<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 1994
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
J.M. PETERS COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 1521 95-2956559
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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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 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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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
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- -------------------------------------------------------------------------------------------------
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(1) Estimated pursuant to Rule 457(f) solely for the purpose of calculating the
registration fee.
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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J. M. PETERS COMPANY, INC.
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K.
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ITEM IN FORM S-1 LOCATION IN PROSPECTUS
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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
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ITEM IN FORM S-4 LOCATION IN PROSPECTUS
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D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations, Are to Be Solicited............. Not Applicable
19. Information if Proxies, Consents or Authorizations
Are Not to be Solicited, or in an Exchange
Offer........................................... The Exchange Offer; Management;
Executive Compensation
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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 JUNE 7, 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
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 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 Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to the Expiration Date. The term "Expiration Date" shall
mean 5:00 p.m. New York City time, on , 1994, unless the Company shall,
in its sole discretion, have extended the period of time for which the Exchange
Offer is open, in which event the "Expiration Date" shall mean the latest time
and date at which the Exchange Offer, as so extended by the Company, shall
expire. The Exchange Offer may be extended, terminated or amended as provided
herein. The Exchange Offer is subject to certain customary conditions. See "The
Exchange Offer."
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. Based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission"), New Notes issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold and otherwise transferred by holders
thereof (other than any such holder that is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act of 1933 (the "Securities
Act")), 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 holder's business and such holder has no arrangement
with any person to participate in the distribution of such New Notes. 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. The Letter of Transmittal states that by so
acknowledging 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.
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 by such broker-dealer
as a result of market-making activities or other trading activities. The Company
has agreed that, for a period of 180 days after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution."
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. 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 has 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
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PAGE
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Available Information................................. 2
Summary............................................... 3
Risk Factors.......................................... 12
Company Background And Structure...................... 19
Use Of Proceeds....................................... 22
Capitalization........................................ 23
Selected Consolidated Financial And Operating
Data -- The Company................................. 24
Selected Consolidated Financial And Operating
Data -- Durable..................................... 26
Pro Forma Consolidated Income Statement............... 27
Management's Discussion And Analysis Of Financial
Condition And Results Of Operations................. 28
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PAGE
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The Exchange Offer.................................... 37
Business.............................................. 43
Management............................................ 61
Executive Compensation And Other Information.......... 63
Certain Relationships And Related Party
Transactions........................................ 64
Stockholders Of The Company........................... 65
Description Of Common Stock........................... 88
Certain Federal Income Tax Considerations............. 89
Plan Of Distribution.................................. 95
Legal Matters......................................... 95
Independent Public Accountants........................ 96
Index To Consolidated Financial Statements............ F-1
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------------------------------
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, 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. According to The Meyers Group, a real estate consulting firm, in 1993 the
Company 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).
Recent market information indicates that the Orange County housing market
is improving and that the Las Vegas housing market remains quite strong.
According to statistics compiled by The Meyers Group, 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
a 40 week supply in September 1990 to a 13 week supply in December 1993. A
recent study by Kenneth Leventhal & Company determined that the percentage of
households in the Orange County area that can afford a median priced home
increased from 14% in December 1989 to 47% in December 1993. According to The
Meyers Group, 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%.
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 February 28, 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 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. The Company
believes that one of its competitive advantages is that the carrying value of
its land inventory is at or below current market values.
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
3
<PAGE> 7
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 has made substantial 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.
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 in 10 projects located in Las
Vegas and Laughlin, Nevada. The Company is actively selling homes in 15 of these
projects. At February 28, 1994, the Company owned approximately 1,673 building
sites (1,027 in California and 646 in Nevada) and controlled an additional 1,439
building sites (423 in California and 1,016 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 February 28, 1994,
the Company had a total backlog of 305 homes sold with an aggregate sales value
of $55.8 million, which is moderately higher than the backlog at the start of
the third and fourth quarters of fiscal year 1994. The backlog at February 28,
1994 included 124 homes sold with an aggregate sales value of $37.4 million in
California and 181 homes sold with an aggregate sales value of $18.4 million in
Nevada.
The Company was originally incorporated in California in 1975,
reincorporated in Nevada in 1987 and reincorporated in Delaware in 1993. The
principal executive offices of the Company are located at 3501 Jamboree Road,
Suite 200, Newport Beach, California, 92660, and the telephone number is (714)
854-2500.
4
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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 TENDERThe 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. 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, 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 prospectus in
connection with any resale of such New Notes. See "Plan of Distribution". In
addition, to comply with the securities laws
5
<PAGE> 9
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, conmmencing 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.
6
<PAGE> 10
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 February 28, 1994, on a pro
forma basis as adjusted for the application of the net
proceeds of the issuance of the Old Notes and the
Warrants, the Company would not have had any consolidated
debt, except for the New Notes. The Indenture permits the
Company to incur certain additional indebtedness. The
Indenture also permits the Company to grant liens to
secure additional Indebtedness (as defined) 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 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.
7
<PAGE> 11
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>
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA
PRO FORMA AS ADJUSTED
FISCAL YEAR ENDED FISCAL FISCAL
------------------------------------------------------------------------- YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1990 1991 1992 1993 1994(A) 1994(B) 1994(C)
------------- ------------- ------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT
DATA:
Total revenues......... $ 315,726 $ 215,535 $ 184,944 $ 75,702 $ 91,066 $ 112,415 $ 113,497
============ ============ ============ ============ ============ ============ ============
Gross profit........... $ 65,415 $ 25,591 $ 12,341 $ 3,891 $ 14,792 $ 19,182 $ 17,190
Interest and other
income, net.......... 9,274 5,272 2,274 3,554 2,926 3,097 4,179
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 15,263 15,889
Minority interest...... -- -- -- -- 4,332 4,539 3,277
------------- ------------- ------------- ------------- ------------- ------------- -------------
Operating income
(loss)............... 44,624 (79,677) (56,980) (77,795) 1,064 2,477 2,203
Interest expense....... 353 12,006 14,691 8,538 418 418 3,034
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 2,059 (831)
Provision (benefit) for
income taxes......... 18,937 (2,653) (13,895) (1,792) -- 224 --
------------- ------------- ------------- ------------- ------------- ------------- -------------
Income (loss) before
extraordinary gain... 25,334 (107,981) (57,776) (84,541) 646 1,835 (831)
Extraordinary gain..... -- -- -- -- 4,268 -- --
------------- ------------- ------------- ------------- ------------- ------------- -------------
Net income (loss)...... $ 25,334 $(107,981) $ (57,776) $ (84,541) $ 4,914 $ 1,835 $ (831)
============ ============ ============ ============ ============ ============ ============
(Footnotes on pages 10-11)
</TABLE>
8
<PAGE> 12
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA AS ADJUSTED
FISCAL YEAR ENDED FISCAL FISCAL
------------------------------------------------------------------------- YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1990 1991 1992 1993 1994(A) 1994(B) 1994(C)
------------- ------------- ------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net new orders
(units).............. 759 430 326 126 478(d) 695 695
Homes closed
(units)(e)........... 775 541 395 115 404 644 644
Backlog (units)(f)..... 261 150 81 92 305 305 305
Backlog................ $ 114,427 $ 66,858 $ 28,795 $ 25,853 $ 55,816 $ 55,816 $ 55,816
Average price of homes
closed............... $ 395 $ 386 $ 347 $ 334 $ 201 $ 159 $ 159
Housing gross margin... 21.3% 12.2% 11.4% 10.1% 17.6% 18.2% 16.3%
G&A as % of housing
revenues............. 6.2% 5.3% 5.4% 16.4% 7.6% 7.3% 7.9%
SG&A as % of housing
revenues............. 9.5% 12.6% 11.4% 25.5% 15.2% 14.9% 15.5%
</TABLE>
<TABLE>
<CAPTION>
AS OF AS ADJUSTED
------------------------------------------------------------------------ AS OF
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1990 1991 1992 1993 1994(A) 1994(G)
------------ ------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............... $ 594,759 $ 410,963 $ 250,822 $ 115,551 $ 121,954 $171,879
========= ========= ========= ========= ========= ========
Residential inventories.... $ 474,687 $ 395,484 $ 224,566 $ 99,636 $ 105,696 $112,953
========= ========= ========= ========= ========= ========
Debt:
Notes payable............ $ 232,549 $ 160,638 $ 59,165 $ 38,433 $ 34,709 --
Senior notes............. -- -- -- -- -- $100,000
Due to parent............. 193,840 205,121 204,138 1,702 -- --
--------- --------- --------- --------- --------- --------
Total debt................. 426,389 365,759 263,303 40,135 34,709 100,000
Minority interest.......... -- -- -- 19,647 13,959 2,729
Stockholders' equity....... 140,150 32,169 (25,607) 48,015 55,594 57,095(h)
--------- --------- --------- --------- --------- --------
Total capitalization....... $ 566,539 $ 397,928 $ 237,696 $ 107,797 $ 104,262 $159,824
========= ========= ========= ========= ========= ========
Debt as % of total
capitalization........... 75% 92% 111% 37% 33% 63%
</TABLE>
(Footnotes on pages 10-11)
9
<PAGE> 13
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)................................. $ (44) $ 486 $ 3,467 $ 4,415 $ 8,324
Depreciation and amortization.................. 154 147 135 133 569
Other non-cash charges......................... 47 47 47 47 188(k)
------- ------- ------- ------- -------
Adjusted EBITDA(l)............................... $ 157 $ 680 $ 3,649 $ 4,595 $ 9,081
======= ======= ======= ======= =======
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 0.2x 1.1x 1.4x 0.7x
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.
10
<PAGE> 14
(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.
11
<PAGE> 15
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 significantly affected by real estate market conditions
where its development projects are located and in areas where its potential
customers reside. The residential homebuilding industry is cyclical and highly
sensitive to changes in general national and regional economic conditions, such
as levels of employment, consumer confidence and income, availability to
homebuilders of financing for acquisitions, development and construction,
availability of financing to homebuyers for permanent mortgages, interest rate
levels and the demand for housing. Sales of new homes are also affected by the
condition of the resale market for used homes, including foreclosed homes.
Housing demand is particularly sensitive to changes in interest rates. If
mortgage interest rates increase significantly, 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.
12
<PAGE> 16
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.
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 significant 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
February 28, 1994, after giving effect to the issuance of the Old Notes and the
Warrants and the application of the estimated net proceeds therefrom, the
Company would have had total consolidated debt of $100.0 million, the Company's
ratio of
13
<PAGE> 17
total consolidated debt to stockholders' equity would have been approximately
1.8 to 1.0 and its total consolidated debt as a percentage of total debt and
stockholders' equity would have been 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.
14
<PAGE> 18
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
15
<PAGE> 19
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 February 28, 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."
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.
Due to certain potential adverse tax consequences in the event of a
deconsolidation of CPH and the Company, 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. Any such issuance of equity securities might result in a dilution of
CPH below 80% ownership of the Company, which would trigger a deconsolidation
for tax purposes. 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."
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.
16
<PAGE> 20
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."
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 February 28,
1994, after giving effect to the use of the estimated net proceeds from the sale
and issuance of the Old Notes and the Warrants, the Company's subsidiaries had
liabilities aggregating $11.5 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 February 28, 1994, after
giving effect to the sale and issuance of the Old Notes and the Warrants and the
application of the net proceeds therefrom, the Company's subsidiaries that will
guarantee the New Notes would have 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.
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
17
<PAGE> 21
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 a small number of institutional investors 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 Morgan Stanley & Co. Incorporated (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.
18
<PAGE> 22
COMPANY BACKGROUND AND STRUCTURE
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."
THE ACQUISITION
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").
19
<PAGE> 23
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 $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 has made substantial 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.
20
<PAGE> 24
As of February 28, 1994 the Company had 114 employees (44 in Nevada and 70
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.
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 February 28, 1994,
Durable had approximately 44 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.
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.
21
<PAGE> 25
STRUCTURE OF THE COMPANY
The Company conducts its business directly and through its subsidiaries and
consolidated partnerships. As of February 28, 1994, approximately 67.6% of the
Company's assets were held directly at J.M. Peters Company, Inc, approximately
17.1% were held directly at Durable and approximately 15.3% were held through
Peters Ranchland, Inc. The following chart sets forth the structure of the
Company:
J.M. PETERS COMPANY,
INC.
a Delaware corporation
J.M. PETERS NEVADA DURABLE HOMES, INC. PETERS RANCHLAND
INC. a Nevada corporation COMPANY, INC.
a Delaware corporation Wholly Owned Subsidiary a Delaware corporation
Wholly Owned Subsidiary Wholly Owned Subsidiary
General Partner of: General Partner of: General Partner of:
Taos Estates, L.P. Las Hadas, L.P. Ranchland Alicante
Plateau Venture, L.P. Development, L.P.
Portraits Venture, L.P. Ranchland Montilla
Taos Estates, L.P. Development L.P.
Ranchland Fairway
Estates Development,
L.P.
Ranchland Portola
Development, L.P.
BAYHILL ESCROW, INC. NEWPORT DESIGN CAPITAL PACIFIC
a California corporation CENTER, INC. COMMUNITIES, INC.
50% Peters a California corporation a Delaware corporation
50% Bernard Selz Wholly Owned Subsidiary Wholly Owned Subsidiary
See "Business -- Joint Ventures" for additional information regarding each
subsidiary's interest in the joint ventures for which it acts as the general
partner.
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of Notes
pursuant to the Exchange Offer.
22
<PAGE> 26
CAPITALIZATION
The following table sets forth the historical consolidated capitalization
of the Company as of February 28, 1994, and as adjusted 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
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................................. $ 11,484 $ 59,908
======== =========
Debt:
Secured notes payable(a)......................................... $ 34,709 --
Notes............................................................ -- $ 100,000
Secured line of credit........................................... -- --
-------- -----------
Total Debt.................................................. 34,709 100,000
Minority interest..................................................... 13,959 2,729
Stockholders' equity:
Common stock, par value $.10 per share, 15,000,000 shares
authorized;
14,995,000 shares outstanding.................................. 1,500 1,500
Additional paid-in capital....................................... 210,387 211,888(b)
Accumulated deficit.............................................. (156,293) (156,293)
-------- -----------
Total stockholders' equity..................................... 55,594 57,095
-------- -----------
Total capitalization........................................ $104,262 $ 159,824
======== =========
</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.
23
<PAGE> 27
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>
PRO FORMA
PRO FORMA AS ADJUSTED
FISCAL YEAR ENDED FISCAL YEAR FISCAL YEAR
----------------------------------------------------------------------------- ENDED ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1990 1991 1992 1993 1994(A) 1994(B) 1994(C)
------------- ------------- ------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Total revenues... $ 315,726 $ 215,535 $ 184,944 $ 75,702 $ 91,066 $ 112,415 $ 113,497
=========== =========== =========== =========== =========== =========== ===========
Gross profit..... $ 65,415 $ 25,591 $ 12,341 $ 3,891 $ 14,792 $ 19,182 $ 17,190
Interest and
other income,
net............ 9,274 5,272 2,274 3,554 2,926 3,097 4,179
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 15,263 15,889
Minority
interest....... -- -- -- -- 4,332 4,539 3,277
------------- ------------- ------------- ------------- ------------- ------------- -------------
Operating income
(loss)......... 44,624 (79,677) (56,980) (77,795) 1,064 2,477 2,203
Interest
expense........ 353 12,006 14,691 8,538 418 418 3,034
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 2,059 (831)
Provision
(benefit) for
income taxes... 18,937 (2,653) (13,895) (1,792) -- 224 --
------------- ------------- ------------- ------------- ------------- ------------- -------------
Income (loss)
before
extraordinary
gain........... 25,334 (107,981) (57,776) (84,541) 646 1,835 (831)
Extraordinary
gain........... -- -- -- -- 4,268 -- --
------------- ------------- ------------- ------------- ------------- ------------- -------------
Net income
(loss)......... $ 25,334 $(107,981) $ (57,776) $ (84,541) $ 4,914 $ 1,835 $ (831)
=========== =========== =========== =========== =========== =========== ===========
Ratio of earnings
to fixed
charges(d)..... 1.2x (e) (e) (e) 1.7x 1.9x (e)
</TABLE>
(Footnotes on following page)
24
<PAGE> 28
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA AS ADJUSTED
FISCAL YEAR ENDED FISCAL YEAR FISCAL YEAR
----------------------------------------------------------------------------- ENDED ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1990 1991 1992 1993 1994(A) 1994(B) 1994(C)
------------- ------------- ------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net new orders
(units)........ 759 430 326 126 478(f) 695 695
Homes closed
(units)(g)..... 775 541 395 115 404 644 644
Backlog
(units)(h)..... 261 150 81 92 305 305 305
Backlog.......... $114,427 $66,858 $28,795 $25,853 $55,816 $55,816 $55,816
Average price of
homes closed... $ 395 $ 386 $ 347 $ 334 $ 201 $ 159 $ 159
Housing gross
margin......... 21.3% 12.2% 11.4% 10.1% 17.6% 18.2% 16.3%
G&A as % of
housing
revenues....... 6.2% 5.3% 5.4% 16.4% 7.6% 7.3% 7.9%
SG&A as % of
housing
revenues....... 9.5% 12.6% 11.4% 25.5% 15.2% 14.9% 15.5%
</TABLE>
<TABLE>
<CAPTION>
AS OF AS ADJUSTED
----------------------------------------------------------------------------- AS OF
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1990 1991 1992 1993 1994(A) 1994(I)
------------- ------------- ------------- ------------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets......... $594,759 $410,963 $250,822 $115,551 $121,954 $171,879
======== ======== ======== ======== ======== ========
Residential
inventories........ $474,687 $395,484 $224,566 $ 99,636 $105,696 $112,953
======== ======== ======== ======== ======== ========
Debt:
Notes payable...... $232,549 $160,638 $ 59,165 $ 38,433 $ 34,709 --
Senior notes....... -- -- -- -- -- $100,000
Due to parent...... 193,840 205,121 204,138 1,702 -- --
-------- -------- -------- -------- -------- --------
Total debt........... 426,389 365,759 263,303 40,135 34,709 100,000
Minority interest.... -- -- -- 19,647 13,959 2,729
Stockholders'
equity............. 140,150 32,169 (25,607) 48,105 55,594 57,095(j)
-------- -------- -------- -------- -------- --------
Total
capitalization..... $566,539 $397,928 $237,696 $107,797 $104,262 $159,824
======== ======== ======== ======== ======== ========
Debt as a % of total
capitalization..... 75% 92% 111% 37% 33% 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 and $62,329,000 during the fiscal years ended February 28, 1991,
February 29, 1992 and February 28, 1993, respectively, and by $4,524,000 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.
25
<PAGE> 29
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
------------ ------------ ------------ ------------ ------------
Operating income........................ 3,068 4,238 2,553 2,532 2,199
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>
26
<PAGE> 30
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, dated as of
February 28, 1994, 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 $ 1,082(b) 4,179
--------------- -------------- ----------------- ----------- ------------
91,066 21,349 112,415 1,082(b) 113,497
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
--------------- -------------- ----------------- ----------- ------------
Operating income...................... 1,064 1,413 2,477 (274) 2,203
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 (2,890) (831)
Provision (benefit) for income
taxes............................... -- 224 224 (224) --
--------------- -------------- ----------------- ----------- ------------
Income (loss) before extraordinary
gain................................ 646 1,189 1,835 (2,666) (831)
Extraordinary gain.................... 4,268 -- -- -- --
--------------- -------------- ----------------- ----------- ------------
Net income (loss)..................... $ 4,914 $ 1,189 $ 1,835 $(2,666) $ (831)
=============== ============== ================ =========== ===========
</TABLE>
- ---------------
(a) To reflect the inclusion of Durable's results of operations for the period
from March 1, 1993 to August 31, 1993.
(b) To reflect 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 Note 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.
27
<PAGE> 31
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."
28
<PAGE> 32
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
-------- ---------- ------------- ------------- ------------
Operating income (loss)................. (1,675) (1,415) 1,382 1,603 (105)
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>
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, are set forth in the table below:
THE COMPANY(A)
<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 $37,343 $41,469 $ 91,066
======= ======== ========== ========= =========
Gross profit............................ $ (157) $ (26) $ 6,750 $ 8,225 $ 14,792
Interest and other income, net.......... 400 597 918 1,011 2,926
Selling, general and administrative
expenses.............................. 1,918 1,986 3,505 4,913 12,322
Minority interest....................... -- -- 2,308 2,024 4,332
-------- ---------- ------------- ------------- ------------
Operating income (loss)................. (1,675) (1,415) 1,855 2,299 1,064
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
Provision (benefit) for income taxes.... -- -- -- -- --
-------- ---------- ------------- ------------- ------------
Income before extraordinary gain........ (1,951) (1,557) 1,855 2,299 646
Extraordinary gain...................... -- -- 4,268 -- 4,268
-------- ---------- ------------- ------------- ------------
Net income (loss)....................... $ (1,951) $ (1,557) $ 6,123 $ 2,299 $ 4,914
======= ======== ========== ========= =========
</TABLE>
- ---------------
(a) Reflects Durable's results of operations for only the third and fourth
quarters of fiscal year 1994.
29
<PAGE> 33
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 February 28, 1994, the Company had a total backlog of 305 homes with
an aggregate sales value of $56 million, which is moderately higher 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.
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 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, FEBRUARY 28,
1992 1993 1993 1993 1993 1994 1994(A)
-------------- -------------- -------------- -------------- -------------- -------------- -------------
(UNITS, EXCEPT AS NOTED)
<S> <C> <C> <C> <C> <C> <C> <C>
California
Starts(b)... 13 2 101 64 78 65 308
Deliveries(c)... 0 0 13 25 77 111 226
Closings(d)... 16 9 17 15 87 86 205
Net new
orders... 22 73 46 52 46 93 237
Ending
backlog... 28 92 121 158 117 124 124
Ending
backlog
($000)... $ 6,474 $ 25,853 $ 36,918 $ 47,893 $ 36,478 $ 37,450 $37,450
Nevada(a)
Starts(b)... 106 52 127 105 140 120 492
Deliveries(c)... 113 112 109 124 51 127 411
Closings(d)... 100 100 121 119 78 121 439
Net new
orders... 146 72 104 113 117 124 458
Ending
backlog... 190 162 145 139 178 181 181
Ending
backlog
($000)... $ 18,525 $ 16,119 $ 14,318 $ 13,725 $ 17,576 $ 18,366 $18,366
Total Ending
backlog
Units..... 218 254 266 297 295 305 305
Dollars
($000)... $ 24,999 $ 41,972 $ 51,236 $ 61,618 $ 54,054 $ 55,816 $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."
30
<PAGE> 34
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 according to The
Meyers Group.
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
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.
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.
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<PAGE> 35
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.
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 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.
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.
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<PAGE> 36
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.
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.
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<PAGE> 37
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.
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.
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<PAGE> 38
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 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 will be 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 February 28, 1994, after giving
effect to the issuance of the Old Notes and the Warrants and the application of
the estimated net proceeds therefrom, the Company would have had a 2.06 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 (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.
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.
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
35
<PAGE> 39
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.
36
<PAGE> 40
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
37
<PAGE> 41
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.
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.
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<PAGE> 42
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 Note from and after November 14, 1994 shall be permanently increased to a
rate of 13 1/4% per annum. Holders of Old Notes accepted for exchange will be
deemed to have waived the right to receive any other payments of accrued
interest on such Old Notes.
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.
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<PAGE> 43
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 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.
40
<PAGE> 44
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
$80,000 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
41
<PAGE> 45
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 interpretations by the Staff of the Commission, 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 (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.
42
<PAGE> 46
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. According to
The Meyers Group, in 1993 the Company 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).
Recent market information indicates that the Orange County housing market
is improving and that the Las Vegas housing market remains quite strong.
According to statistics compiled by The Meyers Group, 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
a 40 week supply in September 1990 to a 13 week supply in December 1993. A
recent study by Kenneth Leventhal & Company determined that the percentage of
households in the Orange County area that can afford a median priced home
increased from 14% in December 1989 to 47% in December 1993. According to The
Meyers Group, 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%.
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 February
28, 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. The Company
believes that one of its competitive advantages is that the carrying value of
its land inventory is at or below current market values.
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 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
43
<PAGE> 47
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 has made substantial 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.
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 in 10 projects located in Las
Vegas and Laughlin, Nevada. The Company is actively selling homes in 15 of these
projects. At February 28, 1994, the Company owned approximately 1,673 building
sites (1,027 in California and 646 in Nevada) and controlled an additional 1,439
building sites (423 in California and 1,016 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 February 28, 1994,
the Company had a total backlog of 305 homes sold with an aggregate sales value
of $55.8 million, which is moderately higher than the backlog at the start of
the third and fourth quarters of fiscal year 1994. The backlog at February 28,
1994 included 124 homes sold with an aggregate sales value of $37.4 million in
California and 181 homes sold with an aggregate sales value of $18.4 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.
(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
may also expand to the entry level market in Southern California by
expanding its Durable operations to Southern 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-
44
<PAGE> 48
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 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 ten projects located in Las Vegas
and Laughlin, Nevada. The Company is actively selling homes in 15 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 February 28, 1994, the
Company owned approximately 1,673 building sites (1,027 in California and 646 in
Nevada) and controlled an additional 1,439 building sites (423 in California and
1,016 in Nevada) through options and purchase contracts.
45
<PAGE> 49
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 U.S. Census Bureau, the population of California increased
from 23.8 million in 1980 to an estimated 31.2 million in 1993, an annual
compound growth rate of 2.1%, which was more than double the nationwide compound
annual growth rate of 1.0%. During the period from 1990 to 1992, the U.S. Census
Bureau determined that the Los Angeles/Riverside/Orange County consolidated area
gained over 516,000 residents, rising 4% to approximately 15 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 has risen from 5.9% in January 1990 to 8.9% in
December 1993, while in San Bernardino County the unemployment rate has
increased from 4.8% in January 1990 to 9.2% in November 1993. Currently, the
Company has no active projects in Los Angeles County or San Bernardino County.
However, the unemployment rate in Orange County, where the Company has
substantial operations, was 6.3% for 1993.
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 7.3% for the first nine months of 1993.
Nevertheless, the pace of sales in California is showing signs of improvement.
According to the California Association of Realtors, the seasonally adjusted
rate of sales of homes (which would include existing homes) has accelerated by
36%, from 399,000 units in December 1990 to 543,000 units in December 1993,
which exceeds the prior peak reached in 1989.
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.
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. According to the California Association of Realtors, the median
sales price of homes in California has decreased from $195,000 in January 1990
to $184,000 in December 1993, which, together with low mortgage rates, has
increased the percentage of California households able to afford a median-priced
single family detached home from 20% in December 1990 to 43% in November 1993.
The affordability index, defined as the percent of households that can afford
the median priced home, has risen in the combined Orange County/Riverside
County/San Bernardino County area from 24.6% in 1989 to 48.6% in 1993.
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 U.S. Census Bureau, between 1990 and 1992, the county's
population grew by 106,000 new residents to approximately 2.5 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 6.1% in 1992, compared to 9.0% and 7.2% 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
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<PAGE> 50
percentage of households that, based upon median household incomes, can afford
to purchase the median priced home). According to the California Association of
Realtors, the affordability index in Orange County was 47% in December 1993,
compared with 14% in 1989. As of February 28, 1994, the Company owned land in
sufficient quantities to construct and sell 731 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 February 28, 1994, the Company owned land in sufficient quantities to
construct and sell 208 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 663,199 to 1,1709,413, or 76.5%, from 1980 to 1990,
making it California's seventh largest county. The San Bernardino and Riverside
Metropolitan Statistical Area was the second fastest growing Metropolitan
Statistical Area ("MSA") in the United States between 1990 and 1992, during
which period Riverside County's population grew 13.5% to 1,328,320 and San
Bernardino County's population grew 9.7% to 1,556,251; by comparison, the total
population of California grew only 6.0% during the same period. The State of
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 average number of jobs in Riverside County increased from 230,400 in 1980 to
428,500 in 1990 and approximately 457,900 in 1993.
NEVADA
Las Vegas. The Company currently has 10 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. According to the City of Las Vegas Center for Economic
Development, this increase of more than 17,000 hotel rooms translates into
approximately 51,000 new jobs, which the Company expects will increase the
demand for affordable, entry-level homes. The University of Nevada at Las Vegas
currently estimates that the employment growth rate estimated 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 22 million people visited Las Vegas during 1993 and
the Las Vegas Convention and Visitors Authority is currently estimating that the
number will increase to 25 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. The Meyers Group estimates that there
were approximately 15,800 new homes 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 February 28, 1994, the Company owned land in sufficient
quantities to construct and sell 646 homes in Nevada and had options or
contracts to purchase land in sufficient quantities to construct and sell an
additional 1,016 homes in Nevada.
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DEVELOPMENTS IN PROCESS--CALIFORNIA
The following table below sets forth certain information regarding projects
under development in California as of February 28, 1994. Each of the projects is
described in greater detail below the table.
<TABLE>
<CAPTION>
HOMES AVAILABLE FOR
UNDER CONSTRUCTION FUTURE
NAME AND TOTAL UNITS AT 2/28/94 CONSTRUCTION UNITS
LOCATION OF UNITS REMAINING ------------------------- --------------- CLOSED IN AVG. PRICE START OF
PROJECT PLANNED AT 2/28/94 SOLD MODEL SPEC(A) SOLD UNSOLD FY 1994 OF HOMES(B) CONSTRUCTION
- --------------- -------- ---------- ----- ------ -------- ----- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WHOLLY-OWNED:
The Courts
Palmia/Mission
Viejo
Orange
County......... 183 183 -- -- -- -- 183 -- $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 90 10 4 1 9 66 30 221,000 FY94
Cozumel
La Quinta
Riverside
County....... 300(d) 292 3 5 1 6 277 8 482,000 FY94
Cayman
La Quinta
Riverside
County....... 188(d) 188 6 4 6 4 168 -- 348,000(est.) FY94
Antigua
La Quinta
Riverside
County....... 76(d) 72 -- -- -- 10 62 -- 179,000(est.) FY94
Others(e)...... -- -- -- -- -- -- -- 12 226,000
------- ---------- ----- ------ -------- ----- ------- ---------
SUBTOTAL
WHOLLY-
OWNED........ 1,225 1,183 19 13 8 29 1,114 50
------- ---------- ----- ------ -------- ----- ------- ---------
JOINT VENTURES:
Crestmont(f)
Portola Hills
Orange
County....... 128 67 20 -- 10 -- 37 61 $293,000 FY94
Alicante
Rancho Santa
Margarita
Orange
County....... 62 36 13 4 16 1 2 26 202,000 FY94
Paragon
Rancho Santa
Margarita
Orange
County....... 94 65 15 4 2 11 33 28 312,000 FY94
Fairway Estates
Coto de Caza
Orange
County....... 62 22 15 -- 6 1 -- 40 375,000 FY94
------- ---------- ----- ------ -------- ----- ------- ---------
SUBTOTAL JOINT
VENTURES..... 346 190 63 8 34 13 72 155
------- ---------- ----- ------ -------- ----- ------- ---------
TOTALS......... 1,571 1,373 82 21 42 42 1,186 205
======= ========== ===== ====== ======== ===== ======= =========
</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) 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.
48
<PAGE> 52
(e) Includes closings at the following: Portola Hills (2 closings); Palmia
Terraces (7 closings); Foothill Ranch (2 closings); Palmia Courts (1
closing). These closings are in projects in which all remaining units were
sold in 1994.
(f) 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.
49
<PAGE> 53
DEVELOPMENTS IN PROCESS -- NEVADA
The following table below sets forth certain information about projects
under development in Nevada as of February 28, 1994. Each of the projects is
described in greater detail below the table.
<TABLE>
<CAPTION>
AVAILABLE FOR
HOMES UNDER FUTURE UNITS
NAME AND TOTAL UNITS CONSTRUCTION AT 2/28/94 CONSTRUCTION CLOSED
LOCATION OF UNITS REMAINING ----------------------- -------------- IN AVG. PRICE START OF
PROJECT PLANNED AT 2/28/94 SOLD MODEL SPEC(A) SOLD UNSOLD FY 1994 OF HOMES(B) CONSTRUCTION
- -------------------------- -------- ---------- ----- ------ -------- ----- ------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WHOLLY-OWNED:
Windchime
Las Vegas
Clark County.............. 167 40 22 2 5 10 1 103 $ 82,000 FY93
Echoes at Hidden Canyon
North Las Vegas
Clark County.............. 194 43 18 3 6 4 12 113 101,000 FY93
Rosewalk
Las Vegas
Clark County.............. 138 127 12 3 1 19 92 11 88,000 FY94
White Cliffs
Las Vegas
Clark County.............. 287(c) 287 5 3 9 270 -- 99,000(e t.) FY94
The Falls at Hidden Canyon
North Las Vegas
Clark County.............. 241(d) 241 -- -- -- -- 241 -- 110,000(e t.) FY95
Impressions
Las Vegas
Clark County.............. 202 --(e) -- -- -- -- -- 14 114,000 FY91
Tapestry
Las Vegas
Clark County.............. 73 --(e) -- -- -- -- -- 1 108,000 FY92
Spinnaker Bay
Laughlin
Clark County.............. 108 45 8 2 5 3 27 43 121,000 FY93
Tiara
Henderson
Clark County.............. 56 --(e) -- -- -- -- -- 31 131,000 FY93
----- ----- ----- -- -- ----- ---- ---
SUBTOTAL WHOLLY-OWNED..... 1,466 783 65 13 26 36 643 316
----- ----- ----- -- -- ----- ---- ---
JOINT VENTURES:
Taos Estates(f)
Las Vegas
Clark County.............. 91 91 -- -- -- -- 91 -- 238,000(e t.) FY94
Portraits
Las Vegas
Clark County.............. 54 30 9 3 4 3 11 24 145,000 FY94
Plateau
Las Vegas
Clark County.............. 156 61 36 1 8 8 8 95 111,000 FY94
Las Hadas
Las Vegas
Clark County.............. 94 90 24 2 12 -- 52 4 85,000 FY94
----- ----- ----- -- -- ----- ---- ---
SUBTOTAL JOINT VENTURES... 395 272 69 6 24 11 162 123
----- ----- ----- -- -- ----- ---- ---
TOTALS.................... 1,861 1,055 134 19 50 47 805 439
===== ===== ===== == == ===== ==== ===
</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 February 28, 1994, Durable held options anticipated to yield 241 lots.
Sixty of such lots were purchased on March 1, 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) Projects completed during fiscal year 1994 for which no units remain to be
sold.
(f) JMPN and Durable are general partners.
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<PAGE> 54
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 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 February 28, 1994, the Company's joint ventures were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------
TOTAL UNITS CUMULATIVE UNITS UNITS REMAINING
PLANNED CLOSED AT 2/28/94 AT 2/28/94
----------- ----------------- ---------------
<S> <C> <C> <C>
PETERS RANCHLAND, INC.
Crestmont -- Orange County......................... 128 61 67
Alicante -- Orange County.......................... 62 26 36
Paragon -- Orange County........................... 94 29 65
Fairway Estates -- Orange County................... 62 40 22
--- --- ---
Sub-total.................................. 346 156 190
--- --- ---
DURABLE HOMES, INC.
Portraits -- Las Vegas............................. 54 24 30
Plateau -- Las Vegas............................... 156 95 61
Las Hadas -- Las Vegas............................. 94 4 90
--- --- ---
Sub-total.................................. 304 123 181
--- --- ---
J.M. PETERS NEVADA, INC.(A)
Taos Estates -- Las Vegas.......................... 91 -- 91
--- --- ---
Sub-total.................................. 91 -- 91
--- --- ---
Total................................................ 741 279 462
======== ============= ============
</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
51
<PAGE> 55
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 $532,000 at February 28, 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
February 28, 1994, the balance of the limited partners' original capital
contributions was $88,880 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
52
<PAGE> 56
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. As of February 28, 1993, JMPN had made aggregate
contributions to the partnership of $100,000 and the limited partners had made
aggregate contributions of $500,000. 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 February 28, 1994 and the number of housing units
delivered during fiscal year 1994:
<TABLE>
<CAPTION>
ESTIMATED NUMBER OF HOUSING UNITS THAT COULD BE
CONSTRUCTED ON LAND CONTROLLED AS OF FEBRUARY
28, 1994(A)
---------------------------------------------
UNDER
REGION OWNED OPTION CONTROLLED(B) TOTAL
- -------------------- ----- ------ ------------- ------
<S> <C> <C> <C> <C>
Southern
California........ 1,027 365 58 1,450
Nevada 646 409 607 1,662
----- ------ ------ ------
1,673 774 665 3,112
===== ===== ====== ======
</TABLE>
- ---------------
(a) Based upon current management estimates, which are subject to change.
Includes 171 owned lots subject to litigation. See "-- Default on Senior
Indebtedness."
(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
53
<PAGE> 57
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
54
<PAGE> 58
Center, Inc. ("Newport Design"). During fiscal year 1994, Newport Design had
total revenues of $2.8 million and a net profit of $323,000.
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 employed by a real estate brokerage firm retained by the Company for the
specific purpose of providing such sales representatives.
55
<PAGE> 59
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
February 28, 1994, the Company had a backlog in California of 124 homes sold
with an aggregate sales value of $37.4 million, compared to a backlog of 92
homes sold with an aggregate sales value of $25.9 million at February 28, 1993.
At February 28, 1994, the Company had a total backlog in Nevada of 181 homes
sold with an aggregate sales value of $18.4 million, compared to Durable's
backlog of 162 homes sold with an aggregate sales value of $16.1 million at
February 28, 1993.
56
<PAGE> 60
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
====== =====
</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.
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.
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<PAGE> 61
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 April 30, 1994, the Company employed 112 persons full-time, compared
to 62 persons at April 30, 1993. Of these, 10 were in executive positions, 15
were engaged in sales activities, 43 in project management activities and 44 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
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.
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<PAGE> 62
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 that is
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 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
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<PAGE> 63
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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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 of Sales and Marketing
Scott N. Coler 33 Vice President
Craig A. Foster 39 Vice President
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.
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
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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. 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, 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.
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<PAGE> 66
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.
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.
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<PAGE> 67
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 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).
