present at any meeting may adjourn the same from time to time until a quorum
shall be present. Notice of any adjourned meeting need not be given.
2.06 Voting. The vote of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board. A director
who withdraws from a meeting prior to a vote of the directors shall not be
deemed present for purposes of determining the number of director votes
necessary to
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<PAGE> 4
approve any action taken at the meeting subsequent to the withdrawal of the
director. A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of a sufficient number of
directors to reduce the number of directors to reduce the number of directors
present below the required quorum for the meeting, provided any action taken,
other than adjournment, is approved by at least a majority of the required
quorum for such meeting or by such greater number as may be required by law or
these Bylaws.
2.07 Compensation. The directors shall receive such compensation for
their services as directors as may be fixed by resolution of the Board from
time to time. The Board may also provide that the Corporation shall reimburse
a director for any expense incurred by the director on account of the director's
attendance at any meetings of the Board or committees of the Board. Neither
the payment of such compensation nor the reimbursement of such expenses shall
be construed to preclude any director from serving the Corporation or its
subsidiaries in any other capacity and receiving compensation therefor.
2.08 Committees. Any committee of the Board, to the extent provided
in the resolution of the Board and except as otherwise limited by law, shall
have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it.
Any such committee shall keep written minutes of its meetings and report the
same to the Board at the next regular meeting of the Board. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not the
member or members constitute a quorum, may unanimously appoint another member
of the Board to act at the meeting in the place of any such absent or
disqualified member.
ARTICLE III
OFFICERS
3.01 Corporate Officers.
(a) The officers of the Corporation shall be a President, a Secretary,
and a Treasurer and such other officers as may be appointed at the discretion
of the Board in accordance with the provisions of Section 3.01(b).
(b) In addition to the officers specified in Section 3.01(a), the
Board may appoint such other officers as the Board may deem necessary or
advisable, including a Chairman of the Board, one or more Vice Presidents (the
number thereof and
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<PAGE> 5
their respective titles to be determined by the Board), one or more Assistant
Secretaries, and one or more Assistant Treasurers, each of whom shall hold
office for such period, have such authority, have such titles and perform such
duties as the Board may from time to time determine. The Board may delegate to
any officer of the Corporation or any committee of the Board the power to
appoint, remove, and prescribe the duties of any officer provided for in this
Section 3.01(b).
3.02 Election, Term of Office and Qualifications. The officers of the
Corporation, except such officers as may be appointed in accordance with
Sections 3.01(b), shall be appointed annually by the Board at the first meeting
thereof held after the election of the Board. Each officer shall hold office
until such officer shall resign or shall be removed or otherwise disqualified
to serve, or the officer's successor shall be appointed and qualified.
3.03 Removal. Any officer of the Corporation may be removed, with or
without cause, at any time at any regular or special meeting of the Board by a
majority of the directors of the Board at the time in office or, except in the
case of an officer appointed by the Board, by any officer of the Corporation or
committee of the Board upon whom or which such power of removal may be
conferred by the Board.
3.04 Chairman. The Chairman of the Board, if one is elected, shall
preside at all meetings of the Board and of the stockholders and shall have and
perform such other duties as from time to time may be assigned to the Chairman
by the Board.
3.05 President. The President of the Corporation shall be the Chief
Executive Officer of the Corporation and shall have, subject to the control of
the Board, general and active supervision and management over the Business of
the Corporation and over its officers and employees. In the absence or
non-appointment of a Chairman, the President shall preside at all meetings of
the stockholders and all meetings of the Board if present thereat.
3.06 Vice Presidents. Each Vice President shall have such powers and
perform such duties as the Board may from time to time prescribe. At the
request of the President, or in case of the President's absence or inability to
act upon the request of the Board, a Vice President shall perform the duties of
the President and when so acting, shall have all the powers of, and be subject
to all the restrictions upon, the President.
3.07 Secretary. The Secretary shall have the duty to record the
proceedings of all meetings of the Board, of the stockholders, and of all
committees of which a secretary shall not have been appointed. The Secretary
shall see that all
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<PAGE> 6
notices are duly given in accordance with these Bylaws and as required by law;
shall be custodian of the seal of the Corporation and shall affix and attest
the seal to all documents to be executed on behalf of the Corporation under its
seal; and, in general, shall perform all the duties incident to the office of
Secretary and such other duties as may from time to time be assigned to the
Secretary by the Board.
3.08 Treasurer. The Treasurer shall supervise, have custody of, and be
responsible for all funds and securities of the Corporation. The Treasurer
shall deposit all such funds in the name of the Corporation in such banks,
trust companies or other depositories as shall be selected by the Board or in
accordance with authority delegated by the Board. The Treasurer shall receive,
and give receipts for, moneys due and payable to the Corporation from any
source whatsoever. The Treasurer shall exercise general supervision over
expenditures and disbursements made by officers, agents and employees of the
Corporation and the preparation of such records and reports in connection
therewith as may be necessary or desirable. The Treasurer shall, in general,
perform all other duties incident to the office of Treasurer and such other
duties as from time to time may be assigned to the Treasurer by the Board.
Unless otherwise provided by the Board, the Treasurer shall be the Chief
Financial Officer of the Corporation.
ARTICLE IV
SHARES AND THEIR TRANSFER
The Board may make such rules and regulations as it may deem necessary
or appropriate, not inconsistent with these Bylaws, concerning the issue,
transfer and registration of certificates for shares of the stock of the
Corporation. It may appoint, or authorize any officer or officers to appoint,
one or more transfer clerks or one or more transfer agents and one or more
registrars, and may require all certificates for stock to bear the signature or
signatures of any of them.
