Filed pursuant to Rule 424(b)(3)
Registration No. 333-59057
PROSPECTUS
[LOGO]
ENGLE HOMES, INC.
OFFER TO EXCHANGE
UP TO $150,000,000 OF ITS
9 1/4% SERIES C SENIOR NOTES DUE 2008 FOR ANY AND ALL OUTSTANDING
9 1/4% SENIOR NOTES DUE 2008
($100,000,000 PRINCIPAL AMOUNT OUTSTANDING)
AND 9 1/4% SERIES B SENIOR NOTES DUE 2008
($50,000,000 PRINCIPAL AMOUNT OUTSTANDING)
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON AUGUST 24, 1998, UNLESS EXTENDED.
Engle Homes, Inc., a Florida corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus (as the same may be amended or supplemented from time to time, the
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal," and together with this Prospectus, the "Exchange Offer"), to
exchange $1,000 principal amount of its 9 1/4% Series C Senior Notes due 2008
(the "Exchange Notes"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement
(as defined) of which this Prospectus forms a part, for each $1,000 principal
amount of its outstanding 9 1/4% Senior Notes due 2008 (the "Existing Notes"),
of which $100,000,000 principal amount is outstanding, and for each $1,000
principal amount of its outstanding 9 1/4% Series B Senior Notes due 2008 (the
"Private Notes"), of which $50,000,000 principal amount are outstanding (the
Existing Notes and the Private Notes being referred to collectively as the "Old
Notes"). The form and terms of the Exchange Notes are identical in all material
respects to the form and terms of the Existing Notes and the Private Notes,
except for the total outstanding principal amount thereof, and except for
certain transfer restrictions and registration rights relating to the Private
Notes. The Exchange Notes will evidence the same debt as the Old Notes and will
be issued under and be entitled to the benefits of the Indenture (as defined).
The Exchange Notes will be general unsecured obligations of the
Company, ranking senior in right of payment to all existing and future
subordinated indebtedness of the Company and PARI PASSU in right of payment with
all existing and future senior indebtedness of the Company, including the New
Credit Facility (as defined); however, the Exchange Notes will be effectively
subordinated to all secured indebtedness of the Company and the Guarantors to
the extent of the value of the assets securing such indebtedness. The Exchange
Notes will be fully and unconditionally guaranteed (the "Guarantees"), on a
joint and several basis, by all of the Restricted Subsidiaries (as defined) of
the Company (collectively, the "Guarantors"). The Guarantees will be general
unsecured obligations of the Guarantors, ranking senior in right of payment to
all existing and future subordinated indebtedness of the Guarantors and PARI
PASSU in right of payment with all existing and future senior indebtedness of
the Guarantors, including the New Credit Facility Guarantees (as defined);
however, the Guarantees will be effectively subordinated to all secured
indebtedness of the Guarantors to the extent of the value of the assets securing
such indebtedness. As of June 8, 1998, the Company and the Guarantors
collectively had no secured indebtedness outstanding other than the Warehouse
Lines of Credit (as defined). See "Summary--Recent Developments--New Credit
Facility" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources." The Indenture permits
the Company to incur additional indebtedness, including secured debt, subject to
certain limitations.
The Company will accept for exchange any and all Old Notes that are
validly tendered and not withdrawn on or prior to 5:00 P.M., New York City time,
on the date the Exchange Offer expires, which will be August 24, 1998, unless
the Exchange Offer is extended. See "The Exchange Offer - Expiration Date;
Extensions; Amendment." Tenders of Old Notes may be withdrawn at any time prior
to 5:00 P.M., New York City time, on the business day prior to the Expiration
Date (as defined), unless previously accepted for exchange. The Exchange Offer
is not conditioned upon any minimum principal amount of the Old Notes being
tendered for exchange. However, the Exchange Offer is subject to certain
conditions which may be waived by the Company and to the terms and provisions of
the Registration Rights Agreement (as defined) related to the Private Notes. Old
Notes may be tendered only in denominations of $1,000 principal amount and
integral multiples thereof. Pursuant to the terms of the Registration Rights
Agreement, the Company has agreed to pay certain expenses of the Exchange Offer.
See "The Exchange Offer."
(CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN
FACTORS WHICH INVESTORS SHOULD CONSIDER IN CONNECTION WITH THIS EXCHANGE OFFER
AND AN INVESTMENT IN THE EXCHANGE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JULY 23, 1998
<PAGE>
(CONTINUED FROM COVER PAGE)
The Exchange Notes will bear interest at the same rate and on the same
terms as the Old Notes. Consequently, the Exchange Notes will bear interest at
the rate of 9.25% per annum and interest will be payable semi-annually on
February 1 and August 1 of each year, commencing February 1, 1999. The Exchange
Notes will bear interest from and including August 1, 1998, the date of the most
recent interest payment made on the Old Notes. Holders of Old Notes whose Old
Notes are accepted for exchange will be deemed to have waived the right to
receive any payment in respect of interest on such Old Notes accrued to, but not
including, the date of the issuance of the Exchange Notes. Such waiver will not
result in the loss of interest income to such holders, since the Exchange Notes
will bear interest from August 1, 1998.
The Private Notes in an aggregate principal amount of $50 million were
sold by the Company on June 12, 1998 to Jefferies & Company, Inc. (the "Initial
Purchaser") in a transaction not registered under the Securities Act in reliance
upon Section 4(2) of the Securities Act (the "Private Placement"). The Private
Notes were thereupon offered and sold by the Initial Purchaser only to
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act) and to a limited number of institutional "accredited investors" (as defined
in Rule 501(a)(1),(2),(3) or (7) under the Securities Act), each of whom agreed
to comply with certain transfer restrictions and other conditions. Accordingly,
the Private Notes may not be offered, resold or otherwise transferred unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Exchange Notes
are being offered hereunder in order to satisfy the obligations of the Company
under the Registration Rights Agreement entered into with the Initial Purchaser
in connection with the offering of the Private Notes. See "The Exchange Offer."
On February 2, 1998, the Company consummated an underwritten public
offering of the Existing Notes registered under the Securities Act. As such, the
Existing Notes are freely tradeable. THE COMPANY HAS INCLUDED THE EXISTING NOTES
IN THE EXCHANGE OFFER IN ORDER TO ALLOW THE PRIVATE NOTES AND THE EXISTING NOTES
TO TRADE AS A SINGLE ISSUE, WHICH THE COMPANY BELIEVES WILL INCREASE THE
LIQUIDITY OF THE EXCHANGE NOTES. SEE "RISK FACTORS CONSEQUENCES OF FAILURE TO
EXCHANGE," "RISK FACTORS - POTENTIAL DILUTION OF VOTING INTEREST" AND "RISK
FACTORS ABSENCE OF A PUBLIC MARKET FOR THE EXCHANGE NOTES."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission" or "SEC") to third parties, including
Exxon Capital Holdings Corporation, SEC No-Action Letter (available April 13,
1989), Morgan Stanley & Co. Inc., SEC No-Action Letter (available June 5, 1991)
(the "Morgan Stanley Letter") and Mary Kay Cosmetics, Inc., SEC No-Action Letter
(available June 5, 1991), the Company believes that the Exchange Notes issued
pursuant to the Exchange Offer for Private Notes may be offered for resale,
resold and otherwise transferred by the respective holders thereof (other than a
"Restricted Holder," being (i) a broker-dealer who purchased Private Notes
exchanged for such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii) a
person 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
Exchange Notes are acquired in the ordinary course of such holder's business and
such holder is not participating in, and has no arrangement with any person to
participate in, the distribution (within the meaning of the Securities Act) of
such Exchange Notes. Eligible holders wishing to accept the Exchange Offer must
represent to the Company that such conditions have been met. Holders who tender
Private Notes in the Exchange Offer with the intention to participate in a
distribution of the Exchange Notes may not rely upon the Morgan Stanley Letter
or similar no-action letters. See "The Exchange Offer - Terms of the Exchange
Offer." Each broker-dealer that receives Exchange Notes for its own account in
exchange for Private Notes pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. A broker-dealer that delivers such a prospectus to purchasers in
connection with such resales will be subject to certain of the civil liability
provisions under the Securities Act and will be bound by the provisions of the
Registration Rights Agreement (including certain indemnification rights and
obligations). 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 Exchange
Notes received in exchange for Private Notes where such Private Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Company has agreed that it will make this Prospectus and
any amendment or supplement to
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this Prospectus available to any broker-dealer for use in connection with any
such resale for a period of up to 180 days after consummation of the Exchange
Offer. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer.
The Exchange Notes will constitute a new issue of securities with no
established trading market, and there can be no assurance as to the liquidity of
any markets that may develop for the Exchange Notes or as to the ability of or
price at which the holders of Exchange Notes would be able to sell their
Exchange Notes. Future trading prices of the Exchange Notes will depend on many
factors, including, among others, prevailing interest rates, the Company's
operating results and the market for similar securities. The Company does not
intend to apply for listing of the Exchange Notes on any securities exchange.
The Initial Purchaser has informed the Company that they currently intend to
make a market for the Exchange Notes. However, they are not so obligated, and
any such market making may be discontinued at any time without notice.
Accordingly, no assurance can be given that an active public or other market
will develop for the Exchange Notes or as to the liquidity of or the trading
market for the Exchange Notes.
ANY PRIVATE NOTES AND/OR EXISTING NOTES NOT TENDERED AND ACCEPTED IN
THE EXCHANGE OFFER WILL REMAIN OUTSTANDING. TO THE EXTENT THAT ANY PRIVATE NOTES
AND/OR EXISTING NOTES OF OTHER HOLDERS ARE TENDERED AND ACCEPTED IN THE EXCHANGE
OFFER, A HOLDER'S ABILITY TO SELL UNTENDERED PRIVATE NOTES AND/OR EXISTING NOTES
COULD BE ADVERSELY AFFECTED. FOLLOWING CONSUMMATION OF THE EXCHANGE OFFER, THE
HOLDERS OF UNTENDERED PRIVATE NOTES WILL CONTINUE TO BE SUBJECT TO THE EXISTING
RESTRICTIONS UPON TRANSFER THEREOF.
The Company expects that the Exchange Notes issued pursuant to this
Exchange Offer will be issued in the form of one or more Global Exchange Notes
(as defined), which will be deposited with, or on behalf of, The Depository
Trust Company ("DTC") and registered in its name or in the name of Cede & Co.,
its nominee. Beneficial interest in the Global Exchange Notes representing the
Exchange Notes will be shown on, and transfers thereof to qualified
institutional buyers will be effected through, records maintained by DTC and its
participants. After the initial issuance of the Global Exchange Note, Exchange
Notes in certificated form will be issued in exchange for the Global Exchange
Note on the terms set forth in the Indenture. See "Book-Entry; Delivery and
Form."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF EXISTING NOTES OR PRIVATE NOTES IN ANY
JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE
IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE MADE PURSUANT HERETO SHALL
UNDER ANY CIRCUMSTANCES IMPLY THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY OR THAT THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements regarding
the intent, belief and current expectations of the Company's management.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct. Generally, these statements relate to
business plans or strategies, projected or anticipated benefits or other
consequences of such plans or strategies, or projections involving anticipated
revenues, expenses, earnings, levels of capital expenditures or other aspects of
operating results. The operations of the Company are subject to a number of
uncertainties, risks and other influences, many of which are outside the control
of the Company and any one of which, or a combination of which, could materially
affect the results of the Company's operations and whether the forward-looking
statements made by the Company ultimately prove to be accurate. Important
factors that could cause actual results to differ materially from the Company's
expectations are disclosed in "Risk Factors" and elsewhere in this Prospectus.
The Company assumes no obligation to update any forward-looking statements.
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AVAILABLE INFORMATION
The Company has filed a registration statement on Form S-4 (together
with all amendments and exhibits thereto, the "Registration Statement") under
the Securities Act with respect to the Exchange Notes offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission, and the exhibits thereto. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to herein and filed as an exhibit to the Registration Statement are not
necessarily complete and in each instance, reference is made to the copy of each
contract or document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference. For further
information with respect to the Company and the Exchange Notes, reference is
hereby made to the Registration Statement and the exhibits thereto which may be
obtained from the Commission in the manner set forth above.
The Company is subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). As long as the Company is subject to such periodic
reporting and informational requirements, it will furnish all reports and other
information required thereby to the Securities and Exchange Commission (the
"Commission") and pursuant to the Indenture will furnish copies of such reports
and other information to the Trustee. Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Citicorp Center, 500 West Madison, 14th Floor, Chicago, Illinois 60661-2511 and
Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained by mail from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission also maintains a World Wide Web site on the
Internet at http://www.sec.gov that contains reports and other information
regarding registrants that file electronically with the Commission. The
Company's Common Stock is listed on the Nasdaq National Market, and such
reports, proxy statements and other information can also be inspected at the
offices of The Nasdaq National Market, Reports Section, 1735 K Street, N.W.,
Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K, as amended, for the fiscal
year ended October 31, 1997, and the Company's Quarterly Reports on Form 10-Q
for the periods ended January 31, 1998 and April 30, 1998, and filed with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference in
and made a part of this Prospectus.
All documents filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the Exchange Offer shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained herein
or in a document incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as modified or superseded, to constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST FROM ENGLE HOMES, INC., 123 N.W. 13TH STREET, SUITE 300, BOCA RATON,
FLORIDA 33432, ATTENTION: DAVID SHAPIRO, VICE PRESIDENT--FINANCE, TELEPHONE
NUMBER (561) 391-4012. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY AUGUST 17, 1998.
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SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS
OR INCORPORATED BY REFERENCE HEREIN. UNLESS THE CONTEXT INDICATES OTHERWISE, THE
TERMS "COMPANY" AND "ENGLE" AS USED IN THIS PROSPECTUS REFER TO ENGLE HOMES,
INC., ITS PREDECESSORS AND ITS SUBSIDIARIES. FISCAL YEAR REFERENCES ARE TO THE
RESPECTIVE FISCAL YEAR ENDED OCTOBER 31.
THE COMPANY
Engle Homes, Inc. designs, constructs, markets and sells detached
single-family residences, townhomes, patio homes and condominiums to entry level
and move-up buyers, retirees and second-home, seasonal buyers. Engle operates in
nine geographic markets: Broward County, Palm Beach County and Martin County in
South Florida; Orlando in Central Florida; Tampa, Sarasota, Naples and Fort
Myers on the west coast of Florida; Denver, Colorado; Dallas, Texas; Virginia
and Maryland; Raleigh, North Carolina; Phoenix, Arizona; and Atlanta, Georgia.
The Company offers a variety of home styles at prices ranging from approximately
$80,000 to over $400,000 with an average sales price in fiscal 1997 of
approximately $203,000. In addition, the Company operates a mortgage company
which provides mortgages primarily to its home buyers in all of its geographic
markets and a title company which provides services to its home buyers and third
parties in Florida and Denver, Colorado.
Engle is a leading Florida homebuilder. The Company believes that it is
the number two and number four builder of single-family homes in South Florida
and Central Florida, respectively, based on revenues from unit closings for the
twelve months ended June 30, 1997. Florida is the number one homebuilding state
in the United States in terms of total housing starts. In addition, Florida is
currently the fourth largest state based upon total population and has
consistently ranked among the top four states in population growth over the past
seven decades.
Since 1993, Engle has expanded into eight of the top 20 homebuilding
markets in the nation through both start-up operations and the acquisition of a
homebuilder in Denver, Colorado. In fiscal 1997, approximately 32% of the
Company's revenues from home sales were generated outside of the Florida markets
as compared to none in fiscal 1993. Most recently, in fiscal 1997 Engle entered
both the Phoenix, Arizona and Atlanta, Georgia markets through start-up
operations.
Over the past five years, the Company's total revenues have grown from
$137.4 million in fiscal 1993 to $425.3 million in fiscal 1997, with annual
EBITDA (as defined) growing from $15.9 million to $40.3 million over the same
period, representing compound annual growth rates of 33% and 26%, respectively.
The Company's fiscal 1997 total revenues of $425.3 million and EBITDA of $40.3
million were the highest in the Company's history. The number of homes delivered
increased from 797 in fiscal 1993 to 1,992 in fiscal 1997. At the end of fiscal
1997, Engle was marketing homes in 68 communities.
BUSINESS STRATEGY
Engle believes that its success has been due to its market-oriented
approach which it applies to each of the following: (i) identifying new markets;
(ii) acquiring land; and (iii) diversifying its product offerings and price
ranges to appeal to most segments of the home buying public. Engle believes that
this strategy enables it to respond more rapidly to changing market conditions.