A key employee of the Company 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 arms'-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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<PAGE> 68
STOCKHOLDERS OF THE COMPANY
The following table sets forth as of February 28, 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%
610 Newport Center Drive, Suite 1200
Newport Beach, CA 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................................ 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> 69
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 will be unsecured senior obligations of the Company, limited to
$100 million aggregate principal amount, and will mature on May 1, 2002. The
Notes will be guaranteed by each of the Guarantors pursuant to the guarantees
(the "Subsidiary Guarantees") described below. Each Note will bear 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 will be 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 will be 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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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 will be 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 February 28, 1994, on a pro forma basis as adjusted for
the application of the net proceeds of the sale and issuance of the Old Notes
and the Warrants, the Company would not have had any consolidated indebtedness
other than the 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 will be effectively senior in right of payment to
the Notes, except to the extent such Subsidiary is a Guarantor. As of February
28, 1994, after giving effect to the issuance of the Notes and the application
of the net proceeds therefrom, Subsidiaries of the Company that are not
Guarantors had liabilities aggregating approximately $6.4 million, 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 February 28, 1994, on a pro forma
basis as adjusted for the application of the net proceeds of the sale and
issuance of the Old Notes and the Warrants, 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 will provide 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.
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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 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
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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 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
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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 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
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(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.
"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
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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.
"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
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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 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.
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"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 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
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(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 "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
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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.
"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,
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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 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.
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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 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 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 will provide 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.
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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 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
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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 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
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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 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
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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 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 will provide 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.
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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.
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
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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.
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 will be 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
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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
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 will require 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
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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 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 will provide 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
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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 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 will further permit 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,
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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 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 15,000,000 shares
of Common Stock, par value $.10 per share. At February 28, 1994, there were
14,995,000 shares of Common Stock outstanding held of record by approximately
1,800 stockholders. The Company is obligated to amend its Certificate of
Incorporation in order to increase the authorized number of shares of Common
Stock to a number sufficient to permit the Company to issue and deliver Common
Stock upon the exercise in full of all the Warrants. Pursuant to a resolution
dated May 5, 1994, the Company's Board of Directors has approved an amendment to
the Company's Certificate of Incorporation increasing the Company's authorized
capital stock from 15,000,000 shares of Common Stock to 30,000,000 shares of
Common Stock. The proposed amendment is subject to approval by the Company's
stockholders. CPH has granted to the Trustee an irrevocable proxy pursuant to
which the Trustee may cause all of CPH's shares of Common Stock in the Company
to be voted in favor of the proposed amendment. See "Description of the
Warrants -- Certain Terms -- Amendment to Certificate of Incorporation."
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 Teasury 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.
94
<PAGE> 98
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.
95
<PAGE> 99
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.
96
<PAGE> 100
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 as of February 28, 1993 and 1994........................ F-8
Consolidated Statements of Operations for the years ended February 29, 1992,
February 28, 1993 and February 28, 1994.......................................... F-9
Consolidated Statements of Stockholders' Equity for the years ended February 29,
1992, February 28, 1993 and February 28, 1994.................................... F-10
Consolidated Statements of Cash Flows for the years ended February 29, 1992,
February 28, 1993 and February 28, 1994.......................................... F-11
Notes to Consolidated Financial Statements.......................................... F-12
DURABLE HOMES, INC.
Reports of Independent Public Accountants........................................... F-22
Consolidated Statements of Income for the years ended December 31, 1991, 1992 and
1993............................................................................. F-24
Consolidated Statements of Cash Flows for the years ended December 31, 1991, 1992
and 1993......................................................................... F-25
Notes to Consolidated Financial Statements.......................................... F-26
</TABLE>
F-1
<PAGE> 101
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.
Orange County, California
March 11, 1994
F-2
<PAGE> 102
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 period August 12, 1992 (inception) through
December 31, 1992 and the year ended December 31, 1993. 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, 1992 and 1993, and the results of its
operations and its cash flows for the period August 12, 1992 (inception) through
December 31, 1992 and the year ended December 31, 1993 in conformity with
generally accepted accounting principles.
KENNETH LEVENTHAL & COMPANY
Orange County, California
February 14, 1994
F-3
<PAGE> 103
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, 1992 and 1993, and the related statements of operations, partners'
capital and cash flows for the period August 12, 1992 (inception) through
December 31, 1992 and the year ended December 31, 1993. 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, 1992 and 1993, and the results of its
operations and its cash flows for the period August 12, 1992 (inception) through
December 31, 1992 and the year ended December 31, 1993 in conformity with
generally accepted accounting principles.
KENNETH LEVENTHAL & COMPANY
Orange County, California
February 14, 1994
F-4
<PAGE> 104
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, 1992 and 1993, and the related statements of operations, partners'
capital and cash flows for the period August 12, 1992 (inception) through
December 31, 1992 and the year ended December 31, 1993. 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, 1992 and 1993, and the results of its
operations and its cash flows for the period August 12, 1992 (inception) through
December 31, 1992 and the year ended December 31, 1993 in conformity with
generally accepted accounting principles.
KENNETH LEVENTHAL & COMPANY
Orange County, California
February 14, 1994
F-5
<PAGE> 105
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, 1992 and 1993, and the related statements of operations, partners'
capital and cash flows for the period August 12, 1992 (inception) through
December 31, 1992 and the year ended December 31, 1993. 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, 1992 and 1993, and the results of its
operations and its cash flows for the period August 12, 1992 (inception) through
December 31, 1992 and the year ended December 31, 1993 in conformity with
generally accepted accounting principles.
KENNETH LEVENTHAL & COMPANY
Orange County, California
February 14, 1994
F-6
<PAGE> 106
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 responsiblity 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 second paragraph
above and Note 1 -- Organization, which are as
of March 11, 1994
F-7
<PAGE> 107
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1993 1994
------------ ------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS........................................... $ 9,454 $ 10,001
RESTRICTED CASH..................................................... 1,888 1,483
ACCOUNTS AND NOTES RECEIVABLE....................................... 1,905 1,650
REAL ESTATE PROJECTS................................................ 99,636 105,696
PREPAID EXPENSES AND OTHER ASSETS................................... 2,668 3,124
------------ ------------
TOTAL ASSETS......................................... $ 115,551 $ 121,954
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES............................ $ 7,754 $ 17,692
NOTES PAYABLE....................................................... 38,433 34,709
DUE TO CAPITAL PACIFIC HOMES, INC................................... 1,702 --
------------ ------------
Total liabilities......................................... 47,889 52,401
------------ ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN JOINT VENTURES................................. 19,647 13,959
STOCKHOLDERS' EQUITY:
Common stock, par value $.10 per share;
15,000,000 shares authorized;
14,995,000 and 13,980,000 issued and outstanding
in 1994 and 1993, respectively................................. 1,398 1,500
Additional paid-in capital........................................ 207,824 210,387
Accumulated deficit............................................... (161,207) (156,293)
------------ ------------
Total stockholders' equity................................ 48,015 55,594
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........... $ 115,551 $ 121,954
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 108
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1992 1993 1994
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Sales of homes and land............................... $182,670 $ 72,148 $ 88,140
Interest and other income, net........................ 2,274 3,554 2,926
------------ ------------ ------------
184,944 75,702 91,066
------------ ------------ ------------
COSTS AND EXPENSES:
Cost of homes and land................................ 170,329 68,257 73,348
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
Minority interest..................................... -- -- 4,332
Interest.............................................. 14,691 8,538 418
------------ ------------ ------------
256,615 162,035 90,420
------------ ------------ ------------
Income (loss) before provision (benefit) for income
taxes and extraordinary gain.......................... (71,671) (86,333) 646
PROVISION (BENEFIT) FOR INCOME TAXES.................... (13,895) (1,792) --
------------ ------------ ------------
Income (loss) before extraordinary gain................. (57,776) (84,541) 646
EXTRAORDINARY GAIN...................................... -- -- 4,268
------------ ------------ ------------
Net income (loss)....................................... $(57,776) $(84,541) $ 4,914
========= ========= =========
NET INCOME (LOSS) PER COMMON SHARE:
Before extraordinary gain............................. $ (4.13) $ (6.05) $ .04
Extraordinary gain.................................... -- -- .30
------------ ------------ ------------
Net income (loss)..................................... $ (4.13) $ (6.05) $ .34
========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES....................... 13,980 13,980 14,488
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 109
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED FEBRUARY 28, 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
====== ======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 110
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1992 1993 1994
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................................... $ (57,776) $(84,541) $ 4,914
Adjustments to reconcile net income (loss) to net cash
provided by operating activities --
Extraordinary gain..................................... -- -- (4,268)
Depreciation and amortization.......................... 281 195 131
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
Decrease in real estate projects..................... 115,367 49,454 226
(Increase) decrease in prepaid expenses and other
assets............................................ 1,067 (15) (12)
(Decrease) increase in accounts payable and accrued
liabilities....................................... 3,386 (2,478) 6,209
Gain related to debt restructuring................... -- (1,225) --
--------- --------- --------
Net cash provided by operating activities......... 104,562 38,428 7,459
--------- --------- --------
INVESTING ACTIVITIES:
Acquisition of Durable Homes, Inc......................... -- -- (1,500)
Purchases of property and equipment, net.................. (2) (56) (68)
(Increase) decrease in investments in partnerships........ 493 (139) (45)
--------- --------- --------
Net cash provided by (used in) investing
activities...................................... 491 (195) (1,613)
--------- --------- --------
FINANCING ACTIVITIES:
Proceeds from construction notes.......................... 32,266 6,241 39,374
Principal payments of construction notes.................. (133,739) (28,642) (35,574)
Advances from San Jacinto................................. 12,821 3,025 --
Payments to San Jacinto................................... (3,204) -- --
Principal payments to Capital Pacific Homes, Inc.......... -- (47,298) (1,702)
Minority interest in Joint Ventures....................... -- 19,647 (7,802)
--------- --------- --------
Net cash used in financing activities............. (91,856) (47,027) (5,704)
--------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 13,197 (8,794) 142
CASH AND CASH EQUIVALENTS, beginning of year................ 6,939 20,136 11,342
--------- --------- --------
CASH AND CASH EQUIVALENTS, end of year...................... $ 20,136 $ 11,342 $ 11,484
========= ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH AND NONCASH ACTIVITIES:
Distribution of property from partnership................. $ 24,248 -- --
Amount paid during the year for interest, net of amount
capitalized............................................ 3,583 $ 878 $ 1,101
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 reduced by debt forgiveness.................. -- -- 14,248
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> 111
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. and subsidiaries 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.
Effective September 1, 1993, the Company acquired all of the common stock
of Durable Homes, Inc. (Durable) for a total purchase price, including 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 through February 28, 1994. Durable builds single family homes and
condominiums in Nevada.
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 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)................................. $ (82,320) $ 5,312
========= =========
Net income (loss) per share:
Before extraordinary gain......................... $ (5.49) $ .09
Net income (loss) per share....................... $ (5.49) $ .35
========= =========
</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. All
other investments (See Note 5) are accounted for on
F-12
<PAGE> 112
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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.
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 exclude postcompletion carrying 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.
F-13
<PAGE> 113
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
All direct and indirect land costs, offsite and onsite improvements 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
NOL carryforwards, the utilization of which will be insignificant due to the
purchase transaction by CPH on August 12, 1992 and the application of federal
income tax regulations.
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. 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 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.
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.
F-14
<PAGE> 114
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. RESTRICTED CASH
The Company has restricted cash totaling $1,888,000 and $1,483,000 as of
February 28, 1993 and 1994, respectively. Included in these amounts is
$1,000,000 and $750,000 as of February 28, 1993 and 1994, respectively, which is
held as collateral for the Company's bonding obligations.
3. REAL ESTATE PROJECTS
Real estate projects consist of the following at February 28, 1993 and 1994
(in thousands):
<TABLE>
<CAPTION>
1993 1994
------- --------
<S> <C> <C>
Land and improvements under construction................ $92,251 $ 91,763
Completed residential homes............................. 1,430 6,472
Completed model homes................................... 5,955 7,461
------- --------
$99,636 $105,696
======= ========
</TABLE>
Total interest cost incurred during the years ended February 29, 1992,
February 28, 1993 and February 29, 1994, was $21,383,000, $8,871,000 and
$2,532,000, respectively, of which $6,692,000, $333,000, and $2,114,000,
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. 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 range from
100 percent to 55 percent. 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
unconsolidated entities. The Company's investments are as follows at February
28, 1993 and 1994 (in thousands):
<TABLE>
<CAPTION>
1993 1994
---- ----
<S> <C> <C>
P.B. Partners................................................. $ 23 $ 65
Bay Hill Escrow............................................... 144 147
---- ----
$167 $212
==== ====
</TABLE>
The Company uses the equity method of accounting for its investments in
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-15
<PAGE> 115
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 and 1994 (in thousands):
ASSETS
<TABLE>
<CAPTION>
1993 1994
---- ----
<S> <C> <C>
Cash....................................................... $376 $345
Accounts receivable........................................ 29 --
Other assets............................................... 56 68
---- ----
$461 $413
==== ====
LIABILITIES AND EQUITY
Accounts payable and other liabilities..................... $110 $ 5
---- ----
Equity
The Company.............................................. 167 212
Others................................................... 184 196
---- ----
351 408
---- ----
$461 $413
==== ====
</TABLE>
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following at
February 28, 1993 and 1994 (in thousands):
<TABLE>
<CAPTION>
1993 1994
------ -------
<S> <C> <C>
Accounts payable...................................... $1,091 $10,809
Compensation.......................................... 170 345
Litigation............................................ 557 536
Warranty.............................................. 701 450
Interest.............................................. 2,862 2,137
Property taxes........................................ 1,045 1,618
Other................................................. 1,328 1,797
------ -------
$7,754 $17,692
====== =======
</TABLE>
7. NOTES PAYABLE
Notes payable consist of the following at February 28, 1993 and 1994 (in
thousands):
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <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
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
======= =======
</TABLE>
At February 28, 1993 and 1994, the aggregate carrying value of assets
collateralizing the above notes was $17,407,000 and $61,379,000, respectively.
F-16
<PAGE> 116
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. 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.
An assignee of one of the lenders holding a note in the amount of
approximately $9.5 million, has filed a judicial foreclosure action against the
Company. The Company is continuing to negotiate with the lenders, or their
assignees, in an effort to resolve the defaults. If the Company cannot repay,
renegotiate, restructure or otherwise settle these loans in default, the lenders
or assignees may enforce their rights under the loan agreements, including the
right of foreclosure.
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 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>
<S> <C>
Years ending February 28:
Notes matured.................... $10,402
1995............................. 19,582
1996............................. 2,795
Thereafter....................... 1,930
-------
$34,709
=======
</TABLE>
F-17
<PAGE> 117
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
The expense (benefit) for income taxes consists of the following for the
years ended February 29, 1992, February 28, 1993 and 1994 (in thousands):
<TABLE>
<CAPTION>
1992 1993 1994
-------- ------- -----
<S> <C> <C> <C>
Current
Federal.................................... $ -- $ -- $ 100
State...................................... (13,895) (1,792) 210
-------- ------- -----
(13,895) (1,792) 310
-------- ------- -----
Deferred
Federal.................................... -- -- (100)
State...................................... -- -- (210)
-------- ------- -----
-- -- (310)
-------- ------- -----
$(13,895) $(1,792) $ 0
======== ======= =====
</TABLE>
The deferred income tax benefit at February 28, 1994 results from the
following temporary differences between financial and tax reporting (in
thousands):
<TABLE>
<S> <C>
Accrued expenses..................................................... $ (3)
Construction period expenses......................................... 9
Utilization of NOL carryforward...................................... (265)
Decrease in valuation allowance...................................... (53)
State taxes (net of federal effect).................................. 2
-----
$(310)
=====
</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.
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.
F-18
<PAGE> 118
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, is as follows:
<TABLE>
<CAPTION>
1992 1993 1994
--- --- ---
<S> <C> <C> <C>
Income taxes at statutory rate......................... (34)% (34)% 34%
State income taxes, net of federal tax benefit......... (19) (2) 6
Loss for which no benefit is allowed................... 34 34 0
Utilization of net operating loss carryforwards........ -- -- (39)
Increase in valuation allowance........................ -- -- (1)
--- --- ---
(19)% (2)% 0%
=== === ===
</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.
9. 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 and 14,488,000 at
February 29, 1992, February 28, 1993 and 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.
10. 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.
Stock option activity under the plan is as follows for the years ended
February 29, 1992, February 28, 1993 and February 28, 1994, respectively.
<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- --------
<S> <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
Exercise price of options outstanding............ $ 6.00 $ 6.00 $ --
</TABLE>
F-19
<PAGE> 119
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. 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.
A key employee 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).
12. COMMITMENTS AND CONTINGENCIES
General
Approximately $21,467,000 and $23,185,000 of performance bonds were
outstanding at February 28, 1993 and 1994, respectively. The beneficiaries of
these bonds are certain municipalities. The Company has outstanding letters of
credit totaling $672,000 and $552,000 to ensure performance on various
agreements at February 28, 1993 and 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>
Total rent expense was $632,000, $599,000 and $629,000 for the years ended
February 29, 1992, February 28, 1993 and 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.
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,
F-20
<PAGE> 120
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
management believes 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.
13. 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-21
<PAGE> 121
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.
Orange County, California
March 7, 1994
F-22
<PAGE> 122
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
Salt Lake City, Utah
February 25, 1993
F-23
<PAGE> 123
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-24
<PAGE> 124
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-25
<PAGE> 125
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-26
<PAGE> 126
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-27
<PAGE> 127
O.B.C. -- [LOGO ONLY]
<PAGE> 128
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................................................... 25,000
Legal expenses............................................. 5,000
Trustee's fees............................................. 5,000
Miscellaneous.............................................. 10,000
--------
Total............................................ $ 79,483
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation and Bylaws provide for
indemnification of directors, officers, employees and agents of the Registrant
consistent with the provisions of Section 145 of the Delaware General
Corporation Law.
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 Certificate of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 of Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1994).
3.2 Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 of
Registrant's Annual Report on Form 10-K for the fiscal year ended February 28,
1994).
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*).
</TABLE>
II-1
<PAGE> 129
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------
<C> <S>
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 Partnerhsip 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 Registrant'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 Registrant'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 Registrant'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 Registrant'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 Registrant'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 Registrant'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 Registrant'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
Registrant'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 Registrant'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 Registrant's Annual Report
on Form 10-K for the fiscal year ended February 28, 1993).
</TABLE>
II-2
<PAGE> 130
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------
<C> <S>
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 Registrant'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 Registrant'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 Registrant'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 Registrant'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 Registrant (incorporated by reference to Exhibit 21.1 of
Registrant'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).
24.1 Power of Attorney (included on page II-4).
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.
</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.
** 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.
II-3
<PAGE> 131
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 pursuant to the provisions described under Item 14 or otherwise, the
Company 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 of expenses incurred or paid by a director, officer or controlling
person of the Company 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 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 hereby undertakes that:
(1) The 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), the issuer 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) The 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> 132
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
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 June 6, 1994.
J. M. PETERS 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 the Company, 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 June 6, 1994.
<TABLE>
<CAPTION>
NAME TITLE
- ----------------------------------------------- --------------------------------------------
<C> <S>
/s/ HADI MAKARECHIAN Chairman of the Board and
Hadi Makarechian Chief Executive Officer
(Principal Executive Officer)
/s/ DALE DOWERS President, Chief Operating Officer and
Dale Dowers Director
/s/ GREGORY R. PETERSEN Vice President and Chief Financial Officer
Gregory R. Petersen (Principal Financial and Accounting
Officer)
/s/ JAMES M. PETERS Director
James M. Peters
</TABLE>
II-5
<PAGE> 133
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ ----------- ------------
<C> <S> <C>
3.1 Certificate of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 of Registrant's Annual Report on Form 10-K
for the fiscal year ended February 28, 1994).........................
3.2 Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 of
Registrant's Annual Report on Form 10-K for the fiscal year ended
February 28, 1994)...................................................
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
Partnerhsip 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 Registrant's Annual Report on Form
10-K for the fiscal year ended February 28, 1993)....................
</TABLE>
<PAGE> 134
<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 Registrant'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 Registrant'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 Registrant'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 Registrant'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 Registrant'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 Registrant'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 Registrant'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 Registrant'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 Registrant's Annual Report on Form 10-K for the fiscal
year ended February 28, 1993)........................................
</TABLE>
<PAGE> 135
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ --------------------------------------------------------------------- ------------
<C> <S> <C>
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 Registrant'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
Registrant'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 Registrant'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 Registrant'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 Registrant (incorporated by reference to Exhibit
21.1 of Registrant'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)..................................................
24.1 Power of Attorney (included on page II-4)............................
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............................................
</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.
** To be filed by amendment.
<PAGE> 1
EXHIBIT 10.19
LOAN AGREEMENT
DATE: May 12, 1994
PARTIES: BORROWER: J.M. PETERS COMPANY, INC., a
Delaware corporation
BORROWER 3501 Jamboree Road, Suite 200
ADDRESS: Newport Beach, California 92658
BANK: BANK ONE, ARIZONA, NA
a national banking association.
BANK ADDRESS: Real Estate Division
P.O. Box 29542
Phoenix, Arizona 85038
Attention: Dept. A-387
RECITALS:
A. Borrower owns or intends to acquire Lots (as hereinafter
defined) in various residential subdivisions located in California and/or the
metropolitan area of Las Vegas, Nevada.
B. Borrower desires to finance the construction of Units (as
hereinafter defined) within such subdivisions and other related development
costs as approved by Bank, upon the terms and subject to the conditions set
forth herein.
NOW, THEREFORE, in consideration of the covenants and conditions
herein contained, the parties agree as follows:
1. SCHEDULE OF TERMS.
Commitment Amount: $25,000,000.00, as the same may be reduced from
time to time pursuant to SECTION 3.1.2.
Unit Completion Date: Nine (9) Calendar Months after each such Unit
first constitutes Eligible Collateral.
Commitment Fee (SECTION 3.3.1): Two Hundred Fifty Thousand Dollars
($250,000.00) per year (which amount shall be prorated on a Calendar Month
basis for any period which is less than one year) due and payable in advance on
the date that the Bank executes this Agreement and on the same day of each
calendar year thereafter through the Termination Date, as such date may be
extended as provided in SECTION 3.5 hereof. In the event that the Termination
<PAGE> 2
Date is not extended and the Conversion Period becomes applicable, the
Commitment Fee shall be adjusted as set forth below and shall be paid in
advance on the first day of each Conversion Period Quarter:
<TABLE>
<CAPTION>
CONVERSION ADJUSTED
PERIOD COMMITMENT
QUARTER FEE
------- ----------
<S> <C>
1 $62,500
2 51,875
3 41,250
4 30,625
5 20,000
6 9,375
</TABLE>
Unused Commitment Fee Rate (SECTION 3.3.2).
Documentation Fee: $2,500.00 payable on or before the date hereof,
and $100.00 payable upon the recording of each Deed of Trust (SECTION 3.3.3).
Financial statements and accounting system requirements: Accrual Basis
and GAAP (SECTIONS 5.1.5, 6.2, 6.3.1 AND 6.3.2).
Fiscal year of Borrower: From March 1 to February 28 (SECTION 5.1.5).
Quarterly unaudited Borrower prepared financial statements for each of
the first three (3) Fiscal Quarters due within sixty (60) days after the end of
each Fiscal Quarter (SECTION 6.3.1.1).
Person(s) to sign and certify financial statements on behalf of
Borrower: President, Chief Financial Officer, or other executive officer
reasonably acceptable to Bank.
Annual audited financial statements due within one hundred twenty
(120) days after the end of each fiscal year of Borrower (SECTION 6.3.2).
Certification requirements:
Independent certified public accountant satisfactory to Bank to audit
financial statements and deliver an opinion on the financial statements.
Minimum property insurance amount: The full replacement value of any
and all Units constituting Eligible Collateral (SECTION 6.7.1).
2
<PAGE> 3
Minimum liability insurance amounts:
Per occurrence: $1,000,000.
General aggregate: $2,000,000.
Minimum umbrella excess liability insurance amount: $20,000,000.
Minimum motor vehicle liability insurance amount: $1,000,000.
(SECTION 6.7.2).
Engineer's and environmental contractor's minimum engineers' liability
insurance amount: $500,000.
2. DEFINITIONS. In this Agreement, the following terms shall have the
following meanings:
"ADVANCE" means an advance by Bank to Borrower hereunder.
"AFFILIATE" means any and all Subsidiaries thereof other than Borrower.
"AGREEMENT" means this Loan Agreement, as it may be amended, modified,
extended, renewed, restated, or supplemented from time to time.
"APPROVALS AND PERMITS" means each and all approvals, authorizations, bonds,
consents, certificates, franchises, licenses, permits, registrations,
qualifications, and other actions and rights granted by or filings with any
Persons necessary, or appropriate for acquisition of the Lots, for construction
of Units, for occupancy, ownership, and use by Borrower and other Persons of
the Units, or for the conduct of the business and operations of Borrower.
"AVAILABLE COMMITMENT" means, at any time, the lowest of (i) the applicable
Commitment Amount, (ii) the aggregate of the current Maximum Allowed Advances
with respect to all Units that constitute Eligible Collateral and (iii) the
aggregate of the current Unit Collateral Values for all Units that constitute
Eligible Collateral.
"BORROWER LOAN DOCUMENTS" means the Loan Documents executed or delivered by
Borrower from time to time.
"BUSINESS DAY" means a day of the year on which banks are not required or
authorized to close in Phoenix, Arizona.
"CALENDAR MONTH" means the twelve (12) calendar months of the year. Any
payment or obligation that is due or required to be performed within a
specified number of Calendar Months shall become due on
3
<PAGE> 4
the day in the last of such specified number of Calendar Months that
corresponds numerically to the date on which such payment or obligation was
incurred or commenced, provided, however, that with respect to any obligation
that is incurred or commences on the 29th, 30th, or 31st day of any Calendar
Month and if the Calendar Month in which such payment or obligation would
otherwise be due does not have a numerically corresponding date, such payment
or obligation shall become due on the first day of the next succeeding Calendar
Month.
"CALENDAR QUARTER" means one (1) of the following groups of Calendar Months:
(a) January, February and March; (b) April, May and June; (c) July, August and
September; or (d) October, November and December.
"CALENDAR WEEK" means Monday through Sunday of each week.
"CASH COLLATERAL ACCOUNT" means a deposit account maintained by Bank, in Bank's
name, and subject to the terms and conditions of the Cash Collateral Agreement.
"CASH COLLATERAL AGREEMENT" means an agreement by and between Borrower and
Bank, in form and substance satisfactory to Bank, governing the use of monies
held in the Cash Collateral Account.
"CASH ON HAND" means any and all cash (including deposits in demand accounts),
certificates of deposit, plus eligible but undrawn Commitment proceeds under
this Agreement and treasury bonds, treasury bills or other securities or any
other document or instrument that is convertible to cash or immediately
available funds.
"COLLATERAL" means the property, interests in property, and rights to property
securing any or all Obligations from time to time.
"COLLATERAL CERTIFICATE" means a certificate, in form and substance
satisfactory to Bank, delivered to Bank by Borrower on a monthly basis setting
forth, among other things, the total number of Units included in Eligible
Collateral, the total number of each Unit type in Eligible Collateral, the
total value of all Units in Eligible Collateral and the aggregate Unit
Collateral Value for Units in Eligible Collateral. Such Collateral Certificate
shall be executed by the president, chief financial officer, or other executive
officer of Borrower and shall also include a statement that Borrower is in
compliance with all financial covenants set forth in SECTION 6.21.
"COMMITMENT" means the agreement by Bank in SECTION 3.1 to make Advances
pursuant to the terms and conditions herein.
"COMMITMENT AMOUNT" means the amount specified in SECTION 1.
4
<PAGE> 5
"CONSOLIDATED LIABILITIES" means Indebtedness of the Borrower and each
Subsidiary determined on a consolidated basis which would, in accordance with
GAAP, be classified as liabilities of a corporation conducting business the
same as or similar to the business of the Borrower and each Subsidiary, and
shall also include all Indebtedness and liabilities of others assumed or
guaranteed by the Borrower. Consolidated Liabilities shall include, without
limitation, home building debt, accounts payable, and other accrued liabilities
related to home building activities and capital leases.
"CONSOLIDATED NET TANGIBLE ASSETS" means those assets of the Borrower and any
Subsidiary determined on a consolidated basis which would, in accordance with
GAAP, be classified as assets of a corporation conducting a business the same
as or similar to the business of Borrower and any Subsidiary, excluding any
such intangible items as goodwill (including any amounts, however, designated
on the balance sheet, representing the cost of acquisition of businesses and
investments in excess of underlying tangible assets), trademarks, trademark
rights, tradename rights, copyrights, patents, patent rights and licenses.
"CONSOLIDATED TANGIBLE NET WORTH" means all assets (including, without
limitation, not less than fifty percent (50%) of earnings from operations)
appearing on a balance sheet of the Borrower and each Subsidiary determined on
a consolidated basis in accordance with GAAP less (without limitation and
without duplication of deductions) the sum of (a) Consolidated Liabilities
(other than liabilities subordinated to the satisfaction of the Bank to the
Commitment), (b) any reserves established by the Borrower or any Subsidiary for
any anticipated losses and expenses, (c) the amount, if any, of such intangible
items as goodwill (including any amounts, however designated on the balance
sheet, representing the cost of acquisition of businesses and investments in
excess of underlying tangible assets), trademarks, trademark rights, tradename
rights, copyrights, patents, patent rights, licenses, unamortized debt
discount, marketing expenses and deferred research and development costs; and
(d) the equity value of minority stock.
"CONVERSION DATE" means the earlier of June 30, 1996 or the failure of Borrower
to comply with any one or more of the Financial Covenants in each of two (2)
succeeding Fiscal Quarters. (By way of illustration but not limitation, the
Conversion Period may be accelerated by Bank if Borrower fails to comply with
one Financial Covenant in any one (1) Calendar Quarter and fails to comply with
the same or any different Financial Covenant in the immediately following
Calendar Quarter).
"CONVERSION PERIOD" means the eighteen (18) Calendar Month period following the
Conversion Date during which the Commitment Amount is reduced from time to time
pursuant to SECTION 3.1.2.
5
<PAGE> 6
"CONVERSION QUARTER" means any three (3) consecutive Calendar Months during the
Conversion Period.
"DEBT" means, as to any Person, without limitation, (a) any indebtedness of
such Person for borrowed money, (b) all indebtedness of such Person evidenced
by bonds, debentures, notes, letters of credit, drafts or similar instruments,
(c) all indebtedness of such Person to pay the deferred purchase price of
property or services, but not including accounts payable and accrued expenses
arising in the ordinary course of business, (d) all capitalized lease
obligations of such Person, (e) all Debt of others secured by a lien on any
asset of such Person, whether or not such Debt is assumed by such Person or
guaranteed by such Person, and (f) all Debt of others guaranteed by such Person
and all other indebtedness that would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP.
"DEED OF TRUST" means a deed of trust, assignment of rents, and security
agreement and fixture filing in the form attached hereto as Exhibit "A-1" for
all Units and Lots located in California and Exhibit "A-2" for all Units and
Lots located in Nevada, executed by Borrower, as trustor, to a trustee
designated in writing by Bank, and naming Bank as beneficiary, securing the
Commitment and creating a first lien on one or more Units, the Lots upon which
such Units, are to be constructed, and all other buildings, fixtures and
improvements then or thereafter owned or acquired by Borrower and situated
thereon, and all rights and easements appurtenant thereto.
"DEFAULT INTEREST RATE" means a rate of interest equal to the aggregate of four
percent (4%) per annum plus the Interest Rate. The Default Interest Rate shall
change from time to time as and when the Interest Rate changes as a result of
changes in the Index Rate.
"DRAW REQUEST" means a completed, written request in form and substance
satisfactory to Bank, from Borrower to Bank for an Advance, together with such
other documents and information as Bank may require or specify from time to
time.
"ELIGIBLE COLLATERAL" means Units which satisfy each of the following
requirements: (i) such Units are in a Subdivision approved pursuant to SECTION
4.2 for which Borrower may request Advances, (ii) Borrower has satisfied the
conditions precedent set forth in SECTION 4.3 with respect to such Units, and
(iii) such Units have not become subject to SECTION 3.2.8.
"ENVIRONMENTAL AGREEMENT" means that certain Certification and Agreement
Regarding Hazardous Substances, by Borrower for the benefit of Bank, as it may
be amended, modified, extended, renewed, restated, or supplemented from time to
time.
6
<PAGE> 7
"ERISA" means the Employee Retirement Income Security act of 1974 and the
regulations and published interpretations thereunder, as in effect from time to
time.
"EVENT OF DEFAULT" has the meaning specified in the Note and the other Loan
Documents.
"FINANCIAL COVENANTS" means the covenants described in SECTION 6.21.
"FINANCIAL STATEMENTS" means such balance sheets, income statements, cash flow
statements or other information respecting the condition of Borrower as Bank
may from time to time reasonably request, for any fiscal year or portion
thereof, prepared and reported according to GAAP, consistently applied,
together with all current filed federal and state income tax returns.
"FISCAL QUARTER" means one (1) of the following groups of calendar months: (a)
March, April and May; (b) June, July and August; (c) September, October and
November; or (d) December, January and February.
"GAAP" means generally accepted accounting principals as set forth in the
Opinions of the Accounting Principals Board of the American Institute of
Certified Public Accounts and in Statements of the Financial Accounting
Standards Board or in such other statement by such other body as may be
approved by a significant segment of the public accounting profession, which
are applicable in the circumstances as of the relevant date. The requirement
contained in certain provisions of this Agreement that such principals be
applied on a consistent basis shall mean that the accounting principals
observed in a current period are comparable in all material respects to those
applied in the preceding period(s). Except as to the extent otherwise provided
in this Agreement, all accounting terms used in the Loan Documents shall have
the meanings provided by GAAP.
"GOVERNMENTAL AUTHORITY" means (a) any governmental municipality or political
subdivision thereof, (b) any governmental or quasi-governmental agency,
authority, board, bureau, commission, department instrumentality or public
body, or (c) any court, administrative tribunal or public utility.
"IMPOSITIONS" has the meaning specified in the Deed of Trust.
"INTANGIBLE ASSETS" means all intangible assets under GAAP, including, without
limitation, copyrights, franchises, goodwill, licenses, non- competition
covenants, organization or formation expenses, patents, service marks, service
names, trademarks, tradenames, write-up in the book value of any asset in
excess of the acquisition cost of the asset to such Person, any amount, however
designated on the balance sheet, representing the excess of
7
<PAGE> 8
the purchase price paid for assets or stock acquired over the value assigned
thereto on the books of such Person, unamortized leasehold improvements expense
not recoverable at the end of the lease term, and unamortized debt discount.
"INDEX RATE" means the rate of interest most recently publicly announced by
Bank, or its successors, in Phoenix, Arizona as its "prime rate." Any change in
the rate at which a Note bears interest resulting from a change in the "prime
rate" shall become effective as of the same date at which such change in the
"prime rate" becomes effective.
"INTEREST RATE" means a rate of interest equal to the aggregate of one percent
(1%) per annum plus the Index Rate. The Interest Rate shall change from time
to time as and when the Index Rate changes.
"INVENTORY REPORT" means borrower's monthly description of Units under
construction or complete, disclosing the matters required pursuant to SECTION
6.3.8.
"INVOLUNTARY LIENS" has the meaning specified in the Deed of Trust.
"LIEN OR ENCUMBRANCE" and "LIENS AND ENCUMBRANCES" mean, respectively, each and
all of the following: (i) any lease or other right to use; (ii) any
assignment as security, conditional sale, grant in trust, lien, mortgage,
pledge, security interest, title retention arrangement, other encumbrance, or
other interest or right securing the payment of money or the performance of any
other liability or obligation, whether voluntarily or involuntarily created and
whether arising by agreement, document, or instrument, under any law,
ordinance, regulation, or rule (federal, state, or local), or otherwise; and
(iii) any option, right of first refusal, or other interest or right.
"LOAN DOCUMENTS" means this Agreement, the Note, a Deed of Trust, the Cash
Collateral Agreement, an Environmental Agreement, any subordination agreement,
agreements, documents, or instruments evidencing or securing any and all
Advances made hereunder, as such agreements, documents, and instruments may be
amended, modified, extended, renewed, or supplemented from time to time.
"LOT" means an individual lot designated on the final subdivision plat or
filing for each Subdivision.
"LOT ALLOCATION" means fifty percent (50%) of Borrower's acquisition cost for
such Lot, as established by the applicable Option Agreement, or other agreement
for purchase, and set forth in a settlement statement or other evidence
satisfactory to Bank in its sole and absolute discretion.
"MATERIAL ADVERSE CHANGE" means any change in the assets, financial condition,
or results of operations of Borrower or any other event
8
<PAGE> 9
or condition with respect to Borrower that in the reasonable opinion of Bank
(i) could affect the likelihood of performance by Borrower of any of the
Obligations, (ii) could affect the ability of Borrower to perform any of the
Obligations, (iii) could affect the legality, validity, or binding nature of
any of the Obligations or any Lien or Encumbrance securing any of the
Obligations, or (iv) could affect the priority of any Lien or Encumbrance
securing any of the Obligations.
"MAXIMUM ALLOWED ADVANCE" means the maximum amounts to be advanced hereunder,
not to exceed the following percentage plus no more than the Lot Allocation or
the Prepaid Lot Amount applicable to the underlying Lot.
(i) with respect to each Presold Unit that constitutes Eligible
Collateral, thelesser of (A) seventy-five percent (75%) of the respective Unit
Base Appraised Value, or (B) seventy-five percent (75%) of the unit sales price
which will be reduced to zero (0) effective on the first day of the ninth (9th)
Calendar Month following the first Advance made by the Bank for the respective
Presold Unit; or
(ii) with respect to each Spec Unit that constitutes Eligible
Collateral, seventy percent (70%) of the Unit Base Appraised Value which will
be reduced to sixty-five percent (65%) of Unit Base Appraised Value effective
on the first day of the ninth (9th) Calendar Month following the first Advance
made by the Bank for the respective Spec Unit which will be reduced to zero (0)
effective on the first day of the twelfth (12th) Calendar Month following the
first Advance made by the Bank for the respective Spec Unit; or
(iii) with respect to each Model Unit that constitutes Eligible
Collateral, sixty-five percent (65%) of the respective Unit Base Appraised
Value which will be reduced to sixty percent (60%) of the Unit Base Appraised
Value effective on the first day of the twelfth (12th) Calendar Month following
the first Advance made by the Bank for the respective Model Unit, which will be
reduced to fifty-five percent (55%) of the Unit Base Appraised Value effective
on the first day of the eighteenth (18th) Calendar Month following the first
Advance made by the Bank for the respective Model Unit which will be reduced to
zero (0) effective on the first day of the twenty-fourth (24th) Calendar Month
following the first Advance made by the Bank for the respective Model Unit;
provided that the Maximum Allowed Advance, as so determined, shall not exceed
the sum of (a) the total of the Specific Unit Budget plus (b) the Lot
Allocation.