ARTICLE V
INDEMNIFICATION
5.01 Indemnification.
(a) The Corporation shall indemnify, in the manner and to the
fullest extent permitted by law, any person (or the estate, heirs, executors,
or administrators of any person) who was or is a party to, or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding,
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<PAGE> 7
whether or not by or in the right of the Corporation, and whether civil,
criminal, administrative, investigative or otherwise, by reason of the fact
that such person is or was a director or officer of the Corporation or by
reason of the fact that any officer or director of the Corporation is or was
serving at the request of the Corporation as a director, officer, employee, or
other agent of another corporation, partnership, joint venture, trust, or other
enterprise. To the fullest extent permitted by law, the indemnification
provided herein shall include expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement, and, in the manner provided by law, any
such expenses shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding.
(b) The Corporation may indemnify and advance expenses to other
employees and agents of the Corporation and other persons who were or are
serving at the request of the Corporation as a director, officer, employee, or
other agent of another corporation, partnership, joint venture, trust, or other
enterprise in the manner and to the extent provided for in Section 5.01(a) as
in the case of officers and directors of the Corporation.
5.02 Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who 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, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such liability.
5.03 Nonexclusivity. The indemnification and advancement of expenses
provided herein shall not be deemed exclusive of any other rights to which any
person seeking indemnification or advancement of expenses from the Corporation
may be entitled under any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in such person's official capacity
and as to action in another capacity while holding such office.
ARTICLE VI
MISCELLANEOUS
6.01 Seal. The Board shall provide a corporate seal, which shall be
in the form of a circle and shall bear the name of the Corporation and words
and figures showing that the
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Corporation was incorporated in the State of Delaware and the year of
incorporation.
6.02 Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board.
6.03 Representation of Other Corporations. The President, any Vice
President, or Secretary of this Corporation are authorized to vote, represent
and exercise on behalf of this Corporation all rights incident to any and all
shares of any other corporation or corporations standing in the name of this
Corporation. The authority herein granted to said officers to vote or
represent on behalf of this Corporation any and all shares held by this
Corporation in any other corporation or corporations may be exercised either
by such officers in person or by any person authorized to do so by proxy or
power of attorney duly executed by said officers.
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<PAGE> 9
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of Peters Ranchland
Company, Inc., a Delaware corporation; and
2. That the foregoing Bylaws constitute the Bylaws of said Corporation
as duly adopted by action of the Board of Directors of the Corporation duly
taken as of July 29, 1992.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of said Corporation this 31st day of July, 1992.
/s/ HADI MAKARECHIAN
----------------------------------
Hadi Makarechian, Secretary
[Seal]
9
<PAGE> 1
EXHIBIT 3.2(e)
BYLAWS
OF
J.M. PETERS NEVADA, INC.
(A Delaware Corporation)
September 16, 1993
* * *
ARTICLE I
STOCKHOLDERS
Section 1. PLACE OF HOLDING ANNUAL MEETINGS. Annual meetings of the
stockholders shall be held at the principal office of the Corporation in
Newport Beach, California, or at such other place or places within or without
the State of Delaware as the directors shall from time to time determine.
Section 2. ANNUAL ELECTION OF DIRECTORS. The annual meeting of
stockholders for the election of directors and the transaction of other
business shall be held following the end of the fiscal year, at such time and
on such day as designated by the Board of Directors and stated in the notice of
the meeting. At each annual meeting, the stockholders entitled to vote shall,
by plurality vote, elect the members of the Board of Directors then standing
for election, and then may transact such other corporate business as shall be
stated in the notice of the meeting.
Failure to hold the annual meeting at the designated time shall not
work a dissolution of the Corporation.
Section 3. VOTING. Each stockholder entitled to vote in accordance
with the terms of the Certificate of Incorporation and in accordance with the
provisions of these Bylaws shall be entitled to one (1) vote, in person or by
proxy, for each share of stock entitled to vote held by such stockholder.
Except where a date shall have been fixed as the record date for the
determination of the stockholders of the Corporation entitled to vote, as
hereinafter provided in Section 4 of Article VI, no share of stock shall be
voted on at any election for directors which shall have been transferred on the
books of the Corporation within twenty (20) days next preceding such election.
All elections shall be had and all questions decided by plurality vote except
as otherwise provided by the Certificate of Incorporation and/or by the laws of
the State of Delaware. Voting by ballot shall not be required for any corporate
action, except as otherwise required by the Delaware General Corporation Law.
<PAGE> 2
Section 4. QUORUM. The presence in person or by proxy of the holders
of a majority of the shares entitled to vote at any meeting shall constitute a
quorum for the transaction of business.
Section 5. ACTION WHICH MAY BE TAKEN WITHOUT MEETING. Any action that
may be taken at a meeting of the stockholders may be taken without a meeting if
authorized by a writing signed by all of the holders of shares who would be
entitled to vote at a meeting for such purpose, and filed with the Secretary of
the Corporation.
Section 6. ADJOURNMENT OF MEETINGS. If less than a quorum shall be in
attendance at any time for which the meeting shall have been called, the meeting
may, after a lapse of at least half an hour, be adjourned from time to time by a
majority of the stockholders present or represented and entitled to vote
thereat, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted which might have
been transacted at the meeting as originally notified. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 7. SPECIAL MEETINGS: HOW CALLED. Special meetings of the
stockholders for any purpose or purposes may be called by the President or
Secretary, and shall be called upon a request in writing therefor, stating the
purpose or purposes thereof, delivered to the President or Secretary, signed by
a majority of the directors or by fifty-one percent (51%) in interest of the
stockholders entitled to vote, or by resolution of the directors.