EXPAND IN EXISTING AND NEW MARKETS. The Company has successfully
expanded its operations through both start-up operations in new and existing
markets and the acquisition of a homebuilder in Denver, Colorado. Within its
existing markets, the Company believes that it is able to gain greater market
share by increasing the number of residential projects, thereby leveraging its
existing management structure and enhancing profitability through economies of
scale. As part of its strategy to further diversify geographically, the Company
continually seeks and evaluates market expansion opportunities, including
potential acquisitions of homebuilding companies. The Company seeks to expand
into geographic markets with significant single-family home permit activity,
substantial job growth,
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a diversified economy and an availability of strong management with local market
expertise. Since its initial public offering in January 1992, the Company has
expanded into eight new geographic markets.
OFFER A BROAD SELECTION OF PRODUCTS. The Company designs its homes to
appeal to a wide variety of home buyers, including entry level and move-up
buyers, retirees and second-home, seasonal buyers. Accordingly, the Company
offers a number of home styles and price ranges at various locations in each
market, including golf and waterfront communities in certain markets. Engle's
product offerings include semi-custom estate homes, detached single-family
residences, townhomes, semi-detached patio-homes, duplexes and condominiums.
Management believes that the Company's long-standing policy of product
diversification enables it to respond more rapidly to changing market
conditions.
SELECTIVELY ACQUIRE LAND. The Company maintains a land acquisition
policy designed to enhance profitability and return on capital while minimizing
the risks associated with investments in land. Engle seeks to identify and
acquire superior locations in each market and offer a number of communities with
diverse products and sales prices. The Company prefers to acquire improved
residential lots ready for construction by entering into option contracts,
whenever possible, or through outright purchases. The Company also acquires
tracts of land that require site improvements prior to the start of home
construction. Occasionally, Engle purchases larger parcels of undeveloped land
suited for master-planned communities, primarily in South Florida. When
acquiring larger parcels, the Company typically contracts to sell portions of
improved or unimproved land to other builders as a source of additional revenue
thereby reducing the Company's investment. In addition, when economically
advantageous to the Company, Engle enters into partnership or joint venture
agreements with other major homebuilders to purchase and develop well located
parcels of land. The Company generally purchases land only after required zoning
entitlements have been obtained.
MAINTAIN STRINGENT COST CONTROLS. The Company believes that maintaining
stringent cost controls is a key factor in achieving profitability. The Company
seeks to reduce its costs and risks by (i) obtaining required zoning
entitlements prior to purchasing land, (ii) using subcontractors to perform home
construction and site improvement work on a fixed price basis, (iii) minimizing
inventory of unsold homes, (iv) improving construction cycle time for new homes,
(v) using its position as a leading homebuilder to obtain national volume
discounts on construction materials and favorable pricing from subcontractors
and (vi) maintaining a sophisticated management information system that allows
it to monitor homebuilding production, scheduling and budgeting on a daily
basis.
COMMITMENT TO CUSTOMER SATISFACTION. The Company is dedicated to
providing customer satisfaction through quality construction and customer
service. Divisional managers are responsible for the quality of construction and
the level of customer satisfaction in their respective divisions.
EXPERIENCED MANAGEMENT WITH DECENTRALIZED OPERATING STRUCTURE. To serve
the needs of each of its markets, the Company relies upon the expertise of its
division managers, each of whom has significant experience in the homebuilding
industry. In order to align corporate and divisional profit goals, division
managers receive bonuses based on the return on assets of their respective
divisions. The division managers benefit from Engle's corporate expertise in
sales and marketing, land acquisition, financial services and its centralized
accounting department. The Company believes that this interaction between the
divisional managers and corporate management provides enhanced operating
results.
RECENT DEVELOPMENTS
NEW CREDIT FACILITY. On May 28, 1998, the Company entered into a Credit
Agreement (the "New Credit Facility"), dated May 28, 1998, by and among the
Company, the banks named therein, SunTrust Bank, South Florida, National
Association ("SunTrust"), as Administrative Agent, and NationsBank, N.A., as
Documentation Agent. The New Credit Facility provides for up to $170 million of
unsecured borrowings. Borrowings under the New Credit Facility generally bear
interest at a fluctuating rate based upon the prime rate as announced by
SunTrust, the federal funds rate or LIBOR. All outstanding borrowings under the
New Credit Facility are due in May 2001. The New Credit Facility contains
various operating and financial covenants and all of the Company's subsidiaries
are guarantors of the Company's obligations under the New Credit Facility (such
guarantees referred to
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herein as the "New Credit Facility Guarantees"). Available borrowings under the
New Credit Facility are limited to certain percentages of finished lots,
construction costs, land and land under development.
The New Credit Facility replaces all of the Company's secured lines of
credit, other than the Warehouse Lines of Credit (as defined). All amounts
outstanding under the Company's secured lines of credit as of April 30, 1998,
have been repaid with the proceeds of borrowings under the New Credit Facility.
As of June 8, 1998, the Company had $40 million outstanding under the New Credit
Facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
The principal executive offices of the Company are located at 123 N.W.
13th Street, Suite 300, Boca Raton, Florida 33432, and its telephone number is
(561) 391-4012.
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THE EXCHANGE OFFER
<S> <C>
The Private Notes................................... The Private Notes were sold by the Company on June 12,
1998 (the "Private Notes Offering"), to the Initial
Purchaser pursuant to a Purchase Agreement dated June 8,
1998 (the "Purchase Agreement"). The Initial Purchaser
subsequently resold the Private Notes to qualified
institutional buyers pursuant to Rule 144A under the
Securities Act and to accredited institutional
investors.
The Existing Notes.................................. On February 2, 1998, the Company consummated an
underwritten public offering of the Existing Notes. The
Existing Notes were issued under an indenture dated as
of February 2, 1998, among the Company, the guarantors
named therein and American Stock Transfer & Trust
Company, as Trustee (the "Existing Notes Indenture").
Registration Requirements........................... Pursuant to the Purchase Agreement, the Company and the
Initial Purchaser entered into a Registration Rights
Agreement dated June 12, 1998 (the "Registration Rights
Agreement"), which grants the holders of the Private
Notes certain exchange and registration rights. The
Exchange Offer is intended to satisfy such exchange and
registration rights, which terminate upon the
consummation of the Exchange Offer. If applicable law or
applicable interpretations of the staff of the
Commission do not permit the Company to effect the
Exchange Offer, the Company has agreed to file a shelf
registration (the "Shelf Registration Statement")
covering resales of the Private Notes. The Registration
Rights Agreement does not obligate the Company to make
the Exchange Offer to the holders of the Existing Notes.
The Company is including the Existing Notes in the
Exchange Offer with the objective of creating a single
series of debt securities having a total outstanding
principal amount which is larger than that of either the
Existing Notes or the Private Notes as separate series,
thus resulting in greater liquidity. See "Risk Factors -
Potential Dilution of Voting Interest."
The Exchange Offer.................................. The Company is offering to exchange $1,000 principal
amount of the Exchange Notes for each $1,000 principal
amount of (i) Existing Notes and (ii) Private Notes. As
of the date hereof, $100,000,000 aggregate principal
amount of the Existing Notes and $50,000,000 aggregate
principal amount of the Private Notes are outstanding.
The Company will issue the Exchange Notes to holders as
soon as practicable after the Expiration Date but no
later than September 18, 1998 (the "Exchange Date").
Based on an interpretation of the staff of the
Commission set forth in no action letters issued to
third
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parties, the Company believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange for Private
Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than any such
holder which 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
Exchange Notes are acquired in the ordinary course of
such holder's business and that such holder does not
intend to participate and has no arrangement or
understanding with any person to participate in the
distribution of such Exchange Notes.
Each broker-dealer must acknowledge that it will deliver
a prospectus in connection with any resale of Exchange
Notes issued in exchange for Private Notes. The Letter
of Transmittal for the Exchange Offer 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 Exchange Notes received in
exchange for Private Notes where such Private Notes were
acquired by such broker-dealer as a result of
market-making activities or other trading activities.
The Company has agreed to make this Prospectus available
to any participating broker-dealer for use in connection
with any such resale for a period of up to 180 days from
the consummation of the Exchange Offer.
Any holder who tenders in the Exchange Offer with the
intention to participate, or for the purpose of
participating, in a distribution of the Exchange Notes
could not rely on the position of the staff of the
Commission enunciated in Exxon Capital Holdings
Corporation (available April 13, 1989) or similar
no-action letters and, in the absence of an exemption
therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act
in connection with the resale transaction. Failure to
comply with such requirements in such instance may
result in such holder incurring liability under the
Securities Act for which the holder is not indemnified
by the Company.
Expiration Date..................................... The Exchange Offer will expire at 5:00 p.m., New York
City time, on August 24, 1998, unless the Exchange Offer
is extended by the Company in its sole discretion, in
which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is
extended. See "The Exchange Offer - Expiration Date;
Extensions."
5
<PAGE>
Withdrawal Rights................................... Tenders may be withdrawn at any time prior to 5:00 P.M.,
New York City time, on the Expiration Date pursuant to
the procedures described under "The Exchange Offer -
Withdrawal of Tenders."
Procedures for Tendering Old Notes.................. Brokers, dealers, commercial banks, trust companies and
other nominees who hold Existing Notes and/or Private
Notes through DTC may effect tenders by book-entry
transfer in accordance with DTC's Automated Tender Offer
Program ("ATOP"). Holders of such Existing Notes and/or
Private Notes registered in the name of a broker,
dealer, commercial bank, trust company or other nominee
are urged to contact such person promptly if they wish
to tender Existing Notes and/or Private Notes. In order
for Existing Notes and/or Private Notes to be tendered
by a means other than by book-entry transfer, a Letter
of Transmittal must be completed and signed in
accordance with the instructions contained herein. The
Letter of Transmittal and any other documents required
by the Letter of Transmittal must be delivered to the
Exchange Agent by mail, facsimile, hand delivery or
overnight carrier and either such Existing Notes and/or
Private Notes must be delivered to the Exchange Agent or
specified procedures for guaranteed delivery must be
complied with. See "The Exchange Offer--Procedures for
Tendering."
Letters of Transmittal and certificates representing
Existing Notes and/or Private Notes should not be sent
to the Company. Such documents should only be sent to
the Exchange Agent. See "The Exchange Offer--Exchange
Agent."
Effect on Holders of Private Notes.................. As a result of the making of this Exchange Offer, the
Company will have fulfilled one of its obligations under
the Registration Rights Agreement and, with certain
exceptions noted below, holders of Private Notes who do
not tender their Private Notes will not have any further
registration rights under the Registration Rights
Agreement or otherwise. Such holders will continue to
hold the untendered Private Notes and will be entitled
to all the rights and subject to all the limitations
applicable thereto under the Indenture, except to the
extent such rights or limitations, by their terms,
terminate or cease to have further effectiveness as a
result of the Exchange Offer. All untendered Private
Notes will continue to be subject to certain
restrictions on transfer. Accordingly, if any Private
Notes are tendered and accepted in the Exchange Offer,
the trading market of the untendered Private Notes could
be adversely affected. See "Risk Factors - Exchange
Offer Procedures" and "Risk Factors - Absence of a
Public Market for the Exchange Notes."
Effect on Holders of Existing Notes................. Holders of Existing Notes who do not tender their
Existing Notes will continue to hold untendered
Existing
6
<PAGE>
Notes and will be entitled to all the rights and subject
to all the limitations applicable thereto under the
Existing Notes Indenture. If any holders of the Existing
Notes tender such notes, the trading market of
untendered Existing Notes could be adversely affected.
See "Risk Factors - Exchange Offer Procedures" and "Risk
Factors - Absence of a Public Market for the Exchange
Notes."
Exchange Agent...................................... The exchange agent with respect to the Exchange Offer is
American Stock Transfer & Trust Company (the "Exchange
Agent"). The addresses, and telephone and facsimile
numbers, of the Exchange Agent are set forth in "The
Exchange Offer - Exchange Agent" and in the Letter of
Transmittal.
Use of Proceeds..................................... The Company will not receive any cash proceeds from the
issuance of the Exchange Notes offered hereby. See "Use
of Proceeds." For a discussion of the use of the net
proceeds received by the Company from the sale of the
Private Notes, see "Private Placement."
United States Federal Income Tax Considerations..... Holders of Existing Notes and Private Notes should
review the information set forth under "United States
Federal Income Tax Considerations" prior to tendering
Existing Notes and/or Private Notes in the Exchange
Offer.
7
<PAGE>
THE EXCHANGE NOTES
The Exchange Notes...................................... Up to $150,000,000 aggregate principal amount of 9 1/4%
Series C Senior Notes due 2008 of Engle Homes, Inc.
Maturity Date........................................... February 1, 2008.
Interest Rate and Payment Dates......................... The Exchange Notes will bear interest at the rate of
9.25% per annum. Interest will accrue from the August 1,
1998, the date of the most recent interest payment made
on the Old Notes, and will be payable semi-annually on
February 1 and August 1 of each year, commencing
February 1, 1999.
Optional Redemption..................................... The Exchange Notes will be redeemable at the option of
the Company, in whole or in part, at any time on or
after February 1, 2003 at the redemption prices set
forth herein, plus accrued and unpaid interest, if any,
to the date of redemption. In addition, at any time on
or prior to February 1, 2001, the Company may redeem up
to 33% of the aggregate principal amount of the Exchange
Notes with the net proceeds of one or more public
offerings of its common stock at a redemption price
equal to 109.250% of the aggregate principal amount of
each Exchange Note so redeemed, plus accrued and unpaid
interest, if any, to the date of redemption; PROVIDED,
HOWEVER, that immediately after giving effect to any
such redemption, not less than 67% of the original
aggregate principal amount of the Private Notes and
Exchange Notes then outstanding are outstanding
immediately following any such redemption. See
"Description of the Exchange Notes -- Optional
Redemption."
Offers to Purchase...................................... In the event of a Change of Control (as defined), the
Company is required to offer to repurchase all of the
Exchange Notes at a price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase. See
"Description of the Exchange Notes--Certain
Covenants--Change of Control." In addition, the Company
will be obligated to make an offer to repurchase
Exchange Notes for cash at a price equal to 100% of the
principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase with the net
cash proceeds of certain asset sales and if the
Company's Net Worth (as defined) falls below a specified
level for two consecutive fiscal quarters. See
"Description of the Exchange Notes--Certain
Covenants--Maintenance of Net Worth" and "--Limitation
oN Asset Sales."
Ranking................................................. The Exchange Notes will be general unsecured
obligations of the Company, ranking senior in right of
payment to all existing and future subordinated
indebtedness of the Company and PARI PASSU in right of
payment with all existing and future senior
indebtedness of the Company, including the New Credit
Facility;
8
<PAGE>
however, the Exchange Notes will be effectively
subordinated to all secured indebtedness of the Company
to the extent of the value of the assets securing such
indebtedness. Currently, the Company and the Guarantors
collectively have no secured indebtedness outstanding
other than the Warehouse Lines of Credit. See "--Recent
Developments--New CrediT Facility" and "Management's
Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Guarantees.............................................. The Exchange Notes will be fully and unconditionally
guaranteed (the "Guarantees"), on a joint and several
basis, by all of the Restricted Subsidiaries (as
defined) of the Company (collectively, the
"Guarantors"). The Guarantees will be general unsecured
obligations of the Guarantors, ranking senior in right
of payment to all existing and future subordinated
indebtedness of the Guarantors and PARI PASSU in right
of payment with all existing and future senior
indebtedness of the Guarantors, including the New Credit
Facility Guarantees; however, the Guarantees will be
effectively subordinated to all secured indebtedness of
the Guarantors to the extent of the value of the assets
securing such Indebtedness. See "Description of the
Exchange Notes--The Guarantees."
Certain Covenants....................................... The Indenture contains certain covenants, including
covenants that impose certain limitations on the ability
of the Company and its Restricted Subsidiaries to, among
other things, incur additional indebtedness, pay
dividends or make certain other restricted payments and
investments, consummate certain asset sales, enter into
certain transactions with affiliates, redesignate an
Unrestricted Subsidiary (as defined) to be a Restricted
Subsidiary, designate a Restricted Subsidiary as an
Unrestricted Subsidiary, incur liens, merge or
consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of all or
substantially all of its assets. The Indenture also
imposes limitations on the Company's ability to restrict
the ability of its Restricted Subsidiaries to pay
dividends or make certain payments to the Company or any
of its Restricted subsidiaries. See "Description of the
Exchange Notes-- Certain Covenants."
</TABLE>
RISK FACTORS
Prospective purchasers of the Exchange Notes should consider all of the
information contained in this Prospectus before making an investment in the
Exchange Notes. In particular, purchasers should consider the investment
considerations set forth under "Risk Factors" herein.