"MODEL UNIT" means a Unit constructed initially for inspection by prospective
purchasers that is not intended to be sold until all or substantially all other
Units in the applicable Subdivision are sold.
9
<PAGE> 10
"NET SALES PROCEEDS" means the gross sales price of a Unit set forth in the
Purchase Contract for such Unit, less (i) any earnest money deposit, (ii)
customary tax prorations, (iii) real estate brokerage commissions payable to
any Person who is neither (A) employed by Borrower, nor (B) engaged in on-site
sales at the Subdivision in which the Unit is located, and (iv) reasonable and
customary closing costs, including any "points" payable by Borrower, and which
Net Sales Proceeds shall be payable to Bank for application to the outstanding
principal balance of Advances, or, if no unpaid Advances are then outstanding,
for deposit to the Cash Collateral Account (collectively the "Costs of Sale").
In no event shall the Costs of Sale exceed, in the aggregate, seven percent
(7%) of the gross sales price.
"NOTE" means that certain Promissory Note of even date herewith, executed by
Borrower and payable to Bank, evidencing Borrower's indebtedness hereunder.
"OBLIGATIONS" means the obligations of the Borrower under the Loan Documents.
"OPTION AGREEMENT" means a fully executed option agreement between Borrower and
the seller of any Lots providing for periodic purchases of Lots in a
Subdivision.
"PERMITTED EXCEPTIONS" has the meaning specified in the Deed of Trust.
"PERSON" means a natural person, a partnership, a joint venture, an
unincorporated association, a limited liability company, a corporation, a
trust, any other legal entity, or any Governmental Authority.
"PREPAID LOT" means a Lot, the purchase price of which was paid by Borrower in
full with Borrower's own funds and not from proceeds of the Commitment.
"PREPAID LOT AMOUNT" means ten percent (10%) of the retail value of the Unit
Base Appraisal (as approved by Bank in its sole and absolute discretion). For
purposes of this definition, a Lot which was/is subject to a Lot Allocation
shall not be deemed a Prepaid Lot.
"PRESOLD UNIT" means a Unit that is subject to a Purchase Contract.
"PROJECT" means any one or more of the Subdivisions, Lots and Units that are
encumbered by the Deed of Trust from time to time.
"PURCHASE CONTRACT" means a bona fide written agreement between Borrower and a
third Person purchaser for sale in the ordinary course of Borrower's business
of any Unit and the related Lot, which is not contingent upon the sale of other
property and which
10
<PAGE> 11
is accompanied by a cash earnest money deposit or down payment in an amount
that is customary.
"QUARTERLY AVERAGE OUTSTANDING BALANCE" means the weighted average of the
outstanding principal balance of the Commitment on a daily basis (as determined
by Bank) during a Calendar Quarter.
"REDUCTION DATE" has the meaning specified in SECTION 3.1.2.
"REQUIREMENTS" shall have the meaning specified in the Deed of Trust.
"SHORTAGE" means the amount by which the Maximum Allowed Advance applicable to
a Unit exceeds the Net Sales Proceeds received from the sale of such Unit.
"SPEC UNIT" means a Unit constructed for the purpose of addition to Borrower's
inventory of Units and which is not subject to a Purchase Contract.
"SPECIFIC UNIT BUDGET" means an actual construction budget for each Unit
proposed to be included in Eligible Collateral containing the information
required in the corresponding Unit Budget for that type of Unit.
"SUBDIVISION" means a group of Lots designated on an individual subdivision
plat or filing.
"SUBSIDIARY" or "SUBSIDIARIES" means, with respect to any Person, any
corporation of which a majority of the capital stock having ordinary voting
power to elect a majority of the board of directors or other Persons performing
similar functions is at the time directly or indirectly owned by such Person or
one or more of the other Subsidiaries of that Person or a combination thereof.
"TERMINATION DATE" means the Maturity Date (as defined in the Note) (i.e., June
30, 1996) as extended pursuant to SECTION 3.5.
"TITLE COMPANY" means a title insurance company and any reinsurers or
co-insurers satisfactory to Bank in its absolute and sole discretion.
"TITLE POLICY" and "TITLE POLICIES" mean, respectively, each and all title
insurance policies and endorsements thereto and any reinsurance or co-insurance
agreements and endorsements described in this Agreement insuring the Deed of
Trust.
"UNIT" means a single-family detached dwelling (i) constructed or to be
constructed on a Lot, and (ii) described in a set of Unit Plans and
Specifications, including, without limitation, any furniture, furnishings,
fixtures, and equipment to be installed therein as shown in the respective Unit
Plans and Specifications.
11
<PAGE> 12
Condominiums, townhomes, homes with common walls, and other forms of "attached"
housing shall not be "Units" for the purpose of this Agreement.
"UNIT BASE APPRAISAL" means, with respect to each type of Unit, an appraisal of
the unit and a typical Lot in the applicable Subdivision, as determined by a
Federal National Mortgage Association ("FNMA") Base Plan Type appraisal
performed by a qualified FNMA appraiser, which appraisal shall be satisfactory
to Bank in all respects and shall be determined without lot premiums, options
or upgrades. Notwithstanding what may otherwise be provided in this
definition, the Unit Base Appraisal for Model Units shall also include
construction upgrades present in the Model Unit and applicable Lot premiums.
Furniture, fixtures and decorator items shall not be included.
"UNIT BASE APPRAISED VALUE" means the value of a Unit and a typical Lot in the
applicable Subdivision, as selected by Bank, without lot premiums, options, and
upgrades, as approved or determined by Bank in its absolute and sole discretion
after review of a Unit Base Appraisal.
"UNIT BUDGET" means, with respect to each type of Unit, the budget of the
costs, expenses, and fees necessary for or related to construction of that type
of Unit approved by Bank in its reasonable discretion, together with any
amendments or modifications thereof consented to by Bank in its reasonable
discretion. Such budget shall include (i) the onsite cost of labor and
materials directly related to construction of the type of Unit, other "hard
costs," construction permits, tap fees and other fees for permits required by
any governmental authority, and costs of direct project supervision, (ii) costs
and expenses related to upgrades, and options, and (iii) insurance costs,
advertising and marketing costs, escrow and title fees, processing and closing
fees, wire transfer fees, legal fees, and appraisal fees, and other "soft
costs" related to construction of Units as contemplated herein (excluding sales
tax and overhead), in an amount equal to or less than $2,000.00. There shall
be a separate budget for each type of Unit. The Unit Budgets shall not include
the Lot Allocation.
"UNIT COLLATERAL VALUE" means the maximum Advances Borrower may obtain against
a Unit that constitutes Eligible Collateral based upon the Unit's stage of
construction, determined on a cumulative basis in accordance with the terms and
conditions of the ARDI Draw System, as outlined and described in Exhibit "B"
attached hereto, provided, however, if the sum of the total of the construction
costs set forth in the applicable specific Unit Budget and the applicable Lot
Allocation exceeds the Maximum Allowed Advance for the Unit, then for purposes
of calculating the Unit Collateral Value pursuant hereto, the Lot Allocation
shall be reduced so that
12
<PAGE> 13
the sum of the total specific Unit Budget and the Lot Allocation do not exceed
the applicable Maximum Allowed Advance.
"UNIT COMPLETION DATE" has the meaning specified in SECTION 1.
"UNIT PLANS AND SPECIFICATIONS" means, with respect to each type of Unit, plans
and specifications for construction of that type of Unit, prepared by an
architect, certified by Borrower to Bank together with any amendments or
modifications thereof.
"UNIT SALES PRICE" means the price at which a Unit is to be sold to a purchaser
under the applicable Purchase Contract.
"UNIT TERM" means the maximum period for which a Unit may continue to qualify
as Eligible Collateral, as set forth in SECTION 3.2.4.
"UNMATURED EVENT OF DEFAULT" means any condition or event that with notice,
passage of time, or both would be an Event of Default.
"UNUSED COMMITMENT FEE" means the fee described in SECTION 3.3.2 hereof.
"UTILITY AND SERVICES CHARGES" has the meaning specified in the Deed of Trust.
3. LOAN FACILITY.
3.1 LOAN FACILITY.
3.1.1 COMMITMENT. Subject to the terms and conditions of
this Agreement, Bank agrees to make Advances to Borrower with respect to
Eligible Collateral from time to time on or before the Conversion Date, and
during the Conversion Period pursuant to SECTION 3.2, provided that the
aggregate amount of Advances outstanding at any time and from time to time,
shall not exceed the Available Commitment. Proceeds of Advances may be used
only for the purpose described in SECTIONS 3.2.2 and 5.1.6. Advances shall be
on a revolving basis. Advances repaid may be re-borrowed subject to the terms
and the conditions herein. Although the outstanding principal of the Note may
be zero from time to time, the Loan Documents shall remain in full force and
effect until the Commitment terminates and all Obligations are paid and
performed in full. If monies are being held in the Cash Collateral Account at
any time, Bank shall be entitled to apply such monies to the outstanding
balance of the Advances. Upon the occurrence of an Event of Default or an
Unmatured Event of Default, Bank, in its absolute and sole discretion and
without notice, may suspend the commitment to make Advances. In addition, upon
occurrence of an Event of Default, Bank, in its absolute and sole discretion
and without notice, may terminate the commitment to make Advances. The
obligation of Borrower to repay Advances shall be evidenced by the Note.
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<PAGE> 14
3.1.2 CONVERSION PERIOD. From and after the Conversion
Date, the Commitment Amount shall be reduced on the first day of each
Conversion Quarter period (a "REDUCTION DATE") as follows:
<TABLE>
<CAPTION>
Commitment Remaining
Period Reduction Commitment
------ ---------- ----------
<S> <C> <C>
Termination Date - 0 - $25,000,000
3 Calendar Months after
Conversion Date $4,250,000 $20,750,000
6 Calendar Months after
Conversion Date $4,250,000 $16,500,000
9 Calendar Months after
Conversion Date $4,250,000 $12,250,000
12 Calendar Months after
Conversion Date $4,250,000 $ 8,000,000
15 Calendar Months after
Conversion Date $4,250,000 $ 3,750,000
18 Calendar Months after
Conversion Date $3,750,000 $ -0-
</TABLE>
3.1.3 ACCELERATION OF CONVERSION DATE UPON THE OCCURRENCE
OF A MATERIAL ADVERSE CHANGE. Notwithstanding anything in this Agreement to
the contrary, Bank may, in its absolute and sole discretion, accelerate the
Conversion Date: (i) immediately upon the occurrence of a Material Adverse
Change; (ii) immediately upon the occurrence of an Event of Default; or (iii)
immediately upon the failure of Borrower to comply with any one or more of the
Financial Covenants in each of two (2) succeeding Fiscal Quarters, and commence
the Conversion Period and the reductions in the Commitment Amount set forth in
SECTION 3.1.2. Bank may exercise its right to cause the Conversion Date to
occur pursuant to this SECTION 3.1.3 and Bank's failure to exercise such right
shall not be deemed to waive Bank's rights pursuant to this SECTION 3.1.3 with
respect to any other similar or dissimilar occurrences. If Bank exercises its
right pursuant to this SECTION 3.1.3, Borrower shall not be entitled to a
refund of any fees previously paid and shall continue to be obligated to pay
all fees accruing from and after the Conversion Date.
3.1.4 VOLUNTARY REDUCTIONS IN COMMITMENT AMOUNT. At any
time during the Conversion Period, Borrower may elect to reduce the Commitment
Amount in amounts greater than those set forth in
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SECTION 3.1.2; provided, however, Borrower shall have provided Bank written
notice of Borrower's desire to reduce the Commitment Amount, and Borrower shall
have paid to Bank any amount payable pursuant to SECTION 3.4 after giving
effect to the reduction in the Commitment Amount. Any such additional
reductions shall not decrease the amount of any subsequent scheduled
reductions.
3.1.5 Interest Rate.
3.1.5.1 Payment. Interest at the Interest Rate shall
accrue on the outstanding and unpaid balance of the Note; commencing on the
date of the first Advance until repaid, and shall be due and payable on the
first day of each Calendar Month thereafter (in arrears) until repayment of the
outstanding principal balance of the Note in full, together with all other sums
owed to Bank pursuant to any Loan Document.
3.1.5.2 Rate after Default. Upon and after the
occurrence of an Event of Default hereunder or under any of the Loan Documents,
at the option of Bank, the outstanding principal balance of the Note shall bear
interest, payable on demand, at a rate per annum equal to the Default Interest
Rate. The application of the Default Interest Rate shall not be interpreted or
deemed to extend any cure period set forth in this Agreement or otherwise to
limit any of Bank's remedies under this Agreement or any of the other Loan
Documents.
3.1.5.3 Computation of Interest. Interest shall be
calculated on a 360-day year for all Advances, but, in any case, shall be
computed for the actual number of days in the period for which interest is
charged, which period shall consist of 365-days on an annual basis. If any
payment of interest under the Note would otherwise be due on a day which is not
a Business Day, the payment instead shall be due on the next succeeding
Business Day and such extension of time shall be included in computing the
interest due in respect of said payment.
3.1.5.4 No Deductions. All payments of principal or
interest under the Note shall be made without deduction of any present and
future taxes, levies, imposts, deductions, charges or withholdings, which
amounts shall be paid by Borrower. Borrower will pay the amounts necessary
such that the gross amount of the principal and interest received by Bank is
not less than that required by the Note.
3.1.5.5 Order of Application. Any payments received
by Bank will be applied in the following order: (1) late charges; (2) payments
for taxes and insurance and other expenses (to the extent Bank elects to pay
such expenses); (3) interest; and (4) principal.
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<PAGE> 16
3.1.5.6 Interest. (i) Borrower hereby authorizes
Bank to disburse the proceeds of the Note to pay interest accrued on the Note,
notwithstanding that Borrower may not have requested a disbursement of such
amount. The authorization hereby granted shall be irrevocable and at Bank's
discretion, and no further direction or authorization from Borrower shall be
necessary for Bank to make such disbursements. (ii) So long as there has not
occurred an Event of Default or an event which, with the passage of time or the
giving of notice or both would constitute an Event of Default, Borrower may
instruct Bank to apply a portion of the available proceeds of the Note toward
the payment of accrued interest applicable to the Note to the extent that such
interest payments shall not cause the principal balance of the Note to exceed
the Maximum Allowed Advances in the aggregate.
3.1.6 Payments. All amounts payable by Borrower on or with
respect to the Note or pursuant to the terms of any other Loan Documents, shall
be paid in lawful money of the United States of America at 241 North Central
Avenue, Phoenix, Arizona 85004, in same day funds, not later than 1:00 p.m.
(Arizona time) on the date due.
3.2 ADVANCES.
3.2.1 METHOD FOR ADVANCES. Advances may be made by Bank at
the written request by the Person or Persons designated from time to time on
Bank's form of signature authorization; provided, however, that Bank shall have
acknowledged receipt of any changes in the Person or Persons designated by
Borrower, and such Person or Persons shall have executed a new signature
authorization form. Such Person or Persons are hereby authorized by Borrower
to request Advances not more frequently than two (2) times per week upon not
less than two (2) Business Days prior written notice to Bank, in amounts of not
less than Two Hundred Thousand Dollars ($200,000.00) per request, and to direct
the disposition of the proceeds of Advances until written notice of the
revocation of such authority is received from Borrower by Bank and Bank has had
a reasonable time to act upon such notice. Bank shall have no duty to monitor
for Borrower or to report to Borrower the use of proceeds of Advances.
3.2.2 USE OF ADVANCES. Advances shall be used only to pay
or reimburse Borrower for costs, expenses, and fees actually incurred by
Borrower in connection with the construction of Units constituting Eligible
Collateral together with the reimbursement to Borrower of the Lot Allocation or
the Prepaid Lot Amount (as applicable).
3.2.3 DETERMINATION OF AMOUNT OF ADVANCES. The Available
Commitment, the Maximum Allowed Advance of each Unit, the Unit Collateral
Value, and the amount of each Advance shall be determined by Bank based upon:
(i) the Inventory Report and the Collateral Certificate most recently submitted
by Borrower
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(adjusted to reflect Units sold, and limitations pursuant to SECTION 3.2.5),
(ii) Bank's inspections made pursuant to SECTION 6.11 AND 6.16 (as such
inspections may result in any adjustments to reflect any variance between (A)
the Inventory Report and the Collateral Certificate, and (B) the results of
such inspections), and (iii) such other information as Bank may reasonably
require in order to verify such amounts. Borrower acknowledges that in order
to borrow the full amount of the Commitment (i.e. $25,000,000) the amount of
Eligible Collateral must be sufficient to, among other things, provide funds to
complete construction on Units that are less than one hundred percent (100%)
complete because Advances for Units will be done on a percentage-of-completion
basis as described in the definition of Unit Collateral Value (SECTION 2).
3.2.4 UNIT TERM PERIOD. Each Unit shall constitute the
Eligible Collateral only during the applicable Unit Term for such Unit set
forth below; provided, however, that in no event shall any Unit Term exceed the
Termination Date:
3.2.4.1 PRESOLD UNITS. A Presold Unit may constitute
Eligible Collateral for not more than nine (9) Calendar Months from the date an
Advance is first made against Eligible Collateral that includes such Presold
Unit.
3.2.4.2 SPEC UNITS. A Spec Unit may constitute
Eligible Collateral for not more than twelve (12) Calendar Months from the date
an Advance is first made against Eligible Collateral that includes such Spec
Unit.
3.2.4.3 MODEL UNITS. A Model Unit may constitute
Eligible Collateral for not more than twenty-four (24) Calendar Months from the
date an Advance is first made against Eligible Collateral that includes such
Model Unit.
3.2.5 LIMITATION ON NUMBER OF UNITS. Borrower shall not be
entitled to include in Eligible Collateral: (i) unless further limited by Bank,
an aggregate number of Spec Units exceeding twenty-five (25%) of the then
applicable Commitment Amounts; and (ii) Model Units with Maximum Allowed
Advances which (when aggregated with the Maximum Allowed Advances of all other
Model Units that constitute Eligible Collateral) at any time exceed the lesser
of five (5) Model Units per Subdivision or fifteen percent (15%) of the then
applicable Commitment Amount. In addition to the foregoing, Borrower shall not
be entitled to include in Eligible Collateral Units in Subdivisions where the
Maximum Allowed Advances in the aggregate would cause more than seventy percent
(70%) of the Commitment to be available in either California or the
Metropolitan area of Las Vegas, Nevada. In the event that Borrower is in
violation of the limitations set forth in this SECTION 3.2.5, upon notice
thereof from Bank, Borrower shall
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<PAGE> 18
select and remove the affected types of Units from Eligible Collateral until
such limitations are no longer violated.
3.2.6 CLASSIFICATION AND RECLASSIFICATION OF UNITS.
Borrower may classify or reclassify Units as to type from time to time, or
change Borrower's proposed classification of any and all Units, provided that
such reclassified Unit meets the requirements set forth herein for that type of
Unit. In the event any Presold Unit ceases to constitute a Presold Unit for
any reason, then any such Presold Unit shall automatically become a Spec Unit,
and Borrower agrees to immediately comply with all conditions, restrictions and
limitations applicable to a Spec Unit, except that the Unit Term shall remain
the same as if the conversion had not occurred. In the event any Spec Unit
becomes a Presold Unit, Borrower agrees to immediately comply with conditions,
restrictions and limitations applicable to a Presold Unit, except that the Unit
Term shall remain the same as if the conversion had not occurred.
3.2.7 RELEASE OF UNITS, LOTS AND SUBDIVISIONS AT REQUEST OF
BORROWER. So long as no Event of Default has occurred and is continuing,
Borrower may request releases of Units and/or Lots from the lien and
encumbrance of a Deed of Trust from time to time; provided, however, Bank shall
be under no obligation to release any Unit or Lot unless each of the following
conditions precedent is satisfied: (i) in the case of any Unit that is being
released for the purpose of sale, (A) Borrower shall have paid to Bank, from
Borrower's own funds (including Net Sales Proceeds) and not from proceeds of
Advances, the greater of (X) the applicable Maximum Allowed Advance or (Y) the
Net Sales Proceeds, (B) Borrower shall have delivered to Bank a closing report
pursuant to SECTION 6.3.3, and (C) both before and after giving effect to such
release and any payments to be made pursuant to clause (i)(A) of this sentence,
the outstanding Advances do not exceed the Available Commitment and Borrower
has made any payments then required pursuant to SECTION 3.4; or (ii) with
respect to releases for purposes other than sale, both before and after giving
effect to such release, the outstanding Advances do not exceed the Available
Commitment and Borrower has made any payments required pursuant to SECTION 3.4.
Borrower may obtain the release of any Lot which is subject to
the lien of a Deed of trust but is not eligible for Advances to construct a
Unit (an "Ineligible Lot"). So long as there has not occurred an Event of
Default or an Unmatured Event of Default under the Loan Documents, Borrower may
require and obtain the release of an Ineligible Lot upon Bank's receipt of a
written request from Borrower. Upon the occurrence of an Event of Default or
an Unmatured Event of Default under the Loan Documents, Borrower may require
and obtain the release of an Ineligible Lot provided that (a) the Bank has
first obtained, at Borrower's expense, an appraisal of the Ineligible Lot (plus
any improvements located thereon) and (b) contemporaneous with the release of
the Ineligible
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<PAGE> 19
Lot, Borrower tenders to Bank one hundred percent (100%) of all Net Sales
Proceeds (if the Ineligible Lot is being sold) or an amount equal to the
appraised value of the Ineligible Lot pursuant to the appraisal described above
(if the Ineligible Lot is not being sold). Any such request must be in writing
and the release of such Ineligible Lot shall occur no later than thirty (30)
Business Days after Bank's receipt of such request.
3.2.8 EXTRAORDINARY EVENTS AFFECTING UNITS, LOTS, OR
SUBDIVISIONS. Upon the occurrence of any of the following events, Units at any
time constituting Eligible Collateral may be declared by Bank to no longer be
Eligible Collateral:
3.2.8.1 MATERIAL DAMAGE, DESTRUCTION, OR
CONDEMNATION. Any Unit is materially damaged, destroyed, or becomes subject to
any condemnation proceeding.
3.2.8.2 DEFAULT REGARDING TITLE INSURANCE. The
requirements of the Loan Documents for title insurance with respect to any Unit
are not satisfied.
3.3 FEES. As additional consideration for the Commitment,
Borrower agrees to pay to Bank the following fees, from Borrower's own funds
and not from proceeds of any Advance, which shall be earned by Bank on the date
due under the Loan Documents and shall be non-refundable to Borrower:
3.3.1 COMMITMENT FEE. A fee for the Commitment at the
annual rate set forth in SECTION 1.
3.3.2 UNUSED COMMITMENT FEE. An Unused Commitment Fee
computed as set forth below on the unused portion of the Commitment Amount,
calculated from the date hereof and payable on the last day of each Calendar
Quarter in arrears. For each Calendar Quarter (or portion thereof), the Unused
Commitment Fee shall be equal to (A) the Commitment Amount (as in effect at the
beginning of such month) minus (B) the Quarterly Average Outstanding Balance
for the Calendar Quarter (or portion thereof) with respect to which the Unused
Commitment Fee is being computed, with the resulting number multiplied by (C)
.000625. If the Unused Commitment Fee is being computed for less than a full
Calendar Quarter, the percentage used in clause (C) above shall be computed on
a daily basis for the number of days for which the fee is being computed. Such
fee shall continue to be payable quarterly during the Conversion Period.
3.3.3 DOCUMENTATION FEE. A documentation fee for the
Bank's processing of the closing of the transaction contemplated hereby and the
ongoing processing of Deeds of Trust such fee to be in the amount specified in
SECTION 1, payable contemporaneously with the recording of each Deed of Trust.
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<PAGE> 20
3.3.4 ATTORNEYS' COSTS, EXPENSES, AND FEES. Attorneys
costs, expenses, and fees for Bank's counsel as provided in the Loan Documents,
payable on or before the date hereof and during the term of the Advances, from
time to time upon the presentation by Bank of statements therefor.
3.3.5 APPRAISAL FEES, TITLE INSURANCE PREMIUM, AND OTHER
COSTS, EXPENSES, AND FEES. Appraisal fees, appraisal review fees, title
insurance premium, and other costs, expenses, and fees that the Borrower is
obligated to pay pursuant to the Loan Documents, including, without limitation,
all fees and costs associated with periodic inspections of any Project, in the
amounts specified by Bank, payable on or before the date hereof, and monthly
thereafter during the term of the Commitment by the fifteenth (15th) day of
each Calendar Month.
3.4 MANDATORY PREPAYMENTS. If for any reason at any time the
outstanding principal amount of Advances exceeds the Available Commitment,
Borrower, without notice or demand, shall, within five (5) Business Days, make
a payment to Bank in an amount equal to such excess principal amount.
3.5 EXTENSION OF TERMINATION DATE. The Commitment shall expire on
the Termination Date, unless the Termination Date is extended for additional
one (1) year periods which extensions are available to Borrower contingent on
the following: (a) Borrower shall deliver written notice to Bank no earlier
than April 1 and no later than April 30, immediately preceding the scheduled
Termination Date which Borrower desires to extend and of Borrower's intent to
exercise his option to extend the Termination Date for an additional one (1)
year period (the "Notice"); (b) on or before the applicable Termination Date
which Borrower desires to extend, Borrower shall tender to Bank in the form of
cash or immediately available funds an extension fee of $250,000 which amount
shall be in lieu of the Commitment Fee payable for the one (1) year period in
which the extension fee is paid; (c) as of the applicable Termination Date
which Borrower desires to extend, there shall not have occurred any Material
Adverse Change; (d) as of the applicable Termination Date which Borrower
desires to extend, there shall not have occurred an Event of Default or an
Unmatured Event of Default; (e) on or before April 30 1996, and on or before
April 30 of each year in which Borrower delivers Notice to Bank, Borrower shall
have delivered to Bank its audited financial statements for the immediately
preceding fiscal year; (f) within sixty (60) days of receipt of such audited
financial statements, Bank shall have reviewed and approved of the continuing
creditworthiness of the Borrower, which approval shall be in the Bank's sole
and absolute discretion; (g) as of the applicable Termination Date which
Borrower desires to extend, Borrower shall be in compliance with all of the
Financial Covenants; and (h) as of the Notice Date, the Conversion Period shall
not have commenced.
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Notwithstanding what may otherwise be provided in this SECTION 3.5
Borrower may not extend the Termination Date more than ____________
(______________) times.
3.6 EFFECT OF TERMINATION DATE. Except as otherwise provided in
this SECTION 3.6, Bank shall not have any obligation to (a) review requests for
approval of Subdivisions from and after the Termination Date or (b) accept any
new Eligible Collateral from and after the Termination Date, provided, however
that during the first twelve (12) Calendar Months of the Conversion Period, and
so long as there has not occurred an Event of Default or an Unmatured Event of
Default, Bank will continue to accept new Units to Eligible Collateral and make
Advances for Subdivisions which were approved prior to the first date of the
Conversion Period. During the final six (6) Calendar Months of the Conversion
Period the Commitment shall no longer be a revolving Commitment and Bank shall
not be obligated to accept any new Units to Eligible Collateral, but shall only
Advance proceeds on Units which are Eligible Collateral.
3.7 ADDITIONAL CONDITIONS PRECEDENT TO ALL ADVANCES. Bank shall
be obligated to make an Advance only upon satisfaction of the following
additional conditions precedent, as determined by Bank in its absolute and sole
discretion:
3.7.1 REPRESENTATIONS AND WARRANTIES ACCURATE. The
representations and warranties by each Borrower are correct in all material
respects on and as of the date of such Advance, both before and after giving
effect to such Advance, other than matters disclosed by Borrower to Bank and
approved by Bank in its absolute and sole discretion.
3.7.2 DEFAULTS. No Event of Default or Unmatured Event of
Default shall have occurred and be continuing on the date of such Advance, both
before and after giving effect thereto.
3.7.3 DRAW REQUEST. Borrower shall have delivered to Bank
a Draw Request for such Advance. Borrower may not submit more than two (2)
Draw Requests per week. Bank shall not be required to make any requested
Advance before two (2) Business Days after receipt of the Draw Request.
3.7.4 INSPECTION REPORT. Bank shall have received written
evidence acceptable to Bank from Bank's inspector(s) or from Bank's employee(s)
performing inspections for Bank (i) that construction of each Unit constituting
Eligible Collateral complies with the respective Unit Plans and Specifications,
and (ii) that Borrower has completed each such Unit to the stage necessary to
obtain the requested Advance.
3.7.5 LOT LOCATION SURVEY. If requested by Bank in its
absolute and sole discretion, Borrower shall have obtained and
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<PAGE> 22
delivered to Bank a lot location survey for any Unit or Units constituting
Eligible Collateral.
3.7.6 APPROVALS AND INSPECTIONS BY GOVERNMENTAL
AUTHORITIES. If requested by Bank, all inspections and approvals by
Governmental Authorities required for the stage of completion of each Unit
shall have been obtained and Bank shall have received evidence thereof
satisfactory to Bank, or shall have obtained such evidence upon inspection of
any Project.
Borrower hereby authorizes Bank, and Bank reserves the right in its absolute
and sole discretion, to verify any documents and information submitted to Bank
in connection with this Agreement. Bank may elect, in its absolute and sole
discretion, to waive any of the foregoing conditions precedent. Any such
waiver shall be limited to the condition(s) precedent therein and the
requirements therein. Delay or failure by Bank to insist on satisfaction of
any condition precedent shall not be a waiver of such condition precedent or
any other condition precedent. The making of an Advance by Bank shall not be
deemed a waiver by Bank of the occurrence of an Event of Default or an
Unmatured Event of Default.
3.7.7 SETTLEMENT. The Settlement shall have been finalized
or Borrower shall still possess and maintain the Settlement Reserve.
4. CONDITIONS PRECEDENT
4.1 CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AGREEMENT AND TO
THE EFFECTIVENESS OF THE COMMITMENT. This Agreement and the Commitment shall
become effective only upon satisfaction of the following conditions precedent,
in each case as determined by Bank in its absolute and sole discretion:
4.1.1 REPRESENTATIONS AND WARRANTIES ACCURATE. The
representations and warranties by each Borrower in the Loan Documents are
correct on and as of the date of this Agreement as though made on and as of
each such date.
4.1.2 DEFAULTS. No Event of Default or Unmatured Event of
Default shall have occurred and be continuing.
4.1.3 DOCUMENTS. Bank shall have received the following
agreements, documents, and instruments, each duly executed by the parties
thereto and in form and substance satisfactory to Bank in its absolute and sole
discretion:
4.1.3.1 LOAN DOCUMENTS. The Loan Documents, which
shall include all agreements, documents, and instruments specified by Bank.
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<PAGE> 23
4.1.3.2 CORPORATION DOCUMENTS. Certified copy of
Borrower's Articles of Incorporation and Bylaws, a certified copy of Borrower's
Corporate Resolution in form and substance acceptable to Bank and its counsel,
a Certificate of Incumbency (if applicable), a Certificate of Good Standing
and/or a Certificate of Authorization to Do Business in the States of
California and/or Nevada as applicable.
4.1.3.3 OPINION LETTER. A favorable opinion from a
law firm representing Borrower covering such matters as Bank may require.
4.1.3.4 FINANCIAL STATEMENTS. Audited financial
statements prepared by independent certified public accountants acceptable to
Bank, including, without limitation, a balance sheet, cash flow statement,
reconciliation of net worth, and a profit and loss statement, of Borrower, for
Borrower's three (3) most recent fiscal years.
4.1.4 BOND CLOSING. Bank's obligations under this
Agreement are also contingent upon:
(a) Bank's (or Bank's counsel) receipt, review
and approval of those certain documents evidencing a bond offering of
Borrower in the amount of approximately $100 Million Dollars as
underwritten by Morgan Stanley & Co. of New York (the "Bond
Offering");
(b) The three (3) existing loan facilities by and
between Bank and Borrower in the original face amounts of $4,000,000;
$2,794,000; and $1,505,000 bearing Bank's loan numbers CLN 8772693976;
CLN 8772693976; and CLN 8772693976, respectively, together with all
outstanding costs and fees applicable thereto (including without
limitation all appraisal review fees, documentation fees, legal fees
and loan fees) shall be and cancelled/terminated;
(c) The Bond Offering shall have closed and
funded in full;
(d) Borrower shall have entered into and
completed a settlement with West Coast Land Fund, L.P., a Delaware
limited partnership, doing business in California as WCLP, L.P.,
relating to the Palmia Villas project in Southern California (the
"Settlement"). In the event the Settlement has not been finalized on
or before the execution of this agreement, Borrower shall have created
a cash reserve in an amount of not less than $7,000,000.00 (the
"Settlement Reserve") to fund a Settlement; and
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(e) Borrower shall deliver and Bank shall have
reviewed and approved of Borrower's audited financial statements for
fiscal year end February 28, 1994.
4.1.5 PAYMENT OF COSTS, EXPENSES, AND FEES. All costs,
expenses, and fees to be paid by the Borrower under the Loan Documents on or
before the effectiveness of this Agreement, the effectiveness of the
Commitment, or the making of Advances shall have been paid in full, including,
without limitation, applicable fees set forth in SECTION 3.3.
4.1.6 OTHER ITEMS OR ACTIONS BY LOAN PARTIES. Bank shall
have received such other agreements, documents, and instruments, and the
Borrower shall have performed such other actions as Bank may reasonably
require.
4.2 CONDITIONS PRECEDENT TO APPROVAL OF SUBDIVISIONS. Borrower
may, from time to time, request Bank to approve additional Subdivisions.
Approval of new Subdivisions shall be at Bank's absolute and sole discretion
and Bank shall have no obligation to approve such Subdivisions. In any event,
Bank will only consider approval of Subdivisions located in California and/or
the metropolitan area of Las Vegas, Nevada. When requesting consideration of a
new Subdivision, Borrower shall deliver to Bank a completed subdivision
checklist in form and substance satisfactory to Bank, supported by such
documentation as Bank may require, and each of the following conditions
precedent shall have been satisfied in Bank's absolute and sole discretion:
4.2.1 PLAT AND/OR SURVEY. Borrower shall have delivered to
Bank and Bank shall have approved one or more recorded plats, covering the
Subdivision. Each plat must contain a legal description of the land covered by
the plat, must describe and show all boundaries of and lot lines within such
land, all streets and other dedications, and all easements affecting such land.
In addition, if requested by Bank, Borrower shall provide Bank an ALTA survey
for such Subdivision, in form and substance acceptable to Bank.
4.2.2 CC&R'S. Borrower shall have provided Bank with and
Bank shall have approved all CC&R's, easements and other rights that exist or
are contemplated with respect to the Subdivision.
4.2.3 TYPES OF UNITS. Borrower shall have provided Bank
with and Bank shall have approved a description of the types of Units to be
constructed within such Subdivision together with Unit Budgets for each such
type of Unit.
4.2.4 UNIT BASE APPRAISALS. Bank shall have received and
approved a Unit Base Appraisal with respect to each of the Unit types referred
to in SECTION 4.2.3.
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4.2.5 LOT INFORMATION. Borrower shall have provided Bank
with and Bank shall have approved documentation relating to Borrower's
acquisition of Lots, including, without limitation, the identity of the seller
of such Lots. If such seller is any Person other than Borrower also shall have
provided to Bank and Bank shall have approved documentation establishing the
acquisition price of such Lots, including, without limitation, a copy of the
applicable Option Agreement or other agreement for purchase of such Lots, and
settlement statements for Lots previously purchased.
4.2.6 COMPLETION. Borrower shall have provided to Bank and
Bank shall have approved evidence that all offsite improvements in the
Subdivision are complete and ready for use, that all permits for the use of the
Subdivision required from any Governmental Authorities have been obtained, that
all streets and other areas intended for public use have been appropriately
dedicated, and that all homeowners' and property owners' associations have been
established, or are in the process of being established.
4.2.7 APPROVALS. Borrower shall have provided to Bank and
Bank shall have approved evidence of appropriate zoning and existence of all
approvals of Governmental Authorities and other third parties necessary to
permit the construction and sale of Units in the Subdivision; including,
without limitation, all applicable public reports, architectural committee
approvals and any other approvals required under the CC&R's.
4.2.8 SOILS TESTS. At Bank's request, Borrower shall have
provided and Bank shall have approved a soils test report prepared by a
licensed soils engineer satisfactory to Bank showing the location of, and
containing boring logs from, all borings, together with recommendations for the
design of the foundations, paved areas and underground utilities for the
Subdivision. At Bank's request, Borrower shall also provide such soils test
reports for individual Lots within each Subdivision.
4.2.9 ENVIRONMENTAL ASSESSMENT. Borrower shall have
delivered to Bank and Bank shall have approved a report of an environmental
assessment (including a fifty (50) year chain of title review if requested by
Bank) of each Subdivision addressed to Bank by an environmental engineer
acceptable to Bank containing such information, results, and certifications as
Bank may require, in its absolute and sole discretion. Depending upon the
results of the environmental assessment, Borrower shall also provide such
follow up testing, reports, and other actions as may be required by Bank in its
absolute and sole discretion. The contents of the environmental assessment
report and any follow up must be satisfactory to Bank in its absolute and sole
discretion. If such reports are addressed to Borrower, Borrower shall cause a
reliance letter, in form and substance satisfactory to Bank, to be provided to
Bank.
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4.2.10 UNIT BUDGET. If requested by Bank, a Specific Unit
Budget for the respective Unit.
4.2.11 UTILITIES. Borrower shall have provided to Bank and
Bank shall have approved evidence, which may be in the form of letters from
local utility companies or local authorities, that (a) telephone service,
electric power, storm sewer, sanitary sewer and water facilities are available
to the Subdivision and to the boundary of each Lot therein; (b) such utilities
are adequate to serve the Lots in such Subdivision and exist at the boundary of
the Subdivision; and (c) no conditions exist to affect Borrower's right to
connect into and have adequate use of such utilities except for the payment of
a normal connection charge or tap charges and except for the payment of
subsequent charges for such services to the utility supplier.
4.2.12 PRELIMINARY TITLE REPORT. Borrower shall have
provided to Bank and Bank shall have approved, in its absolute and sole
discretion, a preliminary title report for the Subdivision, prepared by the
Title Company, together with a legible copy of each Schedule B item, if
requested by Bank.