Section 8. NOTICE OF STOCKHOLDERS' MEETINGS. Written or printed
notice, stating the place, date and time of the meeting, and the general nature
of the business to be considered, shall be delivered personally by the Secretary
or mailed, postage prepaid, to each stockholder entitled to vote thereat at his
last known post office address, at least ten (10) but not more than sixty (60)
days before the meeting. Notice by mail shall be deemed to be given when
deposited in the United States mail, postage prepaid. The notice of a special
meeting shall in all instances state the purpose or purposes for which the
meeting is called. If any action is proposed to be taken which would, if taken,
entitle stockholders to receive payment for their shares of stock, the notice
shall include a statement of that purpose and to
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that effect. If a meeting is adjourned to another time, not more than thirty
days hence, and/or to another place, and if an announcement of the adjourned
time and/or place is made at the meeting, it shall not be necessary to give
notice of the adjourned meeting unless the directors, after adjournment, fix a
new record date for the adjourned meeting.
Section 9. STOCKHOLDER LIST. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city or other municipality or community
where the meeting is to be held, which place shall be specified in the notice
of the meeting, or if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place where the
meeting is to be held during the whole time thereof, and may be inspected by
any stockholder who is present. The stock ledger shall be the only evidence as
to who are the stockholders entitled to examine the stock ledger, the list
required by this section or the books of the Corporation, or to vote at any
meeting of stockholders.
Section 10. CONDUCT OF MEETING. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and if
present and acting: the Chairman of the Board, the Chief Executive Officer, the
Vice-Chairman of the Board, the President, the Treasurer, a Vice-President, or,
if none of the foregoing is in office and present and acting, by a chairman to
be chosen by the stockholders. The Secretary of the Corporation, or in his
absence, an Assistant Secretary, shall act as secretary of every meeting, but
if neither the Secretary nor an Assistant Secretary is present, the Chairman of
the meeting shall appoint a secretary of the meeting.
Section 11. INSPECTORS AND JUDGES. The directors, in advance of any
meeting will appoint one or more inspectors of election or judges of the vote,
as the case may be, to act at the meeting or any adjournment thereof and make a
written report thereof. If an inspector or inspectors or judge or judges are
not appointed, the person presiding at the meeting will appoint one or more
inspectors or judges. In case any person who may be appointed as an inspector
or judge fails to appear or act, the vacancy may be filled by appointment made
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by the directors in advance of the meeting or at the meeting by the person
presiding thereat. Each inspector or judge, before entering upon the discharge
of his duties, shall take and sign an oath faithfully to execute the duties of
inspector or judge at such meeting with strict impartiality and according to
the best of his ability. The inspectors or judges shall determine the number
of shares of stock outstanding and the voting power of each, the shares of
stock represented at the meeting, the existence of a quorum, the validity and
effect of proxies, and shall receive votes, ballots or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count and tabulate all votes, ballots or consents, determine the result,
and do such acts as are proper to conduct the election or vote with fairness to
all stockholders. On request of the person presiding at the meeting, the
inspector or inspectors or judge or judges shall make a report in writing of
any challenge, question or matter determined by him or them and execute a
certificate of any fact found by him or them.
ARTICLE II
DIRECTORS
Section 1. NUMBER: ELECTION AND TERM OF OFFICE. A director need not
be a stockholder, a citizen of the United States, or a resident of the State of
Delaware. The number of directors of the Corporation will initially be the
number elected by the incorporator of the Corporation and thereafter shall be
the number fixed from time to time by the Board of Directors. Except as
provided herein, directors will be elected at the annual meeting of
stockholders, or at a special meeting of stockholders called for purposes that
include the election of directors. Each director, except in case of death,
resignation, retirement, disqualification or removal, will serve until the next
meeting at which directors are elected and thereafter until his successor has
been elected and has qualified.
Section 2. QUORUM. A majority of the directors shall constitute a
quorum for the transaction of business, except when a vacancy or vacancies
prevents such majority, whereupon a majority of the directors in office shall
constitute a quorum, provided, that such majority shall constitute at least
one-third of the whole Board. If at any meeting of the board there shall be
less than a quorum present, a majority of those present may adjourn the meeting
from time to time until a quorum is obtained, and no further
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notice thereof need be given other than by announcement at said meeting which
shall be so adjourned.
Section 3. FIRST MEETING. The directors named in the Certificate of
Incorporation of the Corporation shall hold their first meeting for the purpose
of organization and the transaction of business, at such time and place as may
be fixed by consent in writing of a majority of the directors.
Section 4. ELECTION OF OFFICERS. At the first meeting or at any
subsequent meeting called for the purpose, the directors shall elect a
President, a Treasurer, a Secretary, and such other officers as may be deemed
necessary, who need not be directors. Such officers shall hold office until
their successors have been elected and have qualified.
Section 5. REGULAR MEETINGS: Regular meetings of the directors may be
held without notice at such places and times as shall be determined from time
to time by resolution of the directors.
Section 6. SPECIAL MEETINGS: HOW CALLED; NOTICE. Special meetings of
the board may be called by the President or by the Secrtary or by any director
on (2) days' notice to each director.