9
<PAGE>
<TABLE>
<CAPTION>
SUMMARY HISTORICAL AND AS ADJUSTED FINANCIAL AND OPERATING DATA
(Dollars in thousands, except per share data)
TWELVE MONTHS ENDED
APRIL 30,
-------------------------
SIX MONTHS ENDED AS
YEARS ENDED OCTOBER 31, APRIL 30, ACTUAL ADJUSTED(1)
---------------------------------- ------------------------ ---------- ---------------
1995 1996 1997 1997 1998 1998 1998
---------- ---------- ---------- ----------- ----------- ---------- ---------------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Home sales.................... $216,059 $303,972 $404,407 $193,679 $195,352 $406,080 $406,080
Cost of home sales............ 184,888 260,651 345,295 165,537 165,029 344,787 344,540
-------- -------- -------- -------- -------- -------- --------
Homebuilding gross profit.. 31,171 43,321 59,112 28,142 30,323 61,293 61,540
-------- -------- -------- -------- -------- -------- --------
Land sales.................... 20,964 17,571 7,685 5,579 10,365 12,471 12,471
Cost of land sales............ 17,332 15,589 7,095 5,058 9,333 11,370 11,370
-------- -------- -------- -------- -------- -------- --------
Land gross profit.......... 3,632 1,982 590 521 1,032 1,101 1,101
-------- -------- -------- -------- -------- -------- --------
Financial services
income, net................ 1,158 1,796 2,678 1,028 2,199 3,849 3,849
Other income, net............. 1,573 1,485 1,513 611 1,168 2,070 2,070
-------- -------- -------- -------- -------- -------- --------
Total gross profit......... 37,534 48,584 63,893 30,302 34,722 68,313 68,560
-------- -------- -------- -------- -------- -------- --------
Selling, marketing, general
and administrative expenses 24,466 31,906 39,620 19,413 22,731 42,938 42,938
Depreciation and amortization 3,532 2,977 2,374 1,272 1,235 2,337 2,218
-------- -------- -------- -------- -------- -------- --------
Income before income taxes.... 9,536 13,701 21,899 9,617 10,756 23,038 23,404
Provision for income taxes 3,624 5,206 8,431 3,703 4,141 8,869 9,011
-------- -------- -------- -------- -------- -------- --------
Income before
extraordinary charge (2).. $ 5,912 $ 8,495 $ 13,468 $ 5,914 $ 6,615 $14,169 $14,393
======== ======== ========= ======== ======== ======= =======
Income per share before
extraordinary charge -
diluted.................... $0.74 $1.03 $1.58 $0.71 $0.74 $1.62 $1.64
Weighted average number
of extraordinary charge -
diluted.................... 9,132 9,251 9,246 9,105 8,964 9,444 9,444
OTHER FINANCIAL DATA:
EBITDA(3)..................... $19,972 $28,221 $40,339 $18,725 $20,029 $41,643 $41,643
Interest incurred............. 13,750 15,272 15,623 7,815 8,277 16,085 15,558
Ratio of EBITDA to
interest incurred.......... 1.45x 1.85x 2.58x 2.40x 2.42x 2.59x 2.68x
Ratio of homebuilding
debt to EBITDA............. 7.38x 5.39x 3.77x N/A N/A 4.79x 4.89x
Ratio of earnings to fixed
charges (4)................ 1.18x 1.63x 2.40x 2.20x 2.24x 2.41x 2.51x
SUMMARY OPERATING DATA:
Units:
Deliveries................. 1,137 1,567 1,992 954 1,008 2,046 2,046
Backlog at end of period... 9,132 9,251 9,246 9,105 8,964 9,444 9,444
804 1,016 869 932 1,444 1,444 1,444
Aggregate sales value of
backlog.................... $161,900 $210,300 $173,989 $193,700 $278,100 $278,100 $278,100
Average sales price of
homes in backlog........... 201 207 200 208 193 193 193
AS OF APRIL 30, 1998
---------------------
AS
ACTUAL ADJUSTED(1)
-------- ------------
BALANCE SHEET DATA:
Cash................................................................................ $ 19,532 $ 19,532
Homebuilding inventories............................................................ 337,826 337,826
Total assets........................................................................ 405,749 406,570(5)
Homebuilding bank credit facilities (6)............................................. 59,298 53,598
9 1/4% Senior Notes due 2008 (excluding discount of $750).................................. 100,000 150,000
11 3/4% Senior Notes due 2000......................................................... 40,000 --
Total homebuilding debt.......................................................... 199,298 203,598
Total debt (7)................................................................... 218,874 223,174
Shareholders' equity................................................................ 153,292 151,468
</TABLE>
10
<PAGE>
- ---------------------
(1) As adjusted for the issuance and sale of the Private Notes in the Private
Placement and the application of the net proceeds therefrom as described
under "Private Placement."
(2) Income before the extraordinary charge for the six months and twelve months
ended April 30, 1998, excludes the extraordinary charge of $810,000, net of
income taxes, or $.09 per share, on a diluted basis, resulting from the
elimination of deferred loan costs and the premium paid in connection with
the redemption of $14,598,000 aggregate principal amount of the Company's
7% Convertible Subordinated Debentures due 2003.
(3) EBITDA is defined as income before income taxes, amortization of
capitalized interest expense included in the cost of goods sold,
depreciation, other amortization and extraordinary charge. EBITDA is a
widely accepted financial indicator of a company's ability to service debt.
However, EBITDA should not be construed as an alternative to operating
income or to cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) and should not be
construed as an indication of the Company's operating performance or as a
measure of liquidity.
(4) Computed by dividing earnings by fixed charges. "Earnings" consist of
income from operations before income taxes, plus amortization of previously
capitalized interest included in costs of sales and fixed charges,
exclusive of capitalized interest. "Fixed charges" consist of interest
costs incurred, including capitalized interest costs plus amortization of
loan costs and that portion of operating lease rental expense deemed to be
representative of interest.
(5) Reflects the estimated professional fees and expenses associated with the
Offering and the write-off of the unamortized deferred financing costs
related to the 1994 Notes. A breakdown of the estimated costs and write-off
follows (in thousands):
<TABLE>
<S> <C>
Financing fees and debt issuance costs.................................................... $1,000
Legal and professional fees and other costs............................................... 200
Write-off of unamortized deferred financing costs (net of income taxes)................... (379)
--------
$ 821
</TABLE>
(6) On May 28, 1998, the Company entered into the New Credit Facility which
replaced the Company's homebuilding lines of credit which existed on April
30, 1998. See "--Recent Developments--New Credit Facility" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
(7) Total debt includes financial services debt.
11
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS, HOLDERS OF EXISTING NOTES AND PRIVATE NOTES SHOULD
CAREFULLY CONSIDER THE FOLLOWING FACTORS BEFORE INVESTING IN THE EXCHANGE NOTES.
CONSEQUENCES OF A FAILURE TO EXCHANGE
Holders of Existing Notes and Private Notes who do not exchange their
Existing Notes and/or Private Notes for Exchange Notes in the Exchange Offer
will not be able to take advantage of the increased liquidity afforded by the
Exchange Notes which would have a total aggregate principal amount of
$150,000,000 as opposed to $100,000,000 for the Existing Notes and $50,000,000
for the Private Notes. To the extent that some of the Private Notes or Existing
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Private Notes or Existing Notes, as the
case may be, could be adversely affected.
In addition, the Private Notes have not been registered under the
Securities Act or any state securities laws and therefore may not be offered,
sold or otherwise transferred except in compliance with the registration
requirements of the Securities Act and any other applicable securities laws, or
pursuant to an exemption therefrom or in a transaction not subject thereto, and
in each case in compliance with certain other conditions and restrictions.
Private Notes which remain outstanding after consummation of the Exchange Offer
will continue to bear a legend reflecting such restrictions on transfer. In
addition, upon consummation of the Exchange Offer, holders of Private Notes
which remain outstanding will not be entitled to any rights to have such Private
Notes registered under the Securities Act or to any similar rights under the
Registration Rights Agreement (subject to certain limited exceptions). The
Company does not intend to register under the Securities Act any Private Notes
which remain outstanding after consummation of the Exchange Offer (subject to
such limited exceptions, if applicable). To the extent that Private Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Private Notes could be adversely affected.
FAILURE TO COMPLY WITH EXCHANGE OFFER PROCEDURES
Subject to the conditions set forth under "The Exchange
Offer--Conditions to the Exchange Offer," delivery of Exchange Notes in exchange
for Existing Notes and Private Notes tendered and accepted for exchange pursuant
to the Exchange Offer will be made only after timely receipt by the Exchange
Agent of (i) certificates for Existing Notes or Private Notes or a book-entry
confirmation of a book-entry transfer of Existing Notes or Private Notes into
the Exchange Agent's account at DTC, including an Agent's Message (as defined
under "The Exchange Offer--Acceptance for Exchange and Issuance of Existing
Notes and Private Notes") if the tendering holder does not deliver a Letter of
Transmittal, (ii) a completed and signed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees or, in the case of a book-entry
transfer, an Agent's Message in lieu of the Letter of Transmittal, and (iii) any
other documents required by the Letter of Transmittal. Therefore, holders of
Existing Notes and/or Private Notes desiring to tender such Existing Notes
and/or Private Notes in exchange for Exchange Notes should allow sufficient time
to ensure timely delivery. The Company is not under a duty to give notification
of defects or irregularities with respect to the tenders of Existing Notes
and/or Private Notes for exchange.
GENERAL REAL ESTATE, ECONOMIC, INTEREST RATES AND OTHER CONDITIONS
The homebuilding industry is cyclical and affected by changes in
general and local economic and other conditions including employment levels,
demographic considerations, availability of financing, interest rate levels,
consumer confidence and housing demand. In addition, homebuilders are subject to
various risks, many of them outside the control of the homebuilder including
competitive overbuilding, availability and cost of building lots, materials and
labor, adverse weather conditions which can cause delays in construction
schedules, cost overruns, changes in government regulations, and increases in
real estate taxes and other local government fees. The Company cannot predict
whether interest rates will be at levels attractive to prospective home buyers.
If interest rates increase, and in particular mortgage interest rates, the
Company's business could be adversely affected. See
12
<PAGE>
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Competition and Market Factors."
LEVERAGE; POTENTIAL ADVERSE EFFECT OF INDEBTEDNESS ON FUTURE OPERATIONS
As of April 30, 1998, after giving effect to the issuance and sale of
the Private Notes in the Private Placement and the application of the net
proceeds therefrom as described under "Private Placement," the outstanding
indebtedness of the Company would have been approximately $223,174,000 and the
Company would have had stockholders' equity of approximately $151,468,000. In
addition, subject to restrictions in the Indenture and the New Credit Facility,
the Company may incur additional indebtedness in the future, some of which may
be secured. The Company's ability to make required debt service payments in the
future will be dependent on the Company's operating results, which are subject
to financial, economic and other factors affecting the Company that are beyond
its control. No assurance can be given that the Company will be able to make
required debt service payments. See "Capitalization."
The degree to which the Company is leveraged could have an adverse
impact on the Company, including (i) increased vulnerability to adverse general
economic and market conditions, (ii) impaired ability to expand and to respond
to increased competition, (iii) impaired ability to obtain additional financing
for future working capital, capital expenditures, general corporate or other
purposes and (iv) requiring that a significant portion of cash provided by
operating activities be used for the payment of debt obligations, thereby
reducing funds available for operations and future business opportunities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Liquidity and Capital Resources."
GEOGRAPHIC CONCENTRATION; RISKS OF EXPANSION
The Company's operations are situated in South Florida; Central
Florida; the west coast of Florida; Denver, Colorado; Dallas, Texas; Virginia
and Maryland; Raleigh, North Carolina; Phoenix, Arizona; and Atlanta, Georgia.
Adverse general economic conditions in these markets could have a material
adverse impact on the operations of the Company. For fiscal 1997, approximately
68% of the Company's housing revenue and a significant portion of the Company's
operating income were derived from operations in its Florida markets. The
Company's performance could be significantly affected by changes in these
markets. The Company expanded into two new geographic markets, Phoenix, Arizona,
and Atlanta, Georgia, in fiscal 1997. New markets may prove to be less stable
and may involve delays, problems and expenses not typically found by the Company
in the existing markets with which it is familiar. See "Business."
LAND DEVELOPMENT ACTIVITIES
The Company develops land for some of its subdivisions, which
occasionally may consist of large tracts of land suited for master-planned
communities. Acquiring land and committing the financial and managerial
resources to develop such land involve significant risks. Before a subdivision
generates any revenue, material expenditures are required for items such as
acquiring land and constructing subdivision infrastructure (such as roads and
utilities).
SIGNIFICANT VOTING CONTROL BY PRINCIPAL SHAREHOLDERS
Alec Engelstein, the Company's Chairman, President and Chief Executive
Officer, and Harry Engelstein, the Company's Executive Vice President and Chief
Construction Officer, together beneficially own a total of approximately 32.0%
of the Company's outstanding Common Stock and together have significant voting
power with respect to the election of the Board of Directors of the Company, and
in general, the determination of the outcome of various matters submitted to the
shareholders of the Company for approval.
13
<PAGE>
DEPENDENCE ON KEY EXECUTIVES
The Company is managed by a relatively small number of executive
officers. The loss of the services of one or more of these executive officers,
particularly Alec Engelstein, the Company's Chairman, President and Chief
Executive Officer, could have an adverse effect on the Company's business and
operations. See "Management."
HOLDING COMPANY STRUCTURE; FRAUDULENT CONVEYANCE CONCERNS
The Company is a holding company which derives substantially all of its
operating income from its subsidiaries. The Company must rely on dividends and
other distributions from its subsidiaries to generate the funds necessary to
meet its obligations, including the payment of principal and interest on the
Notes. The ability of the Company's subsidiaries to pay such dividends or make
such distributions will be subject to, among other things, applicable state laws
and, under certain circumstances, restrictions contained in agreements or debt
instruments that the Company or its subsidiaries may enter into after the date
of the Indenture. All of the subsidiaries of the Company have jointly and
severally guaranteed the Notes. In addition, the Notes and the Guarantees will
be effectively subordinated to all secured indebtedness of the Company and the
Guarantors, respectively, to the extent of the assets securing such
indebtedness. Currently, the Company and the Guarantors collectively have no
secured indebtedness outstanding other than the Warehouse Lines of Credit. See
"Summary--Recent Developments--New Credit Facility" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
The Guarantees may be subject to review under federal or state
fraudulent conveyance law. To the extent that a court were to find that (x) a
Guarantee was incurred by a Guarantor with intent to hinder, delay, or defraud
any present or future creditor, or the Guarantor contemplated insolvency with a
design to prefer one or more creditors to the exclusion in whole or in part of
others, or (y) such Guarantor did not receive fair consideration or reasonable
equivalent value for issuing its Guarantee and such Guarantor (i) was insolvent,
(ii) was rendered insolvent by reason of the issuance of such Guarantee, (iii)
was engaged or about to engage in a business or transaction for which the
remaining assets of such Guarantor constituted unreasonably small capital to
carry on its business, or (iv) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they matured, a court could
avoid or subordinate such Guarantee in favor of the Guarantor's creditors. Among
other things, a legal challenge of a Guarantee on fraudulent conveyance grounds
may focus on the benefits, if any, realized by each Guarantor as a result of the
issuance by the Company of the Notes. The measure of insolvency for purposes of
the foregoing will vary depending on the law of the jurisdiction being applied.
Generally, however, an entity would be considered insolvent if the sum of its
debts (including contingent or unliquidated debts) is greater than all its
property at a fair valuation or if the present fair saleable value of its assets
is less than the amount that will be required to pay its probable liability on
its existing debts as they become absolute and matured. Pursuant to the terms of
the Guarantees, the liability of each Guarantor is limited to the maximum amount
of indebtedness permitted, at the time of the grant of such Guarantee, to be
incurred in compliance with fraudulent conveyance or similar laws.
To the extent any Guarantee was avoided or subordinated as a fraudulent
conveyance, limited as described above, or held unenforceable for any other
reason, holders of the Notes would, to such extent, cease to have a claim in
respect of such Guarantee and, to such extent, would be creditors solely of the
Company and any Guarantor whose Guarantee was not avoided, subordinated,
limited, or held unenforceable. In such event, the claims of the holders of the
Notes against the issuer of an avoided, subordinated, limited or unenforceable
Guarantee would be subject to the prior payment of all liabilities of such
Guarantor. There can be no assurance that, after providing for all prior claims,
there would be sufficient assets to satisfy the claims of the holders of the
Notes.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
In the event of a Change of Control, the Company will be required to
offer to repurchase all of the outstanding Exchange Notes and any outstanding
Existing Notes and Private Notes which are not exchanged for Exchange Notes at a
purchase price equal to 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest, if any, to the repurchase date. There can be no
assurance that the Company will have sufficient funds available or will be
permitted by its other indebtedness agreements to repurchase the Exchange Notes
and any
14
<PAGE>
outstanding Existing Notes and Private Notes upon the occurrence of a Change of
Control. The Change of Control purchase feature of the Exchange Notes, the
Existing Notes and the Private Notes may in certain circumstances make more
difficult or discourage a takeover of the Company and, thus, the removal of
incumbent management. The Change of Control purchase feature, however, is not
the result of management's knowledge of any specific effort to obtain control of
the Company by means of a merger, tender offer, solicitation or otherwise, or
part of a plan by management to adopt a series of anti-takeover provisions. See
"Description of the Exchange Notes--Certain Covenants--Change of Control."