4.2.13 FLOOD REPORT. Borrower shall have provided to Bank
evidence satisfactory to Bank, as to whether (a) the Subdivision is located in
an area designated by the Department of Housing and Urban development as having
special flood or mudslide hazards, and (b) the community in which the
Subdivision is located is participating in the National Flood Insurance
Program.
4.2.14 UNIT PLANS AND SPECIFICATIONS. Unit Plans and
Specifications for the respective type of Unit.
4.2.15 ASSESSMENTS, CHARGES, AND TAXES. For Impositions
that Bank has approved in writing for payment in installments pursuant to the
Deed of Trust, Borrower shall have delivered to Bank and Bank shall have
approved evidence that such installments are current. For all other
Impositions, Borrower evidence that such Impositions have been paid in full.
4.2.16 INSURANCE POLICIES. A certificate of the insurance
described in Section 6.7 hereof or other evidence thereof satisfactory to Bank,
and at Bank's request, certified copies of the Borrower's policies of insurance
required under the Loan Documents, and certificates of insurance with respect
to professional liability coverage maintained by engineers, architects, and
environmental contractors.
4.2.17 CONTRACTS. If requested by Bank, all executed
contracts relating to design and construction of the Units between Borrower and
any other Person (including, without limitation, the architect and each
contractor or subcontractor for labor, material, or services).
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4.2.18 COMPLETION OF FILINGS AND RECORDINGS. Bank shall
have received evidence of the completion of all recordings and filings to
establish or maintain the perfection and priority of the Liens and Encumbrances
on the Collateral granted in the Loan Documents and required by Bank.
4.2.19 OTHER. Borrower shall provide such other documents
and information that Bank may request.
4.3 ADDITIONAL CONDITIONS PRECEDENT TO THE INCLUSION OF EACH UNIT
IN ELIGIBLE COLLATERAL. In addition to the conditions precedent for Advances
herein, Borrower may include and maintain a Unit in Eligible Collateral only if
the following conditions precedent are satisfied, in each case as determined by
Bank in its absolute and sole discretion, and provided Bank has inspected each
such Unit, which inspections Bank will be required to make only once in each
Calendar Month on or before the tenth (10th) day of each Calendar Month.
4.3.1 REPRESENTATIONS AND WARRANTIES ACCURATE. The
representations and warranties by each Borrower shall be correct in all
material respects on and as of the date that each Unit becomes Eligible
Collateral, as though made on and as of each such date, other than matters
disclosed by Borrower to Bank and approved by Bank in its absolute and sole
discretion.
4.3.2 DEFAULTS. No Event of Default or Unmatured Event of
Default shall have occurred and be continuing.
4.3.3 DOCUMENTS. Bank shall have received the following
agreements, documents, and instruments, each duly executed by the parties
thereto and in form and substance satisfactory to Bank in its absolute and sole
discretion:
4.3.3.1 UNIT BASE APPRAISAL. A Unit Base Appraisal
for the type of Unit in question dated within 364 days of the date of the
requested Advance and, if requested by Bank, an updated Unit Base Appraisal for
the respective type of Unit. The Unit Base Appraised Value for the type of
Unit shall have been approved by Bank in its absolute and sole discretion.
4.3.3.2 ENVIRONMENTAL INDEMNITY. Borrower shall have
delivered to Bank, Bank's form of environmental questionnaire, fully completed
and duly executed by Borrower. The answers to the questions in the
questionnaire must be satisfactory to Bank. Borrower also shall have executed
and delivered to Bank an Environmental Agreement with respect to each
Subdivision for which Borrower is requesting approval.
4.3.3.3 DEED OF TRUST. Borrower shall have executed,
delivered, acknowledged, and recorded a Deed of Trust covering the Subdivision
(together with any financing statement
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required by Bank), in each case prior commencement of construction on any Lot
within such Subdivision; provided, however, that if Borrower does not own all
Lots within a Subdivision or will acquire the Lots in the Subdivision under an
Option Agreement, such Deed of Trust will only cover the Lots owned by
Borrower.
4.3.3.4 PURCHASE CONTRACT. If such Unit is a Presold
Unit, a copy of a Purchase Contract for such Unit if requested by Bank.
4.3.3.5 TITLE INSURANCE. Borrower shall have
provided to Bank and Bank shall have approved an American Land Title
Association loan policy of title insurance or an irrevocable and unconditional
commitment to issue such policy, or an endorsement to an existing title policy
in form satisfactory to Bank, issued by the Title Company and a commitment by
the Title Company to issue disbursement endorsements at Bank's request insuring
the Deed of Trust. Such policy shall have a liability limit of not less than
the Commitment Amount and shall provide coverage and otherwise be in form and
substance satisfactory to Bank (including, without limitation, mechanic's lien
coverage) insuring Bank's interest under the applicable Deed of Trust as a
valid first lien on the property encumbered by the Deed of Trust. Such policy
shall be accompanied by such reinsurance and co-insurance agreements and
endorsements as Bank may require. Such policy must contain only such
exceptions as are satisfactory to Bank and must have attached such endorsements
as Bank may require.
4.3.3.6 ASSESSMENTS, CHARGES, AND TAXES. Evidence
that all real property taxes, assessments, water, sewer, and other charges
levied or assessed prior to delinquency against the respective Lot which are
then due and payable have been paid in the amount required.
4.3.3.7 COMPLETION OF FILINGS AND RECORDINGS.
Evidence of the completion of all recordings and filings to establish or
maintain the perfection and priority of the Liens and Encumbrances on such Lot
and Unit granted in the Loan Documents.
4.3.3.8 CONTRACTS. If requested by Bank, all
executed contracts relating to design and construction of the Unit between
Borrower and any other Person (including, without limitation, the architect and
each contractor or subcontractor for labor, materials, or services).
4.3.4 LIMITATIONS. After giving effect to the addition of
such Unit to Eligible Collateral, the provisions of SECTION 3.2.5 shall not
have been violated.
4.3.5 START OF CONSTRUCTION. The Unit shall have commenced
construction and the foundation for the Unit shall have
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been completed. Bank shall have inspected and approved such construction.
4.3.6 DISTRESSED IMPROVEMENT DISTRICTS. Any improvement or
assessment district in which the Unit is located shall not (i) be insolvent
under applicable California and/or Nevada law or subject to any bankruptcy or
similar proceedings; (ii) directly or indirectly cause the Subdivision in which
the Unit is to be built to be subject to any suspension, disqualification, or
disapproval by FHA, FNMA, VA, FHLMC, or any similar governmental or
quasi-governmental agency that originates, purchases, insures or guarantees
home mortgage loans, and (iii) have increased the "mill rate" for assessments
in any year by more than five (5) mills over the rate applicable in the
immediately preceding year. With respect to clause (iii) in the preceding
sentence, Borrower shall, prior to March 1 of each calendar year (the
"REPORTING DATE"), notify Bank in writing of any such increases. Bank agrees
Units may be included and maintained in Eligible Collateral during the period
commencing on the date of any such increase through the Reporting Date, even if
such Units are located in a Subdivision within the boundaries of an improvement
or assessment district whose mill levy has been increased by more than five (5)
mills. Borrower's failure to inform Bank of such a mill levy increase in
Borrower's compliance certificates required pursuant to SECTION 6.3.4 for the
Calendar Months following any such increase but prior to the Reporting Date,
shall not be deemed to be a breach of Borrower's obligation to supply such
information.
4.3.7 ASSIGNMENTS. Borrower shall have delivered to Bank,
and Bank shall have approved, copies of the Unit Plans and Specifications, and
all contracts shall have been assigned to Bank, all relating to the
construction of Units in the Subdivision, and if prepared by an architect who
claims any ownership rights in the Unit Plans and Specifications, Borrower
shall have obtained such architect's consent to the use of the Unit Plans and
Specifications by Bank.
5. BORROWER REPRESENTATIONS AND WARRANTIES.
5.1 CLOSING REPRESENTATIONS AND WARRANTIES. Borrower represents
and warrants to Bank as of the date of this Agreement:
5.1.1 ORGANIZATION, POWERS AND GOOD STANDING.
(a) ORGANIZATION AND POWERS. Borrower has been
duly organized and is a validly existing under the laws of the State
of Delaware. Borrower has all requisite power and authority, rights
and franchises to (i) do business in California and Nevada; (ii) own
and operate its properties, to carry on its businesses as now
conducted and as proposed to be conducted, and (iii) to enter into and
perform this Agreement
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and the other Loan Documents. The address of the Borrower's chief
executive office and principal place of business is the address set
forth in the introductory paragraph of this Agreement.
(b) GOOD STANDING. Borrower has made all filings
and is in good standing in each jurisdiction in which the character of
the property it owns or the nature of the business it transacts makes
such filings necessary or where the failure to make such filings could
have a materially adverse effect on the business, operations, assets
or condition (financial or otherwise) of Borrower.
(c) NON-FOREIGN STATUS. Borrower is not a
"foreign corporation," "foreign partnership," "foreign trust," or
"foreign estate," as those terms are defined in the Internal Revenue
Code and the regulations promulgated thereunder. Borrower's U.S.
employer identification number is as set forth in the Certificate of
Non-Foreign Status.
5.1.2 NO APPROVALS, ETC. No approval, authorization, bond,
consent, certificate, franchise, license, permit, registration, qualification,
or other action or grant by or filing with any Person is required in connection
with the execution, delivery, or performance by Borrower of the Borrower Loan
Documents.
5.1.3 NO CONFLICTS. The execution, delivery, and
performance by Borrower of the Borrower Loan Documents will not conflict with,
or result in a violation of or a default under: any applicable law, ordinance,
regulation, or rule (federal, state, or local); any judgment, order, or decree
of any arbitrator, other private adjudicator, or Governmental Authority to
which Borrower is a party or by which Borrower or any of the assets or property
of Borrower is bound; any of the Approvals and Permits; or any agreement,
document, or instrument to which Borrower is a party or by which Borrower or
any of the assets or property of Borrower is bound.
5.1.4 EXECUTION AND DELIVERY AND BINDING NATURE OF BORROWER
LOAN DOCUMENTS. The Borrower Loan Documents have been duly executed and
delivered by or on behalf of Borrower. The Borrower Loan Documents are legal,
valid, and binding obligations of Borrower, enforceable in accordance with
their terms against Borrower, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization, or similar laws and by
equitable principles of general application.
5.1.5 ACCURATE INFORMATION. All information in any loan
application, financial statement, certificate, or other document, and all other
information delivered by or on behalf of Borrower to Bank in obtaining the
Commitment is correct and
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complete in all material respects as of the date thereof, and there are no
omissions therefrom that result in any such information being materially
incomplete, incorrect, or misleading as of the date thereof. There has been no
Material Adverse Change relative to Borrower since the date of such
information. All financial statements heretofore delivered to Bank by Borrower
were prepared in accordance with the requirements in SECTION 1 and accurately
present the financial conditions and results of operations as at the dates
thereof and for the periods covered thereby in all material respects. The
fiscal year of Borrower is as set forth in SECTION 1.
5.1.6 PURPOSE OF ADVANCES. The purpose of Advances is to
pay or to reimburse Borrower for costs, expenses, and fees (i) incurred by
Borrower, (ii) relating to construction of Units constituting Eligible
Collateral, and (iii) included in the respective Unit Budgets. The purpose of
Advances is a business purpose and not a personal, family, or household
purpose.
5.1.7 LEGAL PROCEEDINGS; HEARINGS, INQUIRIES, AND
INVESTIGATIONS. Except as disclosed to Bank in writing prior to the date of
this Agreement, (i) no legal proceeding is pending or, to best knowledge of
Borrower, threatened before any arbitrator, other private adjudicator, or
Governmental Authority to which Borrower is a party or by which Borrower or any
assets or property of Borrower may be bound or affected that if resolved
adversely to Borrower could result in a Material Adverse Change and (ii) no
hearing, inquiry, or investigation relating to Borrower or any assets or
property of Borrower is pending or, to the best knowledge of Borrower,
threatened by any Governmental Authority that if resolved adversely to Borrower
could result in a Material Adverse Change (other than in connection with
customary zoning, platting, and building inspection corrections).
5.1.8 NO EVENT OF DEFAULT OR UNMATURED EVENT OF DEFAULT.
No Event of Default and no Unmatured Event of Default has occurred and is
continuing.
5.1.9 APPROVALS AND PERMITS; ASSETS AND PROPERTY. Borrower
has obtained and there are in full force and effect all Approvals and Permits
necessary for the conduct of the business of the Borrower, provided that
Borrower may not have obtained all of the Approvals and Permits necessary for
construction of Units to the extent such Approvals and Permits are not yet
necessary. Borrower owns, leases, or licenses all assets and property
necessary for conduct of the business and operations of Borrower (including,
without limitation, any Option Agreement). Such assets and property subject to
a Lien created under the Loan Documents (including, without limitation, any
Option Agreement) are not subject to any Liens and Encumbrances, other than the
Permitted Exceptions.
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5.1.10 TAXES. Borrower has filed or caused to be filed all
tax returns (federal, state, and local) required to be filed by Borrower and
has paid all taxes and other amounts shown thereon to be due (including,
without limitation, any interest or penalties).
5.1.11 ERISA. Borrower is in compliance with ERISA. No
Reportable Event or Prohibited Transaction (as defined in ERISA) or termination
of any plan has occurred and no notice of termination has been filed with
respect to any plan established or maintained by Borrower and subject to ERISA.
Borrower has not incurred any material funding deficiency within the meaning of
ERISA or any material liability to the Pension Benefit Guarantee Corporation in
connection with any such plan established or maintained by Borrower. Borrower
is not a party to any Multiemployer Plan (as defined in ERISA).
5.1.12 COMPLIANCE WITH LAW. Other than noncompliance with
applicable building codes which is not unusual and is correctable by Borrower,
neither Borrower nor any Project is in violation of any law, ordinance,
regulation, or rule (federal, state, or local).
5.1.13 UNIT BUDGETS AND UNIT PLANS AND SPECIFICATIONS. Each
Unit Budget and Specific Unit Budget contains all costs, expenses, and fees
anticipated to be incurred by Borrower in connection with respective type of
Unit. Each set of Unit Plans and Specifications and related working drawings
are an accurate and complete description of the respective Unit type.
5.2 REPRESENTATIONS AND WARRANTIES UPON REQUESTS FOR ADVANCES.
Each request for an Advance shall be a representation and warranty by Borrower
to Bank that the representations and warranties in this SECTION 5 are correct
and complete as of the date the Advance except as otherwise disclosed and that
the conditions precedent in SECTION 4 are satisfied as of the date of the
Advance.
5.3 REPRESENTATIONS AND WARRANTIES UPON DELIVERY OF FINANCIAL
STATEMENTS, DOCUMENTS, AND OTHER INFORMATION. Each delivery by Borrower to
Bank of financial statements, other documents, or information after the date of
this Agreement (including, without limitation, documents and information
delivered in obtaining an Advance) shall be a representation and warranty that
such financial statements, other documents, or information is correct and
complete in all material respects, that there are no material omissions
therefrom that result in such financial statements, other documents, or
information being materially incomplete, incorrect, or misleading as of the
date thereof, and that such financial statements accurately present the
financial condition and results of operations of Borrower as at the dates
thereof and for the periods covered thereby.
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6. BORROWER AFFIRMATIVE COVENANTS. Until the Commitment terminates in
full and the Obligations are paid and performed in full, Borrower agrees that,
unless Bank otherwise agrees in writing in Bank's absolute and sole discretion:
6.1 CORPORATE EXISTENCE. Borrower shall continue to be validly
existing, and in good standing, under the law of the jurisdiction of its
organization or formation. Borrower shall continue to be qualified to do
business as a foreign corporation, in good standing, under the law of the
States of California and/or Nevada.
6.2 BOOKS AND RECORDS; ACCESS BY BANK. Borrower will maintain a
single, standard, modern system of accounting, in accordance with the
requirements in SECTION 1 (including, without limitation, a single, complete,
and accurate set of books and records of its assets, business, financial
condition, operations, property, prospects, and results of operations) in
accordance with GAAP. During business hours Borrower will give representatives
of Bank access to all assets, property, books, records, and documents of
Borrower and will permit such representatives to inspect such assets and
property and to audit, copy, examine, and make excerpts from such books,
records, and documents. Prior to the occurrence of an Event of Default, Bank
shall provide reasonable prior notice of such inspections and shall conduct
such inspections during normal business hours.
6.3 INFORMATION AND STATEMENTS. Borrower shall furnish to Bank:
6.3.1 FISCAL PERIOD FINANCIAL STATEMENTS. As soon as
available and in any event within the number of days set forth in SECTION 1
after the end of each fiscal period of Borrower set forth in SECTION 1, except
the last period in each fiscal year of Borrower:
6.3.1.1 STATEMENTS. Copies of the balance sheet of
Borrower as of the end of such fiscal period and statements of income and
retained earnings and a statement of cash flow of Borrower for such fiscal
period and for the portion of the fiscal year of Borrower ending with such
fiscal period, all in reasonable detail, prepared in accordance with GAAP,
containing the certifications specified in SECTION 1, and signed on behalf of
Borrower by the person(s) named in SECTION 1. All such balance sheets shall
set forth in comparative form figures for the preceding year end. All such
income statements shall reflect current period and year-to-date figures, and
all such statements of cash flow shall reflect year-to-date figures.
6.3.1.2 PROJECTION. Within sixty (60) days after the
end of each Calendar Quarter, a twenty-four (24) month projection of cash flow
for Borrower, in reasonable detail,
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prepared in accordance with the requirements in SECTION 1, containing the
certifications specified in SECTION 1, and signed on behalf of Borrower by the
person(s) named in SECTION 1.
6.3.2 ANNUAL FINANCIAL STATEMENTS. As soon as available
and in any event within the number of days set forth in SECTION 1 after the end
of each fiscal year of Borrower, copies of the balance sheet of Borrower as of
the end of such fiscal year and statements of income and retained earnings and
a statement of cash flow of Borrower for such fiscal year, in each case setting
forth in comparative form the figures for the preceding fiscal year of
Borrower, all in reasonable detail and prepared in accordance with the
requirements in SECTION 1, containing the certifications specified in SECTION
1.
6.3.3 POST ADVANCE INFORMATION. Following the first
Advance the Borrower shall furnish to Bank:
6.3.3.1 CLOSING REPORT. On each Business Day, a
report of all Unit sales closed on the previous Business Day, in form and
substance satisfactory to Bank, which report shall be supported by settlement
statements relating to each Unit sale, together with a reconciliation of the
most recently submitted Inventory Report and recalculation of Eligible
Collateral after giving effect to such closings.
6.3.3.2 COMPLIANCE CERTIFICATES. Within fifteen (15)
days after the end of each Calendar Month and accompanying the Inventory Report
required pursuant to SECTION 6.3.6, a statement in form and substance
satisfactory to Bank, certified by the president, chief financial officer, or
other executive officer of Borrower that Borrower is in compliance with the
Liquidity requirement set forth in SECTION 6.22.3 as of the end of such
Calendar Month, and, quarterly commencing on July 1, 1994 and within fifteen
(15) days after the end of each Calendar Quarter thereafter, a certificate, in
form and substance satisfactory to Bank, signed on behalf of Borrower by the
persons named in SECTION 1, stating that Borrower is in compliance with all
covenants, terms, and conditions applicable to each of Borrower under or
pursuant to the Loan Documents and any other Debt owing by Borrower to any
Person in a principal amount of $500,000.00 or more, and disclosing any
noncompliance therewith and describing the status of Borrower's actions to
correct such noncompliance, if applicable.
6.3.3.3 SALES REPORTS. Monthly, a report showing (i)
sales of Units during the preceding Calendar Month, (ii) the inventory of
completed Units as of the end of the preceding Calendar Month, and (iii) Units
in progress as of the end of the preceding Calendar Month. Such report shall
contain such detailed information as Bank may require.
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6.3.3.4 GROSS PROFIT ANALYSIS. Within fifteen (15)
days after the end of each Calendar Month, an analysis of gross profit for each
Subdivision, as of the end of such Calendar Month.
6.3.3.5 BACKLOG REPORT. Within fifteen (15) days
after the end of each Calendar Month, a backlog report showing, for Borrower, a
backlog report, effective as of the end of such Calendar Month, reflecting the
number of Units then under construction pursuant to contracts for sale, the
anticipated delivery date of all such Units, and the aggregate value of such
Units upon completion thereof.
6.3.3.6 INVENTORY REPORT. Within fifteen (15) days
after the end of each Calendar Month thereafter, an Inventory Report in form
and content satisfactory to Bank, showing for each Unit in Eligible Collateral,
among other things, the following: (i) the street address of the Lot; (ii) the
name of the Subdivision; (iii) the Lot number as indicated on the recorded plat
of the Subdivision; (iv) the Unit plan type; (v) whether the Unit is a Presold
Unit, a Spec Unit or a Model Unit; (vi) the Unit budget; (vii) percentage of
completion; (viii) the Unit Base Appraised Value; (ix) the selling price of the
Unit or the amount of the Purchase Contract, as applicable; (x) the date of the
first Advance against the Unit in Eligible Collateral; (xi) the estimated
closing date of the sale of the Unit, if the Unit is a Presold Unit; (xii) the
maximum Advance against the Unit based upon the Unit Collateral Value or the
Maximum Allowed Advance for such Unit.
6.3.3.7 COLLATERAL CERTIFICATE. Within fifteen (15)
days after the end of each Calendar Month, a Collateral Certificate.
6.3.3.8 LAND HOLDINGS. Quarterly commencing on July
1, 1994 and within thirty (30) days after the end of each quarter thereafter, a
detailed schedule of all land owned by Borrower, setting forth, without
limitation, the location and book value of all such holdings.
6.3.3.9 UNIT BUDGETS. On July 1, 1994 and the first
day of each third month thereafter, updated Unit Budgets.
6.3.3.10 CASH ON HAND REPORT. Weekly, a
statement certified by the president, chief financial officer, or other
executive officer of Borrower, in form and substance satisfactory to Bank,
disclosing the amount of Borrower's Cash On Hand as of the end of the preceding
week.
6.3.3.11 OTHER ITEMS AND INFORMATION. Such
other information concerning Borrower, any Project, and the assets, business,
financial condition, operations, property, prospects, and results of operations
of Borrower as Bank reasonably requests from
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time to time. In this regard, promptly upon request of Bank, Borrower shall
deliver to Bank counterparts and/or conditional assignments as security of any
and all construction contracts, receipted invoices, bills of sale, statements,
conveyances, and other agreements, documents, and instruments of any nature
relating to any Project or under which Borrower claims title to any materials
or supplies used or to be used in any Project. Also, in this regard, promptly
upon request of Bank, Borrower shall deliver to Bank a complete list of all
contractors, subcontractors, material suppliers, other vendors, artisans, and
laborers performing work or services or providing materials or supplies for any
Project.
6.4 LAW; JUDGMENTS; MATERIAL AGREEMENTS; APPROVALS AND PERMITS.
Except for normal construction corrections occasioning temporary noncompliance
which are corrected by Borrower with diligence and without substantial expense,
Borrower shall comply with all laws, ordinances, regulations, and rules
(federal, state, and local) and all judgments, orders, and decrees of any
arbitrator, other private adjudicator, or Governmental Authority relating to
Borrower, any Project, or the assets, business, operations, or property of
Borrower; provided, however, that Borrower may, in good faith, contest the
applicability of such matters to the extent such matters do not affect title to
any Unit, Lot or Subdivision or the validity or enforceability of any Deed of
Trust. Borrower shall comply in all material respects with all material
agreements, documents, and instruments to which Borrower is a party or by which
Borrower, any Project, or any of the other assets or property of Borrower is
bound or affected. Borrower shall comply with all Requirements (including,
without limitation, as applicable, requirements of the Federal Housing
Administration and the Veterans Administration) and all conditions and
requirements of all Approvals and Permits. Borrower shall obtain and maintain
in effect from time to time all Approvals and Permits required for the business
activities and operations then being conducted by Borrower in the Land
Subdivision.
6.5 TAXES AND OTHER INDEBTEDNESS. Except for (i) Involuntary
Liens and Impositions being contested in accordance with the Deed of Trust,
(ii) income taxes or franchise taxes for which no lien has been filed, which
are contested in good faith and for which Borrower is maintaining adequate
reserves, and (iii) Impositions that Bank has agreed in its absolute and sole
discretion may be paid in installments as provided in the Deed of Trust,
Borrower shall pay and discharge (x) before delinquency all taxes, assessments,
and governmental charges or levies imposed upon it, upon its income or profits,
or upon any property belonging to it, (y) when due all lawful claims
(including, without limitation, claims for labor, materials, and supplies),
which, if unpaid, might become a Lien or Encumbrance upon any of its assets or
property subject to a Lien created under the Loan Documents, other than such
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claims which Borrower may contest pursuant to the terms and conditions of a
Deed of Trust, and (z) all its other indebtedness.
6.6 ASSETS AND PROPERTY. Borrower will maintain, keep, and
preserve all of its assets and property (tangible and intangible) (including,
without limitation, any Project) necessary or useful in the proper conduct of
its business and operations in good working order and condition, ordinary wear
and tear excepted.
6.7 INSURANCE. The following insurance shall be obtained and
maintained and all related premiums shall be paid as they become due:
6.7.1 PROPERTY. Insurance of any Project against damage or
loss by fire, lightning, and other perils, on an all-risks basis, such coverage
to be in an amount not less than the amount set forth in SECTION 1. During the
period of construction of any Project, such policy shall be written on an
all-risks basis, with no coinsurance requirement, and shall contain a provision
granting the insured permission to complete and/or occupy any Project.
6.7.2 LIABILITY. Commercial general liability insurance
protecting Borrower and Bank against loss or losses from liability imposed by
law or assumed in any agreement, document, or instrument and arising from
bodily injury, death, or property damage with a limit of liability of not less
than the respective amounts specified in SECTION 1 per occurrence and general
aggregate. Also, "UMBRELLA" excess liability insurance in an amount not less
than the amount set forth in SECTION 1. Such policies must be written on an
occurrence basis so as to provide blanket contractual liability, broad form
property damage coverage, and coverage for products and completed operations.
In addition, there shall be obtained and maintained business motor vehicle
liability insurance protecting Borrower and Bank against loss or losses from
liability relating to motor vehicles owned, non-owned, or hired used by
Borrower, any contractor, any subcontractor, or any other Person in any manner
related to any Project with a limit of liability of not less than the amount
set forth in SECTION 1 (combined single limit for personal injury (including
bodily injury and death) and property damage).
6.7.3 FLOOD. A policy or policies of flood insurance in
the maximum amount of flood insurance available with respect to each Lot or
Unit under the Flood Disaster Protection Act of 1973, as amended. This
requirement will be waived with respect to a Unit upon presentation of evidence
satisfactory to the Bank that no portion of the Unit in question is located
within an area identified by the U.S. Department of Housing and Urban
Development as having special flood hazards.
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6.7.4 WORKER'S COMPENSATION. Worker's compensation
insurance, disability benefits insurance, and such other forms of insurance as
required by law covering loss resulting from injury, sickness, disability, or
death of employees of Borrower, any contractor, and any subcontractor located
on or assigned to any Project. Borrower shall cause each contractor and each
subcontractor having employees located on or assigned to any Project to obtain
and maintain this same coverage for all eligible employees.
6.7.5 ENGINEER. Each engineer, each soils engineer, and
each environmental contractor employed by Borrower in connection with any
Project shall maintain engineer's professional liability insurance with a limit
of liability of not less than the amount set forth in SECTION 1. Each policy
shall permit claims for a period of not less than three (3) years after the
completion of any Project.
6.7.6 ADDITIONAL INSURANCE. Borrower shall obtain and
maintain such other policies of insurance as Bank may reasonably request in
writing.
6.7.7 OTHER. All policies for required insurance shall be
in form and substance satisfactory to Bank in its absolute and sole discretion.
Such insurance may be carried under blanket policies, so long as such policy
provides the coverage for each Unit as provided in SECTION 6.7.1 and otherwise
complies with this SECTION 6.7. All required insurance shall be procured and
maintained in financially sound and generally recognized responsible insurance
companies selected by Borrower and approved by Bank. Such companies must be
authorized to write such insurance in the State of California and/or Nevada.
Each company shall be rated "A" or better by A.M. Best Co., in Bests' Key
Guide, or such other rating acceptable to Bank in Bank's absolute and sole
discretion. All property policies evidencing required insurance shall name
Bank as first mortgagee and loss payee. All liability policies evidencing
required insurance shall name Bank as additional insured. The policies shall
not be cancelable as to the interests of the Bank due to the acts of Borrower.
The policies shall provide for at least thirty (30) days prior written notice
of the cancellation or modification thereof to Bank.
6.7.8 EVIDENCE. A certificate and, if requested by Bank, a
certified copy of each insurance policy or, if acceptable to Bank in its
absolute and sole discretion, certificates of insurance evidencing that such
insurance is in full force and effect, shall be delivered to Bank, together
with proof of the payment of the premiums thereof. At least ten (10) days
prior to the expiration of each such policy, Borrower shall furnish Bank
evidence that such policy has been renewed or replaced in the form of the
original or a certified copy of the renewal or replacement policy or, if
acceptable to Bank in its absolute and sole
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discretion, a certificate reciting that there is in full force and effect, with
a term covering at least the next succeeding calendar year, insurance of the
types and in the amounts required in this SECTION 6.7.
6.8 ERISA. Borrower will fund each Defined Benefit Plan and
Defined Contribution Plan (as such terms are defined in ERISA) established or
maintained by Borrower so that there is never an Accumulated Funding Deficiency
(as defined in SECTION 412 of the Internal Revenue Code of 1986, as amended).
6.9 UNIT BASE APPRAISALS. Bank shall have the right to order Unit
Base Appraisals from time to time. Each Unit Base Appraisal is subject to
review and approval by Bank. Borrower agrees upon demand by Bank to pay to
Bank the cost and expense for such Unit Base Appraisals and a fee prescribed by
Bank for review of each such Unit Base Appraisal by Bank. Any appraisals or
other appraisals of Units accepted by Bank that do not have a specific
expiration date shall be updated at Bank's request. Based on the updated,
respective Unit Base Appraised Value approved or determined by Bank in its
absolute and sole discretion, Bank shall have the right to revise the Maximum
Allowed Advances applicable to each type of Unit.
6.10 COMMENCEMENT AND COMPLETION. Borrower shall cause
construction of Units to be prosecuted and completed in good faith, with due
diligence, and without delay. Borrower may commence construction of Units at
any time. On or before the Unit Completion Date, (i) each Model Unit shall be
completed, and (ii) all other Unit types shall be completed (as set forth in
the definition of "Unit Collateral Value"). Borrower shall cause Units to be
constructed (i) in a good and workmanlike manner, (ii) in compliance with all
applicable Requirements, and (iii), unless otherwise consented to by Bank in
advance in writing in the absolute and sole discretion of Bank, in substantial
accordance with the respective Unit Plans and Specifications. Upon demand by
Bank, Borrower shall correct any defect in the Units or any material departure
from any applicable Requirements or, to the extent not theretofore approved in
writing by Bank, the respective Unit Plans and Specifications. Borrower
understands and agrees that inspection of the Units by or on behalf of Bank,
the review by Bank of Draw Requests and related documents and information, the
making of Advances by Bank, any actions by Bank under SECTION 6.11, and any
other actions by Bank shall not be a waiver of Bank's right to require
compliance with this SECTION 6.10. If Bank shall ever be required to complete
the construction of any Units, whether occasioned by the occurrence of an Event
of Default or for any other reason, any sums expended by Bank in constructing
such Units shall be treated as Advances hereunder, shall be payable within ten
(10) days of demand, shall bear interest from the date such sums are expended
by Bank at the Default Rate (as defined in the Note),
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and shall be deemed the legal, valid and binding obligations of Borrower to
Bank.
6.11 RIGHTS OF INSPECTION; CORRECTION OF DEFECTS; AGENCY. Bank and
its agents, employees, and representatives shall have the right at any time and
from time to time to enter upon any Project in order to inspect any Project;
provided, however, any Person entering upon any Project shall observe and
comply with Borrower's reasonable safety requirements. If Bank, in its
judgment, determines that any materials or work do not conform with the
respective Unit Plans and Specifications in all material respects or with any
applicable Requirements or are otherwise not in conformity with sound building
practice, Bank shall have the right to stop the work (unless any such Unit is
removed from Eligible Collateral) and to order replacement or correction of any
such materials or work regardless of whether or not such materials or work have
theretofore been incorporated in the Units, regardless of whether Bank's
representatives have previously inspected such work or materials, and
regardless of whether Bank has previously made Advances to pay for such work or
materials. Borrower shall promptly make such replacement or correction.
Inspection by Bank or by Bank's inspectors of any Project or the Units is for
the sole purpose of protecting the security of Bank and is not to be construed
as a representation by Bank that there has been compliance with the Unit Plans
and Specifications or the applicable Requirements or that the Units are free of
defects in materials or workmanship. Borrower may make or cause to be made
such other independent inspections as Borrower may desire for its own
protection.
6.12 MISCELLANEOUS. Any inspections or determinations made by Bank
or lien waivers, receipts, or other agreements, documents, and instruments
obtained by Bank are made or obtained solely for Bank's own benefit and not in
any way for the benefit or protection of Borrower. Bank may accept and rely on
any information from architect, any other Person providing labor, materials, or
services for Units, Borrower, or any other Person as to labor or materials
furnished or incorporated in the Units and the cost and payment therefor and as
to all other matters relating to construction of the Units and any Project
without the necessity of verifying such information. Bank has no obligation to
Borrower to ensure compliance by architect or any other Person in carrying out
construction of the Units.
6.13 VERIFICATION OF COSTS. Bank shall have the right at any time
and from time to time to review and verify all costs, expenses, and fees in
each Unit Budget. Based on its review and verification of costs, expenses, and
fees in each Unit Budget, Bank shall have the right to adjust any and all such
budgeted amounts.
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6.14 USE OF PROCEEDS OF ADVANCES. Borrower shall use proceeds of
Advances only for the purposes described in SECTIONS 3.2.2 and 5.1.6.
6.15 CROSS-COLLATERALIZATION. At Bank's request at any time and
from time to time, Borrower agrees to execute and deliver such additional
agreements, documents, and instruments as Bank determines to be necessary or
appropriate so that all Collateral shall also secure any or all (as determined
by Bank) other obligations of Borrower to Bank and/or so that any or all
property, interests in property, and rights to property selected by Bank
securing other obligations of Borrower to Bank also secure the Obligations.
Borrower agrees to pay all costs, expenses, and fees incurred by Bank in
connection with any and all such cross-collateralization requests by Bank
(including, without limitation, costs, expenses, and fees of Bank's attorneys).
6.16 BANK'S INSPECTOR(S). Borrower agrees that during construction
of Units, Bank shall have the right to employ an outside inspector or
inspectors who shall review as agent for Bank all construction activities
undertaken in regard to Units and who shall prepare reports of such reviews.
Alternatively, Bank may elect to have employees of Bank perform such reviews
and prepare such reports. In addition, the employees of Bank will review the
inspection reports of any outside inspector(s), will review Draw Requests, will
perform other activities related to Draw Requests, and will perform other
activities in administering and monitoring the Advances.
6.17 FURTHER ASSURANCES. Borrower shall promptly execute,
acknowledge, and deliver such additional agreements, documents, and instruments
and do or cause to be done such other acts as Bank may reasonably request from
time to time to better assure, preserve, protect, and perfect the interest of
Bank in the Collateral and the rights and remedies of Bank under the Loan
Documents.
6.18 COSTS AND EXPENSES OF BORROWER'S PERFORMANCE OF COVENANTS AND
SATISFACTION OF CONDITIONS. Borrower will perform all of its obligations and
satisfy all conditions under the Loan Documents at its sole cost and expense.
6.19 PAYMENT OF NET SALES PROCEEDS. Borrower shall, upon the
closing of a sale of any Unit, pay to Bank for application to the outstanding
unpaid aggregate amount of Advances hereunder, an amount equal to the Net Sales
Proceeds from such Unit sale, and, if applicable, any Shortage. To the extent
that such Net Sales Proceeds are held by Title Company or any other Person,
Borrower shall take all action requested by Bank to cause such Net Sales
Proceeds to be paid directly to Bank. If Borrower collects or receives any
such Net Sales Proceeds, Borrower will forthwith, upon receipt, transmit and
deliver to Bank, in the form received, all cash, checks, drafts, chattel paper,
and other instruments or
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writings for the payment of money (endorsed without recourse, where required,
so that such items may be collected by Bank). Any such items which may be so
received by Borrower will not be commingled with any other of Borrower's funds
or property, but will be held separate and apart from Borrower's own funds or
property and upon express trust for Bank until delivery is made to Bank.
6.20 NOTIFICATION OF DEFAULTS. Borrower shall immediately disclose
to Bank the occurrence of any default by Borrower under or pursuant to the
terms and conditions of any indebtedness owed by Borrower to any Person,
whether now existing or hereafter arising.
6.21 FINANCIAL COVENANTS. Borrower shall, as of the date of the
first Advance hereunder and at all times thereafter, maintain the following
Financial Covenants:
6.21.1 CONSOLIDATED TANGIBLE NET WORTH. Borrower shall not
permit its Consolidated Tangible Net Worth at any time to be less than an
amount equal to sixty-six percent (66%) of Borrower's Consolidated Tangible Net
Worth as of the date of this Agreement. For purposes of this SECTION 6.21.1
only, the term "Consolidated Net Worth" shall not include equity value of
minority stock.
6.21.2 TOTAL LIABILITIES TO CONSOLIDATED TANGIBLE NET WORTH.
Borrower shall not permit its aggregate Consolidated Liabilities to
Consolidated Tangible Net Worth to be greater than 2.2:1 until the first
anniversary date of this Agreement, and thereafter Borrower shall not permit
its aggregate Consolidated Liabilities to Consolidated Tangible Net Worth to be
greater than 2:1.
6.21.3 MINIMUM LIQUIDITY REQUIREMENTS. Borrower shall, on a
daily basis, maintain Cash on Hand in an amount of not less than ten percent
(10%) of Borrower's Consolidated Liabilities.
6.21.4 LAND BANKING LIMITATION. Borrower shall not
purchase, acquire an interest in or otherwise hold "Land Held for Future
Development" (as that term is defined by GAAP) to the extent that the
Borrower's cash investment of Land Held for Future Development exceeds fifty
percent (50%) of Borrower's Consolidated Net Tangible Assets as adjusted.