Section 7. PLACE OF MEETING. The directors may hold their meetings
and have one or more offices, and keep the books of the Corporation, outside the
State of Delaware, at any office or offices of the Corporation or at any other
place as they may from time to time by resolution determine; provided, however
that certified copies of the Certificate of Incorporation and Bylaws and all
amendments thereto, and a stock ledger or duplicate stock ledger (revised
annually), or a statement setting out the name and address of the custodian
thereof, shall be kept at the principal office in California.
Section 8. CHAIRMAN OF THE MEETING. The Chairman of the Board, if any
and if present and acting, shall preside at all meetings. Otherwise, the
President, if any and if present and acting, or any other director chosen by
the Board, shall preside.
Section 9. REMOVAL OF DIRECTORS. Unless otherwise restricted by the
Certificate of Incorporation or Bylaws, any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority
of shares entitled to vote at an election of directors.
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Section 10. GENERAL POWERS OF DIRECTORS. The business and affairs of
the Corporation shall be managed by the Board of Directors. In addition to the
powers and authority expressly conferred upon it by these Bylaws, the Board of
Directors may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by law, by any legal agreement among
stockholders, by the Certificate of Incorporation or by these Bylaws directed
or required to be exercised or done by the stockholders.
Section 11. SPECIFIC POWERS OF DIRECTORS. Without prejudice to such
general powers, it is hereby expressly declared that the directors shall have
the following powers, to-wit:
(1) To adopt and alter a common seal of the Corporation.
(2) To make and change regulations, not inconsistent with these
Bylaws, for the management of the Corporation's business and affairs.
(3) To purchase or otherwise acquire for the Corporation any
property, rights, or privileges which the Corporation is authorized to acquire.
(4) To pay for any property purchased for the Corporation either
wholly or partly in money, stock, bonds, debentures, or other securities of the
Corporation.
(5) To borrow money and to make and issue notes, bonds, and other
negotiable and transferable instruments, mortgages, deeds of trust, and trust
agreements, and to do every act and thing necessary to effectuate the same.
(6) To remove any officer for cause or summarily without cause, and
in their discretion from time to time, to devolve the powers and duties of any
officer upon any other person for the time being.
(7) To appoint and remove or suspend such subordinate officers,
agents or factors as they may deem necessary and to determine their duties and
fix, and from time to time change, their salaries or remuneration, and to
require security as and when they think fit.
(8) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, agents and factors.
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(9) To determine who shall be authorized on the Corporation's
behalf to make and sign bills, notes, acceptances, endorsements, checks,
releases, receipts, contracts and other instruments.
(10) To determine who shall be entitled to vote in the name and
behalf of the Corporation upon, or to assign and transfer, any shares of stock,
bonds, or other securities of other corporations held by this Corporation.
(11) To delegate any of the powers of the board in relation to the
ordinary business of the Corporation to any standing or special committee, or
to any officer or agent (with power to sub-delegate), upon such terms as they
think fit.
(12) To call special meetings of the stockholders for any purpose or
purposes.
Section 12. COMPENSATION OF DIRECTORS. Directors may receive such
compensation for their services as directors as may from time to time be fixed
by vote of the Board of Directors. A director may also serve the Corporation
in a capacity other than that of director and receive compensation, as
determined by the Board of Directors, for services rendered in such other
capacity.
Section 13. VOTE REQUIRED FOR ACTION. Except as otherwise provided in
these Bylaws and by the Delaware General Corporation Law, the act of a majority
of the directors present at a meeting at which a quorum is present at the time
shall be the act of the Board of Directors.
Section 14. PARTICIPATION BY CONFERENCE TELEPHONE. Members of the
Board of Directors, or members of any committee designated by the Board of
Directors, may participate in a meeting of the Board or of such committee by
means of conference telephone or similar communications equipment through which
all persons participating in the meeting can hear and speak with each other.
Participation in a meeting pursuant to this Section 14 shall constitute
presence in person at such meeting.
Section 15. ACTION BY DIRECTORS WITHOUT A MEETING. Any action
required or permitted to be taken at any meeting of the Board of Directors or
any action which may be taken at a meeting of a committee of directors may be
taken without a meeting of a written consent thereto shall be signed by all the
directors, or all of the members of the committee, as the case may be, and such
written consent is filed with the minutes of the proceedings of the Board or
the committee.
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Such consent shall have the same force and effect as a unanimous vote of the
Board of Directors or the committee.
ARTICLE III
COMMITTEES
Section 1. The Board of Directors may, by resolution or resolutions
passed by a majority of the whole board, designate one or more committees, each
committee to consist of two or more of the directors of the Corporation, which,
to the extent provided in such resolution or resolutions or in these Bylaws,
shall have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the Corporation and may have power
to authorize the seal of the Corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as
may be determined from time to time by resolution adopted by the Board of
Directors.
No such committee, however, shall have the power or authority to amend
the Certificate of Incorporation, to adopt an agreement of merger or
consolidation, to recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, to recommend
to the stockholders the sale, lease or exchange of all or substantially all of
the Corporation's property and assets, to recommend to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or to amend
the Bylaws of the Corporation; and, unless the resolution or the Certificate of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Section 2. The committees shall keep regular minutes of their
proceedings and report the same to the Board of Directors when required.
ARTICLE IV
OFFICERS
Section 1. NUMBER. The officers of the Corporation shall be a
Chairman of the Board, a President,
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one or more Vice Presidents as determined and designated by the Board of
Directors, a Secretary, a Treasurer, and one or more Assistant Secretaries,
which Assistant Secretaries may be designated by the Chairman of the Board, and
one or more Assistant Treasurers, as may be determined by the Board of
Directors. The Board of Directors may from time to time create and establish
the duties of such other officers and elect or provide for the appointment of
such other officers as it deems necessary for the efficient management of the
Corporation, but the Corporation shall not be required to have at any time any
officers other than a President, Secretary, and a Treasurer. Any two or more
offices may be held by the same person.