COMPETITION
The homebuilding industry is highly competitive and fragmented. The
Company competes in each of its markets with numerous national, regional and
local builders, including some builders with greater financial resources.
Builders of new homes compete not only for home buyers, but also for desirable
properties, raw materials and skilled subcontractors. The Company also competes
for residential sales with individual sales of existing homes and available
rental housing. See "Business--Competition and Market Factors."
GOVERNMENTAL REGULATION
In developing housing communities, the Company must obtain the approval
of numerous government authorities regulating such matters as permitted land
uses and levels 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. Several authorities in Florida and other states
have imposed impact fees as a means of defraying the cost of providing certain
governmental services to developing areas and the amount of these fees has
increased significantly during recent years. Many state laws require the use of
specific construction materials which reduce the need for energy-consuming
heating and cooling systems. Local governments also, at times, declare
moratoriums on the issuance of building permits and impose other restrictions in
areas where sewage treatment facilities and other public facilities do not reach
minimum standards. The Company is also subject to a variety of Federal, state
and local statutes, ordinances, rules and regulations concerning protection of
health and the environment. The particular environmental laws which apply to any
given community vary greatly according to the community site, the site's
environmental conditions and the present and former uses of the site. Prior to
consummating the purchase of land, the Company engages independent environmental
engineers to evaluate such land for the presence of hazardous or toxic
materials, wastes or substances. Such governmental regulation may result in
delays, cause the Company to incur substantial compliance and other costs and
prohibit or severely restrict development in certain regions or areas, which
could have an adverse effect on the Company's business and results of
operations. See "Business-- Government Regulation and Environmental Matters."
To varying degrees, certain permits and approvals will be required to
complete the residential developments currently being planned by the Company.
The ability of the Company to obtain necessary approvals and permits for these
projects is often beyond the Company's control, and could restrict or prevent
the development of otherwise desirable property. The length of time necessary to
obtain permits and approvals increases the carrying costs of unimproved property
acquired for the purpose of development and construction. In addition, the
continued effectiveness of permits already granted is subject to factors such as
changes in policies, rules and regulations and their interpretation and
application.
POTENTIAL DILUTION OF VOTING INTEREST
To the extent all of the Existing Notes and Private Notes are exchanged
for Exchange Notes, $150 million aggregate principal amount of Exchange Notes
will be outstanding following consummation of the Exchange Offer, and the
Exchange Notes will be deemed to be a single series of debt securities
outstanding under the Indenture. Accordingly, the individual voting interest of
each holder of Existing Notes or Private Notes will be diluted. In addition,
issuances of additional Notes under the Indenture, to the extent permitted by
the debt incurrence limitations of the Indenture, may result in further dilution
of the individual voting interest of the holders of Exchange Notes. See
"Description of the Exchange Notes."
15
<PAGE>
ABSENCE OF PUBLIC MARKET
The Exchange Notes will be new securities for which there currently is
no market. There can be no assurance as to the liquidity of any markets that may
develop for the Exchange Notes, the ability of holders of the Exchange Notes to
sell their Exchange Notes, or the price at which holders would be able to sell
their Exchange Notes. Future trading prices of the Exchange Notes will depend on
many factors, including, among other things, prevailing interest rates, the
Company's operating results and the market for similar securities. The Initial
Purchaser has informed the Company that, following completion of the Exchange
Offer, it intends to make a market in the Exchange Notes. However, the Initial
Purchaser is not obligated to do so and any market making may be discontinued at
any time without notice. Therefore, there can be no assurance that any active
market for the Exchange Notes will develop. The Company does not intend to apply
for listing of the Exchange Notes on any securities exchange or for quotation
through the National Association of Securities Dealers Automated Quotation
System.
16
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Private Notes were sold by the Company on June 12, 1998 to the
Initial Purchaser pursuant to the Purchase Agreement. The Initial Purchaser
subsequently resold the Private Notes to qualified institutional buyers pursuant
to Rule 144A under the Securities Act and to accredited institutional investors.
As a condition of the purchase of the Private Notes by the Initial Purchaser,
the Company entered into the Registration Rights Agreement with the Initial
Purchaser which requires, among other things, that the Company file with the
Commission a registration statement under the Securities Act with respect to an
offer by the Company to the holders of the Private Notes to issue and deliver to
such holders, in exchange for such Private Notes, a like principal amount of
Exchange Notes. The Company is required to use its best efforts to cause the
Registration Statement to be declared effective by the Commission under the
Securities Act and commence the Exchange Offer. The Exchange Notes are to be
issued without a restrictive legend and may be reoffered and resold by the
holder without restrictions or limitations under the Securities Act (other than
any such holder that is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act). A copy of the Registration Rights Agreement has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part.
On February 2, 1998, the Company consummated an underwritten public
offering of the Existing Notes. The Existing Notes were issued under the
Existing Notes Indenture. The form and terms of the Existing Notes are identical
in all material respects to the form and terms of the Exchange Notes, except for
the total outstanding principal amount thereof. The Registration Rights
Agreement does not obligate the Company to make the Exchange Offer to the
holders of the Existing Notes. The Company is including the Existing Notes in
the Exchange Offer with the objective of creating a single series of debt
securities having a total outstanding principal amount which is larger than that
of either the Existing Notes or the Private Notes as separate series, thus
resulting in greater liquidity. See "Risk Factors - Potential Dilution of Voting
Interest."
The Exchange Offer is not being made to, nor will the Company accept
tenders for exchange from, holders of Old Notes in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect
to the Exchange Offer means any person in whose name the Existing Notes or the
Private Notes are registered on the books of the Company or any other person who
has obtained a properly completed bond power from the registered holder, or any
person whose Existing Notes or Private Notes are held of record by DTC who
desires to deliver such Existing Notes or Private Notes by book-entry transfer
at DTC.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal, the Company will
accept all Existing Notes and Private Notes properly tendered and not withdrawn
prior to 5:00 P.M., New York City time, on the Expiration Date. Holders may
tender their Old Notes in whole or in part in denominations of $1,000 or any
integral multiple thereof. On the Exchange Date, the Company will issue for each
$1,000 principal amount of Old Notes surrendered to the Company pursuant to the
Exchange Offer a like aggregate principal amount of Exchange Notes.
Each holder of Private Notes who wishes to exchange Private Notes for
Exchange Notes in the Exchange Offer is required to make certain
representations, including that (i) it is neither an "affiliate" of the Company
nor a broker-dealer tendering Old Notes acquired directly from the Company for
its own account, (ii) any Exchange Notes to be received by it are being acquired
in the ordinary course of its business and (iii) it is not participating in, and
it has no arrangement with any person to participate in, the distribution
(within the meaning of the Securities Act) of the Exchange Notes. In addition,
in connection with any resales of Exchange Notes received in exchange for
Private Notes pursuant to the Exchange Offer, any broker-dealer who acquired
such Exchange Notes for its own account as a result of market-making activities
or other trading activities must acknowledge that it will deliver a
17
<PAGE>
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes. The staff of the SEC has taken the position in
no-action letters issued to third parties including Shearman & Sterling, SEC
No-Action Letter (available July 2, 1993), that participating broker-dealers may
fulfill their prospectus delivery requirements with respect to the Exchange
Notes (other than a resale of an unsold allotment from the original sale of
Private Notes) with this Prospectus, as it may be amended or supplemented from
time to time. Under the Registration Rights Agreement, the Company is required
to allow participating broker-dealers to use this Prospectus, as it may be
amended or supplemented from time to time, in connection with the resale of such
Exchange Notes. See "Plan of Distribution."
The Exchange Offer shall be deemed to have been consummated upon the
earlier to occur of (i) the Company having exchanged Exchange Notes for all
outstanding Old Notes (other than Private Notes held by a Restricted Holder)
pursuant to the Exchange Offer and (ii) the Company having exchanged, pursuant
to the Exchange Offer, Exchange Notes for all Old Notes that have been tendered
and not withdrawn on the date that is 30 days following the commencement of the
Exchange Offer. After such event, holders of Private Notes seeking liquidity in
their investment would have to rely on exemptions to registration requirements
under the securities laws, including the Securities Act.
As of the date of this Prospectus, $150,000,000 principal amount of Old
Notes are issued and outstanding ($100,000,000 of Existing Notes and $50,000,000
of Private Notes). In connection with the issuance of the Private Notes, the
Company arranged for the Private Notes to be eligible for trading in the Private
Offering, Resale and Trading through Automated Linkages (PORTAL) Market, the
National Association of Securities Dealers' screen based, automated market
trading of securities eligible for resale under Rule 144A.
The Company shall be deemed to have accepted for exchange validly
tendered Old Notes when, as and if the Company has given oral or written notice
thereof to the Exchange Agent. See "--Exchange Agent." The Exchange Agent will
act as agent for the tendering holders of Old Notes for the purpose of receiving
Exchange Notes from the Company and delivering Exchange Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date. Holders of Old Notes who tender in the Exchange Offer will not
be required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "-- Fees and Expenses."
This Prospectus, together with the accompanying Letter of Transmittal,
is being sent to all registered holders as of the date of this Prospectus.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean August 24, 1998, unless the
Company, in its sole discretion, extends the Exchange Offer, in which case the
term "Expiration Date" shall mean the latest date to which the Exchange Offer is
extended. In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders of Old Notes an announcement thereof, each prior to 9:00 A.M.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time. The Company reserves the right
(i) to delay acceptance of any Old Notes, to extend the Exchange Offer or to
terminate the Exchange Offer and to refuse to accept Old Notes not previously
accepted, if any of the conditions set forth herein under "-- Termination" shall
have occurred and shall not have been waived by the Company (if permitted to be
waived by the Company), by giving oral or written notice of such delay,
extension or termination to the Exchange Agent, and (ii) to amend the terms of
the Exchange Offer in any manner deemed by it to be advantageous to the holders
of the Old Notes. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
18
<PAGE>
amendment in a manner reasonably calculated to inform the holders of the Old
Notes of such amendment. Without limiting the manner in which the Company may
choose to make public announcements of any delay in acceptance, extension,
termination or amendment of the Exchange Offer, the Company shall have no
obligation to publish, advertise, or otherwise communicate any such public
announcement, other than by making a timely release to the Dow Jones News
Service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate equal to 9.25% per
annum. Interest on the Exchange Notes will be payable semi-annually on February
1 and August 1 of each year, commencing February 1, 1999. The Exchange Notes
will bear interest from and including August 1, 1998, the date of the most
recent interest payment made on the Old Notes. Holders of Old Notes whose Old
Notes are accepted for exchange will be deemed to have waived the right to
receive any payment in respect of interest on such Old Notes accrued to, but not
including, the date of the issuance of the Exchange Notes. Such waiver will not
result in the loss of interest income to such holders, since the Exchange Notes
will bear interest from August 1, 1998.
PROCEDURES FOR TENDERING OLD NOTES
VALID TENDER
Except as set forth below, in order for Old Notes to be validly
tendered by book-entry transfer, an Agent's Message or a completed and signed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and in either case any other documents required by the Letter of
Transmittal, must be delivered to the Exchange Agent by mail, facsimile, hand
delivery or overnight carrier at one of the Exchange Agent's addresses set forth
under "--Exchange Agent" on or prior to the Expiration Date and either (i) such
Old Notes must be tendered pursuant to the procedures for book-entry transfer
set forth below or (ii) the guaranteed delivery procedures set forth below must
be complied with.
Except as set forth below, in order for Old Notes to be validly
tendered by a means other than by book-entry transfer, a completed and signed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other documents required by the Letter of Transmittal, must
be delivered to the Exchange Agent by mail, facsimile, hand delivery or
overnight carrier at one of the Exchange Agent's addresses set forth under
"--Exchange Agent" on or prior to the Expiration Date and either (i) such Old
Notes must be delivered to the Exchange Agent on or prior to the Expiration Date
or (ii) guaranteed delivery procedures set forth below must be complied with.
If less than all of the Old Notes are tendered, a tendering holder
should fill in the amount of Old Notes being tendered in the appropriate box on
the Letter of Transmittal. The entire amount of Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
BOOK-ENTRY TRANSFER
The Exchange Agent and DTC have confirmed that any Direct Participant
(as defined in "Book-Entry; Delivery and Form") in DTC's book-entry transfer
facility system may utilize DTC's ATOP procedures to tender Old Notes. The
Exchange Agent will establish an account with respect to the Old Notes at DTC
for purposes of the Exchange Offer within two business days after the date of
this Prospectus. Any Direct Participant may make a book-entry delivery of the
Old Notes by causing DTC to transfer such Old Notes into the Exchange Agent's
account at DTC in accordance with DTC's ATOP procedures for transfer. However,
although delivery of Old Notes may be
19
<PAGE>
effected through book-entry transfer into the Exchange Agent's account at DTC,
an Agent's Message or a completed and signed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees and any other documents
required by the Letter of Transmittal must in any case be delivered to and
received by the Exchange Agent at one of its addresses set forth under "--
Exchange Agent" on or prior to the Expiration Date, or the guaranteed delivery
procedure set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES
NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
SIGNATURE GUARANTEES
Certificates for the Old Notes need not be endorsed and signature
guarantees on the Letter of Transmittal are unnecessary unless (a) a certificate
for the Old Notes is registered in a name other than that of the person
surrendering the certificate or (b) such holder completes the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" in the Letter
of Transmittal. In the case of (a) or (b) above, such certificates for Old Notes
must be duly endorsed or accompanied by a properly executed bond power, with the
endorsement or signature on the bond power and on the Letter of Transmittal
guaranteed by a firm or other entity identified in Rule 17Ad-15 under the
Exchange Act as an "eligible guarantor institution," including (as such terms
are defined therein): (i) a bank; (ii) a broker, dealer, municipal securities
broker or dealer or government securities broker or dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association (an "Eligible Institution"), unless surrendered
on behalf of such Eligible Institution. See Instruction 1 to the Letter of
Transmittal.
GUARANTEED DELIVERY
If a holder desires to tender Old Notes pursuant to the Exchange Offer
and the certificates for such Old Notes are not immediately available or time
will not permit all required documents to reach the Exchange Agent on or prior
to the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, such Old Notes may nevertheless be tendered,
provided that all of the following guaranteed delivery procedures are complied
with:
(a) such tenders are made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form accompanying the Letter of Transmittal, is
received by the Exchange Agent, as provided below, on or prior to the Expiration
Date; and
(c) the certificates (or a book-entry confirmation) representing
all tendered Old Notes, in proper form for transfer, together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof), with
any required signature guarantees and any other documents required by the Letter
of Transmittal, are received by the Exchange Agent within three New York Stock
Exchange trading days after the date of execution of such Notice of Guaranteed
Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or
transmitted by facsimile or mail to the Exchange Agent and must include a
guarantee by an Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of Exchange
Notes in exchange for Old Notes tendered and accepted for exchange pursuant to
the Exchange Offer will in all cases be made only after timely receipt by the
Exchange Agent of Old Notes, or of a book-entry confirmation with respect to
such Old Notes, and a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), together with any required signature guarantees and any
other documents required by the Letter of Transmittal. Accordingly, the delivery
of Exchange Notes might not be made to all tendering holders at the same time,
and will depend upon when Old Notes, book-entry confirmations with respect to
Old Notes and other required documents are received by the Exchange Agent.
20
<PAGE>
The Company's acceptance for exchange of Old Notes tendered pursuant to
any of the procedures described above will constitute a binding agreement
between the tendering holder and the Company upon the terms and subject to the
conditions of the Exchange Offer.
DETERMINATION OF VALIDITY
All questions as to the form of documents, validity, eligibility
(including time of receipt) and acceptance for exchange of any tendered Old
Notes will be determined by the Company, in its sole discretion, whose
determination shall be final and binding on all parties. The Company reserves
the absolute right, in its sole and absolute discretion, to reject any and all
tenders determined by it not to be in proper form or the acceptance of which, or
exchange for, may, in the opinion of counsel to the Company, be unlawful. The
Company also reserves the absolute right, subject to applicable law, to waive
any of the conditions of the Exchange Offer as set forth under "-- Conditions to
the Exchange Offer" or any condition or irregularity in any tender of Old Notes
of any particular holder whether or not similar conditions or irregularities are
waived in the case of other holders.