6.21.5 DIVIDEND RESTRICTION. Borrower shall not make
distributions from earnings and profits to the shareholders of Borrower in an
amount greater than fifty percent (50%) of such earnings and profits.
6.21.6 NET LOSS LIMITATION. Borrower shall not: (a) incur a
Net Loss in excess of One Million Dollars ($1,000,000.00)
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in any Fiscal Quarter; nor (b) experience Net Losses in any two consecutive
Fiscal Quarters.
6.22 CONSTRUCTION AND SALES RECORDS. Borrower shall, at all times,
maintain complete and accurate records of Borrower's construction and sales
activities and shall, upon prior notice thereof by Bank, permit Bank to review
such records upon request by Bank at any time and from time to time during
regular business hours. Such records shall include, without limitation, (i)
any and all documents, instruments, contracts and agreements relating to the
construction or sale of Units entered into by Borrower with or for the benefit
of purchasers, contractors, subcontractors, or other Persons, as applicable,
(ii) lien waivers and releases with respect to all construction in place, (iii)
requests for disbursement and vouchers submitted by contractors,
subcontractors, or other Persons, and (iv) all permits, licenses and approvals
necessary for the continuation and completion of construction.
7. BORROWER NEGATIVE COVENANTS. Until the Commitment terminates in full
and the Obligations are paid and performed in full, Borrower agrees that,
unless Bank otherwise agrees in writing in Bank's absolute and sole discretion:
7.1 CORPORATE RESTRICTIONS. Borrower shall not be dissolved or
liquidated. Borrower shall not amend, modify, restate, supplement, or
terminate its certificate of incorporation or bylaws in any manner that would
materially affect the validity or enforceability of the Obligations or
Borrower's ability to borrow hereunder, or that would materially impair any
security for the Obligations. Borrower shall not reorganize itself or
consolidate with or merge into any other corporation or permit any other
corporation to be merged into Borrower (except for mergers of any Subsidiary or
parent of Borrower into Borrower pursuant to which Borrower is the surviving
entity and which do not otherwise constitute an Event of Default). Borrower
shall not suffer to occur any change in Borrower's chairman or chief executive
officer without the prior written consent of Bank in its absolute and sole
discretion.
8. BANK'S OBLIGATIONS TO BORROWER ONLY AND DISCLAIMER BY BANK. No
Person, other than Borrower and Bank, shall have any rights hereunder or be a
third-party beneficiary hereof. Bank is not a joint venturer or a partner with
Borrower. Prior to an Event of Default and thereafter until Bank elects in
writing to assume specific obligations of Borrower, Bank shall not be obligated
to any Person providing labor, materials, or other services for any Project and
payment of funds from Advances directly to any such Persons shall not give or
be a recognition of any third-party beneficiary status.
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9. PUBLICITY. Bank shall have the right to place one or more signs on
the Lots at location(s) visible from public street(s) indicating that Bank has
provided financing for any Project.
10. NO BROKERS. Except as disclosed by Borrower to Bank in writing prior
to the date of this Agreement, each of Borrower and Bank represent and warrant
to the other that it knows of no broker's or finder's fee due in respect of the
transaction described in this Agreement and that it has not used the services
of a broker or a finder in connection with this transaction.
11. NOTICES. All notices, requests, demands and consents to be made
hereunder to the parties hereto shall be in writing and shall be delivered by
hand or sent by registered mail or certified mail, postage prepaid, return
receipt requested, through the United States Postal Service to the addresses
shown below or such other address which the parties may provide to one another
in accordance herewith. Such notices, requests, demands and consents, if sent
by mail shall be deemed given two (2) Business Days after deposit in the United
States mail, and if delivered by hand, shall be deemed given when delivered.
To Bank: Real Estate Finance Division
P. O. Box 29542 (A-387)
Phoenix, Arizona 85038
Attn: Cathi A. Coppock
Copy to: SNELL & WILMER
One Arizona Center
Phoenix, Arizona 85004-0001
Attn: Nicholas J. Wood, Esq.
To Borrower: J. M. Peters Company
3501 Jamboree Road, Suite 200
Newport Beach, California 92658
Attn: Hadi Makarechian
Copy to: Wiley, Rein & Fielding
1776 "K" Street, N.W.
Washington, D.C. 20006
Attn: Dag Wilkinson, Esq.
12. DISCLAIMER BY BANK. Bank shall not be liable to any contractor,
subcontractor, supplier, laborer, architect, engineer or any other party for
services performed or materials supplied in connection with the Units. Bank
shall not be liable for any debts or claims accruing in favor of any such
parties against Borrower or others or against the Subdivisions or the
Properties. Borrower is not and shall not be an agent of Bank for any purpose.
Bank is not a joint venture partner with Borrower in any manner whatsoever.
Prior to default by Borrower under this Agreement and the exercise
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of remedies granted herein, Bank shall not be deemed to be in privity of
contract with any contractor or provider of services to the Units, nor shall
any payment of funds directly to a contractor, subcontractor, or provider of
services be deemed to create any third party beneficiary status or recognition
of same by Bank. Approvals granted by Bank for any matters covered under this
Agreement shall be narrowly construed to cover only the parties and facts
identified in any written approval or, if not in writing, such approvals shall
be solely for the benefit of Borrower.
13. INDEMNIFICATION. To the fullest extent permitted by law, Borrower
agrees to protect, indemnify, defend and save harmless Bank, its directors,
officers, agents and employees for, from and against any and all liability,
expense or damage of any kind or nature and for, from and against any suits,
claims or demands, including reasonable legal fees and expenses on account of
any matter or thing or action, whether in suit or not, arising out of this
Agreement or in connection herewith, other than such claims and liabilities as
arise solely from the negligence of Bank. Upon receiving knowledge of any
suit, claim or demand asserted by a third party that Bank believes is covered
by this indemnity, Bank shall give Borrower notice of the matter and an
opportunity to defend it, at Borrower's sole cost and expense, with legal
counsel satisfactory to Bank. Bank may also require Borrower to so defend the
matter. The obligations on the part of Borrower under this SECTION 13 shall
survive the closing of the Commitment and the repayment thereof.
14. CHOICE OF LAW. This Agreement and the transaction contemplated
hereunder shall be governed by and construed in accordance with the laws of the
State of Arizona.
15. ARBITRATION.
(a) Binding Arbitration. Bank and Borrower hereby agree
that all controversies and claims of any nature between them
(including but not limited to contract, tort and others) arising
directly or indirectly out of this Agreement and the Loan Documents,
shall at the written request of any party be arbitrated pursuant to
the applicable rules of the American Arbitration Association. The
arbitration shall occur in the State of Arizona. Judgment upon any
award rendered by the arbitrator(s) may be entered in any court having
jurisdiction. The Federal Arbitration Act shall apply to the
construction and interpretation of this arbitration agreement.
(b) Arbitration Panel. A single arbitrator shall have
the power to render a maximum award of One Hundred Thousand Dollars
($100,000). When any party files a claim in excess of this amount,
the arbitration decision shall be made by the majority vote of three
arbitrators. No arbitrator shall have the power to restrain any act
of any party.
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(c) Provisional Remedies; Self-Help; and Foreclosure. No
provision of subparagraph (a) shall limit the right of any party to
exercise self help remedies, to foreclose against any real or personal
property collateral, or to obtain any provisional or ancillary
remedies (including but not limited to injunctive relief or the
appointment of a receiver) from a court of competent jurisdiction. At
Bank's option, it may enforce its right under a mortgage by judicial
foreclosure, and under a deed of trust either by exercise of power of
sale or by judicial foreclosure. The institution and maintenance of
any remedy permitted above shall not constitute a waiver of the rights
to submit any controversy or claim to arbitration. The statute of
limitations, estoppel, waiver, laches, and similar doctrines which
would otherwise be applicable in any action brought by a party shall
be applicable in any arbitration proceeding.
16. PROVISIONS IN THE NOTE GOVERN THIS AGREEMENT. This Agreement is
subject to certain terms and provisions in the Note, to which reference is made
for a statement of such terms and provisions.
17. COUNTERPART EXECUTION. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same document. Signature pages may be
detached from the counterparts and attached to a single copy of this Agreement
to physically form one document.
DATED as of the date first above stated.
J.M. PETERS COMPANY, INC.
a Delaware corporation
By: /s/ HADI MAKARECHIAN
Name: Hadi Makarechian
Title: Chairman
BANK ONE, ARIZONA, NA,
a national banking association
By: /s/ CATHI A. COPPOCK
Name: Cathi A. Coppock
Title: Vice President
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EXHIBIT B
_________
ARDI DRAW SYSTEM
The following information is intended to outline the requirements and
procedures to be used by Lender in the disbursement of Hard Costs as identified
in the Cost Breakdown. The amount of each Advance shall be (i) the product of
(A) the Maximum Allowed Advance for such Unit, and (B) the percentage of
completion of the Unit as determined by Lender in its absolute and sole
discretion rounded down to the nearest five percent (5%), less (ii) the
aggregate amount of previous Advances for such Unit.
At Lender's election, Advances may be made in five (5) equal Advances
each in the amount of twenty percent (20%) of the Maximum Allowed Advance for
the respective Unit, upon completion of the following stages of construction,
as determined by Lender in its absolute and sole discretion.
Draw #1 All underslab items shall be installed including footings and
stem walls. This inspection stage will include below-slab plumbing. ABC fill
(leveled to grade and compacted), and floor slab ready to be poured.
Draw #2 All masonry walls and rough carpentry framing shall be
complete including furr downs, required blocking, backing and roof sheathing.
All above-slab rough plumbing, duct system and wiring installed and visible.
Floor slab poured.
Draw #3 All windows, sliding doors, and insulation installed. Plaster
or drywall complete and ready for painting. Stucco lath and skylights
installed (if applicable).
Draw #4 All roofing, finish carpentry, stucco (if applicable),
interior and exterior painting are complete. All cabinets are on site.
Draw #5 Completely finished and ready for occupancy. This includes
all plumbing and electrical trim, cabinets, floor covering, appliances,
fixtures, fencing, clean-up, site fine grading, and landscaping. This also
includes final inspection by the governing authority approving the residence
for occupancy.
NOTE: All required municipal inspections shall have been completed prior to
Lender inspections and disbursement of a particular draw.
Borrower understands and acknowledges that the disbursement system set
forth hereinabove has been selected by Lender for its sole protection in
disbursing each advance in Loan funds, and that Lender neither acts as an agent
or fiduciary for the Borrower nor warrants the legal validity or correctness of
any lien waivers or
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other documents required by the provisions hereof, which lien waivers and other
documents are for the sole benefit of Lender.
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When Recorded Return To:
Snell & Wilmer
One Arizona Center
Phoenix, Arizona 85004-0001
Attention: Nicholas J. Wood, Esq.
- --------------------------------------------------------------------------------
Recorder's Use
CONSTRUCTION DEED OF TRUST
(WITH ASSIGNMENT OF RENTS AND SECURITY AGREEMENT)
(VARIABLE RATE)
(HOME LOAN)
(CALIFORNIA)
THIS DEED OF TRUST SECURES A VARIABLE RATE PROMISSORY NOTE
WHICH VARIES ACCORDING TO CHANGES IN THE PRIME RATE ANNOUNCED
BY BENEFICIARY IN ACCORDANCE WITH THE CONSTRUCTION LOAN
AGREEMENT BETWEEN TRUSTOR AND BENEFICIARY.
TRUSTOR: J. M. PETERS COMPANY, INC., a Delaware corporation
3501 Jamboree Road, Suite 200
Newport Beach, California 92658
BENEFICIARY: BANK ONE, ARIZONA, NA, a national banking association
Real Estate Lending Division
P. O. Box 29542
Phoenix, Arizona 85038
TRUSTEE: _____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
FOR GOOD AND VALUABLE CONSIDERATION, including the indebtedness herein
recited and the trust herein created, the receipt of which is hereby
acknowledged, Trustor hereby irrevocably grants, transfers, conveys and assigns
to Trustee, IN TRUST, WITH
EXHIBIT "A-1"
<PAGE> 50
POWER OF SALE, and right of entry and possession, for the benefit and security
of Beneficiary, under and subject to the terms and conditions hereinafter set
forth, that certain real property located in the City of _________. County of
________, State of California, more particularly described in Exhibit "A"
attached hereto and incorporated herein by this reference (the "Premises");
TOGETHER WITH any and all buildings and other improvements now or
hereafter erected on the Premises including, without limitation, fixtures,
attachments, appliances, equipment, machinery, and other personal property
attached to such buildings and other improvements (the "Improvements"), all of
which shall be deemed and construed to be a part of the real property;
TOGETHER WITH all rents, issues, profits, damages, royalties, income
and other benefits now or hereafter derived from the Premises and the
Improvements (collectively the "Rents"), subject to the terms and provisions of
Article II of this Deed of Trust with respect to all leases and subleases of
the Premises or Improvements now or hereafter existing or entered into, or
portions thereof, granted by Trustor, and further subject to the right, power
and authority hereinafter given to Trustor to collect and apply such Rents.
TOGETHER WITH all interests, estates or other claims, both in law and
in equity, which Trustor now has or may hereafter acquire in the Premises or
the Improvements;
TOGETHER WITH all easements, rights-of-way and other rights now owned
or hereafter acquired by Trustor used in connection with the Premises or the
Improvements or as a means of access thereto (including, without limitation,
all rights pursuant to any trackage agreement and all rights to the
nonexclusive use of common drive entries, and all tenements, hereditaments and
appurtenances thereof and thereto) and all water and water rights and shares of
stock evidencing the same;
TOGETHER WITH all leasehold estate, right, title and interest of
Trustor in and to all leases or subleases covering the Premises or the
Improvements or any portion thereof now or hereafter existing or entered into,
and all right, title and interest of Trustor thereunder including, without
limitation, all rights of Trustor against guarantors thereof, all cash or
security deposits, advance rentals, and deposits or payments of similar nature
(collectively, the "Leases");
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TOGETHER WITH all right, title and interest now owned or hereafter
acquired by Trustor in and to any greater estate in the Premises or the
Improvements including, without limitation, Trustor's interest as Declarant
under any and all Declarations of Conditions, Covenants and Restrictions
affecting the Premises;
TOGETHER WITH all right, title, and interest of Trustor in (i) the
property and interests in property described onExhibit "B" attached hereto and
incorporated herein by reference, (ii) all other personal property now or
hereafter owned by Trustor that is now or hereafter located on or used in
connection with the Premises or the Improvements, (iii) all other rights and
interests of Trustor now or hereafter held in personal property that is now or
hereafter located on or used in connection with the Premises or the
Improvements, and (iv) all proceeds thereof (such personal property and
proceeds are referred to herein collectively as the "Personal Property")
provided, however, that to the extent payments, deposits or other consideration
paid to Trustor by a purchaser of a Model Home exceeds the release price for
such Model Home, Beneficiary shall have no security interest in any such
excess;
TOGETHER WITH all right, title and interest of Trustor, now owned or
hereafter acquired, in and to any land lying within the right-of-way of any
street, open or proposed, adjoining the Premises, and any and all sidewalks,
alleys and strips and gores of land adjacent to or used in connection with the
Premises;
TOGETHER WITH all the estate, interest, right, title, other claim or
demand, both in law and in equity (including, without limitation, claims or
demands with respect to the proceeds of insurance in effect with respect
thereto) that Trustor now has or may hereafter acquire in the Premises, the
Improvements, the Personal Property, or any other part of the Trust Estate (as
defined below), and any and all awards made for the taking by eminent domain,
or by any proceeding of purchase in lieu thereof, of the whole or any part of
the Trust Estate (including, without limitation, any awards resulting from a
change of grade of streets and awards for severance damages);
TOGETHER WITH all proceeds of the foregoing.
The entire estate, property, right, title and interest hereby conveyed
to Trustee may hereafter be collectively referred to as the "Trust Estate."
FOR THE PURPOSE OF SECURING (in such order of priority as Beneficiary
may elect) the following (the Obligations"):
(a) payment of indebtedness in the total principal amount
of up to Twenty Five Million and No/100 Dollars ($25,000,000.00)
("Loan"), with interest thereon, evidenced by that certain Secured
Promissory Note of even date herewith (as
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it may be amended, modified, extended, and renewed from time to time,
the "Note") executed by Trustor pursuant to that certain Master
Revolving Line of Credit Agreement dated June __, 1994 by and between
Trustor and Beneficiary (as it may be amended, modified, extended, and
renewed from time to time, the "Loan Agreement"). The Loan Agreement
contains a provision providing for a variable rate of interest under the
Note;
(b) payment of all sums advanced by Beneficiary to protect
the Trust Estate, with interest thereon equal to the Interest Rate (as
defined in the Loan Agreement) (which rate of interest is hereinafter
referred to as the "Agreed Rate");
(c) payment of all other sums, with interest thereon (if
applicable) that may hereafter be loaned to Trustor, or its successors
or assigns, by Beneficiary, or its successors or assigns when evidenced
by a promissory note or notes reciting that they are secured by this
Deed of Trust;
(d) performance of every obligation of Trustor contained in
the Loan Documents (as defined below);
(e) performance of every obligation of Trustor contained in
any agreement, document, or instrument now or hereafter executed by
Trustor reciting that the obligations thereunder are secured by this
Deed of Trust; and
(f) for the benefit of Beneficiary, compliance with and
performance of each and every provision of any declaration of covenants,
conditions and restrictions, any maintenance, easement and party wall
agreement, or any other agreement, document, or instrument by which the
Trust Estate is bound or may be affected.
This Deed of Trust, the Note, the Loan Agreement and any other deeds of trust,
mortgages, agreements, guaranties or other instruments given to evidence or
further secure the payment and performance of any or all of the Obligations, as
the foregoing may be amended, modified, extended, or renewed from time to time
may hereinafter be collectively referred to as the "Loan Documents."
TRUSTOR HEREBY COVENANTS AND AGREES AS FOLLOWS:
ARTICLE I
COVENANTS AND AGREEMENTS OF TRUSTOR
1.01 Payment and Performance of Secured Obligations.
Trustor shall pay and perform when due each of the Obligations.
1.02 Maintenance, Repair, Alterations. Trustor shall keep
the Trust Estate in good condition and repair. Trustor shall not remove,
demolish, or substantially alter any of the Improvements,
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except with the prior written consent of Beneficiary. Trustor shall complete
promptly and in a good and workmanlike manner any Improvement that may be now
or hereafter constructed on the Premises and promptly restore in like manner
any Improvements that may be damaged or destroyed from any cause whatsoever and
pay when due all claims for labor performed and materials furnished therefor.
Trustor shall comply in all material requests with all Requirements (as defined
below) and shall not suffer to occur or exist any violation of any
Requirement. Trustor shall not commit or permit any waste or deterioration of
the Trust Estate, and, to the extent allowed by law, shall keep and maintain
abutting grounds, sidewalks, roads, parking and landscape areas in good and
neat order and repair. Trustor shall perform its obligations under each Lease.
"Requirement" and "Requirements" mean, respectively, each and all obligations
and requirements under the Loan Documents now or hereafter in effect by which
Trustor or the Trust Estate are bound or which are otherwise applicable to the
Trust Estate, construction of any Improvements on the Trust Estate, or
operation, occupancy or use of the Trust Estate (including,without limitation
(i) such obligations and requirements imposed by common law or any law,
statute, ordinance, regulation, or rule (federal, state, or local), and (ii)
such obligations and requirements of, in, or in respect of (A) any consent,
authorization, license, permit, or approval relating to the Trust Estate, (B)
any condition, covenant, restriction, easement, or right-of-way reservation
applicable to the Trust Estate, (C) any Lien or Encumbrance, (D) any other
agreement, document, or instrument affecting the Trust Estate to which Trustor
is a party or by which Trustor or the Trust Estate is bound, and (E) any order,
writ, judgment, injunction, decree, determination, or award of any arbitrator,
other private adjudicator, court, government, or governmental authority
(federal, state, or local) affecting the Trust Estate to which Trustor is a
party or by which Trustor or the Trust Estate is bound).
1.03 Required Insurance. Trustor shall at all times
provide, maintain and keep in force or cause to be provided, maintained and
kept in force with respect to the Trust Estate, at no expense to Trustee or
Beneficiary, policies of insurance in forms and amounts and issued by companies
reasonably satisfactory to Beneficiary covering such casualties, risks, perils,
liabilities and other hazards as is required under the Loan Agreement. All
such policies of insurance required by the terms of this Deed of Trust or the
Loan Agreement shall contain an endorsement or agreement by the insurer that
any loss shall be payable in accordance with the terms of such policy
notwithstanding any act or negligence of Trustor or any party holding under
Trustor that might otherwise result in forfeiture of said insurance and the
further agreement of the insurer waiving all rights of setoff, counterclaim or
deductions against Trustor.
1.04 Delivery of Policies, Payment of Premiums.
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(a) At Beneficiary's option all policies of insurance shall
either have attached thereto a lender's loss payable endorsement for the
benefit of Beneficiary in form satisfactory to Beneficiary or shall name
Beneficiary as an additional insured. Trustor shall furnish Beneficiary
with certificates of insurance for each required policy setting forth
the coverage, the limits of liability, the name of the carrier, the
policy number and the period of coverage. If Beneficiary consents,
Trustor may provide any of the required insurance through blanket
policies carried by Trustor and covering more than one location, or by
policies procured by a tenant or other party holding under Trustor;
provided, however, all such policies shall meet the requirements
referred to in Section 1.03. At least thirty (30) days prior to the
expiration of each required policy, Trustor shall deliver to Beneficiary
evidence reasonably satisfactory to Beneficiary of the payment of
premium and the renewal or replacement of such policy continuing
insurance in form as required by this Deed of Trust. All such policies
shall contain a provision that, notwithstanding any contrary agreement
between Trustor and insurance company, such policies will not be
cancelled, allowed to lapse without renewal, surrendered or materially
amended, which term shall include any reduction in the scope or limits
of coverage, without at least thirty (30) days' prior written notice to
Beneficiary.
(b) In the event Trustor fails to obtain, maintain, or
deliver to Beneficiary the certificates of insurance with respect to the
Trust Estate required by this Deed of Trust, Beneficiary may, at
Beneficiary's election, but without any obligation so to do, procure
such insurance or single-interest insurance for such risks covering
Beneficiary's interest, and Trustor will pay all premiums thereon
promptly upon demand by Beneficiary, and until such payment is made by
Trustor, the amount of all such premiums shall bear interest at the
Agreed Rate. Upon the occurrence and during the continuation of an
Event of Default and request by Beneficiary, Trustor shall deposit with
Beneficiary in monthly installments, an amount equal to one-twelfth
(1/12) of the estimated aggregate annual insurance premiums on all
policies of insurance required by this Deed of Trust (funds deposited
for this purpose are referred to as "Insurance Impounds"). In such
event Trustor further agrees to cause all bills, statements, or other
documents relating to the foregoing insurance premiums to be sent or
mailed directly to Beneficiary. Upon receipt of such bills, statements,
or other documents evidencing that a premium for a required policy is
then payable, and provided there are sufficient Insurance Impounds,
Beneficiary shall timely pay such amounts as may be due thereunder out
of the Insurance Impounds. If at any time and for any reason the
Insurance Impounds are or will be insufficient to pay such amounts as
may be then or subsequently due, Beneficiary shall notify Trustor
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and Trustor shall immediately deposit an amount equal to such deficiency
with Beneficiary. Notwithstanding the foregoing, nothing contained
herein shall cause Beneficiary to be deemed a trustee of Insurance
Impounds or to be obligated to pay any amounts in excess of the amount
of the Insurance Impounds, nor shall anything contained herein modify
the obligation of Trustor set forth in Section 1.03 to obtain and
maintain insurance. Beneficiary may commingle Insurance Impounds with
its own funds, and Trustor shall not be entitled to interest thereon.
Beneficiary may reserve for future payments of premiums such portion of
Insurance Impounds as Beneficiary in its absolute and sole discretion
deems proper. If Trustor fails to deposit with Beneficiary sums
sufficient to pay fully such premiums at least thirty (30) days before
delinquency thereof, Beneficiary may, at Beneficiary's election, but
without any obligation so to do, advance any amounts required to make up
the deficiency, which advances, if any, shall be secured hereby and
shall be repayable to Beneficiary upon demand with interest from the
date advanced at the Agreed Rate, or at the option of Beneficiary the
latter may, without making any advance whatever, apply any Insurance
Impounds to payment of the Obligations in such order as Beneficiary may
determine, notwithstanding that such Obligations may not yet be due.
Upon the occurrence of an Event of Default, Beneficiary may, at any
time, at Beneficiary's option, apply any Insurance Impounds or
Impositions Impounds under this Section 1.04 or Section 1.08, any funds
paid as Rents, and any other funds of Trustor held by Beneficiary to
payment of any of the Obligations, in such manner and order as
Beneficiary may elect, notwithstanding that such Obligations may not yet
be due.
1.05 Casualties: Insurance Proceeds.
(a) Trustor shall give prompt written notice thereof to
Beneficiary after the happening of any casualty to or in connection with
the Trust Estate or any part thereof, in the event it materially
adversely affects the value of the Trust Estate, whether or not covered
by insurance. All proceeds of insurance shall be payable to
Beneficiary, and Trustor hereby authorizes and directs any affected
insurance company to make payment of such proceeds directly to
Beneficiary. If Trustor receives any proceeds of insurance resulting
from such casualty, Trustor shall promptly pay over such proceeds to
Beneficiary. All proceeds of insurance will be applied by Beneficiary
to payment of the Obligations in such order as Beneficiary shall
determine.
(b) Trustor shall not be excused from repairing or
maintaining the Trust Estate as provided in Section 1.02 hereof or
restoring all damage or destruction to the Trust Estate, regardless of
whether or not there are insurance proceeds available to Trustor or
whether any such proceeds are
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sufficient in amount, and the application or release by Beneficiary of
any insurance proceeds shall not cure or waive any default or notice of
default under this Deed of Trust or invalidate any act done pursuant to
such default or notice of default.
1.06 Assignment of Policies Upon Foreclosure. In the event
of foreclosure of this Deed of Trust as a mortgage, a sale under the power of
sale, or any other transfer of title or assignment of the Trust Estate in
extinguishment, in whole or in part, of the Obligations, all right, title and
interest of Trustor in and to all policies of insurance required by Section
1.03 shall inure to the benefit of and pass to the successor in interest to
Trustor or the purchaser or grantee of the Trust Estate, to the extent such
policies are assignable pursuant to the terms thereof.
1.07 Indemnification; Subrogation; Waiver of Offset.
(a) If Beneficiary is made a party to any litigation
concerning the Note, this Deed of Trust, any of the Loan Documents, the
Trust Estate or any part thereof or interest therein, or the occupancy
of the Trust Estate by Trustor, then Trustor shall indemnify, defend and
hold Beneficiary harmless for, from and against all liability by reason
of said litigation, including reasonable attorneys' fees and expenses
incurred by Beneficiary as a result of any such litigation, whether or
not any such litigation is prosecuted to judgment. Beneficiary may
employ an attorney or attorneys to protect its rights hereunder, and in
the event of such employment following any breach by Trustor, Trustor
shall pay Beneficiary reasonable attorneys' fees and expenses incurred
by Beneficiary, whether or not an action is actually commenced against
Trustor by reason of its breach.
(b) Trustor waives any and all right to claim or recover
against Beneficiary, its successors and assigns, their directors,
officers, employees, agents and representatives, for loss of or damage
to Trustor, the Trust Estate, Trustor's property or the property of
others under Trustor's control from any cause insured against or
required to be insured against by this Deed of Trust, except for such
actions, matters, claims or liabilities as arise from the gross
negligence or intentional misconduct of Beneficiary.
(c) All sums payable by Trustor pursuant to this Deed of
Trust shall be paid without notice (except for such notice as may be
expressly required hereunder or under the other Loan Documents), demand,
counterclaim, setoff, deduction or defense and without abatement,
suspension, deferment, diminution or reduction, and the obligations and
liabilities of Trustor hereunder shall in no way be released, discharged
or otherwise affected (except as expressly provided herein) by reason
of:
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(i) any damage to or destruction of or any condemnation or similar
taking of the Trust Estate or any part thereof; (ii) any restriction or
prevention of or interference by any Person (as defined below) with any
use of the Trust Estate or any part thereof; (iii) any title defect or
encumbrance or any eviction from the Premises or the Improvements or any
part thereof by title paramount or otherwise; (iv) any bankruptcy,
insolvency, reorganization, composition, adjustment, dissolution,
liquidation or other like proceeding relating to Beneficiary, or any
action taken with respect to this Deed of Trust by any trustee or
receiver of Beneficiary, or by any court, in any such proceeding; (v)
any claim that Trustor has or might have against Beneficiary; (vi) any
default or failure on the part of Beneficiary to perform or comply with
any of the terms of the Loan Documents or of any other agreement with
Trustor; or (vii) any other occurrence whatsoever, whether similar or
dissimilar to the foregoing; whether or not Trustor shall have notice or
knowledge of any of the foregoing. Except as expressly provided herein,
and in the California Code of Civil Procedure, Sections 580 and 726,
Trustor waives, to the fullest extent permitted by applicable law, the
benefits of California Code of Civil Procedure, Section 431.70, and all
other rights now or hereafter conferred by statute or otherwise to any
abatement, suspension, deferment, diminution or reduction of any sum
secured hereby and payable by Trustor. "Person" means any natural
person, any unincorporated association, any corporation, any
partnership, any joint venture, any trust, any other legal entity, or
any governmental authority (federal, state, local or foreign).
1.08 Impositions.
(a) Trustor shall pay, or cause to be paid, prior to
delinquency, all installments of real property taxes and assessments,
general and special, and all other taxes and assessments of any kind or
nature whatsoever, (including, without limitation, non- governmental
levies or assessments such as maintenance charges, levies, or charges
resulting from covenants, conditions and restrictions affecting the
Trust Estate) that are assessed or imposed upon the Trust Estate or
become due and payable and that create, may create, or appear to create
a lien upon the Trust Estate (the above are sometimes referred to herein
individually as an "Imposition" and collectively as "Impositions")
provided, however, that if by law any Imposition is payable, or may at
the option of the taxpayer be paid, in installments, Trustor may pay the
same or cause it to be paid, together with any accrued interest on the
unpaid balance of such Imposition, in installments as the same becomes
due and before any fine, penalty, interest, or cost may be added thereto
for the nonpayment of any such installment and interest.
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(b) If at any time after the date hereof there shall be
assessed or imposed a fee, tax, or assessment on Beneficiary and
measured by or based in whole or in part upon this Deed of Trust or the
outstanding amount of the Obligations, then all such taxes, assessments
or fees shall be deemed to be included within the term "Impositions" as
defined in Section 1.08(a) and Trustor shall pay and discharge the same
as herein provided with respect to the payment of Impositions. If
Trustor fails to pay such Impositions prior to delinquency, Beneficiary
may, at its option, declare all or part of the Obligations, immediately
due and payable. If Trustor is prohibited by law from paying such
Impositions, Beneficiary may, at its option, declare all or part of the
Obligations due and payable on a date which is not less than six (6)
months from the date such prohibition is imposed on Trustor.
(c) Subject to the provisions of Section 1.08(d) and upon
request by Beneficiary, Trustor shall deliver to Beneficiary within
thirty (30) days after the date upon which any Imposition is due and
payable by Trustor official receipts of the appropriate taxing
authority, or other proof reasonably satisfactory to Beneficiary,
evidencing the payment thereof.
(d) Trustor shall have the right before any delinquency
occurs to contest or object to the amount or validity of any Imposition
by appropriate proceedings, but this shall not be deemed or construed in
any way as relieving, modifying, or extending Trustor's covenant to pay
any such Imposition at the time and in the manner provided in this
Section 1.08, unless Trustor has given prior written notice to
Beneficiary of Trustor's intent to so contest or object to an
Imposition, and unless, in Beneficiary's reasonable discretion, (i)
Trustor shall demonstrate to Beneficiary's satisfaction that the
proceedings to be initiated by Trustor shall conclusively operate to
prevent the sale of the Trust Estate or any part thereof or interest
therein to satisfy such Imposition prior to final determination of such
proceedings, (ii) Trustor shall furnish a good and sufficient bond or
surety as requested by and satisfactory to Beneficiary, or (iii) Trustor
shall demonstrate to Beneficiary's satisfaction that Trustor has
provided a good and sufficient undertaking as may be required or
permitted by law to accomplish a stay of any such sale.
(e) Upon the occurrence and during the continuation of an
Event of Default and upon request by Beneficiary, Trustor shall pay to
Beneficiary an initial cash deposit in an amount adequate to pay all
Impositions for the ensuing tax fiscal year and shall thereafter
continue to deposit with Beneficiary, in monthly installments, an amount
equal to one-twelfth (1/12) of the sum of the annual Impositions
reasonably estimated by Beneficiary, for the purpose of paying the
installment of Impositions next due (funds deposited for this purpose
are
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referred to as "Impositions Impounds"). In such event, Trustor further
agrees to cause all bills, statements, or other documents relating to
Impositions to be sent or mailed directly to Beneficiary. Upon receipt
of such bills, statements, or other documents, and providing there are
sufficient Impositions Impounds, Beneficiary shall timely pay such
amounts as may be due thereunder out of the Impositions Impounds. If at
any time and for any reason the Impositions Impounds are or will be
insufficient to pay such amounts as may then or subsequently be due,
Beneficiary may notify Trustor and upon such notice Trustor shall
deposit immediately an amount equal to such deficiency with Beneficiary.
Notwithstanding the foregoing, nothing contained herein shall cause
Beneficiary to be deemed a trustee of Impositions Impounds or to be
obligated to pay any amounts in excess of the amount of funds deposited
with Beneficiary pursuant to this Section 1.08(e). Beneficiary may
commingle Impositions Impounds with its own funds and shall not be
obligated to pay any interest on any Impositions Impounds. Beneficiary
may reserve for future payment of Impositions such portion of
Impositions Impounds as Beneficiary may in its absolute and sole
discretion deem proper. If Trustor fails to deposit with Beneficiary
sums sufficient to fully pay such Impositions at least thirty (30) days
before delinquency thereof, Beneficiary may, at Beneficiary's election,
but without any obligation so to do, advance any amounts required to
make up the deficiency, which advances, if any, shall be secured hereby
and shall be repayable to Beneficiary upon demand together with interest
thereon at the Agreed Rate from the date of such advance, or at the
option of Beneficiary the latter may, without making any advance
whatever, apply any Impositions Impounds held by it upon any of the
Obligations in such order as Beneficiary may determine, notwithstanding
that such Obligations may not yet be due.
(f) Trustor shall not initiate or suffer to occur or exist
the joint assessment of any real and personal property included in the
Trust Estate or any other procedure whereby the lien of real property
taxes and the lien of personal property taxes shall be assessed, levied,
or charged to the Trust Estate as a single lien.
1.09 Utilities. Trustor shall pay prior to delinquency, all
charges that are incurred by Trustor for the benefit of the Trust Estate or
that may become a charge or lien against the Trust Estate for gas, electricity,
water, sewer, or other services furnished to the Trust Estate.
1.10 Actions Affecting Trust Estate. Trustor shall appear
in and contest any action or proceeding purporting to affect the security
hereof or the rights or powers of Beneficiary or Trustee; and shall pay all
costs and expenses (including, without limitation, costs of evidence of title,
litigation, and attorneys'
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fees) in any such action or proceeding in which Beneficiary or Trustee may
appear.
1.11 Actions By Trustee of Beneficiary. If an Event of
Default occurs and continues, Beneficiary and/or Trustee, each in its absolute
and sole discretion, without obligation so to do, without releasing Trustor
from any obligation, and with only such notice to or demand upon Trustor as may
be reasonable under the then existing circumstances, but in no event exceeding
ten (10) days prior written notice, may make or do the same in such manner and
to such extent as either may deem necessary or appropriate. In connection
therewith (without limiting their general powers, whether conferred herein, in
another Loan Document or by law), Beneficiary and Trustee shall have and are
hereby given the right, but not the obligation, (a) to enter upon and take
possession of the Trust Estate; (b) to make additions, alterations, repairs and
improvements to the Trust Estate that they or either of them may consider
necessary or appropriate to keep the Trust Estate in good condition and repair;
(c) to appear and participate in any action or proceeding affecting or which
may affect the security hereof or the rights or powers of Beneficiary or
Trustee; (d) to pay, purchase, contest or compromise any Lien or Encumbrance
(as defined below) or alleged Lien or Encumbrance whether superior or junior to
this Deed of Trust; and (e) in exercising such powers, to pay necessary
expenses (including, without limitation, expenses of employment of counsel or
other necessary or desirable consultants). Trustor shall, immediately upon
demand therefor by Beneficiary and Trustee or either of them, pay to
Beneficiary and Trustee an amount equal to all respective costs and expenses
incurred by them in connection with the exercise by either Beneficiary or
Trustee or both of the foregoing rights (including, without limitation, costs
of evidence of title, court costs, appraisals, surveys and receiver's,
trustee's and attorneys' fees) together with interest thereon from the date of
such expenditures at the Agreed Rate.
1.12 Transfer of Trust Estate by Trustor. In order to
induce Beneficiary to make the Loan, Trustor agrees that, in the event of any
Transfer (as hereinafter defined), without the prior written consent of
Beneficiary, except as may be specifically permitted in any of the Loan
Documents, Beneficiary shall have the absolute right, at its option, without
prior demand or notice, to declare all sums secured hereby immediately due and
payable. Consent to one such transaction shall not be deemed to be a waiver of
the right to require consent to future or successive transactions. Beneficiary
may grant or deny such consent in its sole discretion and, if consent should be
given, any such Transfer shall be subject to this Deed of Trust, and such
transferee shall assume all obligations hereunder and agree to be bound by all
provisions contained herein. Such assumption shall not, however, release
Trustor or any maker or guarantor (if any) of the Note from any liability
thereunder without the prior written consent of Beneficiary. As used herein,
"Transfer" shall mean:
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(i) any sale, transfer, conveyance, hypothecation,
encumbrance, lease or vesting of the Trust Estate or any part
thereof or interest therein to or in any Person, whether
voluntary, involuntary, by operation of law, or otherwise,
except the Permitted Exceptions (as such term is defined in
Exhibit C attached hereto and incorporated herein by reference);
(ii) any sale, transfer, assignment, conveyance,
hypothecation, encumbrance or vesting of any partnership
interest in Trustor or any partner in Trustor to or in any
Person (if Trustor or any partner in Trustor is a partnership)
whether voluntary, involuntary, by operation of law, or
otherwise, except the Permitted Exceptions;
(iii) any sale, transfer, assignment, conveyance,
hypothecation, encumbrance or vesting of any shares of stock in
Trustor or any general partner in Trustor to or in any Person or
consolidation or merger of Trustor or any partner in Trustor
into or with any Person (if Trustor or any partner in Trustor is
a corporation) whether voluntary, involuntary, by operation of
law, or otherwise; or
(iv) the execution of any agreements to do any of
the foregoing, except the Permitted Exceptions.