Section 2. ELECTION AND TERM. All officers shall be elected by the
Board of Directors and shall serve at the will of the Board of Directors and
until their successors have been elected and have qualified or until the earlier
of their death, resignation, removal or retirement.
Section 3. REMOVAL. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the Corporation will be served thereby.
Section 4. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
call to order meetings of the stockholders and of the Board of Directors, and
shall act as chairman of such meetings except as may otherwise be provided by
the Board of Directors. The Chairman of the Board shall perform such other
duties and have such other powers as the Board of Directors may determine from
time to time.
Section 5. PRESIDENT. In the absence of the Chairman of the Board,
the President shall perform the duties and exercise the powers specified in
these Bylaws of the Chairman. The President shall perform such other duties and
have such other powers as the Board of Directors may determine from time to
time.
Section 6. VICE PRESIDENTS. A Vice President shall in the absence or
disability of the President, or at the direction of the President, perform the
duties and exercise the powers, whether such duties and powers are specified by
these Bylaws or otherwise, of the President. If the Corporation has more than
one Vice President, the one so designated by the Board of Directors shall act in
lieu of the President. Vice Presidents shall perform whatever duties and have
whatever powers the Board of Directors may determine from time to time.
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Section 7. SECRETARY. The Secretary shall be responsible for causing
there to be maintained accurate records of the acts and proceedings of all
meetings of stockholders and directors. He shall have authority to give all
notices required by law or these Bylaws. He shall be responsible for the
custody of the corporate books, records, contracts, and other documents. The
Secretary may affix this corporate seal to any lawfully executed documents
requiring it and shall sign instruments as may require his signature. The
Secretary shall perform such other duties and have such other powers as the
Board of Directors may determine from time to time.
Section 8. TREASURER. The Treasurer shall be responsible for the custody
of all funds and securities belonging to the Corporation and for the receipt,
deposit or disbursement of such funds and securities under the direction of the
Board of Directors. The Treasurer shall cause full and true accounts of all
receipts and disbursements to be maintained and shall make such reports of the
same to the Board of Directors and President upon request. The Treasurer shall
perform such other duties and have such other powers as the Board of Directors
may determine from time to time. In the absence of a Treasurer elected by the
Board of Directors to serve these purposes, the Secretary shall fulfill the
duties of Treasurer.
Section 9. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
Assistant Secretary and Assistant Treasurer (or if there be more than one of
either such officer, the one so designated by the Board of Directors) shall, in
the absence of disability, or at the direction, of the Secretary or the
Treasurer, respectively, perform the duties and exercise the powers, whether
such duties and powers are specified in these Bylaws or otherwise, of those
offices. Each Assistant Secretary and Assistant Treasurer shall perform such
other duties and have such other powers as the Board of Directors may determine
from time to time, and each Assistant Secretary may affix the corporate seal to
all corporate documents and attest the signature of any officer of the
Corporation.
Section 10. SALARIES. The salaries of all corporate officers and agents
shall be fixed from time to time as may be authorized by the Board of
Directors. No officer shall be prevented from receiving such salary by reason
of being a director.
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ARTICLE V
RESIGNATIONS: FILLING OF VACANCIES:
INCREASE OR DECREASE OF DIRECTORS
Section 1. RESIGNATIONS. Any director, member of a committee or other
officer may resign at any time. Such resignations shall be made in writing and
shall take effect at the time specified therein, and, if no time be specified,
at the time of its receipt by the President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective.
Section 2. FILLING OF VACANCIES. If the office of any director,
member of a committee, or other officer becomes vacant, the remaining directors
in office, though less than a quorum, by a majority vote, may appoint any
qualified person to full such vacancy, who shall hold office for the unexpired
term and until his successor shall be duly chosen.
Section 3. INCREASE OF NUMBER OF DIRECTORS. The Board of Directors
may elect or appoint any qualified person or persons to the Board of the number
of directors is increased as provided in Section I of Article II of these
Bylaws. Any director elected or appointed as provided in this Section 3 shall
hold office until the next meeting of the stockholders called for the purpose
of electing directors in such director's class and until a successor is elected
and qualified.
ARTICLE VI
CAPITAL STOCK
Section 1. CERTIFICATE OF STOCK. Certificates of stock, numbered and
with the seal of the Corporation affixed, signed by the President or Vice
President, and the Treasurer or Secretary, shall be issued to each stockholder
certifying the number of shares owned by him in the Corporation. When such
certificates are signed by a transfer agent, or an assistant transfer agent, or
by a transfer clerk acting on behalf of the Corporation and a registrar, the
signatures of such officers may be facsimiles. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
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Section 2. LOST CERTIFICATES. A new certificate of stock may be
issued in the place of any certificate theretofore issued by the Corporation,
alleged to have been lost or destroyed, and the directors may, in their
discretion, require the owner of the lost or destroyed certificate, or his
legal representatives, to give the Corporation a bond, in such sum as they may
direct, not exceeding double the value of the stock to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss of any such certificate or the issuance of such new certificate.