The interpretation by the Company of the terms and conditions of the
Exchange Offer (including the Letter of Transmittal and the instructions
thereto) will be final and binding. No tender of Old Notes will be deemed to
have been validly made until all irregularities with respect to such tender have
been cured or waived. Neither the Company, any affiliates or assigns of the
Company, the Exchange Agent nor any other person shall be under any duty to give
any notification of any irregularities in tenders or incur any liability for
failure to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of
attorney, or any other document required by the Letter of Transmittal is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the Company,
proper evidence satisfactory to the Company, in its sole discretion, of such
person's authority to so act must be submitted.
A beneficial owner of Old Notes that are held by or registered in the
name of a broker, dealer, commercial bank, trust company or other nominee or
custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be
withdrawn at any time on or prior to the Expiration Date.
In order for a withdrawal to be effective a written, telegraphic or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at one of its addresses set forth under "-- Exchange Agent"
on or prior to the Expiration Date. Any such notice of withdrawal must specify
the name of the person who tendered the Old Notes to be withdrawn, the aggregate
principal amount of Old Notes to be withdrawn, and (if certificates for such Old
Notes have been tendered) the name of the registered holder of the Old Notes as
set forth on the Old Notes, if different from that of the person who tendered
such Old Notes. If Old Notes have been delivered or otherwise identified to the
Exchange Agent, then prior to the physical release of such Old Notes, the
tendering holder must submit the serial numbers shown on the particular Old
Notes to be withdrawn and the signature on the notice of withdrawal must be
guaranteed by an Eligible Institution, except in the case of Old Notes tendered
for the account of an Eligible Institution. If Old Notes have been tendered
pursuant to the procedures for book-entry transfer set forth in "-- Procedures
for Tendering Old Notes," the notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawal of Old Notes, in
which case a notice of withdrawal will be effective if delivered to the Exchange
Agent by written, telegraphic or facsimile transmission. Withdrawals of tenders
of Old Notes may not be rescinded. Old Notes properly withdrawn will not be
deemed validly tendered for purposes of the Exchange Offer, but may be
retendered at any subsequent time on or prior to the Expiration Date by
following any of the procedures described above under "--Procedures for
Tendering Old Notes."
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<PAGE>
All questions as to the validity, form and eligibility (including time
of receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any affiliate or assign of the Company, the Exchange Agent
nor any other person shall be under any duty to give any notification of any
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification. Any Old Notes which have been tendered but which are
withdrawn will be returned to the holder thereof promptly after withdrawal.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Company will not be required to accept for
exchange, or to exchange, any Old Notes for any Exchange Notes, and, as
described below, may terminate the Exchange Offer (whether or not any Old Notes
have theretofore been accepted for exchange) or may waive any conditions to or
amend the Exchange Offer, if any of the following conditions have occurred or
exist or have not been satisfied:
(a) there shall occur a change in the current interpretation by the
staff of the Commission which permits the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes to be offered for resale, resold and
otherwise transferred by holders thereof (other than broker-dealers and any such
holder which 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 Exchange
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 Exchange Notes; or
(b) any law, statute, rule or regulation shall have been adopted or
enacted which, in the judgment of the Company, would reasonably be expected to
impair its ability to proceed with the Exchange Offer; or
(c) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration Statement
or proceedings shall have been initiated or, to the knowledge of the Company,
threatened for that purpose or any governmental approval has not been obtained,
which approval the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its sole and absolute discretion that any
of the foregoing events or conditions has occurred or exists or has not been
satisfied, it may, subject to applicable law, terminate the Exchange Offer
(whether or not any Old Notes have theretofore been accepted for exchange) or
may waive any such condition or otherwise amend the terms of the Exchange Offer
in any respect. If such waiver or amendment constitutes a material change to the
Exchange Offer, the Company will promptly disclose such waiver or amendment by
means of a prospectus supplement that will be distributed to the registered
holders of the Old Notes and will extend the Exchange Offer to the extent
required by Rule 14e-1 under the Exchange Act.
EXCHANGE AGENT
American Stock Transfer & Trust Company has been appointed as Exchange
Agent for the Exchange Offer. Delivery of the Letters of Transmittal and any
other required documents, questions, requests for assistance, and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent as follows:
<TABLE>
<CAPTION>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL, BY FACSIMILE (ELIGIBLE INSTITUTIONS ONLY):
OVERNIGHT COURIER OR HAND DELIVERY:
(718) 234-5001
American Stock Transfer & Trust Company Attention: Exchange Department
40 Wall Street
New York, New York 10005 Confirmed by Telephone: (718) 921-8200
Attention: Exchange Department (Originals of all documents submitted by facsimile
should be sent promptly by hand, overnight courier or
registered or certified mail.)
</TABLE>
Delivery to other than the above address or facsimile number will not
constitute a valid delivery.
22
<PAGE>
FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith. The Company will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus
and related documents to the beneficial owners of Old Notes, and in handling or
tendering for their customers.
Holders who tender their Old Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith. If, however, Exchange Notes
are to be delivered to, or are to be issued in the name of, any person other
than the registered holder of the Old Notes tendered, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes in connection with
the Exchange Offer, then 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 with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
The Company will not make any payment to brokers, dealers or other
nominees soliciting acceptances of the Exchange Offer.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the
Company upon the consummation of the Exchange Offer. The expenses of the
Exchange Offer will be expensed by the Company under generally accepted
accounting principles.
PRIVATE PLACEMENT
The net proceeds to the Company from the Private Placement were
approximately $48.0 million. The Company used approximately $42,350,000 of the
net proceeds to redeem all of the $40 million aggregate principal amount of the
Company's 11 3/4% Senior Notes due 2000 outstanding at a price 105.875% of the
principal amount thereof and remainder to repay outstanding amounts under the
New Credit Facility.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes in the Exchange Offer. In consideration for issuing the Exchange
Notes as contemplated in this Prospectus, the Company will receive in exchange a
like principal amount of Old Notes, the terms of which are identical in all
material respects to the Exchange Notes. The Old Notes surrendered in exchange
for the Exchange Notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not result in any change in the
capitalization of the Company.
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<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company
at April 30, 1998, and as adjusted to give effect to the issuance and sale of
the Private Notes in the Private Placement and the application of the net
proceeds therefrom as described under "Private Placement."
<TABLE>
<CAPTION>
AS OF APRIL 30, 1998
-------------------------------
ACTUAL AS ADJUSTED
--------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash................................................................ $ 19,532 $ 19,532
======== ==========
Debt:
Homebuilding debt
Bank credit facilities (1)...................................... 59,298 53,598
91/4% Senior Notes due 2008 (excluding discount of $750)........ 100,000 150,000
113/4% Senior Notes due 2000.................................... 40,000 --
--------- ----------
Total homebuilding debt....................................... 199,298 203,598
--------- ----------
Financial services debt.......................................... 19,576 19,576
--------- ----------
Total debt................................................. 218,874 223,174
--------- ----------
Shareholders' equity:
Common Stock ($.01 par value, 25,000,000 shares authorized;
11,146,955 shares issued and outstanding) (2).................. 111 111
Additional paid-in capital....................................... 102,841 102,841
Retained earnings................................................ 50,340 48,516
--------- ----------
Total shareholders' equity................................. 153,292 151,468
--------- ----------
Total capitalization...................................... $372,166 $374,642
======== ========
</TABLE>
- ---------------------
(1) On May 28, 1998, the Company entered into the New Credit Facility which
replaced the Company's secured lines of credit which existed on April 30,
1998, other than the Warehouse Lines of Credit. See "Summary--Recent
Developments--New Credit Facility" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
(2) Excludes 605,100 shares of Common Stock subject to outstanding options as
of April 30, 1998, of which options to purchase 539,100 shares were
exercisable on that date.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected consolidated financial and
operating data of the Company. The selected consolidated financial and operating
data as of and for the years ended October 31, 1993 through 1997 were derived
from the Company's consolidated financial statements which have been audited by
BDO Seidman, LLP, independent certified public accountants. The selected
consolidated financial and operating data as of and for the six months ended
April 30, 1997 and 1998 were derived from the Company's unaudited financial
statements which, in the opinion of management, include all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of such information for the unaudited interim periods. The
operating results for the six months ended April 30, 1998 are not necessarily
indicative of results for the full fiscal year. The information presented below
should be read in conjunction with the Company's Consolidated Financial
Statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus or incorporated by reference herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED OCTOBER 31, APRIL 30,
---------------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues..................... $137,386 $224,459 $244,528 $332,088 $425,29 $205,228 $214,752
Costs and expenses:
Cost of sales - homes..... 112,352 183,752 184,888 260,651 345,295 165,537 165,029
Cost of sales - land...... 498 2,577 17,332 15,589 7,095 5,058 9,333
Selling, marketing,
general & administrative 12,741 19,993 24,466 31,906 39,620 19,413 22,731
Depreciation &
amortization.............. 1,677 2,402 3,532 2,977 2,374 1,272 1,235
Financial services........ 0 3,556 4,774 7,264 9,012 4,331 5,668
-------- -------- -------- -------- ------- -------- --------
Total costs and expenses.. 127,268 212,280 234,992 318,387 403,396 195,611 203,996
-------- -------- -------- -------- ------- -------- --------
Income before income taxes... 10,118 12,179 9,536 13,701 21,899 9,617 10,756
-------- -------- -------- -------- ------- -------- --------
Income before cumulative
effect of accounting
change and extraordinary
charge (1)................ $6,298 $7,575 $5,912 $8,495 $13,468 5,914 6,615
======== ======== ======== ======== ======= ======== ========
Income per share before
cumulative effect of
accounting change and
extraordinary charge -- diluted $0.81 $0.96 $0.74 $1.03 $1.58 $0.71 $0.74
Weighted average number of
shares outstanding --
diluted................... 8,131 8,817 9,132 9,251 9,246 9,105 8,964
OTHER FINANCIAL DATA:
EBITDA(2)................. $15,924 $22,293 $19,972 $28,221 $40,339 $18,725 $20,029
Interest incurred......... 4,068 7,183 13,750 15,272 15,623 7,815 8,277
Ratio of EBITDA to
interest incurred........ 3.91x 3.10x 1.45x 1.85x 2.58x 2.40x 2.42x
Ratio of earnings to
fixed charges(3)......... 3.14x 2.56x 1.18x 1.63x 2.40x 2.20x 2.24x
SUMMARY OPERATING DATA:
Units:
Deliveries............. 797 1,225 1,137 1,567 1,992 954 1,008
Backlog at end of
period................. 687 560 804 1,016 869 932 1,444
Aggregate sales value of
backlog................ $119,491 $108,200 $161,900 $210,300 $173,989 $193,700 $278,100
Average sales price of
homes in backlog.......... 174 193 201 207 200 208 193
AS OF OCTOBER 31,
----------------------------------------------------- AS OF APRIL 30,
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
BALANCE SHEET DATA:
Cash...................... $ 27,326 $ 13,121 $ 13,400 $ 21,700 $ 16,546 $ 19,532
Homebuilding inventories.. 88,902 138,428 198,664 220,564 230,108 337,826
Total assets.............. 143,991 188,913 251,918 284,789 288,412 405,749
Total homebuilding debt... 63,794 99,428 147,454 152,117 152,064 199,298
Total debt(4)............. 66,575 102,341 153,927 165,123 166,593 218,874
Shareholders' equity...... 58,102 66,303 74,106 81,492 93,180 153,292
</TABLE>
25
<PAGE>
- ------------------
(1) Effective November 1, 1993, the Company adopted statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes," which requires
an asset and liability method of accounting for income taxes. The Company
recorded a benefit of $1,332,000 in the first quarter of fiscal 1994 as a
cumulative effect on prior years of this accounting change which has been
excluded from the calculation of income before cumulative effect of
accounting change and extraordinary charge. Income before cumulative effect
of accounting change and extraordinary charge for the six months ended
April 30, 1998, excludes the extraordinary charge of $810,000, net of
income taxes, or $.09 per share, on a diluted basis, resulting from the
elimination of deferred loan costs and the premium paid in connection with
the redemption of $14,598,000 aggregate principal amount of the Company's
7% Convertible Subordinated Debentures due 2003.
(2) EBITDA is defined as income before income taxes, amortization of
capitalized interest expense included in the cost of goods sold,
depreciation, other amortization and cumulative effect of accounting change
and extraordinary charge. EBITDA is a widely accepted financial indicator
of a company's ability to service debt. However, EBITDA should not be
construed as an alternative to operating income or to cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles) and should not be construed as an indication of the
Company's operating performance or as a measure of liquidity.
(3) Computed by dividing earnings by fixed charges. "Earnings" consist of
income from operations before income taxes, plus amortization of previously
capitalized interest included in costs of sales and fixed charges,
exclusive of capitalized interest costs. "Fixed Charges" consist of
interest costs incurred, including capitalized interest costs plus
amortization of loan costs and that portion of operating lease rental
expense deemed to be representative of interest.
(4) Total debt includes financial services debt.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS IS BASED UPON AND SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO INCORPORATED BY
REFERENCE IN THIS PROSPECTUS.
OVERVIEW
GENERAL. The following table sets forth for the periods indicated
certain items of the Company's financial statements expressed as a percentage of
the Company's total revenues:
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30,
--------------------------
1997 1998
------ ------
<S> <C> <C>
Total revenues......................................................... 100.0% 100.0%
Costs of home construction and land sales.............................. 83.1 81.2
Selling, marketing, general and administrative expense................. 9.5 10.6
Income before income taxes............................................. 4.7 5.0
</TABLE>
BACKLOG. Sales of the Company's homes are generally made pursuant to a
standard contract which requires a down payment of up to 10% of the sales price.
The contract includes a financing contingency which permits the customer to
cancel in the event mortgage financing at prevailing interest rates (including
financing arranged by the Company) is unobtainable within a specified period,
typically four to six weeks. The Company includes an undelivered home sale in
its backlog upon execution of the sales contracts and receipt of the down
payment. Revenue is recognized only upon the closing and delivery of a home. The
Company estimates that the average period between the execution of a purchase
agreement for a home and delivery is approximately six months. The following
table sets forth the Company's backlog for the periods indicated:
<TABLE>
<CAPTION>
APRIL 30,
------------------------------------------------------------------
1997 1998
--------------------------------- -------------------------------
UNITS DOLLARS UNITS DOLLARS
----- ------- ----- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
South Florida.................... 490 $109,800 356 $72,300
Central Florida.................. 187 34,800 300 56,200
West Coast Florida............... 54 9,000 201 33,900
Dallas, TX....................... 52 8,800 163 24,700
Denver, CO....................... 96 18,400 169 33,900
Virginia/Maryland................ 35 8,800 73 19,400
Raleigh, NC...................... 18 4,100 19 3,700
Atlanta, GA...................... 0 0 8 1,200
Phoenix, AZ...................... 0 0 155 32,800
----- -------- ------ --------
Total....................... 932 $193,700 1,444 $278,100
=== ======== ===== ========
</TABLE>
The increase in unit backlog at April 30, 1998 was due to a record
1,583 new homes sales during the six months ended April 30, 1998. This
represents an 82% increase in the number of new home sales contracts signed,
when compared with 870 contracts in the six months ended April 30, 1997. At
April 30, 1998, the Company was marketing 82 subdivisions, compared to 71
subdivisions at April 30, 1997, including 18 subdivisions in South Florida; 16
in Central Florida; 12 in West Coast Florida; 7 in Dallas, Texas; 11 in Denver,
Colorado; 6 in Virginia and Maryland; 3 in Raleigh, North Carolina; 3 in
Atlanta, Georgia and 6 in Phoenix, Arizona.
27
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998 COMPARED TO SIX MONTHS ENDED APRIL 30,
1997.
The Company's revenues from home sales for the six months ended April
30, 1998 increased $1.7 million (or 0.9%) compared to the same period in fiscal
1997. The number of homes delivered increased 5.7% (to 1,008 from 954) and the
average selling price of homes delivered decreased 4.4% (to $194,000 from
$203,000). The increase of revenues and homes delivered was primarily
attributable to a higher velocity of homes delivered in backlog during the six
months ended April 30, 1998 compared with the prior year period. Management
believes that changes in the average selling price of homes delivered from
period to period are attributable to discrete factors at each of its
subdivisions, including product mix and premium lot availability, and cannot be
predicted for future periods with any degree of certainty.
The Company's revenues from land sales increased approximately $4.8
million during the six months ended April 30, 1998, as compared to the same
period in fiscal 1997, primarily as a result of an increase in commercial land
sales at Pembroke Falls, a master-planned community in South Florida.
Cost of home sales decreased $500,000 (or 0.3%) compared to the same
period in fiscal 1997 primarily due to the product mix in home sale revenues.