Notwithstanding what may be provided in Paragraph 1.12
(iii) above, Beneficiary hereby agrees that any sale, assignment or conveyance
(except encumbrances or hypothecations) of common stock in the Trustor will not
be deemed a Transfer so long as immediately after such sale, assignment or
conveyance Peter Ochs, Keith Johnson, and David Langlois own and control sixty
percent (60%) or more of all outstanding voting common stock of Trustor.
1.13 Eminent Domain.
(a) In the event that any proceeding or action be commenced
for the taking of the Trust Estate, or any part thereof or interest
therein, for public or quasi-public use under the power of eminent
domain, condemnation (including, without limitation, inverse
condemnation) or otherwise (hereinafter collectively referred to as a
"Taking"), or if the same be taken or damaged by reason of any public
improvement or Taking, or should Trustor receive any notice or other
information regarding such Taking or damage, Trustor shall give prompt
written notice thereof to Beneficiary. All compensation, awards,
damages, rights of action and proceeds awarded to Trustor by reason of
any such Taking or damage or received by Trustor as the result of a
transfer in lieu of a Taking (the "Condemnation Proceeds") are hereby
assigned to
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Beneficiary, and Trustor agrees to execute such further assignments of
the Condemnation Proceeds as Beneficiary or Trustee may require. If
Trustor receives any Condemnation Proceeds Trustor shall promptly pay
over such proceeds to Beneficiary. Beneficiary is hereby authorized and
empowered by Trustor, at Beneficiary's option and in Beneficiary's sole
discretion, as attorney-in-fact for Trustor, to settle, adjust, or
compromise any claim for loss or damage in connection with any Taking or
proposed Taking and, without regard to the adequacy of its security, to
commence, appear in and prosecute in its own name and/or on behalf of
Trustor any such action or proceeding arising out of or relating to a
Taking or proposed Taking.
(b) Trustor shall not be excused from repairing or
maintaining the Trust Estate as provided in Section 1.02 or restoring
all damage or destruction to the Trust Estate, regardless of whether or
not there are Condemnation Proceeds available to Trustor or whether any
such Condemnation Proceeds are sufficient in amount. The application or
release of the Condemnation Proceeds shall not cure or waive any default
or notice of default hereunder or under any other Loan Document or
invalidate any act done pursuant to such default or notice of default.
1.14 Additional Security. No other security now existing,
or hereafter taken, to secure the obligations secured hereby shall be impaired
or affected by the execution of this Deed of Trust. All security for the
Obligations from time to time shall be taken, considered and held as
cumulative. Any taking of additional security, execution of partial releases
of the security, or any extension of the time of payment of, or modification of
other terms of any of the Obligations shall not diminish the force, effect or
lien of this Deed of Trust and shall not affect or impair the liability of any
maker, guarantor, surety or endorser for the payment or performance of any of
the Obligations. In the event Beneficiary at any time holds additional
security for any of the Obligations, it may enforce the sale thereof or
otherwise realize upon the same, at its option, either before, concurrently
with, or after a sale or realization is made hereunder.
1.15 Appointment of Successor Trustee. Beneficiary may,
from time to time, by a written instrument executed and acknowledged by
Beneficiary, recorded in the county in which the Trust Estate is located or by
otherwise complying with the provisions of applicable law, substitute a
successor or successors to any Trustee named herein or acting hereunder, and
such successor(s) shall, without conveyance from the Trustee predecessor,
succeed to all title, estate, rights, powers and duties of such predecessor.
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1.16 Inspections. Beneficiary, and its agents,
representatives officers, and employees, are authorized, upon reasonable
notice, to enter at any reasonable time upon or in any part of the Trust Estate
for the purpose of inspecting the same and for the purpose of performing any of
the acts Beneficiary is authorized to perform hereunder or under the terms of
any of the Loan Documents.
1.17 Ownership and Liens and Encumbrances. Trustor is, and
as to any portion of the Trust Estate acquired hereafter will upon such
acquisitions be, and shall remain the owner of the Trust Estate free and clear
of any Liens and Encumbrances. In the event Beneficiary consents to any Lien
or Encumbrance, all amounts due thereunder shall be paid prior to delinquency.
Trustor shall not grant, shall not suffer to exist, and shall pay and promptly
discharge, at Trustor's cost and expense, all Liens and Encumbrances and any
claims thereof upon the Trust Estate, or any part thereof or interest therein.
Trustor shall notify Beneficiary immediately in writing of any Lien or
Encumbrance or claim thereof. Trustor shall have the right to contest in good
faith the validity of any involuntary Lien or Encumbrance, provided Trustor
shall first deposit with Beneficiary a bond or other security satisfactory to
Beneficiary in such amount as Beneficiary shall reasonably require, but not
more than one hundred fifty percent (150%) of the amount of the claim, and
provided further that if Trustor loses such contest, Trustor shall thereafter
diligently proceed to cause such Lien or Encumbrance to be removed and
discharged. If Trustor shall fail to remove and discharge any Lien or
Encumbrance or claim thereof, then, in addition to any other right or remedy of
Beneficiary, Beneficiary may, after only such notice to Trustor as may be
reasonable under the then existing circumstances, but shall not be obligated
to, discharge the same, either by paying the amount claimed to be due, or by
procuring the discharge of such Lien or Encumbrance by depositing in a court a
bond or the amount claimed or otherwise giving security for such claim, or by
procuring such discharge in such manner as is or may be prescribed by law.
Trustor shall, immediately upon demand therefor by Beneficiary, pay to
Beneficiary an amount equal to all costs and expenses incurred by Beneficiary
in connection with the exercise by Beneficiary of the foregoing right to
discharge any Lien or Encumbrance or claim thereof, together with interest
thereon from the date of each such expenditure at the Agreed Rate. Such costs
and expenses shall be secured by this Deed of Trust. "Lien or Encumbrance" and
"Liens and Encumbrances" mean, respectively, each and all of the following in
respect of the Trust Estate: leases, other rights to occupy or use, mortgages,
deeds of trust, pledges, security agreements, assignments, assignments as
security, conditional sales, title retention arrangements or agreements,
conditions, covenants, and restrictions, and other charges, liens,
encumbrances, or adverse interests, whether voluntarily or involuntarily
created and regardless of whether prior or subordinate to any estate, right,
title, or interest
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granted to Trustee or Beneficiary in this Deed of Trust, excluding from the
foregoing the Permitted Exceptions.
1.18 Trustee's Powers. At any time, or from time to time,
without liability therefor and without notice, upon written request of
Beneficiary and presentation of this Deed of Trust and without affecting the
personal liability of any person for payment of the Obligations or the effect
of this Deed of Trust upon the remainder of said Trust Estate, Trustee may (a)
reconvey any part of said Trust Estate, (b) consent in writing to the making of
any map or plat thereof, (c) join in granting any easement thereon, or (d) join
in any extension agreement or any agreement subordinating the lien or charge
hereof.
1.19 Beneficiary's Powers. Without affecting the liability
of any Person liable for the payment of the Obligations herein mentioned, and
without affecting the lien or charge of this Deed of Trust upon any portion of
the Trust Estate not then or theretofore released as security for the
Obligations, Beneficiary may, from time to time and without notice (a) release
any person so liable, (b) extend the time for payment of the Obligations, (c)
grant other indulgences, (d) release or reconvey, or cause to be released or
reconveyed, at any time at Beneficiary's option any parcel, portion or all of
the Trust Estate, (e) take or release any other or additional security or any
guaranty for any Obligation herein mentioned, or (f) make compositions or other
arrangements with debtors in relation thereto.
1.20 Financial Statements. Trustor shall deliver to
Beneficiary such financial statements, balance sheets, profit and loss
statements, operating statements, income and expense statements and other
financial information in such detail and at the times required by the Loan
Agreement. All such statements shall be prepared in accordance with the
requirements of the Loan Agreement. Beneficiary shall have the right, upon
prior notice to Trustor, to audit, inspect and copy all of Trustor's books and
records, relating thereto, during normal business hours.
1.21 Trade Names. At the request of Beneficiary from time
to time, Trustor shall execute a certificate in form satisfactory to
Beneficiary listing the trade names or fictitious business names under which
Trustor intends to operate the Trust Estate or any business located thereon and
representing and warranting that Trustor does business under no other trade
names or fictitious business names with respect to the Trust Estate. Trustor
shall immediately notify Beneficiary in writing of any change in said trade
names or fictitious business names, and will, upon request of Beneficiary,
execute any additional financing statements and other certificates necessary to
reflect the change in trade names or fictitious business names.
ARTICLE II
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ASSIGNMENT OF RENTS
2.01 Assignment of Rents. Trustor hereby absolutely and
irrevocably assigns and transfers to Beneficiary all the Rents of the Trust
Estate, and hereby gives to and confers upon Beneficiary the right, power and
authority to collect the Rents. Trustor irrevocably appoints Beneficiary its
true and lawful attorney-in-fact, at the option of Beneficiary at any time and
from time to time, to demand, receive and enforce payment, to give receipts,
releases and satisfactions, and to sue, in the name of Trustor or Beneficiary,
for all Rents and apply the same to the payment of the Obligations in such
order as Beneficiary shall determine. Trustor hereby authorizes and directs
the lessees, tenants and occupants to make all payments under the Leases
directly to Beneficiary upon written demand by Beneficiary, without further
consent of Trustor. Notwithstanding any other provisions contained herein to
the contrary, unless and until an Event of Default occurs, Trustor shall have a
revocable license to collect such Rents (but not more than one (1) month in
advance unless the written approval of Beneficiary is first obtained), and to
retain and enjoy same. The assignment of the Rents of the Trust Estate in this
Article II is intended to be an absolute and unconditional assignment from
Trustor to Beneficiary and not merely the passing of a security interest.
2.02 Collection. Upon the occurrence and during the
continuance of an Event of Default, Beneficiary may, at any time without notice
either in person, by agent or by a receiver appointed by a court, and without
regard to the adequacy of any security for the Obligations, enter upon and take
possession of the Trust Estate, or any part thereof, and, with or without such
entry or taking possession, in its own name sue for or otherwise collect the
Rents (including, without limitation, those past due and unpaid) and apply the
same, less costs and expenses of operation and collection (including, without
limitation, attorneys' fees) upon payment of the Obligations in such order as
Beneficiary may determine. The collection of such Rents, or the entering upon
and taking possession of the Trust Estate, or the application of the Rents as
aforesaid, shall not cure or waive any default or notice of default hereunder
or invalidate any act done in response to such default or pursuant to such
notice of default. Upon the occurrence and during the continuance of an Event
of Default, Trustor also hereby authorizes Beneficiary upon such entry, at its
option, to take over and assume the management, operation and maintenance of
the Trust Estate and to perform all acts Beneficiary in its sole discretion
deems necessary and proper and to expend such sums out of Rents as may be
needed in connection therewith, in the same manner and to the same extent as
Trustor theretofore could do (including, without limitation, the right to enter
into new leases, to cancel, surrender, alter or amend the terms of, and/or
renew existing leases collectively, the "Leases", and/or to make concessions to
tenants). Trustor hereby releases all claims of any
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kind or nature against Beneficiary arising out of such management, operation
and maintenance, excepting the liability of Beneficiary to account as
hereinafter set forth.
2.03 Application of Rents. Upon such entry, Beneficiary
shall, after payment of all property charges and expenses (including, without
limitation, reasonable compensation to such managing agent as it may select and
employ) and after the accumulation of a reserve to meet requisite amounts,
credit the net amount of the Rents received by it to the Obligations, but the
manner of the application of such net income and which items shall be credited
shall be determined in the sole discretion of Beneficiary. Beneficiary shall
not be accountable for more monies than it actually receives from the Trust
Estate; nor shall it be liable for failure to collect Rents. Beneficiary shall
make reasonable efforts to collect Rents, reserving, however, within its own
absolute and sole discretion, the right to determine the method of collection
and the extent to which enforcement of collection of Rents shall be prosecuted
and Beneficiary's judgment shall be deemed conclusive and reasonable.
2.04 Mortgagee in Possession. It is not the intention of
the parties hereto that an entry by Beneficiary upon the Premises under the
terms of this instrument shall make Beneficiary a party in possession in
contemplation of the law, except at the option of Beneficiary.
2.05 Indemnity. Trustor hereby agrees to indemnify and hold
harmless Beneficiary for, from and against any and all losses, liabilities,
obligations, claims, demands, damages, penalties, judgments, costs, and
expenses, including legal fees and expenses, howsoever and by whomsoever
asserted, arising out of or in any way connected with this assignment; and all
such losses, liabilities, obligations, claims, demands, damages, penalties,
judgments, costs and expenses shall be deemed added to the indebtedness secured
hereby and shall be secured by any and all other instruments securing said
indebtedness.
2.06 No Obligation to Perform. Nothing contained herein
shall operate or be construed to obligate Beneficiary to perform any
obligations of Trustor under any Lease (including, without limitation, any
obligation arising out of any covenant of quiet enjoyment therein contained in
the event the lessee under any such Lease shall have been joined as a party
defendant in any action to foreclose and the estate of such lessee shall have
been thereby terminated). Prior to actual entry into and taking possession of
the Premises by Beneficiary, this assignment shall not operate to place upon
Beneficiary any responsibility for the operation, control, care, management or
repair of the Trust Estate or any portion thereof, and the execution of this
assignment by Trustor shall constitute conclusive evidence that all
responsibility for the operation, control, care, management and repair of the
Trust
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Estate is and shall be that of Trustor, prior to such actual entry and taking
of possession.
ARTICLE III
SECURITY AGREEMENT
3.01 Creation of Security Interest. Trustor hereby grants
to Beneficiary, a security interest in and to all the Personal Property.
3.02 Representations, Warranties and Covenants of Trustor.
Trustor hereby represents, warrants and covenants (which representations,
warranties and covenants shall survive creation of any indebtedness of Trustor
to Beneficiary and any extension of credit thereunder) as follows:
(a) The Personal Property is not used or bought for
personal, family or household purposes.
(b) The tangible portion of the Personal Property will be
kept on or at the Premises or Improvements and Trustor will not, without
the prior written consent of Beneficiary, remove the Personal Property
or any portion thereof therefrom except such portions or items of
Personal Property which are consumed or worn out in ordinary usage, all
of which shall be promptly replaced by Trustor with similar items of
comparable value.
(c) At the request of Beneficiary, Trustor will join
Beneficiary in executing one or more financing statements and fixture
filings pursuant to the Uniform Commercial Code of California as in
effect in the State of California ("Uniform Commercial Code of
California"), in form satisfactory to Beneficiary and will pay the cost
of recording and filing the same in all public offices wherever
recording or filing is deemed by Beneficiary to be necessary or
desirable.
(d) Trustor's principal place of business is in the State
of California at 14 Corporate Plaza, Newport Beach, California 92660.
Trustor does not do business under any trade name except as previously
disclosed in writing to Beneficiary. Trustor will immediately notify
Beneficiary in writing of any change in its place of business or the
adoption or change of any trade name or fictitious business name, and
will upon request of Beneficiary, execute any additional financing
statements or other certificates necessary to reflect the adoption or
change in trade name or fictitious business name.
(e) Trustor shall immediately notify Beneficiary of any
claim against the Personal Property adverse to the interest of
Beneficiary therein.
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3.03 Use of Personal Property by Trustor. Until the
occurrence and continuance of an Event of Default hereunder or under any other
Loan Document, Trustor may have possession of the Personal Property and use it
in any lawful manner not inconsistent with this Deed of Trust and not
inconsistent with any policy of insurance thereon.
3.04 Remedies Upon an Event of Default.
(a) In addition to the remedies provided in Section 4.02
hereof, upon the occurrence and during the continuance of an Event of
Default hereunder, Beneficiary may, at its option, do any one or more of
the following:
(i) Either personally, or by means of a court
appointed receiver, take possession of all or any of the
Personal Property and exclude therefrom Trustor and all others
claiming under Trustor, and thereafter hold, store, use,
operate, manage, maintain and control, make repairs,
replacements, alterations, additions and improvements to and
exercise all rights and powers of Trustor with respect to the
Personal Property or any part thereof. In the event Beneficiary
demands, or attempts to take possession of the Personal Property
in the exercise of any rights under this Deed of Trust, Trustor
agrees to promptly turn over and deliver possession thereof to
Beneficiary;
(ii) Without notice to or demand upon Trustor, make
such payments and do such acts as Beneficiary may deem necessary
to protect its security interest in the Personal Property
(including, without limitation, paying, purchasing, contesting
or compromising any Lien or Encumbrance, whether superior or
inferior to such security interest) and in exercising any such
powers or authority to pay all expenses (including, without
limitation, litigation costs and reasonable attorney's fees)
incurred in connection therewith;
(iii) Require Trustor from time to time to assemble
the Personal Property, or any portion thereof, at a place
designated by Beneficiary and reasonably convenient to both
parties, and deliver promptly such Personal Property to
Beneficiary, or an agent or representative designated by
Beneficiary. Beneficiary, and its agents and representatives,
shall have the right to enter upon any or all of Trustor's
premises and property to exercise Beneficiary's rights
hereunder;
(iv) Realize upon the Personal Property or any part
thereof as herein provided or in any manner permitted by law and
exercise any and all of the other rights and remedies conferred
upon Beneficiary by this Deed of Trust,
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any other Loan Document, or by law, either concurrently or in
such order as Beneficiary may determine;
(v) Sell or cause to be sold in such order as
Beneficiary may determine, as a whole or in such parcels as
Beneficiary may determine, the Personal Property and the
remainder of the Trust Estate;
(vi) Sell, lease, or otherwise dispose of the
Personal Property at public sale, upon terms and in such manner
as Beneficiary may determine. Beneficiary may be a purchaser at
any sale; and
(vii) Exercise any remedies of a secured party under
the Uniform Commercial Code of California or any other
applicable law.
(b) Unless the Personal Property is perishable or threatens
to decline speedily in value or is of a type customarily sold on a
recognized market, Beneficiary shall give Trustor at least five (5)
days' prior written notice of the time and place of any public sale of
the Personal Property or other intended disposition thereof to be made.
Such notice may be mailed to Trustor at the address set forth in
Section 5.05.
(c) The proceeds of any sale under Section 3.04(a)(vi)
shall be applied as follows:
(i) To the repayment of the reasonable costs and
expenses of taking, holding, and preparing for the sale and the
selling of the Personal Property (including, without limitation,
costs of litigation and attorneys' fees) and the discharge of
all Impositions, Liens and Encumbrances, and claims thereof, if
any, on the Personal Property prior to the security interest
granted herein (except any Impositions or Liens and Encumbrances
subject to which such sale shall have been made);
(ii) To the payment of the Obligations in such order
as Beneficiary shall determine; and
(iii) The surplus, if any, shall be paid to the
Trustor or to whomsoever may be lawfully entitled to receive the
same, or as a court of competent jurisdiction may direct.
Beneficiary shall have the right to enforce one or more remedies
hereunder, successively or concurrently, and such action shall not
operate to estop or prevent Beneficiary from pursuing any further remedy
that it may have. Any repossession or retaking or sale of the Personal
Property pursuant to the
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terms hereof shall not operate to release Trustor until full payment of
any deficiency has been made in cash.
3.05 Security Agreement. This Deed of Trust constitutes and
shall be deemed to be a "security agreement" for all purposes of the Uniform
Commercial Code of California and Beneficiary shall be entitled to all the
rights and remedies of a "secured party" under such Uniform Commercial Code of
California.
ARTICLE IV
REMEDIES UPON DEFAULT
4.01 Events of Default. The occurrence of any one or more
of the following shall constitute an event of default ("Event of Default"):
(a) Failure by Trustor to pay any monetary amount when due
under any Loan Document and the expiration of ten (10) days after
written notice of such failure by Beneficiary to Trustor.
(b) Failure by Trustor to perform any obligation not
involving the payment of money, or to comply with any other term or
condition applicable to Trustor, under any Loan Document and, if such
failure is curable, the expiration of thirty (30) days after written
notice of such failure by Beneficiary to Trustor.
(c) Any representation or warranty by Trustor in any Loan
Document is materially false, incorrect, or misleading as of the date
made.
(d) The occurrence of any event (including, without
limitation, a change in the financial condition, business, or operations
of Trustor for any reason whatsoever) that materially and adversely
affects the ability of Trustor to perform any of its obligations under
the Loan Documents.
(e) Trustor (i) is unable or admits in writing Trustor's
inability to pay its monetary obligations as they become due, (ii) makes
a general assignment for the benefit of creditors, or (iii) applies for,
consents to, or acquiesces in, the appointment of a trustee, receiver,
or other custodian for Trustor or all or substantially all of the
property of Trustor, or in the absence of such application, consent, or
acquiescence a trustee, receiver, or other custodian is appointed for
Trustor or all or substantially all of the property of Trustor.
(f) Commencement of any case under the Bankruptcy Code,
Title 11 of the United State Code, or commencement of any other
bankruptcy arrangement, reorganization, receivership, custodianship, or
similar proceeding under any federal, state,
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or foreign law by or against Trustor and with respect to any such case
or proceeding that is involuntary, such case or proceeding is not
dismissed with prejudice within sixty (60) days of the filing thereof.
(g) Any litigation or proceeding is commenced before any
arbitrator, other private adjudicator, court, government or governmental
authority (federal, state, local or foreign) against or affecting
Trustor or the property of Trustor or any part thereof that materially
and adversely affects the ability of Borrower to perform its obligations
under the Loan Documents and such litigation or proceeding is not
defended diligently and in good faith by Trustor.
(h) A final judgment or decree for monetary damages or a
monetary fine or penalty (not subject to appeal or as to which the time
for appeal has expired) is entered against Trustor by any arbitrator,
other private adjudicator, court, government or governmental authority
that materially and adversely affects the ability of Borrower to perform
any of its obligations under the Loan Documents is not paid and
discharged or stayed within thirty (30) days after the entry thereof.
(i) Commencement of any action or proceeding which seeks as
one of its remedies the dissolution of Trustor.
(j) All or any part of the property of Trustor is attached,
levied upon, or otherwise seized by legal process, and such attachment,
levy, or seizure is not quashed, stayed, or released within thirty (30)
days after the date thereof and such attachment, levy or seizure is
otherwise determined by Beneficiary, in its sole discretion, to have a
material adverse effect on the Trust Estate.
(k) The occurrence of any Transfer, unless prior to such
Transfer the holder of the Note has delivered to Trustor the written
consent of such holder to such Transfer.
(l) The occurrence and continuance of any Event of Default,
as such term is defined in any other Loan Document.
(m) If Trustor, at any time, ceases to manage the Trust
Estate.
4.02 Acceleration Upon Default; Additional Remedies. Upon
the occurrence and during the continuance of an Event of Default, Beneficiary
may, at its option, declare all or any part of the Obligations immediately due
and payable without any presentment, demand, protest or notice of any kind.
Thereafter Beneficiary may, in addition to the exercise of any or all of the
remedies specified in Section 3.04:
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(a) Either in person or by agent, with or without bringing
any action or proceeding, or by a receiver appointed by a court and
without regard to the adequacy of its security, enter upon and take
possession of the Trust Estate, or any part thereof, in its own name or
in the name of Trustee, and do any acts that it deems necessary or
desirable to preserve the value, marketability or rentability of the
Trust Estate, or any part thereof or interest therein, increase the
income therefrom or protect the security hereof and, with or without
taking possession of the Trust Estate, sue for or otherwise collect the
Rents, or any part thereof, including, without limitation, those past
due and unpaid, and apply the same, less costs and expenses of operation
and collection (including, without limitation, attorneys' fees) upon the
Obligations, all in such order as Beneficiary may determine. The
entering upon and taking possession of the Trust Estate, the collection
of such Rents and the application thereof as aforesaid, shall not cure
or waive any default or notice of default hereunder or invalidate any
act done in response to such default or pursuant to such notice of
default and, notwithstanding the continuance in possession of all or any
portion of the Trust Estate or the collection, receipt and application
of Rents, Trustee or Beneficiary shall be entitled to exercise every
right provided for in any of the Loan Documents or by law upon
occurrence and during the continuance of any Event of Default,
including, without limitation the right to exercise the power of sale;
(b) Commence an action to foreclose the lien of this Deed
of Trust as a mortgage, appoint a receiver, or specifically enforce any
of the covenants hereof;
(c) Exercise of the power of sale herein contained and
deliver to Trustee a written statement of breach, notice of default and
election to cause Trustor's interest in the Trust Estate to be sold; or
(d) Exercise all other rights and remedies provided herein,
in any Loan Document or other document or agreement now or hereafter
securing or guarantying all or any portion of the Obligations, or by
law.
4.03 Exercise of Power of Sale. If Beneficiary elects to
exercise the power of sale herein contained, Beneficiary shall notify Trustee
and shall deposit with Trustee this Deed of Trust and the Note and such
receipts and evidence of expenditures made and secured hereby as Trustee may
require.
(a) Upon receipt of such statement and notice from
Beneficiary, Trustee shall cause to be recorded, published and delivered
to Trustor such Notice of Default and/or Notice of Sale (as applicable)
as then required by law. Trustee shall, without demand on Trustor,
after lapse of such time as may then
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be required by law and after recordation of such Notice of Default and
Notice of Sale having been given as required by law, sell the Trust
Estate at the time and place of sale fixed by it in said Notice of Sale,
either as a whole, or in separate lots or parcels or items as Trustee
shall deem expedient, and in such order as it may determine, at public
auction to the highest bidder for cash in lawful money of the United
States payable at the time of sale. Trustee shall deliver to such
purchaser or purchasers thereof its good and sufficient deed or deeds
conveying the property so sold, but without any covenant or warranty,
express or implied. The recitals in such deed of any matters or facts
shall be conclusive proof of the truthfulness thereof. Any person,
including, without limitation, Trustor, Trustee or Beneficiary, may
purchase at such sale and Trustor hereby covenants to warrant and defend
the title of such purchaser or purchasers.
(b) After deducting all costs, fees and expenses of Trustee
and of this Deed of Trust, including, without limitation, Trustee's fees
and reasonable attorneys' fees, and costs of evidence of title in
connection with sale, Trustee shall apply the proceeds of sale in the
following priority, to payment of: (i) all sums expended under the
terms of the Loan Documents, not then repaid, with accrued interest at
the Agreed Rate; (ii) second all sums due under the Note; (iii) all
other sums, then secured hereby; and (iv) the remainder, if any, to the
person or persons legally entitled thereto.
(c) Trustee may postpone sale of all or any portion of the
Trust Estate by public announcement at such time and place of sale, and
from time to time thereafter may postpone such sale by public
announcement or subsequently noticed sale, and without further notice
make such sale at the time fixed by the last postponement, or may, in it
discretion, give a new notice of sale.
4.04 Personal Property. It is the express understanding and
intent of the parties that as to any personal property interests subject to
Chapter 9 of the Uniform Commercial Code of California, Beneficiary, upon the
occurrence and during the continuance of an Event of Default, may proceed under
such Uniform Commercial Code of California or may proceed as to both real and
personal property interests in accordance with the provisions of this Deed of
Trust and its rights and remedies in respect to real property and treat both
real and personal property interests as one parcel or package of security.
4.05 Appointment of Receiver. Upon the occurrence and
during the continuance of an Event of Default, Beneficiary, as a matter of
right and without notice to Trustor or any one claiming under Trustor, and
without regard to the then value of the Trust Estate or the interest of Trustor
therein, shall have the right to
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apply to any court having jurisdiction to appoint a receiver or receivers of
the Trust Estate, and Trustor hereby irrevocably consents to such appointment
and waives notice of any application therefor. Any such receiver or receivers
shall have all the usual powers and duties of receivers in like or similar
cases and all the powers and duties of Beneficiary in case of entry as provided
herein and shall continue as such and exercise all such powers until the later
of the date of confirmation of sale of the Trust Estate or the date of
expiration of any redemption period unless such receivership is sooner
terminated.
4.06 Remedies Not Exclusive. Trustee and Beneficiary, and
each of them, shall be entitled to enforce payment and performance of any and
all of the Obligations and to exercise all rights and powers under the Loan
Documents and under the law now or hereafter in effect, notwithstanding some or
all of the Obligations may now or hereafter be otherwise secured or guaranteed.
Neither the acceptance of this Deed of Trust nor its enforcement, whether by
court action or pursuant to the power of sale or other rights herein contained,
shall prejudice or in any manner affect Trustee's or Beneficiary's right to
realize upon or enforce any other security or guaranty now or hereafter held by
Trustee or Beneficiary, it being agreed that Trustee and Beneficiary, and each
of them shall be entitled to enforce this Deed of Trust and any other security
or any guaranty now or hereafter held by Beneficiary or Trustee in such order
and manner as they or either of them may in their absolute discretion
determine. No remedy herein conferred upon or reserved to Trustee or
Beneficiary is intended to be exclusive of any other remedy herein or by law
provided or permitted, but each shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing under the law.
Every power or remedy given by any of the Loan Documents or by law to Trustee
or Beneficiary or to which either of them may be otherwise entitled, may be
exercised, concurrently or independently, from time to time and as often as may
be deemed expedient by Trustee or Beneficiary and, to the extent permitted by
law, either of them may pursue inconsistent remedies.
4.07 Request for Notice. Trustor hereby requests a copy of
any Notice of Default and any Notice of Sale hereunder, as may be required by
law, be mailed to it at the address set forth in Section 5.05.
ARTICLE V
MISCELLANEOUS
5.01 Change, Discharge, Termination, or Waiver. No
provision of this Deed of Trust may be changed, discharged, terminated, or
waived except in a writing signed by the party against whom enforcement of the
change, discharge, termination, or waiver is sought. No failure on the part of
Beneficiary to
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exercise and no delay by Beneficiary in exercising any right or remedy under
the Loan Documents or under the law shall operate as a waiver thereof.
5.02 Trustor Waiver of Rights. Except for California Code
of Civil Procedure Section 580 and 726, Trustor waives, to the extent permitted
by law, (a) the benefit of all laws now existing or that may hereafter be
enacted providing for any appraisement before sale of any portion of the Trust
Estate, and (b) all rights of redemption, valuation, appraisement, stay of
execution, notice of election to mature or declare due the Obligations and the
right to require marshaling in the event of foreclosure of the liens hereby
created, and (c) all rights and remedies that Trustor may have or be able to
assert by reason of the laws of the State of California pertaining to the
rights and remedies of sureties including, without limitation, Sections 2809,
2810, 2819, 2839, 2845, 2849, 2850, 2899 and 3433 of the California Civil Code.
5.03 Statements by Trustor. Trustor shall, within ten (10)
days after written notice thereof from Beneficiary, deliver to Beneficiary a
written statement stating the unpaid principal of and interest on the Note and
any other amounts secured by this Deed of Trust and stating whether any offset
or defense exists against such principal and interest or such other amounts.
5.04 Reconveyance by Trustee. Upon written request of
Beneficiary stating that all Obligations have been satisfied in full, and upon
surrender of this Deed of Trust and the Note to Trustee for cancellation and
retention and upon payment by Trustor of Trustee's fees, Trustee shall reconvey
to Trustor, or to the person or persons legally entitled thereto, without
warranty, any portion of the Trust Estate then held hereunder. The recitals in
such reconveyance of any matters or facts shall be conclusive proof of the
truthfulness thereof. The grantee in any reconveyance may be described as "the
person or persons legally entitled thereto."
5.05 Notices. All notices, requests and demands to be made
hereunder to the parties hereto shall be in writing and shall be delivered by
hand or sent by registered or certified mail, return receipt requested, through
the United States Postal Service to the addresses shown below or such other
address which the parties may provide to one another in accordance herewith.
Such notices, requests and demands, if sent by mail, shall be deemed given two
(2) days after deposit in the United States mail, and if delivered by hand,
shall be deemed given when delivered.
To Beneficiary: Real Estate Finance Division
P. O. Box 29542 (A-383)
Phoenix, Arizona 85038
Attn: Fred Sutter
27
<PAGE> 76
To Trustor: 3501 Jamboree Road, Suite 200
Newport Beach, California 92658
Attn: Hadi Makarechian
5.06 Acceptance by Trustee. Trustee accepts this Trust when
this Deed of Trust, duly executed and acknowledged, is made a public record as
provided by law.
5.07 Captions and References. The headings at the beginning
of each section of this Deed of Trust are solely for convenience and are not
part of this Deed of Trust. Unless otherwise indicated, each reference in this
Deed of Trust to a section or an exhibit is a reference to the respective
section herein or exhibit hereto.
5.08 Invalidity of Certain Provisions. If any provision of
this Deed of Trust is unenforceable, the enforceability of the other provisions
shall not be affected and they shall remain in full force and effect. If the
lien of this Deed of Trust is invalid or unenforceable as to any part of the
debt, or if the lien is invalid or unenforceable as to any part of the Trust
Estate, the unsecured or partially secured portion of the debt shall be
completely paid prior to the payment of the remaining and secured or partially
secured portion of the debt, and all payments made on the debt, whether
voluntary or under foreclosure or other enforcement action or procedure, shall
be considered to have been first paid on and applied to the full payment of
that portion of the debt which is not secured or fully secured by the lien of
this Deed of Trust.
5.09 Subrogation. To the extent that proceeds of the Note
are used to pay any outstanding lien, charge or prior encumbrance against the
Trust Estate, such proceeds have been or will be advanced by Beneficiary at
Trustor's request and Beneficiary shall be subrogated to any and all rights and
liens held by any owner or holder of such outstanding liens, charges and prior
encumbrances, irrespective of whether said liens, charges or encumbrances are
released.
5.10 Attorneys' Fees. If any or all of the Obligations are
not paid when due or if an Event of Default occurs, Trustor agrees to pay all
costs of enforcement and collection and preparation therefore (including,
without limitation, reasonable attorney's fees) whether or not any action or
proceeding is brought (including, without limitation, all such costs incurred
in connection with any bankruptcy, receivership, or other court proceedings
(whether at the trial or appellate level)), together with interest therein from
the date of demand at the Agreed Rate.
5.11 GOVERNING LAW. THIS DEED OF TRUST SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARIZONA, WITHOUT
GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES.
28
<PAGE> 77
5.12 Joint and Several Obligations. If this Deed of Trust
is signed by more than one party as Trustor, all obligations of Trustor herein
shall be the joint and several obligations of each party executing this Deed of
Trust as Trustor.
5.13 Number and Gender. In this Deed of Trust the singular
shall include the plural and the masculine shall include the feminine and
neuter gender and vice versa, if the context so requires.
5.14 Loan Statement Fees. Trustor shall pay the amount
demanded by Beneficiary or its authorized loan servicing agent for any
statement regarding the Obligations, provided, however, that such amount may
not exceed the maximum amount allowed by law at the time request for the
statement is made.
5.15 Counterparts. This document may be executed and
acknowledged in counterparts, all of which executed and acknowledged
counterparts shall together constitute a single document. Signature and
acknowledgment pages may be detached from the counterparts and attached to a
single copy of this document to form physically one document, which may be
recorded.
5.16 No Merger of Lease. If both the lessor's and lessee's
estate under any lease or any portion thereof which constitutes a part of the
Trust Estate shall at any time become vested in one owner, this Deed of Trust
and the lien created hereby shall not be destroyed or terminated by application
of the doctrine of merger unless Beneficiary so elects as evidenced by
recording a written declaration executed by Beneficiary so stating, and, unless
and until Beneficiary so elects, Beneficiary shall continue to have and enjoy
all of the rights and privileges of Beneficiary as to the separate estates. In
addition, upon the foreclosure of the lien created by this Deed of Trust on the
Trust Estate pursuant to the provisions hereof, any leases or subleases then
existing and affecting all or any portion of the Trust Estate shall not be
destroyed or terminated by application of the law of merger or as a matter of
law or as a result of such foreclosure unless Beneficiary or any purchaser at
such foreclosure sale shall so elect. No act by or on behalf of Beneficiary or
any such purchaser shall constitute a termination of any lease or sublease
unless Beneficiary or such purchaser shall give written notice thereof to such
tenant or subtenant.
5.17 Status of Title. Trustor represents and warrants that
it is the lawful owner of the Trust Estate free and clear of all Liens and
Encumbrances and holds a fee simple estate in the Premises and Improvements,
subject only to the Permitted Exceptions and that Trustor has full right, power
and authority to convey and mortgage the same and to execute this Deed of
Trust.
29
<PAGE> 78
5.18 Integration. The Loan Documents contain the complete
understanding and agreement of Trustor and Beneficiary and supersede all prior
representations, warranties, agreements, arrangements, understandings, and
negotiations.
5.19 Binding Effect. The Loan Documents will be binding
upon, and inure to the benefit of, Trustor, Trustee and Beneficiary and their
respective successors and assigns. Trustor may not delegate its obligations
under the Loan Documents.
5.20 Time of the Essence. Time is of the essence with
regard to the each provision of the Loan Documents as to which time is a
factor.
5.21 Survival. The representations, warranties, and
covenants of the Trustor and the Loan Documents shall survive the execution and
delivery of the Loan Documents and the making of the Loan.
5.22 Construction Deed of Trust. This Deed of Trust secures
an obligation incurred for the construction of improvements on land. This Deed
of Trust is a construction deed of trust and is entitled to the benefits of
California Uniform Commercial Code Section 9313(6).
IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as
of the day and year first above written.
J.M. PETERS COMPANY, INC.,
a Delaware corporation
By:____________________________
Name:__________________________
Title:_________________________
"Trustor"
30
<PAGE> 79
STATE OF CALIFORNIA )
) ss.
COUNTY OF )
On ___________________, 1994, before me, ______________________,
a Notary Public, personally appeared _________________________________ and
_________________________, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the persons whose names are subscribed
to the within instrument and acknowledged to me that they executed the same
in their authorized capacities, and that by their signatures on the instrument
the persons, or the entity upon behalf of which the persons acted, executed
the instrument.
WITNESS my hand and official seal.