Section 3. TRANSFER OF SHARES. Subject to the restrictions contained
in the Certificate of Incorporation, the shares of stock of the Corporation
shall be transferable only upon its books by the holders thereof in person or
by their duly authorized attorneys or lead representatives, and upon such
transfer the old certificates shall be surrendered to the Corporation by the
delivery thereof to the person in charge of the stock and transfer books and
ledgers or to such other person as the directors may designate, by whom they
shall be canceled, and new certificates shall thereupon be issued. Upon
compliance with provisions restricting the transfer or registration of transfer
of shares of stock, if any, transfers or registration of transfers of shares of
stock of the Corporation shall be made on the stock ledger of the Corporation by
the registered holder thereof, or by his attorney thereunto authorized by power
of attorney duly executed and filed with the Secretary of the Corporation or
with a transfer agent or a registrar, if any, and on surrender of the
certificate or certificates for such shares of stock properly endorsed and the
payment of all taxes due thereon.
Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, the Corporation
shall issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
Section 4. SETTING OF RECORD DATE. The Board of Directors may fix in
advance a date, not exceeding sixty (60) days nor fewer than ten (10) days
preceding the date of any meeting of stockholders or the date for the payment
of any dividend, or the date for the allotment of rights, or the date when any
change or conversion of or exchange of capital stock shall go into effect, as a
record date for the determination of the stockholders entitled to receive
payment of any such dividends, or to any such allotment of rights, or to
exercise the rights in respect of any such change,
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conversion, or exchange of capital stock, and in such cases such stockholders
only as shall be stockholders of record on the date so fixed shall be entitled
to such notice of, and to vote at, such meeting, or to receive payment of such
dividends, or to receive such allotment of rights, or to exercise such rights,
as the case may be, not withstanding any transfer of any stock on the books of
the Corporation after any such record date fixed as aforesaid.
Section 5. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, if any, and the laws of the State of Delaware, the directors may
declare dividends upon the capital stock of the Corporation as and when they
deem expedient. Before declaring any dividend there may be set apart out of
any funds of the Corporation available for dividends such sum or sums as the
directors from time to time in their discretion think proper for working
capital or as a reserve fund to meeting contingencies or for equalizing
dividends or for such other purposes as the directors shall think conducive to
the interest of the Corporation.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 1. CORPORATE SEAL. The corporate seal shall be circular in
form and shall contain such words as shall be determined by the Board of
Directors. Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
Section 2. FISCAL YEAR. The fiscal year of the Corporation shall
commence on March 1, and shall end the last day of February of each
succeeding year.
Section 3. PRINCIPAL OFFICE. The principal office of the Corporation
shall be established and maintained at 3501 Jamboree Road, Suite 200, Newport
Beach, California. The Corporation may have branch offices at such place or
places within or without the State of Delaware as the directors shall from time
to time determine.
Section 4. CHECKS, DRAFTS, NOTES. All checks, drafts or other orders
for the payment of money, notes, or other evidences or indebtedness issued in
the name of the Corporation shall be signed by such officer or officers,
agent or agents, of the Corporation and in such manner as shall from time to
time be determined by resolution of the Board of Directors.
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Section 5. NOTICE. Whenever any notice is required by these Bylaws to
be given, personal notice is not meant unless expressly so stated; and, unless
otherwise provided in these Bylaws, any notice so required shall be deemed to
be sufficient if given by depositing the same in a post office box in a sealed
post-paid wrapper addressed to the person entitled thereto at his last known
post office address, and such notice shall be deemed to have been given on the
day of such mailing. Stockholders not entitled to vote shall not be entitled to
receive notice of any meeting except as otherwise provided by statute.
Section 6. WAIVER OF NOTICE. Whenever any notice whatever is required
to be given under the provisions of these Bylaws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent to notice. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the stockholders need be specified in any written waiver of notice.
In addition, attendance of a person at a meeting of stockholders shall
constitute a waiver of notice of such meeting, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
Section 7. RELATED PARTY TRANSACTIONS. All transactions between the
Corporation and its affiliates must be on terms no less favorable to the
Corporation than terms with unaffiliated parties for similar transactions. All
such transactions that are not in the ordinary course of the Corporation's
business must be approved by a majority of the Corporation's directors not
affiliated with any parent corporation of the Corporation, or any of such
parent corporation's subsidiaries, or employed by the Corporation, and who do
not have a financial interest in the transaction.
ARTICLE VIII
INDEMNIFICATION
Section 1. INDEMNIFICATION OF DIRECTORS. The Corporation shall
indemnify and hold harmless any person (an "Indemnified 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, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation)
by reason of the fact that he is or was a director of the Corporation, or is or
was
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serving at the request of the Corporation as a director of another corporation,
partnership, joint venture, trust 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.
Any Indemnified Person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of
the fact that he is or was a director of the Corporation, or is or was serving
at the request of the Corporation as a director of another corporation,
partnership, joint venture, trust or other enterprise shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit 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 except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity pursuant to the applicable provisions of the Delaware
General Corporation Law.
Section 2. INDEMNIFICATION OF OFFICERS AND OTHERS. The Board of
Directors shall have the power to cause the Corporation to provide to officers,
employees and agents of the Corporation all or any part of the right to
indemnification and other rights of the type provided under this Article VIII
(subject to the conditions, limitations and obligations specified therein),
upon a resolution to that effect identifying such officers, employees or agents
(by position or name) and specifying the particular rights provided, which may
be different for each of the officers, employees and agents identified. Each
officer, employee or agent of the Corporation so identified shall be an
"Indemnified Person" for purposes of the provisions of this Article VIII.