Cost of home sales as a percentage of home sales were comparable for the six
months ended April 30, 1998 and the same period in fiscal year 1998.
The Company's selling, marketing, general and administrative ("S,G&A")
expenses increased approximately $3.3 million (or 17.1%) during the six months
ended April 30, 1998, as compared to the corresponding fiscal 1997 period,
primarily due to selling and marketing expenses associated with the increased
number of residential subdivisions and increased general and administrative
expenses associated with payroll costs. S,G&A expenses as a percentage of total
revenues for the six months ended April 30, 1998 increased to 10.6% compared to
9.5%, primarily due to the increased selling costs related to the increased
number of residential subdivisions for the period as compared to the prior year.
Primarily as a result of the increase in revenues, net income before
extraordinary item increased by $700,000 in the six months ended April 30, 1998
from the comparable period in fiscal 1997.
YEAR ENDED OCTOBER 31, 1997 COMPARED TO YEAR ENDED OCTOBER 31, 1996.
The Company's revenues from home sales during fiscal 1997 increased
$100.4 million (or 33.0%) compared to fiscal 1996. The number of homes delivered
by the Company increased 27.1% (to 1,992 from 1,567) and the average selling
price of homes delivered increased 4.6% (to $203,000 from $194,000). The
increase of revenues and homes delivered was primarily attributable to a higher
percentage of backlog being delivered during fiscal 1997. Management believes
that changes in the average selling price of homes delivered from period to
period are attributable to discrete factors at each of its subdivisions,
including product mix and premium lot availability, and cannot be predicted for
future periods with any degree of certainty.
The Company's revenues from land sales decreased approximately $9.9
million (or 56.3%) during fiscal 1997 as compared to fiscal 1996, primarily as a
result of a decrease in commercial and multi-family land sales at Pembroke
Falls.
Cost of home sales increased approximately $84.6 million (or 32.5%)
compared to fiscal 1996, primarily due to the related increase in home sales
revenues. Cost of home sales as a percentage of home sales decreased to 85.3%
from 85.7% as a result of the product mix of homes delivered.
Cost of land sales decreased approximately $8.5 million (or 54.5%)
during fiscal 1997 as compared to fiscal 1996, primarily as a result of the
decrease in land sales. Costs of land sales as a percentage of land sales
increased to 92.3% from 88.7%, which was primarily attributable to lower margin
single family lots available for sale. Margins from land sales at Pembroke Falls
in fiscal 1997 were comparable to fiscal 1996.
28
<PAGE>
The Company's S,G&A expenses increased approximately $7.7 million (or
24.2%) during fiscal 1997 as compared to fiscal 1996, primarily as a result of
variable selling costs associated with the greater number of homes closed and an
increase in selling expenditures related to an increase in the number of
residential subdivisions. S,G&A expenses as a percentage of total revenues
decreased from 9.6% in fiscal 1996 to 9.3% in fiscal 1997, primarily due to
certain economies of scale.
Fiscal 1997 income before income taxes increased $8.2 million
(or 59.8%) as compared to fiscal 1996, primarily due to the increase in home
sales revenues.
YEAR ENDED OCTOBER 31, 1996 COMPARED TO YEAR ENDED OCTOBER 31, 1995.
The Company's revenues from home sales during fiscal 1996 increased
$87.9 million (or 40.7%) compared to fiscal 1995. The number of homes delivered
by the Company increased 37.8% (to 1,567 from 1,137) and the average selling
price of homes delivered increased 2.1% (to $194,000 from $190,000). The
increase of revenues and homes delivered was primarily attributable to the
record backlog of homes under contract at the beginning of fiscal 1996 and
improved sales activity in all homebuilding divisions as compared to fiscal
1995. Management believes that changes in the average selling price of homes
delivered from period to period are attributable to discrete factors at each of
its subdivisions, including product mix and premium lot availability, and cannot
be predicted for future periods with any degree of certainty.
The Company's revenues from land sales decreased approximately $3.4
million (or 16.2%) during fiscal 1996 as compared to fiscal 1995 primarily as a
result of a decrease in commercial and multi-family land sales at Pembroke
Falls.
Cost of home sales increased approximately $75.7 million (or 40.9%)
compared to fiscal 1995, primarily due to the related increase in home sales
revenues. Cost of home sales as a percentage of home sales is consistent with
fiscal 1995.
Cost of land sales decreased approximately $1.7 million (or 10.1%)
during fiscal 1996 as compared to fiscal 1995, primarily as a result of the
decrease in land sales. Costs of land sales as a percentage of land sales
increased to 88.7% from 82.7%, which was primarily attributable to lower margin
single family lots available for sale. Margins from land sales at Pembroke Falls
in fiscal 1996 were comparable to fiscal 1995.
The Company's S,G&A expenses increased approximately $7.4 million (or
30.4%) during fiscal 1996 as compared to fiscal 1995, primarily as a result of
selling costs associated with the greater number of homes closed and an increase
in selling expenditures related to an increase in the number of residential
subdivisions. S,G&A expenses as a percentage of total revenues decreased from
10.0% in fiscal 1995 to 9.6% in fiscal 1996, primarily due to economies of
scale.
Fiscal 1996 income before income taxes increased $4.2 million
(or 43.7%) as compared to fiscal 1995, primarily due to the increase in home
sales revenues.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. The Company's financing needs depend upon its construction
volume, asset turnover and land acquisitions. The Company has financed and
expects to continue to finance, its working capital needs through funds
generated by operations and borrowings. Funds for future land acquisitions and
construction costs are expected to be provided primarily by cash flows from
operations and future borrowing as permitted under the Company's bank credit
facilities.
At April 30, 1998, the Company had outstanding $17.9 million of
purchase money mortgages and bank borrowings of $41.4 million under its various
revolving lines of credit, and had available additional borrowings of $61.5
million. At April 30, 1998, the Company had two primary credit agreements (the
"Agreements") with various lending institutions which provided for a combined
$130.0 million collateralized revolving line of credit. Borrowings under these
Agreements bore interest at rates ranging from LIBOR plus 2.50% to prime plus
0.25% at
29
<PAGE>
the Company's election. Available borrowings under the Agreements were
limited to certain percentages of finished lots, construction costs, land and
land under development.
On May 28, 1998, the Company entered into the New Credit Facility. The
New Credit Facility provides for up to $170 million of unsecured borrowings.
Borrowings under the New Credit Facility generally bear interest at a
fluctuating rate based upon the prime rate as announced by SunTrust, the federal
funds rate or LIBOR. All outstanding borrowings under the New Credit Facility
are due in May 2001. The New Credit Facility contains various operating and
financial covenants and all of the Company's subsidiaries are guarantors of the
Company's obligations under the New Credit Facility. Available borrowings under
the New Credit Facility are limited to certain percentages of finished lots,
construction costs, land and land under development.
The New Credit Facility replaces all of the Company's secured lines of
credit, including the Agreements, other than the Warehouse Lines of Credit. All
amounts outstanding under the Agreements as of April 30, 1998, have been repaid
with the proceeds of borrowings under the New Credit Facility. As of June 9,
1998, the Company had $40 million outstanding under the New Credit Facility. The
Company believes that amounts generated from operations and additional
borrowings under the New Credit Facility will provide adequate funds to finance
its homebuilding activities and meet its debt service requirements for fiscal
year 1998.
On October 17, 1997, the Company announced the early redemption of
$15.0 million of its 7% Convertible Subordinated Notes due 2003 (the "1993
Notes"). On November 18, 1997, the Company redeemed approximately $14.6 million
aggregate principal amount of the 1993 Notes and $570,000 aggregate principal
amount of the 1993 Notes were converted by the holders thereof into 40,708
shares of Common Stock of the Company. The Company established a $15.0 million
short term unsecured credit facility to fund this redemption. During the three
months ended April 30, 1998, the Company redeemed an additional $4,000 aggregate
principal amount of the 1993 Notes and the remaining outstanding approximately
$14.8 aggregate principal amount of the 1993 Notes were converted by the holders
thereof into approximately 1.1 million shares of Common Stock.
On February 2, 1998, the Company consummated (i) an underwritten public
offering of 3,105,000 shares (including 405,000 shares issued pursuant to an
over-allotment option) of the Company's Common Stock and (ii) an underwritten
public offering of $100,000,000 aggregate principal amount of the Existing
Notes. The net proceeds to the Company from the these offerings was
approximately $137.2 million. The Company used such net proceeds as follows: (i)
$115.9 million to repay amounts outstanding under certain of the Company's
homebuilding lines of credit; (ii) $5.1 million to repay outstanding amounts
under the Company's financial services line of credit; and (iii) $16.2 million
for general corporate purposes.
Preferred Home Mortgage Company ("PHMC") has a warehouse line of credit
in the amount of $23.0 million which is guaranteed by the Company (the "Existing
Warehouse Line of Credit"). At April 30, 1998, PHMC had outstanding borrowings
of $19.6 million pursuant to the Existing Warehouse Line of Credit from
origination of mortgage loans. On May 27, 1998, PHMC entered into a new $25.0
million warehouse line of credit which is guaranteed by the Company (the "New
Warehouse Line of Credit" and, together with the Existing Warehouse Line of
Credit, the "Warehouse Lines of Credit."). All future borrowings by PHMC will be
made under the New Warehouse Line of Credit.
LAND ACQUISITION AND CONSTRUCTION FINANCING. The Company is continually
exploring opportunities to purchase parcels of land for its homebuilding
operations and is, at any given time, in various stages of proposing, making
offers for, and negotiating the acquisition of various parcels, whether outright
or through options. During the six months ended April 30, 1998, the Company
increased land inventories approximately $79.8 million to provide land for
continued growth.
The Company has increased its land development and construction
activities in response to current and anticipated demand and expects to pursue
additional land acquisition and development opportunities in the future.
However, the Company's ability to undertake significant additional projects is
expected to depend in part upon the availability of financing on satisfactory
terms. To date, the Company has not had any significant difficulties in securing
acquisition, development and construction financing and, except with respect to
major land acquisitions,
30
<PAGE>
management believes that such financing will continue to be available on
satisfactory terms. However, there can be no assurance that sufficient financing
on satisfactory terms will continue to be available.
INFLATION
The Company, as well as the homebuilding industry in general, may be
adversely affected during periods of high inflation, primarily because of higher
land and construction costs. In addition, higher mortgage interest rates may
significantly affect the affordability of permanent mortgage financing to
prospective purchasers. Inflation also increases the Company's interest costs
and costs of labor and materials. The Company attempts to pass through to its
customers any increases in its costs through increased selling prices and, to
date, inflation has not had a material adverse effect on the Company's results
of operations. However, there is no assurance that inflation will not have a
material adverse impact on the Company's future results of operation.
INTEREST RATES
The Company's operations are interest rate sensitive. Overall housing
demand is adversely affected by increases in interest costs. If mortgage
interest rates increase significantly, this may negatively impact the ability of
a home buyer to secure adequate financing. Such results of higher interest rates
may result in adversely affecting the Company's revenues, gross margins and net
income.
YEAR 2000 ISSUES
The Company conducts its business primarily with commercial software
provided by third party vendors. After an analysis of the Company's exposure to
the impact of year 2000 issues, management believes that such commercial
software is substantially year 2000 compliant, and that completion of the year
2000 compliance is not expected to have a material impact on the Company's
business, operations or financial condition. Management is not in a position to
evaluate the extent, if any, to which any year 2000 issues that may affect the
economy generally or any of its subcontractors, suppliers or vendors in
particular would also be likely to affect the Company.
NEW FASB PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share" ("SFAS No. 128"), issued in February 1997, replaces the current
methodology for calculating and presenting earnings per share. Under SFAS No.
128, primary earnings per share will be replaced with a presentation of basic
earnings per share and fully diluted earnings per share will be replaced with
diluted earnings per share. Basic earnings per share excludes dilution and is
computed by dividing income available to common shares outstanding for the
period by the weighted average of common shares outstanding. Diluted earnings
per share is computed similarly to fully diluted earnings per share in
accordance with the Accounting Principles Board ("APB") Opinion No. 15. The
Company adopted SFAS No. 128 in the six months ended April 30, 1998. The impact
of the adoption of SFAS No. 128 has not been material.
SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"),
establishes standards for reporting and display of comprehensive income, its
components and accumulated balances. Comprehensive income is defined to include
all changes in equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, SFAS No. 130 requires that all
items that are required to be recognized under current accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"), which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise," establishes standards for the
way that public enterprises report information about operating segments in
annual financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments as
components of an enterprise about which separate financial
31
<PAGE>
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate the resources and in assessing
performance.
Both SFAS No. 130 and No. 131, issued in June 1997, are effective for
financial statements for periods beginning December 15, 1997 and require
comparative information for earlier years to be restated. Due to the recent
issuance of these standards, management has been unable to fully evaluate the
impact, if any, they may have on future financial statement disclosures.
32
<PAGE>
BUSINESS
GENERAL
Engle Homes, Inc. designs, constructs, markets and sells detached
single-family residences, townhomes, patio homes and condominiums to entry level
and move-up buyers, retirees and second-home, seasonal buyers. Engle operates in
nine geographic markets: Broward County, Palm Beach County and Martin County in
South Florida; Orlando in Central Florida; Tampa, Sarasota, Naples and Fort
Myers on the west coast of Florida; Denver, Colorado; Dallas, Texas; Virginia
and Maryland; Raleigh, North Carolina; Phoenix, Arizona; and Atlanta, Georgia.
The Company offers a variety of home styles at prices ranging from approximately
$80,000 to over $400,000 with an average sales price in fiscal 1997 of
approximately $203,000. In addition, the Company operates a mortgage company
which provides mortgages primarily to its home buyers in all of its geographic
markets and a title company which provides services to its home buyers and third
parties in Florida and Denver, Colorado.
Engle is a leading Florida homebuilder. The Company believes that it is
the number two and number four builder of single-family homes in South Florida
and Central Florida, respectively, based on revenues from unit closings for the
twelve months ended June 30, 1997. Florida is the number one homebuilding state
in the United States in terms of total housing starts. In addition, Florida is
currently the fourth largest state based upon total population and has
consistently ranked among the top four states in population growth over the past
seven decades.
Since 1993, Engle has expanded into eight of the top 20 homebuilding
markets in the nation through both start-up operations and the acquisition of a
homebuilder in Denver, Colorado. In fiscal 1997, approximately 32% of the
Company's revenues from home sales were generated outside of the Florida markets
as compared to none in fiscal 1993. Most recently, in fiscal 1997 Engle entered
both the Phoenix, Arizona and Atlanta, Georgia markets through start-up
operations.
Over the past five years, the Company's total revenues have grown from
$137.4 million in fiscal 1993 to $425.3 million in fiscal 1997, with annual
EBITDA growing from $15.9 million to $40.3 million over the same period,
representing compound annual growth rates of 33% and 26%, respectively. The
Company's fiscal 1997 total revenues of $425.3 million and EBITDA of $40.3
million were the highest in the Company's history. The number of homes delivered
increased from 797 in fiscal 1993 to 1,992 in fiscal 1997. At the end of fiscal
1997, Engle was marketing homes in 68 communities.
BUSINESS STRATEGY
Engle believes that its success has been due to its market-oriented
approach which it applies to each of the following: (i) identifying new markets;
(ii) acquiring land; and (iii) diversifying its product offerings and price
ranges to appeal to most segments of the home buying public. Engle believes that
this strategy enables it to respond more rapidly to changing market conditions.
EXPAND IN EXISTING AND NEW MARKETS. The Company has successfully
expanded its operations through both start-up operations in new and existing
markets and the acquisition of a homebuilder in Denver, Colorado. Within its
existing markets, the Company believes that it is able to gain greater market
share by increasing the number of residential projects, thereby leveraging its
existing management structure and enhancing profitability through economies of
scale. As part of its strategy to further diversify geographically, the Company
continually seeks and evaluates market expansion opportunities, including
potential acquisitions of homebuilding companies. The Company seeks to expand
into geographic markets with significant single-family home permit activity,
substantial job growth, a diversified economy and an availability of strong
management with local market expertise. Since its initial public offering in
January 1992, the Company has expanded into eight new geographic markets.
OFFER A BROAD SELECTION OF PRODUCTS. The Company designs its homes to
appeal to a wide variety of home buyers, including entry level and move-up
buyers, retirees and second-home, seasonal buyers. Accordingly, the Company
offers a number of home styles and price ranges at various locations in each
market, including golf and waterfront communities in certain markets. Engle's
product offerings include semi-custom estate homes, detached
33
<PAGE>
single-family residences, townhomes, semi-detached patio-homes, duplexes and
condominiums. Management believes that the Company's long-standing policy of
product diversification enables it to respond more rapidly to changing market
conditions.