Signature ______________________________ (Seal)
31
<PAGE> 80
EXHIBIT A
_________
Legal Description
<PAGE> 81
EXHIBIT B
_________
DESCRIPTION OF PERSONAL PROPERTY
(a) All personal property, (including, without limitation,
all goods, supplies, equipment, furniture, furnishings, fixtures, machinery,
inventory, and construction materials) in which Trustor now or hereafter
acquires an interest or right, which is now or hereafter located on or affixed
to the Premises or the Improvements or used in the operation, use, or occupancy
thereof or the construction of any Improvements thereon, together with any
interest of Trustor in and to personal property which is leased or subject to
any superior security interest, and all books, records, leases and other
agreements, documents, and instruments of whatever kind or character, relating
to the Premises, Improvements, or such personal property;
(b) All fees, income, rents, issues, profits, earnings,
receipts, royalties, and revenues which, after the date hereof and while any
portion of the Obligations remains unpaid or unperformed, may accrue from such
personal property or any part thereof or from the Premises, the Improvements or
any other part of the Trust Estate, or which may be received or receivable by
Trustor from any hiring, using, letting, leasing, subhiring, subletting,
subleasing, occupancy, operation, or use thereof;
(c) All of Trustor's present and future rights to receive
payments of money, services, or property from or through the Premises or
Improvements, including, without limitation, rights to all deposits from
tenants of the Premises or Improvements, accounts and other accounts
receivable, deposit accounts, chattel paper, notes, drafts, contract rights,
instruments, general intangibles, and principal, interest and payments due on
account of goods sold or leased, services rendered, loans made or credit
extended, together with title to or interest in all agreements, documents, and
instruments, evidencing, securing or guarantying the same affecting or arising
from or through the Premises or the Improvements;
(d) All other intangible property and rights relating to
the Premises, the Improvements, the personal property described in Paragraph
(a) above or the operation, occupancy, or use thereof, including, without
limitation, to the extent assignable, all governmental and non-governmental
permits, licenses, and approvals relating to construction on or operation,
occupancy, or use of the Premises or Improvements, all names under or by which
the Premises or
<PAGE> 82
Improvements may at any time be operated or known, all rights
to carry on business under any such names, or any variant thereof, all trade
names and trademarks, except Fieldstone, relating in any way to the Premises or
the Improvements, and all good will in any way relating to the Premises or the
Improvements.
(e) Trustor's rights under all insurance policies covering
the Premises, the Improvements, the Personal Property, and the other parts of
the Trust Estate and any and all proceeds, loss payments, and premium refunds
payable regarding the same;
(f) All reserves, deferred payments, deposits, refunds,
cost savings, and payments of any kind relating to the construction of any
Improvements on the Premises;
(g) All water stock relating to the Premises;
(h) All causes of action, claims, compensation, and
recoveries for any damage to, destruction of, or condemnation or taking of the
Premises, the Improvements, the Personal Property, or any other part of the
Trust Estate, or for any conveyance in lieu thereof, whether direct or
consequential, or for any damage or injury to the Premises, the Improvements,
the Personal Property, or any other part of the Trust Estate, or for any loss
or diminution in value of the Premises, the Improvements, the Personal
Property, or any other part of the Trust Estate;
(i) All architectural, structural, mechanical, and
engineering plans and specifications prepared for construction of Improvements
or extraction of minerals or gravel from the Premises and all studies, data,
and drawings related thereto; and also all contracts and agreements of the
Trustor relating to the aforesaid plans and specifications or to the aforesaid
studies, data, and drawings or to the construction of Improvements on or
extraction of minerals or gravel from the Premises;
(j) Except for the Excess, all proceeds from sale or
disposition of any of the aforesaid collateral; and
(k) As used in this Exhibit B the terms "Premises",
"Improvements", and "Personal Property" shall have the meanings set forth in
the Deed of Trust to which this Exhibit B is attached.
<PAGE> 83
EXHIBIT C
"Permitted Exceptions" means the following:
1. Sale, transfer, or other disposition of any Personal
Property that is consumed or worn out in ordinary usage and that is promptly
replaced with similar items of equal or greater value.
2. Liens and Encumbrances being contested in accordance
with Section 1.19 of the Deed of Trust.
3. Impositions being contested in accordance with Section
1.08(d) of this Deed of Trust.
4. This Deed of Trust.
5. The items listed in Schedule B to the ALTA lender's
title insurance policy issued by a corporation, insuring this Deed of Trust.
<PAGE> 84
When recorded return to:
Snell & Wilmer
One Arizona Center
Phoenix, AZ 85004-0001
Attention: Nicholas J. Wood, Esq.
_____________________________________________________________________________
FOR RECORDER'S USE
CONSTRUCTION DEED OF TRUST
(WITH ASSIGNMENT OF RENTS AND SECURITY AGREEMENT)
(VARIABLE RATE)
(HOME LOAN)
(NEVADA)
THIS DEED OF TRUST SECURES A VARIABLE RATE PROMISSORY NOTE WHICH
VARIES ACCORDING TO CHANGES IN BENEFICIARY'S "PRIME RATE" IN
ACCORDANCE WITH THE TERMS OF SAID NOTE.
TRUSTOR: J. M. PETERS COMPANY, INC., a Delaware corporation
3501 Jamboree Road, Suite 200
Newport Beach, California 92658
BENEFICIARY: BANK ONE, ARIZONA, NA, a national banking association
Real Estate Lending Division
P. O. Box 29542
Phoenix, Arizona 85038
TRUSTEE: ____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
PROPERTY in City of ___________________, County of __________, State of Nevada,
described as:
See Exhibit "A" attached hereto and incorporated herein by
this reference.
This Deed of Trust made between the Trustor, Trustee and Beneficiary above
named,
EXHIBIT "A-2"
<PAGE> 85
FOR GOOD AND VALUABLE CONSIDERATION, including the
indebtedness herein recited and the trust herein created, the receipt of which
is hereby acknowledged, Trustor IRREVOCABLY GRANTS, BARGAINS, SELLS, TRANSFERS,
CONVEYS and ASSIGNS to TRUSTEE, IN TRUST WITH POWER OF SALE, for the benefit
and security of Beneficiary, under and subject to the terms and conditions
hereinafter set forth, that certain real property more particularly described
on Exhibit "A" and grants to Beneficiary a security interest in all of the
personal property described herein (the "Personal Property"), which includes
all improvements, all furnishings, all fixtures, and all equipment, machinery,
and apparatus of every kind and nature now located on said property or
hereafter attached to or used in connection with the property described above,
together with all attachments, substituted parts, accessions, improvements and
replacements thereof, all of which Trustor represents are and shall be and are
intended to be a part of the realty, together with all permits, licenses,
insurance payments, and condemnation awards relating to or pertaining to said
property, if any, together with all and singular the tenements, hereditaments,
and appurtenances, and all of the rents, issues and profits thereof, and the
reversion and reversions, remainder and remainders, and together with all water
rights thereunto belonging, to have and hold unto Trustee, its successors and
assigns forever (hereinafter called "Trust Property").
FOR THE PURPOSE OF SECURING:
(1) Performance of the covenants and agreements herein
set forth and payment of that certain Secured Promissory Note dated the ____
day of June, 1994 in the sum of up to Twenty-Five Million and No/100 Dollars
($25,000,000.00) and interest as specified therein (as it may be amended,
modified, extended, and renewed from time to time, the "Note") executed by
Trustor pursuant to that certain Master Revolving Line of Credit Agreement
dated June ___, 1994 by and between Trustor and Beneficiary (as it may be
amended, modified, extended, and renewed from time to time, the "Loan
Agreement"). The Loan Agreement and Note contain provisions providing for a
variable rate of interest under the Note;
(2) Performance of each covenant, promise and agreement
of Trustor contained herein or incorporated herein by reference;
(3) Payment of all sums required to be made by Trustor
pursuant to the terms hereof; and
(4) To secure performance of the covenants and agreements
set forth and payment of all Secured Promissory Notes, whether now existing or
hereafter arising, executed by Trustor, it being the intention of Trustor and
Beneficiary that this Deed of Trust shall secure all obligations of Trustor to
Beneficiary, whether now existing or hereafter arising.
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<PAGE> 86
This Deed of Trust, the Note, the Loan Agreement and any other
deeds of trust, mortgages, agreements, guarantees or other instruments given to
evidence or further secure the payment and performance of any or all of the
obligations under the foregoing instruments, as such instruments may be
amended, modified, extended, or renewed from time to time may hereinafter be
referred to as the "Loan Documents."
TO PROTECT THE TRUST PROPERTY AND SECURITY GRANTED BY THIS
TRUST DEED, IT IS AGREED:
1. Trustor warrants that it is seized of good and
merchantable fee simple title to the Trust Property, subject only to
reservations in the patent, water right application, obligations arising in
favor of water use or irrigation associations or companies (none of the
assessments of which are delinquent), current taxes not delinquent, easements
and restrictions of record, and none other.
Trustor acknowledges that all legal descriptions of real
estate listed herein were provided by Trustor, warrants the correctness of such
descriptions, and agrees that, in the event there does exist an error or defect
in such legal descriptions, Trustor authorizes Trustee to do all acts and
things and execute all documents deemed necessary by Beneficiary, proper and
convenient for the perfection, protection, preservation or enforcement of
Beneficiary's rights hereunder.
2. Trustor agrees to pay all indebtedness secured hereby
including principal, interest, costs and attorney's fees in accordance with the
terms of each evidence of indebtedness.
3. Trustor agrees to pay, before the same becomes
delinquent, all taxes, assessments, water and other charges levied or assessed
upon or against the Trust Property, and in addition all charges for gas,
electricity and other items furnished to or charged against the Trust Property.
Trustor agrees to pay, prior to delinquency, any and all
ground rents and amounts payable under any lease, trust deed, mortgage or other
instrument which may be an encumbrance on the Trust Property.
4. Trustor agrees to keep the Trust Property insured
against loss by fire and other hazards and casualties in such amounts and for
such periods as may be required from time to time by Beneficiary and as
required pursuant to the Loan Agreement. Trustor also agrees to maintain and
keep in force during the term hereof flood hazard insurance as may be or may
have been required by Beneficiary, by law or regulation and as required
pursuant to the Loan Agreement. Trustor agrees to pay the premiums on such
insurance, when due and prior to delinquency, and furnish proof of
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<PAGE> 87
such payment to Beneficiary. All insurance shall be carried in responsible
insurance companies approved by Beneficiary. The policies shall be held by
Beneficiary and shall have, at all times, loss payable clauses attached thereto
in favor of and approved by Beneficiary.
In the event of any loss or damage to the Trust Property,
Trustor will give immediate notice by mail to Beneficiary and make proper proof
of loss (and if not made by Trustor, Beneficiary may make the same).
Beneficiary may require that the payment for such loss be paid directly to
Beneficiary only and not jointly to Trustor and Beneficiary. Beneficiary may,
at its option, apply the payment to the reduction of the indebtedness secured
hereby or may apply the same to the restoration or repair of the property
damaged. Trustor hereby assigns to Beneficiary all such policies and the
payments to be made thereunder.
In the event of foreclosure of this Trust Deed, or exercise of
the power of sale given to Trustee, or acquisition of the title to the Trust
Property by Beneficiary or its assigns, all right, title, and interest of
Trustor in and to the policies and proceeds thereof and sums payable thereunder
shall forthwith pass automatically to the purchaser of said Trust Property.
5. Trustor agrees to keep the Trust Property at all
times in good condition and repair. All apparatus and machinery shall be kept
in good working order and properly serviced and repaired. Trustor will not
allow nor commit any waste, and will not demolish nor structurally alter the
Trust Property, and will do no act to injure or depreciate the value of such
Trust Property. The Trust Property shall be kept in a reasonably clean, safe
and sanitary condition and shall not be allowed to become dilapidated or
rundown.
Trustor agrees that it will not remove or allow to be removed
any fixture or fixtures from the Trust Property without the prior written
consent of Beneficiary. Trustor further agrees that in adding any new fixtures
or in substituting fixtures on the Trust Property, prior proof will be
furnished Beneficiary that no security exists therein.
6. In the event Trustor fails to make any payment
required to be made by it hereunder, or fails to keep the Trust Property so
insured, or fails to keep the Trust Property so repaired, or fails to perform
any of its other obligations hereunder, Beneficiary may make any such payment,
obtain any such insurance, make any such repairs (Trustor hereby grants
Beneficiary the right to go upon the premises for such purpose), or remedy any
other default of Trustor. All expenditures made by Beneficiary shall be prima
facie evidence of the necessity therefor and reasonableness thereof. Such
expenditures, together with all incidental costs of Beneficiary, including
reasonable attorney's
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<PAGE> 88
fees if incurred, shall be immediately due and payable by Trustor to
Beneficiary, shall bear interest until paid at a rate ______ percent (___%)
more than the non-default rate of interest applicable under the Note, and shall
be secured by this trust deed.
7. Trustee and Beneficiary and their officers,
employees, and agents may enter upon and inspect the Trust Property at any
reasonable time or times.
8. The proceeds of any judgment, award or settlement in
any condemnation or eminent domain proceeding or on account of injury to the
Trust Property by reason of public use, or by reason of private trespass, or
other injury to the Trust Property, shall be paid to Beneficiary, who may at
its option, either reapply the proceeds to reduce the indebtedness secured
hereby (whether matured or to mature in the future) or be released to Trustor.
Trustor hereby assigns and transfers to Beneficiary all such amounts and
proceeds and agrees that Beneficiary may receipt for the same on behalf of
Trustor.
9. Trustor by execution of this Deed of Trust assigns
and transfers to Beneficiary all of Trustor's right, title and interest in and
to all leases, rents, profits or income from the Trust Property and each and
every part thereof, including all present and future leases or rental
agreements, which assignment and transfer may be enforced by Beneficiary only
upon any default by Trustor, existing under this Deed of Trust, by any one or
more of the following methods: (1) appointment of a receiver; (2) Beneficiary
taking possession of the Trust Property; (3) Beneficiary collecting any moneys
payable under leases or rental agreements directly from the parties obligated
for payment; (4) injunction; or (5) any other method permitted by law.
Unless and until Beneficiary shall elect to collect said rents
and rentals, the same shall be collected by Trustor, but Beneficiary may at any
time, after Trustor's default, collect all such rents and rentals and Trustor
agrees not to hinder or delay Beneficiary in collecting the same.
Any rents or rentals received by Beneficiary shall be applied
first to the cost of collection, second to any expenses Beneficiary may expend
in making the Trust Property ready for or satisfactory to any lessee or tenant,
and the remainder shall be applied on the indebtedness secured hereby (whether
matured or unmatured) as Beneficiary may elect.
Trustor shall not consent to the cancellation or surrender of
any lease on the Trust Property, or any portion thereof, having an unexpired
term of two (2) years or more, or decrease the rental payable under any lease,
or receive or collect more than two (2) month's rent in advance, and Trustor
agrees not
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<PAGE> 89
to default in performing its obligations under all leases on the Trust
Property.
10. Time is of the essence of this Trust Deed. No
failure on the part of Beneficiary to exercise any of its rights hereunder
shall be construed as a waiver of or prejudice its rights in the event of any
other subsequent default or breach. No delay on the part of Beneficiary in
exercising any of its rights hereunder shall preclude it from the exercise
thereof at any time during the continuance of any such default. The acceptance
of late payments shall not waive the "time is of the essence" provision. All
rights and remedies of Beneficiary are cumulative and concurrent, and may be
exercised singly, severally or concurrently as Beneficiary may elect.
11. In the event the indebtednesses secured hereby or
this Trust Deed is placed in the hands of attorneys for collection or
foreclosure, then Trustor agrees to pay reasonable attorney's fees to
Beneficiary, in addition to the amount due thereon, together with all costs and
expenses incurred by Beneficiary in the collection and foreclosure thereof, and
together with the cost of a title search, the payment of which sums are secured
by this Trust Deed.
12. The occurrence of any one or more of the following
shall constitute an event of default ("Event of Default"):
(a) Failure by Trustor to pay any monetary amount
when due under any Loan Document and the expiration of ten (10) days
after written notice of such failure by Beneficiary to Trustor.
(b) Failure by Trustor to perform any obligation
not involving the payment of money, or to comply with any other term
or condition applicable to Trustor, under any Loan Document and, if
such failure is curable, the expiration of thirty (30) days after
written notice of such failure by Beneficiary to Trustor.
(c) Any representation or warranty by Trustor in
any Loan Document is materially false, incorrect, or misleading as of
the date made.
(d) The occurrence of any event (including,
without limitation, a change in the financial condition, business, or
operations of Trustor for any reason whatsoever) that materially and
adversely affects the ability of Trustor to perform any of its
obligations under the Loan Documents.
(e) Trustor (i) is unable or admits in writing
Trustor's inability to pay its monetary obligations as they become
due, (ii) makes a general assignment for the benefit of
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<PAGE> 90
creditors, or (iii) applies for, consents to, or acquiesces in, the
appointment of a trustee, receiver, or other custodian for Trustor or
all or substantially all of the property of Trustor, or in the absence
of such application, consent, or acquiescence a trustee, receiver, or
other custodian is appointed for Trustor or all or substantially all
of the property of Trustor.
(f) Commencement of any case under the Bankruptcy
Code, Title 11 of the United State Code, or commencement of any other
bankruptcy arrangement, reorganization, receivership, custodianship,
or similar proceeding under any federal, state, or foreign law by or
against Trustor and with respect to any such case or proceeding that
is involuntary, such case or proceeding is not dismissed with
prejudice within sixty (60) days of the filing thereof.
(g) Any litigation or proceeding is commenced
before any arbitrator, other private adjudicator, court, government or
governmental authority (federal, state, local or foreign) against or
affecting Trustor or the property of Trustor or any part thereof that
materially and adversely affects the ability of Borrower to perform
its obligations under the Loan Documents and such litigation or
proceeding is not defended diligently and in good faith by Trustor.
(h) A final judgment or decree for monetary
damages or a monetary fine or penalty (not subject to appeal or as to
which the time for appeal has expired) is entered against Trustor by
any arbitrator, other private adjudicator, court, government or
governmental authority that materially and adversely affects the
ability of Borrower to perform any of its obligations under the Loan
Documents is not paid and discharged or stayed within thirty (30) days
after the entry thereof.
(i) Commencement of any action or proceeding
which seeks as one of its remedies the dissolution of Trustor.
(j) All or any part of the property of Trustor is
attached, levied upon, or otherwise seized by legal process, and such
attachment, levy, or seizure is not quashed, stayed, or released
within thirty (30) days after the date thereof and such attachment,
levy or seizure is otherwise determined by Beneficiary, in its sole
discretion, to have a material adverse effect on the Trust Estate.
(k) The occurrence of any Transfer, unless prior
to such Transfer the holder of the Note has delivered to Trustor the
written consent of such holder to such Transfer.
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<PAGE> 91
(l) The occurrence and continuance of any Event
of Default, as such term is defined in any other Loan Document.
(m) If Trustor, at any time, ceases to manage the
Trust Estate.
13. In addition to the remedies provided in Section 14
hereof, upon the occurrence and during the continuance of an Event
of Default hereunder, Beneficiary may, at its option, do any one
or more of the following:
(a) Either personally, or by means of a court
appointed receiver, take possession of all or any of the Personal
Property and exclude therefrom Trustor and all others claiming under
Trustor, and thereafter hold, store, use, operate, manage, maintain
and control, make repairs, replacements, alterations, additions and
improvements to and exercise all rights and powers of Trustor with
respect to the Personal Property or any part thereof. In the event
Beneficiary demands, or attempts to take possession of the Personal
Property in the exercise of any rights under this Deed of Trust,
Trustor agrees to promptly turn over and deliver possession thereof to
Beneficiary;
(b) Without notice to or demand upon Trustor,
make such payments and do such acts as Beneficiary may deem necessary
to protect its security interest in the Personal Property (including,
without limitation, paying, purchasing, contesting or compromising any
Lien or Encumbrance, whether superior or inferior to such security
interest) and in exercising any such powers or authority to pay all
expenses (including, without limitation, litigation costs and
reasonable attorney's fees) incurred in connection therewith;
(c) Require Trustor from time to time to assemble
the Personal Property, or any portion thereof, at a place designated
by Beneficiary and reasonably convenient to both parties, and deliver
promptly such Personal Property to Beneficiary, or an agent or
representative designated by Beneficiary. Beneficiary, and its agents
and representatives, shall have the right to enter upon any or all of
Trustor's premises and property to exercise Beneficiary's rights
hereunder;
(d) Realize upon the Personal Property or any
part thereof as herein provided or in any manner permitted by law and
exercise any and all of the other rights and remedies conferred upon
Beneficiary by this Deed of Trust, any other Loan Document, or by law,
either concurrently or in such order as Beneficiary may determine;
(e) Sell or cause to be sold in such order as
Beneficiary may determine, as a whole or in such parcels as
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Beneficiary may determine, the Personal Property and the
remainder of the Trust Estate;
(f) Sell, lease, or otherwise dispose of the
Personal Property at public sale, upon terms and in such manner as
Beneficiary may determine. Beneficiary may be a purchaser at any
sale; and
(g) Exercise any remedies of a secured party
under the Nevada Uniform Commercial Code or any other applicable law.
Unless the Personal Property is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, Beneficiary shall give Trustor at least ten (10) days' prior written
notice of the time and place of any public sale of the Personal Property or
other intended disposition thereof to be made. Such notice may be mailed to
Trustor at the address set forth on the first page of this Deed of Trust.
The proceeds of any sale under this Section 13 shall be
applied as follows:
(i) To the repayment of the reasonable costs and
expenses of taking, holding, and preparing for the sale and the
selling of the Personal Property (including, without limitation, costs
of litigation and attorneys' fees) and the discharge of all
Impositions, Liens and Encumbrances, and claims thereof, if any, on
the Personal Property prior to the security interest granted herein
(except any Impositions or Liens and Encumbrances subject to which
such sale shall have been made);
(ii) To the payment of the Obligations in such
order as Beneficiary shall determine; and
(iii) The surplus, if any, shall be paid to the
Trustor or to whomsoever may be lawfully entitled to receive the same,
or as a court of competent jurisdiction may direct.
Beneficiary shall have the right to enforce one or more remedies hereunder,
successively or concurrently, and such action shall not operate to estop or
prevent Beneficiary from pursuing any further remedy that it may have. Any
repossession or retaking or sale of the Personal Property pursuant to the terms
hereof shall not operate to release Trustor until full payment of any
deficiency has been made in cash.
14. Upon the occurrence and during the continuance of an
Event of Default, Beneficiary may, at its option, declare all or any part of
the Obligations immediately due and payable without any presentment, demand,
protest or notice of any kind. Thereafter
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Beneficiary may, in addition to the exercise of any or all of the remedies
specified in Section 13:
(a) Either in person or by agent, with or without
bringing any action or proceeding, or by a receiver appointed by a
court and without regard to the adequacy of its security, enter upon
and take possession of the Trust Estate, or any part thereof, in its
own name or in the name of Trustee, and do any acts that it deems
necessary or desirable to preserve the value, marketability or
rentability of the Trust Estate, or any part thereof or interest
therein, increase the income therefrom or protect the security hereof
and, with or without taking possession of the Trust Estate, sue for or
otherwise collect the Rents, or any part thereof, including, without
limitation, those past due and unpaid, and apply the same, less costs
and expenses of operation and collection (including, without
limitation, attorneys' fees) upon the Obligations, all in such order
as Beneficiary may determine. The entering upon and taking possession
of the Trust Estate, the collection of such Rents and the application
thereof as aforesaid, shall not cure or waive any default or notice of
default hereunder or invalidate any act done in response to such
default or pursuant to such notice of default and, notwithstanding the
continuance in possession of all or any portion of the Trust Estate or
the collection, receipt and application of Rents, Trustee or
Beneficiary shall be entitled to exercise every right provided for in
any of the Loan Documents or by law upon occurrence and during the
continuance of any Event of Default, including, without limitation the
right to exercise the power of sale;
(b) Commence an action to foreclose the lien of
this Deed of Trust as a mortgage, appoint a receiver, or specifically
enforce any of the covenants hereof;
(c) Exercise of the power of sale herein
contained and deliver to Trustee a written statement of breach, notice
of default and election to cause Trustor's interest in the Trust
Estate to be sold; or
(d) Exercise all other rights and remedies
provided herein, in any Loan Document or other document or agreement
now or hereafter securing or guarantying all or any portion of the
Obligations, or by law.
15. This Deed of Trust shall be deemed to be a "security
agreement" for all purposes of the Nevada Uniform Commercial Code and
Beneficiary shall be entitled to all the rights and remedies of a "Secured
Party" under such Nevada Uniform Commercial Code.
16. It is the express understanding and intent of the
parties that as to any personal property interests subject to the
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Nevada Uniform Commercial Code, Beneficiary, upon the occurrence and during the
continuance of an Event of Default, may proceed under such Nevada Uniform
Commercial Code or may proceed as to both real and personal property interests
in accordance with the provisions of this Deed of Trust and its rights and
remedies in respect to real property and treat both real and personal property
interests as one parcel or package of security.
17. Upon the occurrence and during the continuance of an
Event of Default, Beneficiary, as a matter of right and without notice to
Trustor or any one claiming under Trustor, and without regard to the then value
of the Trust Estate or the interest of Trustor therein, shall have the right to
apply to any court having jurisdiction to appoint a receiver or receivers of
the Trust Estate, and Trustor hereby irrevocably consents to such appointment
and waives notice of any application therefor. Any such receiver or receivers
shall have all the usual powers and duties of receivers in like or similar
cases and all the powers and duties of Beneficiary in case of entry as provided
herein and shall continue as such and exercise all such powers until the later
of the date of confirmation of sale of the Trust Estate or the date of
expiration of any redemption period unless such receivership is sooner
terminated.
The Grantee in any Deed of Release executed pursuant to this
Trust Deed may be described as "the person or persons legally entitled thereto"
and the recitals therein of any matters or facts shall be conclusive proof of
the truthfulness thereof.
18. Upon the occurrence of any Event of Default as
defined in this Deed of Trust or the Loan Agreement, and if the notice of
breach and election to sell, required by Chapter 107 of the Nevada Revised
Statutes, be first recorded, then Trustee, its successors or assigns, on demand
by Beneficiary, shall sell the Trust Property, in order to accomplish the
objects of these trusts, in the manner following, namely:
The Trustee shall first give notice of the time and place of
such sale, in the manner provided by the laws of the State of Nevada for the
sale of real property under execution, and may from time to time postpone such
sale by such advertisement as it may deem reasonable, or without further
advertisement, by proclamation made to the persons assembled at the time and
place previously appointed and advertised for such sale, and on the day of sale
so advertised, or to which such sale may have been postponed, the Trustee may
sell the Trust Property so advertised, at public auction, at the time and place
specified in the notice, either in the county in which the property, or any
part thereof, to be sold, is situated, or at the principal office of the
Trustee located in ____________ County, in its discretion, to the highest cash
bidder, provided that Beneficiary may credit bid all sums owing under the Note
or otherwise due and payable to Beneficiary hereunder or under
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the terms of the Agreement. The Beneficiary or the holder or holders of the
Note secured hereby may bid and purchase at such sale. The Beneficiary may,
after recording the notice of breach and election, waive or withdraw the same
or any proceedings thereunder, and shall thereupon be restored to its former
position and have and enjoy the same rights as though such notice had not been
recorded.
19. The Trustee, upon such sale, shall make (without
warranty or recourse), execute and, after due payment made, deliver to
purchaser or purchasers, his or their heirs or assigns, a deed or deeds of the
Trust Property so sold which shall convey to the purchaser all the title of the
Trustor in the Trust Property, and shall apply the proceeds of the sale thereof
in payment, firstly, of the expenses of such sale, together with the reasonable
expenses of the trust, including, but not limited to, Trustee's fees, costs of
a Trustee's Sale Guarantee, and counsel fees, in a reasonable amount, which
shall become due upon any default made by Trustor in any of the payments
aforesaid; and also such sums, if any, as Trustee or Beneficiary shall have
paid, for procuring a search of the title to the Trust Property, or any part
thereof, subsequent to the execution of the deed of trust; and in payment,
secondly, in reduction of the indebtedness secured hereby.
20. In the event of a sale of the Trust Property conveyed
or transferred in trust, or any part thereof, and the execution of a deed or
deeds therefor under such trust, the recital therein of default, and of
recording notice of breach and election of sale, and of the elapsing of the
3-month period, and of the giving of notice of sale, and of a demand by
Beneficiary that such sale should be made, shall be conclusive proof of such
default, recording, election, elapsing of time, and of the due giving of such
notice, and that the sale was regularly and validly made on due and proper
demand by Beneficiary; and any such deed or deeds with such recitals therein
shall be effectual and conclusive against Trustor, its successors and assigns,
and all other persons; and the receipt for the purchase money recited or
contained in any deed executed to the purchaser as aforesaid shall be
sufficient discharge to such purchaser from all obligation to see to the proper
application of the purchase money, according to the trusts aforesaid.
21. Beneficiary may, at any time, request cancellation of
Trustee's Notice of Sale, whereupon Trustee shall execute and record, or cause
to be recorded, a Cancellation of Notice of Sale in the same county in which
the Notice of Sale was recorded. The exercise by Beneficiary of this right
shall not constitute a waiver of any default then existing or subsequently
occurring.
In the event this Trust Deed and the indebtedness and
obligations secured hereby are reinstated in the manner provided by law,
Beneficiary shall forthwith notify Trustee thereof as provided
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by law. Upon such notification, Trustee shall record, or cause to be recorded,
a Cancellation of Notice of Sale in the same county in which the Notice of Sale
was recorded within the period then required by law.
22. The rights and remedies of Beneficiary upon the
occurrence of one or more Events of Default by Trustor (whether such rights and
remedies are conferred by statute, by rule of law, by this Deed of Trust, the
Loan Agreement or otherwise) may be exercised by Beneficiary, in the sole
discretion of Beneficiary, either alternatively, concurrently, or consecutively
in any order. The exercise by Beneficiary or Trustee at the express direction
of Beneficiary, of any one or more of such rights and remedies shall not be
construed to be an election of remedies nor a waiver of any other rights and
remedies Beneficiary might have unless, and limited to the extent that,
Beneficiary shall so elect or so waive by an instrument in writing delivered to
Trustee. Without limiting the generality of the foregoing, to the extent that
this Deed of Trust covers both the real property and the Personal Property,
Beneficiary may, in the sole discretion of Beneficiary, either alternatively,
concurrently, or consecutively in any order:
(a) Proceed as to both the real property, the
Personal Property and other collateral in accordance with
Beneficiary's rights and remedies in respect to the real property; or
(b) Proceed as to the real property in accordance
with Beneficiary's rights and remedies in respect to the real property
and proceed as to the Personal Property and other Collateral in
accordance with Beneficiary's rights and remedies in respect to the
Personal Property and other collateral.
Beneficiary may, in the sole discretion of Beneficiary,
appoint Trustee as the agent of Beneficiary for the purpose of disposition of
the Personal Property and other collateral in accordance with the Nevada
Uniform Commercial Code--Secured Transactions.
If Beneficiary should elect to proceed as to both the real
property, the Personal Property and other collateral in accordance with
Beneficiary's rights and remedies in respect to real property:
(i) All the real property and all the Personal
Property and other collateral may be sold, in the manner and at the
time and place provided in this Deed of Trust and Security Agreement,
in one lot, or in separate lots consisting of any combination or
combinations of the real property, the Personal Property and other
collateral, as the Beneficiary may elect, in the sole discretion of
Beneficiary.
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(ii) Trustor acknowledges and agrees that a
disposition of the Personal Property and other collateral in
accordance with Beneficiary's rights and remedies in respect to real
property, as hereinabove provided, is a commercially reasonable
disposition of the collateral.
If Beneficiary should elect to proceed as to the Personal
Property and other collateral in accordance with Beneficiary's rights and
remedies in respect to Personal Property and other collateral, Beneficiary
shall have all the rights and remedies conferred on a secured party by NRS
104.9501 to NRS 104.9507, both inclusive.
23. Upon payment in full of all sums secured hereby and
performance of all obligations of Trustor hereunder, the lien of this Trust
Deed upon the Trust Property shall be released by reconveyance by Deed of
Release, which said reconveyance and release shall be without warranty and
shall operate to reconvey the estate vested in Trustee hereby.
Beneficiary may, at any time, without notice, release any
person liable for payment of any indebtedness secured hereby, release portions
of the Trust Property from this Trust Deed, or extend or modify the time for
payment of the indebtedness secured hereby by agreement with Trustor or by
agreement with subsequent owners of the Trust Property, and any such release,
extension or modification shall not affect the personal liability of any person
for the payment of said indebtedness or the lien of this Trust Deed upon the
portion of the Trust Property not released herefrom.
At any time, without liability therefore and without notice,
and without affecting the personal liability of Trustor or any other person for
payment of the indebtedness secured hereby, Trustee may, with the consent of
Beneficiary: (1) release and reconvey by Deed of Release any part of the Trust
Property from the lien hereof; (2) consent to the making and recording of any
maps or plats of the Trust Property; (3) join in granting any easement on the
Trust Property; or (4) join in any extension agreement or any agreement
subordinating or modifying the lien or charge hereof. If Trustee shall perform
any such acts or execute complete or partial reconveyances it shall be paid a
fee in accordance the its established fees and charges therefor.
If reconveyance by Deed of Release is to be made by Trustee,
Beneficiary shall deliver the original of this Trust Deed and the note secured
hereby to Trustee with a request for reconveyance by Deed of Release.
24. Beneficiary may substitute another Trustee herein
named to exercise the rights, powers and duties granted by law and contained
herein. Upon such appointment, and without the necessity of a conveyance to
the successor Trustee, the latter shall be
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vested with all the title, powers and duties conferred upon the Trustee herein
named.
25. Beneficiary or any purchaser at Trustee's sale or at
any foreclosure sale may, if it so elects, be subrogated to and succeed to all
the rights of Trustor under any or all leases on the Trust Property or portions
thereof. Beneficiary may, if it so elects, subordinate its rights hereunder to
any lease on the Trust Property, or a portion thereof, and keep the lease in
effect through and after any foreclosure action or Trustee's sale.
26. Beneficiary shall be subrogated to the lien,
notwithstanding its release of record, of any prior mortgage, trust deed or
other encumbrance paid or discharged from the proceeds of the note secured
hereby, or from any advance made by Beneficiary.
27. Any payments made after the due date will accrue
interest at the default rate specified in the Note secured by this Deed of
Trust.
28. In the event of the passage after the date of this
Trust Deed of any law levying any tax upon this Trust Deed or the debt secured
hereby, which Beneficiary is obliged to pay, then Trustor agrees to pay said
tax or reimburse Beneficiary for the payment of the same, provided that Trustor
shall not be obligated to pay any amount which would be considered as interest
at a rate higher than allowed by law, and provided further that in the event of
the enactment of any such law and, if Trustor cannot pay said tax or is
unwilling to pay said tax, then Beneficiary shall have the right, at its
option, to declare the indebtedness secured hereby to be immediately due and
payable.
29. Trustor will not, except as otherwise provided in the
Loan Agreement, sell, convey, transfer, dispose of or further encumber the
Trust Property or any part thereof or any interest therein or enter into a
lease covering all or any portion thereof or an undivided interest therein,
either voluntarily, involuntarily or otherwise, without the prior written
consent of Beneficiary being first had and obtained, which consent may be
withheld or conditioned in the sole and absolute discretion of Beneficiary.
Notwithstanding the foregoing, Trustor may enter into contracts to sell Units
(as defined in the Loan Agreement) in the ordinary course of Trustor's business
in connection with sales contemplated to result in releases pursuant to the
Loan Agreement. Any transfer or encumbrance of the controlling interest of the
shares of stock of Trustor, shall be deemed a transfer requiring Beneficiary's
prior written consent. All easements, declarations of covenants, conditions
and restrictions and private and public dedications affecting the Trust
Property shall be submitted to Beneficiary for its approval and such approval
shall be obtained prior to the execution or granting of any thereof by Trustor,
accompanied by a drawing or survey showing the precise location of each
thereof.
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30. Trustee may, but shall be under no obligation or duty
to, appear in or defend any action or proceeding purporting to affect the
security hereof or the rights or powers of Beneficiary or Trustee. If Trustee
shall take such action at the request of Beneficiary, it shall be paid therefor
in accordance with its established fees and charges and shall be reimbursed for
its costs and expenses actually incurred, including attorney's fees.
31. The Trust created hereby is irrevocable by Trustor.
Trustee accepts the Trust when this Trust Deed, duly executed and acknowledged,
is made a public record as provided by law, but acceptance is not required as a
condition to the validity hereof, and this Trust Deed is effective upon
delivery. Trustee shall not be obligated to notify any party hereto of pending
sale under any other trust deed, or any action or proceeding in which Trustor,
Beneficiary or Trustee shall be a party, except as required by law.
32. The word "Trustor" and the language of this
instrument shall, where there is more than one Trustor, be construed as plural
and be binding equally on Trustors. The obligations of Trustors hereunder and
under the note secured hereby shall be joint and several. This Trust Deed
applies to, is binding upon, and inures to the benefit of all parties hereto,
their heirs, executors, administrators, successors and assigns. The term
"Beneficiary" shall include not only the original Beneficiary hereunder, but
also any future owner and holder of the note secured hereby.
33. If any provision hereof should be held unenforceable
or invalid, in whole or in part, then such unenforceable or void provision or
part shall be deemed separable from the remaining provisions hereof and shall
in no way affect the validity of this Trust Deed.
34. Notwithstanding any provisions herein, or in the
Note, notes or other evidences of indebtedness, secured hereby, or in any
related agreement between Trustor and Beneficiary, the total liability of
Trustor for payments in the nature of interest shall not exceed the limits now
imposed by the laws of the State of Arizona.
Trustor requests that a copy of any Notice of Default
and any Notice of Sale hereunder be mailed to him at his mailing address set
forth above. Any notices required to be given to Trustor by mailing shall be
effective and complete when mailed and shall be mailed to the address set forth
above. Lack of receipt thereof shall in no way invalidate the notice or any
sale by Trustee hereunder. If Trustor desires to change the address to which
notices shall be mailed, such change shall be accomplished by a request as
provided by law.
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36. Trustee shall be paid for all acts performed by it
hereunder or in connection herewith in accordance with its established fees and
charges. All such fees and charges shall be paid by Trustor, and if
Beneficiary shall advance any such fees or charges, Trustor shall reimburse
Beneficiary for same on demand. Payment thereof is secured by this Trust Deed.