Section 3. SUBSIDIARIES. The Board of Directors shall have the power
to cause the Corporation to provide to any director, officer, employee or
agent of this Corporation who also is a director, officer, trustee, general
partner,
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employee or agent of a Subsidiary (as defined below), all or any part of the
right to indemnification and other rights of the type provided under this
Article VIII (subject to the conditions, limitations and obligations specified
therein), with regard to amounts actually and reasonably incurred by such
person by reason of the fact that he is or was a director, officer, trustee,
general partner, employee or agent of the Subsidiary. The Board of Directors
shall exercise such power, if at all, through a resolution identifying the
person or persons to be indemnified (by position or name) and the Subsidiary
(by name or other classification), and specifying the particular rights
provided, which may be different for each of the directors, officers, employees
and agents identified. Each person so identified shall be an "Indemnified
Person" for purposes of the provisions of this Article VIII. As used in this
Article VIII, "Subsidiary" shall mean (i) another corporation, joint venture,
trust, partnership or unincorporated business association more than twenty
percent (20%) of the voting capital stock or other voting equity interest of
which was, at or after the time the circumstances giving rise to such action,
suit or proceeding arose, owned, directly or indirectly, by the Corporation, or
(ii) a nonprofit corporation which receives its principal financial support
from the Corporation or its subsidiaries.
Section 4. DETERMINATION. Notwithstanding any judgment, order,
settlement, conviction or plea in any action, suit or proceeding of the kind
referred to in Section 1 of this Article VIII, an Indemnified Person shall be
entitled to indemnification as provided in such Section 1 unless a
determination that such Indemnified Person is not entitled to such
indemnification shall be made (i) by the Board of Directors by a majority vote
or consent of a quorum consisting of directors who are not seeking the benefits
of such indemnification; or (ii) if such quorum is not obtainable, or even if
obtainable if a quorum of such disinterested directors so directs, in a written
opinion by independent legal counsel (which counsel may be the outside legal
counsel regularly employed or retained by the Corporation); or (iii) if a
quorum cannot be obtained under (i) above and in the absence of a written
opinion by independent legal counsel, by majority vote or consent of a
committee duly designated by the Board of Directors (in which designation
interested directors may participate), consisting solely of one or more
directors who are not seeking the benefit of such indemnification. Provided,
however, that notwithstanding any determination pursuant to the preceding
sentence, if such determination shall have been made at a time that the members
of the Board of Directors, so serving when the events upon which such
Indemnified Person's
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liability has been based occurred, no longer constitute a majority of the
members of the Board of Directors, then such Indemnified Person shall
nonetheless be entitled to indemnification as set forth in such Section 1
unless the Company shall carry the burden of proving, in an action before any
court of competent jurisdiction, that such Indemnified Person is not entitled to
indemnification.
Section 5. ADVANCES. Expenses (including, but not limited to,
attorneys' fees and disbursements, court costs, and expert witness fees)
incurred by the Indemnified Person in defending any action, suit or proceeding
of the kind described in Section 1 hereof shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding as set
forth herein. The Corporation shall promptly pay the amount of such expenses to
the Indemnified Person, but in no event later than ten (10) days following the
Indemnified Person's delivery to the Corporation of a written request for an
advance pursuant to this Section 5, together with a reasonable accounting of
such expenses; provided, that the Indemnified Person shall undertake and agree
to repay to the Corporation any advances made pursuant to this Section 5 if it
shall be determined pursuant to Section 4 that the Indemnified Person is not
entitled to be indemnified by the Corporation for such amounts. The Corporation
shall make the advances contemplated by this Section 5 regardless of the
Indemnified Person's financial ability to make repayment. Any advances and
undertakings to repay pursuant to this Section 5 shall be unsecured and
interest-free.
Section 6. NON-EXCLUSIVITY; CONTINUING BENEFITS. The indemnification
provided by this Article VIII shall not be deemed exclusive of any other rights
to which a person seeking indemnification may be entitled under any provision
of the Certificate of Incorporation, or any Bylaw, agreement, vote of the
Corporation's stockholders or disinterested directors or otherwise, both as to
actions in his official capacity and as to actions in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent of the Corporation, as the case may be,
and shall inure to the benefit of the heirs, executors and administrators of
such a person.
Section 7. INSURANCE. The Corporation shall have the power to purchase
and maintain insurance on behalf of any person who 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, trustee, general partner,
employee or agent of another corporation, nonprofit
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corporation, joint venture, trust, partnership, unincorporated business
association or other enterprise, against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article VIII.
Section 8. SECURITY. The Corporation may designate certain of its
assets as collateral, provide self-insurance or otherwise secure its obligations
under this Article VIII, or under any indemnification agreement or plan of
indemnification adopted and entered into in accordance with the provisions of
this Article VIII, as the Board of Directors deem appropriate.
Section 9. AMENDMENT. Any amendment to this Article VIII which limits
or otherwise adversely affects the right of indemnification or other rights of
any Indemnified Person hereunder shall, as to such Indemnified Person, apply
only to claims, actions, suits or proceedings based on actions, events or
omissions (collectively, "Post Amendment Events") occurring after such
amendment and after delivery of notice of such amendment to the Indemnified
Person so affected. Any Indemnified Person shall, as to any claim, action,
suit or proceeding based on actions, events or omissions occurring prior to the
date of receipt of such notice, be entitled to the right of indemnification and
other rights under this Article VIII to the same extent as had such provisions
continued as part of the Bylaws of the Corporation without such amendment. This
Section 9 cannot be altered, amended or repealed in a manner effective as to
any Indemnified Person (except as to Post Amendment Events) without the prior
written consent of such Indemnified Person.