SELECTIVELY ACQUIRE LAND. The Company maintains a land acquisition
policy designed to enhance profitability and return on capital while minimizing
the risks associated with investments in land. Engle seeks to identify and
acquire superior locations in each market and offer a number of communities with
diverse products and sales prices. The Company prefers to acquire improved
residential lots ready for construction by entering into option contracts,
whenever possible, or through outright purchases. The Company also acquires
tracts of land that require site improvements prior to the start of home
construction. Occasionally, Engle purchases larger parcels of undeveloped land
suited for master-planned communities, primarily in South Florida. When
acquiring larger parcels, the Company typically contracts to sell portions of
improved or unimproved land to other builders as a source of additional revenue
thereby reducing the Company's investment. In addition, when economically
advantageous to the Company, Engle enters into partnership or joint venture
agreements with other major homebuilders to purchase and develop well located
parcels of land. The Company generally purchases land only after required zoning
entitlements have been obtained.
MAINTAIN STRINGENT COST CONTROLS. The Company believes that maintaining
stringent cost controls is a key factor in achieving profitability. The Company
seeks to reduce its costs and risks by (i) obtaining required zoning
entitlements prior to purchasing land, (ii) using subcontractors to perform home
construction and site improvement work on a fixed price basis, (iii) minimizing
inventory of unsold homes, (iv) improving construction cycle time for new homes,
(v) using its position as a leading homebuilder to obtain national volume
discounts on construction materials and favorable pricing from subcontractors
and (vi) maintaining a sophisticated management information system that allows
it to monitor homebuilding production, scheduling and budgeting on a daily
basis.
COMMITMENT TO CUSTOMER SATISFACTION. The Company is dedicated to
providing customer satisfaction through quality construction and customer
service. Divisional managers are responsible for the quality of construction and
the level of customer satisfaction in their respective divisions.
EXPERIENCED MANAGEMENT WITH DECENTRALIZED OPERATING STRUCTURE. To serve
the needs of each of its markets, the Company relies upon the expertise of its
division managers, each of whom has significant experience in the homebuilding
industry. In order to align corporate and divisional profit goals, division
managers receive bonuses based on the return on assets of their respective
divisions. The division managers benefit from Engle's corporate expertise in
sales and marketing, land acquisition, financial services and its centralized
accounting department. The Company believes that this interaction between the
divisional managers and corporate management provides enhanced operating
results.
LAND ACQUISITION AND DEVELOPMENT
The Company prefers to acquire improved residential lots ready for
construction by entering into option contracts, whenever possible, or through
outright purchases. The Company also acquires tracts of land that require site
improvements prior to the start of home construction. Occasionally, the Company
purchases larger tracts of land with the intention of reselling portions of the
tracts to other builders as a source of additional revenue. Specifically, the
Company purchased large tracts of land and sold parcels to other builders in
connection with the development of its master-planned communities, including
Embassy Lakes, North Passage, Lakeside Green and currently, Pembroke Falls.
Unlike the Company's more typical subdivision projects, the Company's
master-planned communities have involved significantly larger tracts of land,
greater planning and site improvement activities and the development of more
extensive recreational facilities and related amenities. The Company's master-
planned communities normally take five or more years to complete depending on
the project's size, economic conditions prevailing at the time and the Company's
strategy for the particular project. Engle's more traditional residential
developments usually take two to three years to complete.
Management believes that the Company's Pembroke Falls project
exemplifies the opportunities available to the Company when developing
master-planned communities. In February 1994, the Company acquired this
approximately 1,500 acre parcel located in southwest Broward County, Florida, a
rapidly developing housing
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<PAGE>
market. The purchase price for the Pembroke Falls parcel was $25.7 million, or
approximately $17,100 per acre. The Company expects to build approximately 2,000
single-family housing units and has sold most of the approximately 222 acres of
land zoned for commercial and multi-family use. Through October 31, 1997,
approximately $45.4 million in land sales contracts had been written, of which
$34.5 million closed through fiscal 1997. Of the remaining $10.9 million in
contracts, $8.3 million are binding contracts, and $2.6 million are contingent
upon completion of an inspection period during the next ninety days. Management
believes that the purchase of this relatively large parcel enabled the Company
to obtain desirable land inventory in its South Florida division for future
development at a lower cost than if the Company had purchased smaller parcels
available for immediate construction of homes.
The Company's land purchase agreements are typically subject to
numerous conditions, including, but not limited to, the Company's ability to
obtain necessary zoning and other governmental approvals for the proposed
subdivision. During the contingency period, the Company also confirms the
availability of utilities, conducts hazardous waste and other environmental
analysis, and completes its marketing feasibility studies.
The Company expends considerable effort in developing a design and
marketing concept for each of its subdivisions, which includes determination of
size, style and price range of the homes and, in certain projects, layout of
streets, layout of individual lots and overall community design. The product
line offered in a particular subdivision depends upon many factors, including
housing generally available in the area, the needs of the particular market and
the Company's costs of lots in the subdivision. The Company, where necessary,
undertakes development activities that include government approvals, site
planning, engineering, as well as constructing roads, sewer, water and drainage
facilities and, where applicable for recreational facilities and other
amenities.
At April 30, 1998, the Company was marketing 82 subdivisions, compared
to 71 subdivisions at April 30, 1997, including 18 subdivisions in South
Florida; 16 in Central Florida; 12 in West Coast Florida; 7 in Dallas, Texas; 11
in Denver, Colorado; 6 in Virginia and Maryland; 3 in Raleigh, North Carolina; 3
in Atlanta, Georgia and 6 in Phoenix, Arizona. The Company's residential real
estate inventory at April 30, 1998 was as follows:
<TABLE>
<CAPTION>
HOMES UNDER CONSTRUCTION LOTS AVAILABLE FOR FUTURE
CONSTRUCTION
------------------------ -------------------------
TOTAL LOTS SPECULATIVE
DIVISION AVAILABLE SOLD(1) (2) MODELS SOLD(1) UNSOLD OPTIONS
- -------------------------- ----------- ------ ----------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
South Florida(3)........... 3,609 (4) 205 175 14 151 2,930 134
Central Florida(5)......... 1,554 127 29 22 173 650 553
West coast Florida(6)...... 2,899 (7) 92 33 15 109 2,200 450
Denver, CO................. 1,102 101 40 3 68 409 481
Dallas, TX................. 978 44 17 9 119 272 517
Virginia and Maryland...... 255 51 19 7 22 99 57
Raleigh, NC................ 246 15 12 1 4 214 --
Phoenix, AZ................ 1,046 94 17 5 61 560 309
Atlanta, GA................ 619 2 4 2 6 197 408
------ --- --- -- --- ----- -----
Total................... 12,308 731 346 78 713 7,531 2,909
====== === === == === ===== =====
</TABLE>
- --------------------
(1) Under contract, but not delivered. See the discussion of the Company's
backlog under "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(2) Speculative units are unsold homes that are completed or under construction.
(3) South Florida refers to Broward County, Palm Beach County and Martin County.
(4) Includes 1,552 remaining lots in Pembroke Falls.
(5) Central Florida refers to Orlando.
(6) Florida's west coast refers to Tampa, Sarasota, Naples and Fort Myers.
(7) Includes 871 lots in Lake Bernadette in Tampa.
35
<PAGE>
CONSTRUCTION
The Company acts as the general contractor for the construction of its
residential developments. Company employees monitor the construction of each
project, participate in all material design and building decisions, coordinate
the activities of subcontractors and suppliers, subject their work to quality
and cost controls and monitor compliance with zoning and building codes.
Subcontractors typically are retained for a specified project pursuant to a
contract which obligates the subcontractor to complete construction at a fixed
price.
The Company does not maintain significant inventories of construction
materials except for work in process, materials for homes under construction and
a limited amount of other construction materials. Generally, the construction
materials used in the Company's operations are readily available from numerous
sources.
MARKETING AND SALES
The Company sells its homes primarily through commissioned employees,
who typically work from sales offices located at the model homes in each Engle
subdivision, as well as through cooperating independent brokers. In all
instances, Company personnel are available to assist prospective buyers by
providing them with floorplans, price information, tours of model homes and the
selection of options and upgrades. Options and upgrades are generally priced to
have a positive effect on profit margins. Sales personnel are trained by the
Company and attend periodic meetings to be updated on the availability of
financing, construction schedules, marketing and advertising plans.
The Company advertises in newspapers, magazines and on billboards.
Engle also uses out-of-state home shows, radio, video tapes, direct mail
advertising, special promotional events, illustrated brochures and model homes
in its comprehensive marketing program. In addition, Engle maintains a web site
on the Internet. The Company also uses a cross-referral program that encourages
Company personnel to direct customers to other Engle subdivisions based on the
customers' needs.
CUSTOMER SERVICE AND QUALITY CONTROL
The Company's customer service department is responsible for
pre-closing and post-closing customer needs. Prior to closing, a Company
employee accompanies the buyer on a home orientation and inspection tour. The
Company is continuing with its objective to provide quality construction through
on-going training programs to maintain its high quality construction standards.
The Company also provides home buyers with a limited warranty program which, in
general, provides a home buyer with a one-year warranty on workmanship and
building materials and a ten-year structural warranty. In addition, the Company
purchases, when required by local or state ordinances, builder liability
insurance for major structural defects.
FINANCIAL SERVICES
The Company's financial services subsidiaries provide mortgage banking
and title insurance services. For fiscal 1997, the financial services
subsidiaries increased their profitability to $2.7 million, an increase of 49%
compared to fiscal 1996.
MORTGAGE BANKING. In April 1992, the Company established PHMC. PHMC is
a full service mortgage banker which arranges financing through the origination
of mortgage loans to the Company's home buyers and to a lesser extent third
party loans that are not associated with homes built by the Company. PHMC is an
approved lender by the Federal National Mortgage Association ("FNMA") to deliver
loan origination to FNMA and to other investors and to service such loans.
During fiscal 1997, PHMC originated and sold approximately $138.0
million in mortgage loans (including servicing rights), representing a
significant portion of the Company's home buyers that requested mortgage
financing. Substantially all of PHMC's revenues are derived from mortgages on
homes built by Engle. At April 30, 1998, PHMC was originating mortgages in
substantially all Engle homebuilding divisions.
36
<PAGE>
PHMC must comply with various federal and state laws and consumer
credit rules and regulations in connection with its mortgage lending activities.
In addition, the mortgage banking industry in the United States is highly
competitive. PHMC competes with other mortgage companies and financial
institutions to provide mortgage financing to both the Company's customers as
well as the general public.
TITLE SERVICES. In September 1992, the Company purchased all the
outstanding common stock of the Title Store, Inc. In May 1994, the Company
acquired all the capital stock of Universal Land Title, Inc. ("ULT"), a company
that sells, but does not underwrite, title policies and simultaneously merged
with the Title Store, Inc. to form one company. ULT currently provides title
services to the Company's home buyers in Florida and Denver, Colorado, as well
as third parties. At April 30, 1998, ULT was operating 15 offices in Florida and
four offices in Denver, Colorado.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
In developing housing communities, the Company must obtain the approval
of numerous government authorities regulating such matters as permitted land
uses and levels 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. Several authorities in Florida and other states
have imposed impact fees as a means of defraying the cost of providing certain
governmental services to developing areas and the amount of these fees has
increased significantly during recent years. Many state laws require the use of
specific construction materials which reduce the need for energy-consuming
heating and cooling systems. Local governments also, at times, declare
moratoriums on the issuance of building permits and impose other restrictions in
areas where sewage treatment facilities and other public facilities do not reach
minimum standards. To date, the governmental approval processes and the
restrictive zoning and moratoriums discussed above have not had a material
adverse effect on the Company's development activities. However, there is no
assurance that these and other restrictions will not adversely affect the
Company in the future. The Company is also subject to a variety of Federal,
State and local statutes, ordinances, rules and regulations concerning
protection of health and the environment. The particular environmental laws
which apply to any given community vary greatly according to the community site,
the site's environmental conditions and the present and former uses of the site.
These environmental laws may result in delays, cause the Company to incur
substantial compliance and other costs and prohibit or severely restrict
development in certain environmentally sensitive regions or areas. Prior to
consummating the purchase of land, the Company engages independent environmental
engineers to evaluate such land for the presence of hazardous or toxic
materials, wastes or substances. The Company has not been materially affected to
date by the presence or potential presence of such materials.
To varying degrees, certain permits and approvals will be required to
complete the residential developments currently being planned by the Company.
The ability of the Company to obtain necessary approvals and permits for these
projects is often beyond the Company's control, and could restrict or prevent
the development of otherwise desirable property. The length of time necessary to
obtain permits and approvals increases the carrying costs of unimproved property
acquired for the purpose of development and construction. In addition, the
continued effectiveness of permits already granted is subject to factors such as
changes in policies, rules and regulations and their interpretation and
application. To minimize these risks, the Company generally restricts land
purchases to tracts that have zoning entitlements.
In recent years, regulation by Federal and state authorities relating
to the sale and advertising of residential real estate has also become more
restrictive. In order to advertise and sell condominiums and other residential
real estate in many jurisdictions, the Company has been required to prepare
registration statements or other disclosure documents and, in some cases, to
file such materials with designated regulatory agencies.
COMPETITION AND MARKET FACTORS
The development and sale of residential properties is highly
competitive and fragmented. The Company competes in each of its markets with
numerous national, regional and local builders, including some builders with
greater financial resources. Builders of new homes compete not only for home
buyers,
37
<PAGE>
but also for desirable properties, raw materials and skilled subcontractors. The
Company also competes for residential sales with individual sales of existing
homes and available rental housing.
The housing industry is cyclical and affected by consumer confidence
levels, prevailing economic conditions generally and, in particular, by interest
rate levels. A variety of other factors affect the housing industry and demand
for new homes, including the availability of labor and materials and increases
in the costs thereof, changes in costs associated with home ownership such as
increases in property taxes and energy costs, changes in consumer preferences,
demographic trends and the availability of and changes in mortgage financing
programs.
EMPLOYEES
At April 30, 1998, the Company employed approximately 685 persons,
including sales and marketing personnel, executive, administrative and clerical
personnel, construction employees and financial services personnel.
Although none of the Company's employees are covered by collective
bargaining agreements, certain of the subcontractors which the Company engages
are represented by labor unions or are subject to collective bargaining
agreements. The Company believes that its relations with its employees and
subcontractors are good.
PROPERTIES
The Company's corporate office is located at 123 N.W. 13th Street,
Suite 300, Boca Raton, Florida 33432, where the Company leases 9,356 square feet
of office space for a term expiring in August 2006. Engle's building divisions,
PHMC and ULT branch operations lease additional office space at various
locations for their day-to-day operations. Management believes that the current
leased offices are adequate for its needs for the foreseeable future.
LEGAL PROCEEDINGS
The Company is involved from time to time in litigation arising in the
ordinary course of business, none of which is expected to have a material
adverse effect on the Company's consolidated financial position or results of
operations.
38
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of April 30,
1998, regarding each of the Company's executive officers, directors and other
key employees:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ---- --- -----------------------
<S> <C> <C>
Alec Engelstein................................ 67 Chairman of the Board, President and
Chief Executive Officer
Harry Engelstein............................... 63 Executive Vice President, Chief Construction
Officer and Director
John A. Kraynick............................... 43 Senior Vice President and Director
Lawrence R. Shawe.............................. 42 Vice President--Sales and Marketing
David Shapiro.................................. 42 Vice President--Finance, Chief Financial
Officer and Director
Paul M. Leikert................................ 42 Vice President--Chief Accounting Officer
Henry H. Fishkind, Ph.D........................ 48 Director
Ronald J. Korn................................. 57 Director
Alan L. Shulman................................ 65 Director
</TABLE>
ALEC ENGELSTEIN, a co-founder and Chairman of the Board of the Company,
has served as its President and Chief Executive Officer since its organization
in August 1982. Alec Engelstein has over 35 years of experience in the
homebuilding industry and has been actively engaged as a homebuilder in
southeast Florida since 1969.
HARRY ENGELSTEIN, a co-founder and director of the Company and Alec
Engelstein's brother, has served as Executive Vice President and Chief
Construction Officer since the Company's inception in August 1982. Harry
Engelstein has over 30 years of experience in home construction.
JOHN A. KRAYNICK has served as a Vice President of the Company since
August 1986 and was appointed Senior Vice President in July 1991. Mr. Kraynick
is responsible for administrative matters and coordinating the Company's
compliance with Federal, state and local regulatory requirements. Mr. Kraynick
has over 19 years of experience in the homebuilding industry.
LAWRENCE R. SHAWE has served as the Company's Vice President--Sales and
Marketing since April 1986. Mr. Shawe joined the Company in April 1984 and since
such time has been responsible for the Company's sales and marketing efforts.
Mr. Shawe has over 17 years of experience in the homebuilding industry.