37. This is a Construction Deed of Trust and is entitled
to the priorities of N.R.S. Section 104.9313.
38. The laws of the State of Arizona shall govern in the
interpretation, construction, enforcement and all aspects of the rights,
obligations and duties created under this Deed of Trust, except where the laws
of the State of Nevada are required to govern the enforcement of the security
of the obligations secured hereby.
39. This Deed of Trust shall be effective as a financing
statement filed as a fixture filing.
IN WITNESS WHEREOF, Trustor has executed this Deed of Trust
this _____ of _________, 19___.
J.M. PETERS COMPANY, INC.,
a Delaware corporation
By:_____________________________________
Name:___________________________________
Title:__________________________________
"Trustor"
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STATE OF ____________ )
) ss.
County of ___________ )
On __________________________, 1994, personally appeared
before me, a Notary Public,
_______________________________________________, personally known or proved to
me to be the person whose name is subscribed to the above instrument who
acknowledged that he executed the instrument as the
______________________________ of J. M. PETERS COMPANY, INC., a Delaware
corporation, on behalf of the corporation.
______________________________________________________________________________
Notary Public
My Commission Expires:
______________________
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SECURED PROMISSORY NOTE
(Construction Loan - Revolving Line of Credit)
$25,000,000 Phoenix, Arizona May 12, 1994
1. FUNDAMENTAL PROVISIONS.
The following terms will be used as defined terms in this Secured
Promissory Note (as it may be amended, modified, extended, and renewed
from time to time, the "Note"):
<TABLE>
<S> <C>
Payee and Holder: BANK ONE, ARIZONA, NA, a national banking association.
Maker: J.M. Peters Company, Inc.
a Delaware corporation
Principal Amount: Twenty Five Million and NO/100 DOLLARS ($25,000,000.00).
Interest
Rate: One percent (1%) per annum above the Index Rate. The Interest Rate shall change from time to
time as and when the Index Rate changes.
Default
Interest Rate: Four percent (4%) per annum above the Interest Rate. The Default Interest Rate shall change
from time to time as and when the Interest Rate changes as a result of changes in the
Index Rate.
Index Rate: The rate of interest most recently announced by Payee, or its successors, in Phoenix, Arizona
as its "prime rate." Any change in the "prime rate" shall become effective as of the same
date of any such change.
Interest
Payment Date: The first day of each calendar month after the date upon which the first advance of funds
under this Note is made.
</TABLE>
<PAGE> 103
<TABLE>
<S> <C>
Maturity Date: June 30, 1996 (subject to extension as provided in Section 3.5 of the Loan Agreement and
further subject to the Conversion Period described in Section 3.1.2 of the Loan Agreement.
Business Day: Any day of the year other than Saturdays, Sundays and legal holidays on which Payee's main
office at 241 North Central Avenue, Phoenix, Arizona, is closed.
Loan Agreement: That certain Loan Agreement of even date herewith between Maker and Payee (as it may be amended
and modified from time to time). Except as otherwise provided herein, any capitalized term
used herein shall have the meaning given to it in the Loan Agreement.
Deed of Trust: A Deed of Trust by Maker, as Trustor, in favor of Payee, as Beneficiary.
Loan Documents: The Loan Agreement, the Note, the Deed of Trust and any other documents securing the repayment
of the Note.
Loan: The loan from Payee to Maker in the Principal Amount and evidenced by this Note.
</TABLE>
2. PROMISE TO PAY.
For value received, Maker promises to pay to the order of Holder, at
its office at 241 North Central Avenue, Phoenix, Arizona 85004, or at
such other place as the Holder hereof may from time to time designate
in writing, the Principal Amount, or so much thereof as shall from
time to time be disbursed under the Loan Agreement, together with
accrued interest from the date of disbursement on the unpaid principal
balance at the Interest Rate.
3. INTEREST.
(a) Absent an Event of Default hereunder or under any of the Loan
Documents, each advance made hereunder shall bear interest at
the Interest Rate in effect from time to time. Throughout the
term of this Note, interest shall
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<PAGE> 104
be calculated on a 360-day year with respect to the unpaid
balance of any advance and, in all cases, shall be computed
for the actual number of days in the period for which interest
is charged, which period shall consist of 365-days on an
annual basis.
(b) All payments of principal and interest due hereunder shall be
made (i) without deduction of any present and future taxes,
levies, imposts, deductions, charges or withholdings, which
amounts shall be paid by Maker, and (ii) without any other set
off. Maker will pay the amounts necessary such that the gross
amount of the principal and interest received by the holder
hereof is not less than that required by this Note.
(c) Interest hereunder shall be payable by Maker to the holder
hereof monthly, the first of which interest payments shall be
payable on the Interest Payment Date and on the same day of
each succeeding month thereafter as herein provided. If any
payment of interest to be made by Maker hereunder shall become
due on a day which is not a Business Day, such payment shall
be made on the next succeeding Business Day and such extension
of time shall be included in computing the interest in such
payment.
(d) On or before the Maturity Date, Maker shall repay to Payee all
principal, interest and other sums due Payee.
4. PREPAYMENT.
(a) Maker may prepay the Loan, in whole or in part, at any time
without penalty or premium.
(b) The Loan proceeds may be re-borrowed by Maker in accordance
with the terms of the Loan Agreement.
5. LAWFUL MONEY.
Principal and interest are payable in lawful money of the United
States of America.
6. APPLICATION OF PAYMENTS/LATE CHARGE.
(a) Absent the occurrence of an Event of Default hereunder or
under any of the other Loan Documents, any payments received
by the holder hereof pursuant to the terms hereof shall be
applied first to sums, other than principal and interest, due
the holder hereof pursuant to the Loan Documents, next to the
payment of all interest accrued to the date of such payment,
and the balance, if any, to the payment of principal. Any
payments received
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<PAGE> 105
by the holder hereof after the occurrence of an Event of
Default hereunder or under any of the Loan Documents, shall be
applied to the amounts specified in this Section 6(a) in such
order as the holder hereof may, in its sole discretion, elect.
(b) If any payment of interest and/or principal is not received by
the holder hereof when such payment is due, then in addition
to the remedies conferred upon the holder hereof pursuant to
Section 9 hereof and the other Loan Documents, (i) a late
charge of four percent (4%) of the amount due and unpaid will
be added to the delinquent amount to compensate the holder
hereof for the expense of handling the delinquency for any
payment past due in excess of fifteen (15) days, regardless of
any notice and cure periods, and (ii) the amount due and
unpaid (including, without limitation, the late charge) shall
bear interest at the Default Interest Rate.
7. SECURITY.
This Note is secured by, inter alia, individual Deeds of Trust, which
Deeds of Trust create a lien on that certain real and personal
property described therein.
8. EVENT OF DEFAULT.
The occurrence of any of the following shall be deemed to be an event
of default (Event of Default") hereunder:
(a) default in the payment of principal or interest when due
pursuant to the terms hereof and the expiration of ten (10)
days after written notice of such default from Holder to
Maker; or
(b) the occurrence of an Event of Default under any of the other
the Loan Documents.
9. REMEDIES.
Upon the occurrence of an Event of Default and the expiration of any
cure period therefor as provided in the Loan Agreement, then at the
option of the holder hereof, the entire balance of principal together
with all accrued interest thereon, and all other amounts payable by
Maker under the Loan Documents shall, without demand or notice,
immediately become due and payable. Upon the occurrence of an Event
of Default (and so long as such Event of Default shall continue), the
entire balance of principal hereof, together with all accrued interest
thereon, all other amounts due under the Loan Documents,and any
judgment for such principal, interest, and other amounts shall bear
interest at the Default Interest Rate. No delay or
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<PAGE> 106
omission on the part of the holder hereof in exercising any right
under this Note or under any of the other Loan Documents hereof shall
operate as a waiver of such right.
10. WAIVER.
Maker, endorsers, guarantors, and sureties of this Note hereby waive
diligence, demand for payment, presentment for payment, protest,
notice of nonpayment, notice of protest, notice of intent to
accelerate, notice of acceleration, notice of dishonor, and notice of
nonpayment, and all other notices or demands of any kind (except
notices specifically provided for in the Loan Documents) and expressly
agree that, without in any way affecting the liability of Maker,
endorsers, guarantors, or sureties, the holder hereof may extend any
maturity date or the time for payment of any installment due
hereunder, otherwise modify the Loan Documents, accept additional
security, release any Person liable, and release any security or
guaranty. Maker, endorsers, guarantors, and sureties waive, to the
full extent permitted by law, the right to plead any and all statutes
of limitations as a defense.
11. CHANGE, DISCHARGE, TERMINATION, OR WAIVER.
No provision of this Note may be changed, discharged, terminated, or
waived except in a writing signed by the party against whom
enforcement of the change, discharge, termination, or waiver is
sought. No failure on the part of the holder hereof to exercise and
no delay of by the holder hereof in exercising any right or remedy
under this Note or under the law shall operate as a waiver thereof.
12. ATTORNEYS' FEES.
If this Note is not paid when due or if any Event of Default occurs,
Maker promises to pay all costs of enforcement and collection and
preparation therefor, including but not limited to, reasonable
attorneys' fees, whether or not any action or proceeding is brought to
enforce the provisions hereof (including, without limitation, all such
costs incurred in connection with any bankruptcy, receivership, or
other court proceedings (whether at the trial or appellate level)).
13. SEVERABILITY.
If any provision of this Note is unenforceable, the enforceability of
the other provisions shall not be affected and they shall remain in
full force and effect.
14. INTEREST RATE LIMITATION.
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<PAGE> 107
Maker hereby agrees to pay an effective rate of interest that is the
sum of the interest rate provided for herein, together with any
additional rate of interest resulting from any other charges of
interest or in the nature of interest paid or to be paid in connection
with the Loan, including without limitation, any commitment fee and
any other fees to be paid by Maker pursuant to the provisions of the
Loan Documents. Holder and Maker agree that none of the terms and
provisions contained herein or in any of the Loan Documents shall be
construed to create a contract for the use, forbearance or detention
of money requiring payment of interest at a rate in excess of the
maximum interest rate permitted to be charged by the laws of the State
of Arizona. In such event, if any holder of this Note shall collect
monies which are deemed to constitute interest which would otherwise
increase the effective interest rate on this Note to a rate in excess
of the maximum rate permitted to be charged by the laws of the State
of Arizona, all such sums deemed to constitute interest in excess of
such maximum rate shall, at the option of the holder, be credited to
the payment of other amounts payable under the Loan Documents or
returned to Maker.
15. NUMBER AND GENDER.
In this Note the singular shall include the plural and the masculine
shall include the feminine and neuter gender, and vice versa.
16. HEADINGS.
Headings at the beginning of each numbered section of this Note are
intended solely for convenience and are not part of this Note.
17. CHOICE OF LAW.
This Note shall be governed by and construed in accordance with the
laws of the State of Arizona, without giving effect to conflict of
laws principles.
18. INTEGRATION.
The Loan Documents contain the complete understanding and agreement of
the holder hereof and Maker and supersede all prior representations,
warranties, agreements, arrangements, understandings, and
negotiations.
19. BINDING EFFECT.
The Loan Documents will be binding upon, and inure to the benefit of,
the holder hereof, Maker, and their respective
6
<PAGE> 108
successors and assigns. Maker may not delegate its obligations under
the Loan Documents.
20. TIME OF THE ESSENCE.
Time is of the essence with regard to each provision of the Loan
Documents as to which time is a factor.
21. SURVIVAL.
The representations, warranties, and covenants of the Maker in the
Loan Documents shall survive the execution and delivery of the Loan
Documents and the making of the Loan.
J.M. PETERS COMPANY, INC.,
a Delaware corporation
By: ______________________________
Name:_____________________________
Title: ___________________________
"Maker"
7
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent publc 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.
Orange County, California
June 2, 1994
<PAGE> 1
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
June 3, 1994
<PAGE> 1
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
Salt Lake City, Utah
June 2, 1994
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent publc 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.
Orange, County, California
June 2, 1994
<PAGE> 1
EXHIBIT 25.1
===================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM T-1
__________________
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
__________________
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) ____
__________________
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
New York 13-5459866
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 West 47th Street 10036-1532
New York, NY (Zip Code)
(Address of principal
executive offices)
</TABLE>
J.M. PETERS COMPANY, INC.
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
Delaware 95-2956559
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
3501 Jamboree Road
Suite 200
Newport Beach, California 92660
(Address of principal executive offices) (Zip Code)
</TABLE>
__________________
12 3/4% Senior Notes due 2002
(Title of the indenture securities)
===================================================
<PAGE> 2
GENERAL
1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate
trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15.
J.M. Peters Company, Inc. currently is not, and has not been
in default under any of its outstanding securities issued
under indentures for which United States Trust Company of New
York is Trustee. Accordingly, responses to Items 3, 4, 5, 6,
7, 8, 9, 10, 11, 12, 13, 14 and 15 of Form T-1 are not
required under General Instruction B.
16. LIST OF EXHIBITS.
T-1.1 - "Chapter 204, Laws of 1853, An Act to Incorporate
the United States Trust Company of New York, as
Amended", is incorporated by reference to Exhibit
T-1.1 to Form T-1 filed on September 20, 1991 with
the Securities and Exchange Commission (the
"Commission") pursuant to the Trust Indenture Act
of 1939 (Registration No. 2221291).
T-1.2 - The trustee was organized by a special act of the
New York Legislature in 1853 prior to the time
that the New York Banking Law was revised to
require a Certificate of authority to commence
business. Accordingly, under New York Banking
Law, the Charter (Exhibit T-1.1) constitutes an
equivalent of a certificate of authority to
commence business.
T-1.3 - The authorization of the trustee to exercise
corporate trust powers is contained in the Charter
(Exhibit T-1.1).
<PAGE> 3
16. LIST OF EXHIBITS
(Continued)
T-1.4 - The By-laws of the United States Trust Company of
New York, as amended to date, are incorporated by
reference to Exhibit T-1.4 to Form T-1 filed on
September 20, 1991 with the Commission pursuant to
the Trust Indenture Act of 1939 (Registration No.
2221291).
T-1.6 - The consent of the trustee required by Section
321(b) of the Trust Indenture Act of 1939.
T-1.7 - A copy of the latest report of condition of the
trustee published pursuant to law or the
requirements of its supervising or examining
authority.
NOTE
As of May 31, 1994, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U.S. Trust Corporation.
__________________
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 31st day
of May, 1994.
UNITED STATES TRUST COMPANY OF
NEW YORK, Trustee
By: MARGARET CIESMELEWSKI
Margaret Ciesmelewski
Assistant Vice President
<PAGE> 4
Exhibit T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
March 19, 1992
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of
1939, and subject to the limitations set forth therein, United States Trust
Company of New York ("U.S. Trust") hereby consents that reports of examinations
of U.S. Trust by Federal, State, Territorial or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
By: GERARD F. GANEY
---------------------
Gerard F. Ganey
Senior Vice President
<PAGE> 5
EXHIBIT T-1.7
Consolidated Report of Condition of
UNITED STATES TRUST COMPANY OF NEW YORK
and Foreign and Domestic Subsidiaries, a member of the Federal Reserve System,
at the close of business December 31, 1993, published in accordance with a call
made by the Federal Reserve Bank of this District pursuant to the provisions of
the Federal Reserve Act.
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
ASSETS IN THOUSANDS
--------------
<S> <C>
Cash and balances due from depository institutions:
a. Noninterest bearing balances and currency and coin: $ 176,527
b. Interest bearing balances: 50,000
Securities: 833,859
Federal funds sold and securities purchased under agreements to
resell in domestic offices of the bank and of its Edge and
Agreement subsidiaries, and in IBF's: 1,753
a. Federal funds sold: 205,000
b. Securities purchased under agreements to resell: 32,000
Loans and lease financing receivables:
a. Loans and leases, net of unearned income: 1,271,077
b. LESS: Allowance for loan and lease losses: 11,928
c. Loans and leases, net of unearned income,
allowance and reserve: 1,259,149
Premises and fixed assets (including capitalized leases): 98,896
Other real estate owned: 11,543
Investments in unconsolidated subsidiaries and associated companies: 725
Intangible assets: 856
Other assets: 256,699
----------
TOTAL ASSETS $2,925,254
==========
LIABILITIES
Deposits:
a. In domestic offices: $2,345,177
(1) Non interest bearing: 1,228,335
(2) Interest bearing: 1,116,842
b. In foreign offices, Edge and Agreement
subsidiaries, and IBF's: 5,617
(1) Interest bearing: 5,617
Federal funds purchased and securities sold under agreements to
repurchase in domestic offices of the bank and of its Edge and
Agreement subsidiaries, and in IBF's:
a. Federal funds purchased: 211,921
b. Securities sold under agreements to repurchase: 15,016
Demand notes issued to the U.S. Treasury: 33,824
Other Borrowed Money 10
Mortgage indebtedness and obligations under capitalized leases: 2,429
Subordinated notes and debentures: 12,453
Other liabilities 118,457
----------
TOTAL LIABILITIES $2,744,904
==========
EQUITY CAPITAL
Common Stock $ 14,995
Surplus: 41,500
Undivided profits and capital reserves: 123,855
----------
TOTAL EQUITY CAPITAL: $ 180,350
==========
TOTAL LIABILITY AND EQUITY CAPITAL: $2,925,254
==========
</TABLE>
I, Richard E. Brinkman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this report of condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
RICHARD E. BRINKMANN, SVP, Comptroller
January 31, 1994
We, the undersigned trustees, attest the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
H. MARSHALL SCHWARZ
FREDERICK S. WONHAM Trustees
DONALD M. ROBERTS
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
J. M. PETERS COMPANY, INC.
OFFER FOR ALL OUTSTANDING
12 3/4% SENIOR NOTES DUE 2002
IN EXCHANGE FOR
12 3/4% SENIOR NOTES DUE MAY 1, 2002
PURSUANT TO THE PROSPECTUS DATED , 1994
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1994, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
<TABLE>
<S> <C> <C>
By Hand/Overnight Express: By Mail: By Overnight Delivery:
(insured or registered recommended) (insured or registered recommended) (insured or registered 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, New York 10276 New York, New York 10003
Attn: Corporate Trust and Attention: Corporate Trust and Attention: Corporate Trust and
Agency 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, will
not constitute delivery.
The undersigned acknowledges that he or she has received the Prospectus,
dated , 1994 (the "Prospectus"), of J.M. Peters Company, Inc., a
Delaware corporation (the "Company"), and this Letter of Transmittal (this
"Letter"), which together constitute the Company's offer (the "Exchange Offer")
to exchange an aggregate principal amount at maturity of up to $100,000,000 of
12 3/4% Senior Notes Due May 1, 2002 (the "New Notes") of the Company for a like
principal amount at maturity of the issued and outstanding 12 3/4% Senior Notes
Due 2002 (the "Old Notes") of the Company from the holders thereof.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. 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. If by , 1994, neither
the Exchange Offer has been consummated nor a shelf registration statement with
respect to the Old Notes has been declared effective, the interest rate on each
Old Note, from and after , 1994 shall be permanently increased to
a rate of 13 1/4% per annum. Holders of Old Notes accepted for exchange will be
deemed to have waived the right to receive any other payments or accrued
interest on the Old Notes. The Company reserves the right, at any time or from
time to time, to extend the Exchange Offer at its discretion, in which event the
term "Expiration Date" shall mean the latest time and date to which the Exchange
Offer is extended. The Company shall notify holders of the Old Notes of any
extension by means of a press release or other public announcement prior to 9:00
A.M. New York City time, on the next business day after the previously scheduled
Expiration Date.
This Letter is to be completed by a holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for Old
Notes, if available, is to be made by book entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in "The
Exchange Offer -- Book-Entry Transfer" section of the Prospectus. Holders of Old
Notes whose certificates are not immediately available, or who are unable to
deliver their certificates or confirmation of the book-entry tender of their Old
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility (a
"Book-Entry Confirmation") and all other documents required by this Letter to
the Exchange Agent on or prior to the Expiration Date, must tender their Old
Notes according to the guaranteed delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures" section of the Prospectus. (See
Instruction 1). Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Old Notes to which this Letter relates. If the space provided
below is inadequate, the certificate numbers and principal amount at maturity of
Old Notes should be listed on a separate signed schedule affixed hereto.
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES 1 2 3
- -----------------------------------------------------------------------------------------------------------
AGGREGATE
PRINCIPAL PRINCIPAL AMOUNT
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE AMOUNT AT MATURITY AT MATURITY
(PLEASE FILL IN, IF BLANK) NUMBER(S)* OF OLD NOTE(S) TENDERED**
- -----------------------------------------------------------------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
TOTAL
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Old Notes represented by the Old Notes indicated in
column 2. (See Instruction 2). Old Notes tendered hereby must be in
denominations of principal amount at maturity of $1,000 and any integral
multiple thereof. (See Instruction 1).
- --------------------------------------------------------------------------------
<PAGE> 2
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:.............................................
Account Number:.................. Transaction Code Number:................
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s):...........................................
Window Ticket Number (if any):.............................................
Date of Execution of Notice of Guaranteed Delivery:........................
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number:.................. Transaction Code Number:................
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:......................................................................
Address:...................................................................
...........................................................................
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount at
maturity of Old Notes indicated above. Subject to, and effective upon, the
acceptance for exchange of the Old Notes tendered hereby, the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Company all right,
title and interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents that any New Notes acquired in exchange
for Old Notes tendered hereby will have been acquired in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
the undersigned, that neither the holder of such Old Notes 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 of such Old Notes nor
any such other person is an "affiliate," as defined in Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act"), of the Company.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "SEC") that the New Notes issued in exchange for the Old Notes
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act), 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
arrangements with any person to participate in the distribution of such New
Notes. If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
New Notes. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus in connection with any resale of such New Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer -- Withdrawal Rights"
section of the Prospectus.
Unless otherwise indicated in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX ABOVE.
<PAGE> 3
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or New
Notes are to be issued in the name of and sent to someone other than the person
or persons whose signature(s) appear(s) on this Letter above, or if Old Notes
delivered by book-entry transfer which are not accepted for exchange are to be
returned by credit to an account maintained at the Book-Entry Transfer Facility
other than the account indicated above.
Issue: New Notes and/or Old Notes to:
Name(s)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(INCLUDING ZIP CODE)
(COMPLETE SUBSTITUTE FORM W-9)
/ / Credit unexchanged Old Notes delivered by book-entry transfer to the Book
Entry Transfer Facility account set forth below.
(BOOK-ENTRY TRANSFER FACILITY ACCOUNT NUMBER, IF APPLICABLE)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or New
Notes are to be sent to someone other than the person or persons whose
signature(s) appear(s) on this Letter above or to such person or persons at an
address other than shown in the box entitled "Description of Old Notes" on this
Letter above.
Mail: New Notes and/or Old Notes to:
Name(s)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(INCLUDING ZIP CODE)
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE
CERTIFICATES FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED
DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE
AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
Dated , 1994
--------------------------------------------------------
X , 1994
--------------------------------- ------------------
X , 1994
--------------------------------- ------------------
SIGNATURE(S) OF OWNER DATE
Area Code and Telephone Number:
If a holder is tendering any Old Notes, this Letter must be signed by
the registered holder(s) as the name(s) appear(s) on the certificate(s)
for the Old Notes or by any person(s) authorized to become registered
holder(s) by endorsements and documents transmitted herewith. If signature
is by a trustee, executor, administrator, guardian, officer or other
person acting in a fiduciary or representative capacity, please set forth
full title. (See Instruction 3).
Name(s):
-------------------------------------------------------------------
-------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity:
-------------------------------------------------------------------
Address:
-------------------------------------------------------------------
(INCLUDING ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution:
----------------------------------------------------
(AUTHORIZED SIGNATURE)
----------------------------------------------------
(TITLE)
----------------------------------------------------
(NAME AND FIRM)
<PAGE> 4
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER FOR THE
12 3/4% SENIOR NOTES DUE MAY 1, 2002 IN EXCHANGE FOR THE
12 3/4% SENIOR NOTES DUE 2002 OF J.M. PETERS COMPANY, INC.
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES.
This letter is to be completed by noteholders either if certificates are to
be forwarded herewith or if tenders are to be made pursuant to the procedures
for delivery by book-entry transfer set forth in "The Exchange
Offer -- Book-Entry Transfer" section of the Prospectus. Certificates for all
physically tendered Old Notes, or Book-Entry Confirmation, as the case may be,
as well as a properly completed and duly executed Letter (or manually signed
facsimile hereof) and any other documents required by this Letter, must be
received by the Exchange Agent at the address set forth herein on or prior to
the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below. Old Notes tendered hereby must be in
denominations of principal amount of maturity of $1,000 and any integral
multiple thereof.
Noteholders whose certificates for Old Notes are not immediately available
or who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old Notes
pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to
such procedures, (i) such tender must be made through an Eligible Institution
(as defined in Instruction 3 below), (ii) prior to the Expiration Date, the
Exchange Agent must receive from such Eligible Institution a properly completed
and duly executed Letter (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by 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, or
a Book-Entry Confirmation, and any other documents required by the Letter 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 Book-Entry Confirmation, as the case may be, and all other documents required
by this Letter, are received by the Exchange Agent within five NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering holders, but the delivery
will be deemed made only when actually received or confirmed by the Exchange
Agent. If Old Notes are sent by mail, it is suggested that the mailing be made
sufficiently in advance of the Expiration Date to permit the delivery to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
See "The Exchange Offer" section in the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering holder(s) should fill in the aggregate principal
amount at maturity of Old Notes to be tendered in the box above entitled
"Description of Old Notes -- Principal Amount at Maturity Tendered." A reissued
certificate representing the balance of nontendered Old Notes will be sent to
such tendering holder, unless otherwise provided in the appropriate box on this
Letter, promptly after the Expiration Date. All of the Old Notes delivered to
the Exchange Agent will be deemed to have been tendered unless otherwise
indicated.
3. SIGNATURES ON THIS LETTER; POWERS OF ATTORNEY AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Old Notes tendered
hereby, the signature must correspond exactly with the name as written on the
face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder or holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate powers of attorney are required. If, however, the New Notes are to be
issued, or any untendered Old Notes are to be reissued, to a person other than
the registered holder, then endorsements of any certificates transmitted hereby
or separate powers of attorney are required. Signatures on such certificate(s)
must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) 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 appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates 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.
Endorsements on certificates for Old Notes or signatures on powers of
attorney required by this Instruction 3 must be guaranteed by a firm which is a
member of a registered national securities exchange or a member of the National
<PAGE> 5
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States or by such other Eligible
Institution within the meaning of Rule 17(A)(d)-15 under the Securities Exchange
Act of 1934, as amended (collectively "Eligible Institutions").
Signatures on this Letter need not be guaranteed by an Eligible
Institution, provided the Old Notes are tendered (i) by a registered holder of
Old Notes (which term, for purposes of the Exchange Offer, includes any
participant in the Book-Entry Transfer Facility system whose name appears on a
security position listing as the holder of such Old Notes) who has not completed
the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on this Letter, or (ii) for the account of an Eligible
Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old Notes should indicate in the applicable box the
name and address to which New Notes issued pursuant to the Exchange Offer and/or
substitute certificates evidencing Old Notes not exchanged are to be issued or
sent, if different from the name or address of the person signing this letter.
In the case of issuance in a different name, the employer identification or
social security number of the person named must also be indicated. Noteholders
tendering Old Notes by book-entry transfer may request that Old Notes not
exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such noteholder may designate hereon. If no such instructions are
given, such Old Notes not exchanged will be returned to the name and address of
the person signing this Letter.
5. TAX IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering holder whose Old
Notes are accepted for exchange must provide the Company (as payor) with such
holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
below, which in the case of a tendering holder who is an individual, is his or
her social security number. If the Company is not provided with the current TIN
or an adequate basis for an exemption, such tendering holder may be subject to a
$50 penalty imposed by the Internal Revenue Service. In addition, delivery to
such tendering holder of New Notes may be subject to backup withholding in an
amount equal to 31% of all reportable payments made after the exchange. If
withholding results in an overpayment of taxes, a refund may be obtained.
Exempt holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the "Substitute Form W-9" set forth below,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, or (ii) the
holder has not been notified by the Internal Revenue Service that such holder is
subject to backup withholding as a result of a failure to report all interest or
dividends or (iii) the Internal Revenue Service has notified the holder that
such holder is no longer subject to backup withholding. If the tendering holder
of Old Notes is a nonresident alien or foreign entity not subject to backup
withholding, such holder must provide the Company a completed Form W-8,
Certificate of Foreign Status. These forms may be obtained from the Exchange
Agent. If the Old Notes are in more than one name or are not in the name of the
actual owner, such holder should consult the W-9 Guidelines for information on
which TIN to report. If such holder does not have a TIN, such holder should
consult the W-9 Guidelines for instructions on applying for a TIN, check the box
in Part 2 of the Substitute Form W-9 and write "applied for" in lieu of its TIN.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Old Notes to it or its order pursuant to the Exchange Order. If however, New
Notes and/or substitute Old Notes not exchanged are to be delivered to, or are
to be registered or issued in the name of, any person other than the registered
holder of the Old Notes tendered hereby, or if tendered Old Notes are registered
in the name of any person other than the person signing this Letter, or if a
transfer tax is imposed for any reason other than the transfer of Old Notes to
the Company or its order pursuant to the Exchange Offer, the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted herewith, the amount of such
transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. NO CONDITIONAL TRANSFERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Old Notes for
exchange.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
<PAGE> 6
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: J.M. PETERS COMPANY, INC.
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
PART 1 --PLEASE PROVIDE YOUR TIN IN TIN: ______________________
THE BOX AT RIGHT AND Social Security Number
CERTIFY BY SIGNING AND or
DATING BELOW. Employer Identification
Number
---------------------------------------------------------------------------
SUBSTITUTE PART 2 -- TIN Applied For / /
---------------------------------------------------------------------------
CERTIFICATION:
FORM W-9 UNDER THE PENALTIES OF PERJURY,
Department of the Treasury I CERTIFY THAT:
Internal Revenue Service (1) the number shown on this form is my correct Taxpayer Identification
Payor's Request for Number (or I am waiting for a number to be issued to me).
Taxpayer Identification (2) I am not subject to backup withholding either because:
Number ("TIN") and (a) I am exempt from backup withholding, or
Certification (b) I have not been notified by the Internal Revenue Service (the
"IRS") that I am subject to backup withholding as a result of a failure
to report all interest or dividends, or
(c) the IRS has notified me that I am no longer subject to backup
withholding, and
(3) any other information provided on this form is true and correct.
SIGNATURE ______________________________ DATE _________________________
- ---------------------------------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been notified by IRS that you are
subject to backup withholding because of underreporting of interest or dividends on your tax return and
you have not been notified by the IRS that you are no longer subject to backup withholding.
- ---------------------------------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF SUBSTITUTE FORM W-9
- ---------------------------------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has not been issued to me,
and either (a) I have mailed or delivered an application to receive a taxpayer identification number to
the appropriate Internal Revenue Service Center or Social Security Administrative Office or (b) I
intend to mail or deliver an application in the near future. I understand that if I do not provide a
taxpayer identification number by the time of the exchange, 31 percent of all reportable payments made
to me thereafter will be withheld until I provide the number.
SIGNATURE ____________________________________________________________ DATE _________________________
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 7
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. -- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e. 00-0000000. The table below will help determine the number
to give the payer.
<TABLE>
<S> <C>
- -------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE
SOCIAL SECURITY
NUMBER OF --
- -------------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, any one of the
individuals(1)
3. Husband and wife (joint account) The actual owner of the
account or, if joint
funds, either person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if the
minor is the only
contributor, the
minor(1)
6. Account in the name of guardian The ward,
or committee for a designated minor, or incompetent
ward, person(3)
minor, or incompetent person
7. a. The usual revocable savings The grantor-trustee(1)
trust account (grantor is also
trustee)
b. So-called trust account that The actual owner(1)
is not a legal or valid trust
under State law
8. Sole proprietorship account The owner(4)
- -------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER
IDENTIFICATION
NUMBER OF --
- -------------------------------------------------------------
9. A valid trust, estate, or pension Legal entity
trust (Do not furnish the
identifying number of
the
personal representative
or
trustee unless the legal
entity itself is not
designated in the
account
title)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization account
12. Partnership account held in the The partnership
name of the business
13. Association, club, or other The organization
tax-exempt organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of The public entity
Agriculture in the name of a
public
entity (such as a State or local
government, school district, or
prison)
that receives agricultural
program
payments
=============================================================
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the valid trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 8
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempt from backup withholding on ALL payments include the
following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under section 501(a), or an individual
retirement plan.
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- - An international organization or any agency, or instrumentality thereof.
- - A dealer in securities or commodities registered in the U.S. or a possession
of the U.S.
- - A real estate investment trust.
- - A common trust fund operated by a bank under section 584(a).
- - An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
- - An entity registered at all times under the Investment Company Act of 1940.
- - A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- - Payments to nonresident aliens subject to withholding under section 1441.
- - Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- - Payments of patronage dividends where the amount received is not paid in
money.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you have
not provided your correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt interest dividends under
section 852).
- - Payments described in section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free covenant bonds under section 1451.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER, IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1993, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY FOR
J.M. PETERS COMPANY, INC.
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer relating to the 12 3/4% Senior Notes Due 2002 of J.M. Peters
Company, Inc. (the "Company") made pursuant to the Prospectus, dated
, 1994 (the "Prospectus"), if certificates for Old Notes of the Company are
not immediately available or if the procedure for book-entry transfer cannot be
completed on a timely basis or time will not permit all required documents to
reach the Company prior to 5:00 P.M., New York City time, on the Expiration Date
of the Exchange Offer. Such form may be delivered or transmitted by facsimile
transmission, mail or hand delivery to United States Trust Company of New York
(the "Exchange Agent") as set forth below. In addition, in order to utilize the
guaranteed delivery procedure to tender Old Notes pursuant to the Exchange
Offer, a completed, signed and dated Letter of Transmittal relating to the Notes
(or facsimile thereof) must also be received by the Exchange Agent prior to 5:00
P.M., New York City time, on the Expiration Date. Capitalized terms not defined
herein are defined in the Prospectus.
TO: UNITED STATES TRUST COMPANY OF NEW YORK, EXCHANGE AGENT
<TABLE>
<S> <C> <C>
By Hand/Overnight Express: By Mail: By Overnight Delivery:
(insured or registered recommended) (insured or registered recommended) (insured or registered 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, New York 10276 New York, New York 10003
Attn: Corporate Trust and Attention: Corporate Trust and Attention: Corporate Trust and
Agency Services Agency Services Agency Services
</TABLE>
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, will
not constitute delivery.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount at maturity of Old Notes set forth below, pursuant
to the guaranteed delivery procedure described in "The Exchange
Offer -- Guaranteed Delivery Procedures" section of the Prospectus.
<TABLE>
<S> <C>
Principal Amount at Maturity of Old Notes
Tendered:
$
Certificate Nos. (if available):
If Old Notes will be delivered by book-entry
transfer to
The Depository Trust Company, provide number.
Total Principal Amount at Maturity Represented
by
Old Notes Certificate(s):
$ Account Number
</TABLE>
<PAGE> 2
- --------------------------------------------------------------------------------
ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE THE DEATH
OR INCAPACITY OF THE UNDERSIGNED AND EVERY OBLIGATION OF THE UNDERSIGNED
HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL REPRESENTATIVES, SUCCESSORS
AND ASSIGNS OF THE UNDERSIGNED.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
<TABLE>
<S> <C> <C>
X ----------------------------------------------- ------------------------------
X ----------------------------------------------- ------------------------------
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:
--------------------------------------------------
</TABLE>
Must be signed by the holder(s) of the Old Notes as their name(s) appear(s)
on certificates for Old Notes or on a security position listing, or by the
person(s) authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
<TABLE>
<S> <C>
Name(s): ----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Capacity: ----------------------------------------------------------------------------------------
Address(es): ----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</TABLE>
GUARANTEE
The undersigned, an Eligible Institution within the meaning of Rule
17(A)(d)-15 under the Securities Exchange Act of 1934, as amended, hereby
guarantees that the certificates representing the principal amount at maturity
of Old Notes tendered hereby in proper form for transfer, or timely confirmation
of the book-entry transfer of such Old Notes into the Exchange Agent's account
at The Depository Trust Company pursuant to the procedures set forth in "The
Exchange Offer -- Guaranteed Delivery Procedures" section of the Prospectus,
together with a properly completed and duly executed Letter of Transmittal (or a
manually signed facsimile thereof) with any required signature guarantee and any
other documents required by the Letter of Transmittal, will be received by the
Exchange Agent at the address set forth above, no later than five New York Stock
Exchange trading days after the date of execution hereof.
<TABLE>
<S> <C>
- ------------------------------------------------- -------------------------------------------------
Name of Firm Authorized Signature
- ------------------------------------------------- -------------------------------------------------
Address Title
Name:
- ------------------------------------------------- -------------------------------------------
Zip Code (Please Type or Print)
Area Code and Telephone No.: Dated:
-------------------- ------------------------------------------
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE> 1
EXHIBIT 99.3
LETTER TO HOLDERS
[DATE], 1994
TO HOLDERS OF 12 3/4% SENIOR NOTES DUE 2002
J.M. Peters Company, Inc. ("JMP") is offering to exchange (the "Exchange
Offer") up to $100,000,000 of its newly registered 12 3/4% Senior Notes due May
1, 2002 ("New Notes") for its outstanding 12 3/4% Senior Notes due 2002 ("Old
Notes").
Briefly, you may either:
(a) Tender all or some of your Old Notes, along with a completed and
executed Letter of Transmittal, and receive registered New Notes in
exchange; or
(b) Retain your Old Notes.
ALL TENDERED OLD NOTES MUST BE RECEIVED ON OR PRIOR TO , 1994, AT
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE SHOWN IN THE ACCOMPANYING
PROSPECTUS.
Please review the enclosed Letter of Transmittal and Prospectus carefully.
If you have any questions on the terms of the Exchange Offer, you may call
Gregory R. Petersen, telephone (714) 854-2500. If you have questions regarding
the appropriate procedures for tendering your Old Notes and the Letter of
Transmittal, please call 1-800-548-6565 or write U.S. Trust Company of New York,
P.O. Box 844, Cooper Station, New York, New York 10276, Attention: Corporate
Trust and Agency Services.
J.M. PETERS COMPANY, INC.