Section 10. AGREEMENTS. The provisions of this Article VIII shall be
deemed to constitute an agreement between the Corporation and each person
entitled to indemnification hereunder. In addition to the rights provided in
this Article VIII, the Corporation shall have the power, upon authorization by
the Board of Directors, to enter into an agreement or agreements providing to
any person who is or was a director, officer, employee or agent of the
Corporation indemnification rights substantially similar to those provided
in this Article VIII.
Section 11. SUCCESSORS. For purposes of this Article VIII, the terms
"the Corporation" or "this Corporation" shall include any corporation, joint
venture, trust, partnership or unincorporated business association which is the
successor to all or substantially all of the
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business or assets of this Corporation, as a result of merger, consolidation,
sale, liquidation or otherwise, and any such successor shall be liable the
persons indemnified under this Article VIII on the same terms and conditions and
to the same extent as this Corporation.
Section 12. ADDITIONAL INDEMNIFICATION. In addition to the specific
indemnification rights set forth herein, the Corporation shall indemnify each
of its directors and officers to the full extent permitted by action of the
Board of Directors without stockholder approval under the Delaware General
Corporation Law or other laws of the State of Delaware as in effect from time
to time.
ARTICLE IX
AMENDMENTS
Section 1. POWER TO AMEND BYLAWS. These Bylaws may be altered, amended
or repealed from time to time, and new Bylaws may be made and adopted by action
of the stockholders or by action of the Board of Directors, at any regular
meeting of the stockholders or of the Board of Directors or at any special
meeting of the stockholders or of the Board of Directors (if notice of such
alteration, amendment, repeal or adoption of new Bylaws be contained in the
notice of such special meeting).
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in
this registration statement of our report dated March 11, 1994 appearing on page
F-2 of the Form S-1 registration statement for the two years ended February 28,
1994 and to all references to our Firm included in this registration.
ARTHUR ANDERSEN & CO.
Irvine, California
August 15, 1994
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EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
J.M. Peters Company, Inc.
We consent to the inclusion in this Registration Statement on Form S-1 (the
"Registration Statement"), of our report dated May 15, 1992 except as to the
third paragraph therein and Note 1 -- Organization, which are as of March 11,
1994 on the financial statements of J.M. Peters Company, Inc. for the year ended
February 29, 1992 and for our reports dated February 14, 1994 on the financial
statements of Ranchland Montilla Development, L.P., Ranchland Fairway
Development, L.P., Ranchland Portola Development, L.P. and Ranchland Alicante
Development, L.P. as of December 31, 1993 and 1992 and for the year ended
December 31, 1993 and the period August 12, 1992 (inception) through December
31, 1992. We also consent to the reference to our firm under the caption
"Independent Public Accountants" included in the Prospectus in the Registration
Statement.
KENNETH LEVENTHAL & COMPANY
Newport Beach, California
August 10, 1994
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EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of J.M. Peters Company, Inc. of our report
dated February 25, 1993 relating to the financial statements of Durable Homes,
Inc., which appears in such Prospectus. We also consent to the references to us
under the headings "Independent Public Accountants" and "Selected Consolidated
Financial and Operating Data -- Durable" in such Prospectus. However, it should
be noted that Price Waterhouse has not prepared or certified such "Selected
Consolidated Financial and Operating Data."
PRICE WATERHOUSE LLP
Salt Lake City, Utah
August 11, 1994
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EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in
this registration statement of our report dated March 7, 1994 appearing on page
F-22 of the Form S-1 registration statement for the year ended December 31, 1993
and to all references to our Firm included in this registration statement.
ARTHUR ANDERSEN & CO.
Irvine, California
August 15, 1994
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EXHIBIT 99.4
[J.M. PETERS LETTERHEAD]
August 15, 1994
Securities and Exchange Commission
Division of Corporate Finance
450 Fifth Street, N.W.
Washington, DC 20549
Re: J.M. Peters Company, Inc. ("Company")
Registration Statement on Form S-1
Filed June 7, 1994
Commission File No. 33-53995
Dear Sir or Madam:
Pursuant to your request, this letter is provided to acknowledge that the
Company is registering the subject exchange offer in reliance on the Staff's
position enunciated in Exxon Capital Holdings Corporation, Morgan Stanley &
Company and similar letters.
The Company has not entered into any arrangement or understanding with any
person to distribute the securities to be received in the exchange offer and,
to the best of the Company's information and belief, each person participating
in the exchange offer is acquiring the securities in its ordinary course of
business and has no arrangement or understanding with any person to participate
in the distribution of the securities to be received in the exchange offer.
The Company hereby acknowledges that it has made each person participating
in the exchange offer aware that if such person is participating in the
exchange offer for the purpose of distributing the securities to be acquired in
the exchange offer, any such person (i) could not rely on the staff position
enunciated in Exxon Capital Holdings Corporation or similar interpretive
letters and (ii) must comply with the registration and prospectus delivery
requirements of the 1993 Act in connection with a secondary resale transaction.
Finally, the Company acknowledges that such a secondary resale transaction
by such person participating in the exchange offer for the purpose of
distributing the Registered Notes should be covered by an effective
registration statement containing the selling security holder information
required by Item 507 of Regulation S-K promulgated under the Securities Act.
Very truly yours,
J.M. PETERS COMPANY, INC.
By: /s/ GREGORY R. PETERSEN
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Gregory R. Petersen,
Vice President and
Chief Financial Officer