DAVID SHAPIRO joined the Company in June 1991, has served as the
Company's Chief Financial Officer since July 1991, was appointed Vice
President--Finance in October 1991 and was appointed as a director on December
17, 1997. From January 1986 until June 1991, he served as vice president of a
privately held retail clothing company located in West Palm Beach, Florida.
David Shapiro is Alec Engelstein's son-in-law.
PAUL M. LEIKERT joined the Company in 1992 and has served as the Vice
President--Chief Accounting Officer since March 1994. Mr. Leikert is a certified
public accountant and has over 13 years of experience in the homebuilding
industry.
HENRY H. FISHKIND, PH.D., has served as a director of the Company since
October 1991 and is a member of the Compensation and Audit Committees of the
Board of Directors. Dr. Fishkind has served as President of Fishkind &
Associates, Inc., an economic and financing consulting firm based in Orlando,
Florida, since 1988. From January 1984 until December 1987, Dr. Fishkind served
as president of M.G. Lewis Econometrics, Inc., the research subsidiary of an
investment banking firm based in Winter Park, Florida. Dr. Fishkind also serves
as editor of Econocast, a quarterly economic forecast, since 1984, and as a
director of Summit Properties.
39
<PAGE>
RONALD J. KORN, chairman of the Compensation and Audit Committees of
the Board of Directors, has served as a director of the Company since October
1991. Since July 1991, Mr. Korn has served as President of Ronald Korn
Consulting, a business consulting firm, and as Chairman of the Board of Carole
Korn Interiors, Inc., an interior design firm. From August 1985 until June 1991,
Mr. Korn served as the managing partner of the Miami office of KPMG Peat
Marwick, a nationally recognized firm of independent public accountants. Mr.
Korn also serves as a director of Vacation Break USA, Inc., which develops,
markets, operates and finances vacation ownership interests in premium resort
properties and as a director of Magicworks Entertainment, Inc., which produces,
manages, promotes and merchandises live entertainment.
ALAN L. SHULMAN was appointed as a director of the Company on December
17, 1997. Mr. Shulman is currently a private investor. Mr. Shulman served on the
board of directors of Island National Bank in Palm Beach, Florida from its
inception in 1989 until April 1, 1997 and currently serves on the board of
directors of CV Reit, Inc., a New York Stock Exchange listed company.
There are no arrangements or understandings with respect to the
selection of officers or directors.
40
<PAGE>
DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes will be issued, and the Private Notes were issued,
under an Indenture, dated as of June 12, 1998 (the "Indenture"), among the
Company, the Guarantors and American Stock Transfer & Trust Company, as Trustee
(the "Trustee"). The terms of the Exchange Notes include those stated in the
Indenture and, upon effectiveness of this Registration Statement, those made
part of the Indenture by the Trust Indenture Act of 1939, as amended (the
"TIA"). The following summary of certain provisions of the Indenture, the
Exchange Notes and the Guarantees does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, the TIA, and to all of the
provisions of the Indenture, including the definitions of certain terms therein
and those terms made a part of the Indenture by reference to the TIA as in
effect on the date of the Indenture. The Indenture has been filed with the
Commission as an exhibit to the Registration Statement, of which this Prospectus
forms a part. The definitions of certain capital terms used in the following
summary are set forth under "-- Certain Definitions" below.
GENERAL
The Indenture provides for the issuance of up to $150 million principal
amount of 9 1/4% Series C Senior Notes due 2008 to permit the Company to issue
the Exchange Notes for all of the outstanding Existing Notes and Private Notes.
The Indenture also provides the Company the flexibility of issuing additional
Notes in the future; however, any issuance of additional Notes would be subject
to the covenant described under "--Certain Covenants - Limitation on Debt." Any
such additional Notes, the Private Notes and the Exchange Notes are collectively
referred to as the "Notes" in this "Description of the Exchange Notes."
The Notes will mature on February 1, 2008. The Notes will bear interest
from the date of issuance, or from the most recent date to which interest has
been paid or provided for, at the rate stated on the cover page hereof, payable
in arrears on February 1 and August 1 of each year, commencing August 1, 1998,
to the persons in whose names the Notes are registered at the close of business
on the immediately preceding January 15 and July 15, respectively. Interest will
be computed on the basis of a 360-day year of twelve 30-day months.
The Notes will be general unsecured obligations of the Company, ranking
senior in right of payment to all existing and future subordinated indebtedness
of the Company and pari passu in right of payment with all existing and future
senior indebtedness of the Company, including the Existing Notes and the New
Credit Facility; however, the Notes will be effectively subordinated to all
secured indebtedness of the Company and the Guarantors to the extent of the
value of the assets securing such indebtedness. Currently, the Company and the
Guarantors collectively have no secured indebtedness outstanding other than the
Warehouse Lines of Credit. See "Summary--Recent Developments--New Credit
Facility," "Risk Factors--Holding Company Structure; Fraudulent Conveyance
Concerns" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Principal and premium, if any, and interest on the Notes are to be
payable, and the Notes will be exchangeable and transfers thereof will be
registrable, at the offices of the Company's agent maintained for such purposes
in The City of New York; provided that payment of interest may, at the option of
the Company, be made by check mailed to a holder at his registered address.
The Notes will be issued only in fully registered form without coupons,
in denominations of $1,000 and any integral multiple thereof. The Notes are
exchangeable and transfers thereof will be registered without charge therefor,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
Any Private Notes that remain outstanding after the completion of the
Exchange Offer, together with the Exchange Notes issued in exchange for Private
Notes and Existing Notes, will be treated as a single class of debt securities
under the Indenture.
41
<PAGE>
THE GUARANTEES
Each of the Guarantors will (so long as they remain Subsidiaries of the
Company) unconditionally guarantee (each a "Guarantee") on a joint and several
basis all of the Company's obligations under the Notes, including its
obligations to pay principal, premium, if any, and interest with respect to the
Notes. The Guarantees will be general unsecured obligations of the Guarantors,
ranking senior in right of payment to all existing and future subordinated
indebtedness of the Guarantors and pari passu in right of payment with all
existing and future senior indebtedness of the Guarantors, including the
Existing Guarantees and the New Credit Facility Guarantees; however, the
Guarantees will be effectively subordinated to all secured indebtedness of the
Guarantors to the extent of the value of the assets securing such indebtedness.
See "Risk Factors--Holding Company Structure; Fraudulent Conveyance Concerns."
Except as provided in "Certain Covenants" below, the Company is not restricted
from selling or otherwise disposing of any of the Guarantors.
The Indenture provides that each Restricted Subsidiary (other than, in
the Company's discretion, any Restricted Subsidiary the assets of which have a
book value of not more than $1,000,000) 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, and if the Net Proceeds from such Asset
Sale are used 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 Guarantee
obligations.
OPTIONAL REDEMPTION
The Notes are redeemable at the option of the Company, in whole or in
part (in any integral multiple of $1,000), at any time on or after February 1,
2003, on not less than 30 days nor more than 60 days notice mailed to the
registered holders thereof at their last registered addresses, at the following
redemption prices (expressed as percentages of the principal amount thereof),
plus accrued and unpaid interest, if any, to the redemption date, if redeemed
during the twelve-month period beginning on February 1, of the year listed
below:
YEAR PERCENTAGE
- ----- ----------
2003......................................................... 104.625%
2004......................................................... 103.083%
2005......................................................... 101.542%
2006 and thereafter.......................................... 100.000%
In addition, if the Company consummates one or more public offerings of
its Common Stock subsequent to the June 8, 1998 and on or prior to February 1,
2001, the Company may, at its option, redeem up to 33% of the original aggregate
principal amount of the Notes with the net proceeds of such offerings at
109.250% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the redemption date; provided, however, that immediately after giving
effect to any such redemption not less than 67% of the original aggregate
principal amount of the Notes remains outstanding.
If less than all of the Notes are to be redeemed, the Trustee will
select the particular Notes (or the portions thereof) to be redeemed either by
lot, pro rata or by such other method as the Trustee shall deem fair and
appropriate, but in any such event, in such manner as complies with applicable
legal and stock exchange requirements. On or after the redemption date, interest
will cease to accrue on the Notes or portions thereof called for redemption.
42
<PAGE>
CERTAIN COVENANTS
CHANGE OF CONTROL.
In the event of a Change of Control (as defined below), each holder of
Notes shall have the right upon receipt of a Change of Control Notice (as
defined below), at such holder's option, to require the Company to repurchase
all of such holder's Notes, or a portion thereof which is $1,000 or any integral
multiple thereof, on the date (the "Change of Control Repurchase Date") that is
45 days after the date of the Change of Control Notice at a price equal to 101%
of the principal amount thereof, plus accrued interest to the Change of Control
Repurchase Date.
Within 30 days after the occurrence of a Change of Control, the Company
or, at the request of the Company, the Trustee, shall deliver to all holders of
record of the Notes a notice (the "Change of Control Notice") of the occurrence
of such Change of Control and of the repurchase right arising as a result
thereof. The Company shall deliver a copy of the Change of Control Notice to the
Trustee. To exercise the repurchase right, on or before the 30th day after the
date of the Change of Control Notice, holders of Notes must deliver written
notice to the Company (or an agent designated by the Company for such purposes)
of the holder's exercise of such right, together with the Notes with respect to
which the right is being exercised, duly endorsed for transfer. Such written
notice shall be irrevocable.
The right to require the repurchase of Notes shall not continue after a
discharge of the Company from its obligations under the Notes and the Indenture
with respect to the Notes in accordance with the Indenture as described under
"--Defeasance" below.
If the Change of Control Repurchase Date is between a regular record
date for the payment of interest and the next succeeding interest payment date,
any Note to be repurchased must be accompanied by funds equal to the interest
payable on such succeeding interest payment date on the principal amount to be
repurchased (unless such Note shall have been called for redemption, in which
case no such payment shall be required), and the interest on the principal
amount of the Note being repurchased will be paid on such next succeeding
interest payment date to the registered holder of such Note on the immediately
preceding record date. A Note repurchased on an interest payment date need not
be accompanied by any payment, and the interest on the principal amount of the
Note being repurchased will be paid on such interest payment date to the
registered holder of such Note on the immediately preceding record date.
As used herein, a "Change of Control" of the Company means the
occurrence of any of the following events: (a) any "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act), excluding the
Permitted Holders (as defined below), is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person
shall be deemed to have "beneficial ownership" of all securities that such
person has the right to acquire, whether such right is exercisable immediately,
after the passage of time, upon the happening of an event or otherwise),
directly or indirectly, of more than 50% of the total Voting Stock (as defined
below) of the Company; but only if the Permitted Holders do not have the right
or ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors of the Company; (b) the Company
consolidates with, or merges with or into, another Person or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets to any Person, or any Person consolidates with, or merges with or
into, the Company, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is converted into or exchanged for cash,
securities or other property, other than any such transaction where immediately
after such transaction no "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), excluding the Permitted Holders,
is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is exercisable immediately, after the passage of time, upon the
happening of an event or otherwise), directly or indirectly, of more than 50% of
the total Voting Stock of the surviving or transferee corporation; but only if
the Permitted Holders do not have the right or ability by voting power, contract
or otherwise to elect or designate for election a majority of
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the Board of Directors of the Company; (c) at any time during any consecutive
two-year period, individuals who at the beginning of such period constituted the
Board of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of a majority of the
directors then still in office who were either 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 Board of
Directors of the Company then in office; or (d) the Company is liquidated or
dissolved or adopts a plan of liquidation. "Permitted Holders" shall mean Alec
Engelstein and Harry Engelstein and their respective estates, affiliates and
associates (as such terms are defined in the Securities Act). "Voting Stock"
shall mean, with respect to any Person, capital stock of any class or kind
normally entitled to vote in the election of the board of directors or other
governing body of such Person.
If any repurchase pursuant to the foregoing provisions constitutes a
tender offer as defined under the Exchange Act, the Company will comply with the
requirements of Rule l4e-1 and any other tender offer rules under the Exchange
Act which then may be applicable. The Company could, in the future, enter into
certain significant transactions that would not constitute a Change of Control
with respect to the Change of Control purchase feature of the Notes. The Change
of Control purchase feature of the Notes may in certain circumstances make more
difficult or discourage a takeover of the Company and, thus, the removal of
incumbent management. The Change of Control purchase feature, however, is not
the result of management's knowledge of any specific effort to obtain control of
the Company by means of a merger, tender offer, solicitation or otherwise, or
part of a plan by management to adopt a series of anti-takeover provisions.
The meaning of the phrase "all or substantially all" as used in the
Indenture in the definition of "Change of Control" with respect to a sale of
assets varies according to the facts and circumstances of the subject
transaction, has no clearly established meaning under relevant law and is
subject to judicial interpretation. Accordingly, in certain circumstances, there
may be a degree of uncertainty in ascertaining whether a particular transaction
would involve a disposition of "all or substantially all" of the assets of the
Company, and therefore it may be unclear whether a Change of Control has
occurred and whether the Notes are subject to a Change of Control Offer.
MAINTENANCE OF NET WORTH.
In the event that the Company's 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 "Trigger Date") is less than $35,000,000 (the "Minimum Net
Worth"), then the Company shall make an offer to all holders (a "Net Worth
Offer") to acquire on a pro rata basis on the date (the "Net Worth Repurchase
Date") that is 45 days following the date of the Net Worth Notice (as defined
below), Notes in an aggregate principal amount equal to 10% of the original
outstanding principal amount of the Notes (or if less than 10% of the original
aggregate principal amount of the Notes issued are then outstanding, all the
Notes outstanding at the time) (the "Net Worth Offer Amount") at a purchase
price of 100% of the principal amount thereof, plus accrued interest to the Net
Worth Repurchase Date (the "Net Worth Price"). The Company may credit against
the Net Worth Offer Amount the principal amount of Notes acquired by the Company
prior to the Trigger Date through purchase, optional redemption or exchange. The
Company, however, may not credit a specific Note in more than one Net Worth
Offer. In no event shall the failure to meet the Minimum Net Worth at the end of
any fiscal quarter be counted toward the making of more than one Net Worth
Offer. The Company shall notify the Trustee promptly after the occurrence of any
of the events specified in this provision and shall notify the Trustee in
writing if its Net Worth is equal to or less than the Minimum Net Worth for any
fiscal quarter.
Within 30 days after the Trigger Date, the Company, or, at the request
of the Company, the Trustee, shall give notice of the Net Worth Offer to each
holder (the "Net Worth Notice"). To accept a Net Worth Offer a holder shall
deliver to the Company (or to a Paying Agent designated by the Company for such
purpose), on or before the 30th day after the date of the Net Worth Notice, a
written notice of the holder's acceptance of such offer, together with the Notes
with respect to which the offer is being accepted, duly endorsed for transfer to
the Company. Such written notice may be withdrawn upon further written notice
delivered to the Trustee on or prior to the third day preceding the Net Worth
Repurchase Date.
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If the Net Worth Repurchase Date is between a regular record date for
the payment of interest and the next succeeding interest payment date, any Note
to be repurchased must be accompanied by funds equal to the interest payable on
such succeeding interest payment date on the principal amount to be repurchased
(unless such Note shall have been called for redemption, in which case no such
payment shall be required), and the interest on the principal amount of the Note
being repurchased will be paid on such next succeeding interest payment date to
the registered holder of such Note on the immediately preceding record date. A
Note repurchased on an interest payment date need not be accompanied by any
payment, and the interest on the principal amount of the Note being repurchased
will be paid on such interest payment date to the registered holder of such Note
on the immediately preceding record date.
If any repurchase pursuant to the foregoing provisions constitutes a
tender offer as defined under the Exchange Act, the Company will comply with the
requirements of Rule l4e-1 and any other tender offer rules under the Exchange
Act which then may be applicable.
LIMITATION ON DEBT.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume, guarantee or
otherwise become liable for ("Incur") any Debt, except Permitted Debt.
"Permitted Debt" means (a) Debt evidenced by the Existing Notes, the Existing
Guarantees, the Offered Notes, the Guarantees of the Offered Notes, and any
Exchange Notes issued in exchange for any of the foregoing including the related
Guarantees, (b) Debt Incurred by the Company or any Guarantor under or in
respect of a Bank Facility (including any guarantees related thereto) for
working capital or other corporate purposes or evidenced by letters of credit;
provided that the aggregate amount of all such Debt outstanding at any time
pursuant to this clause (b) may not exceed $140,000,000, (c) Debt Incurred under
a Warehouse Facility; provided that the amount of such Debt (including funding
drafts issued thereunder) outstanding at any time pursuant to this clause (c)
guaranteed by the Company or a Restricted Subsidiary may not exceed the value of
the Mortgages pledged to secure Debt thereunder, (d) Debt of the Company to any
Guarantor or of any Restricted Subsidiary of the Company to the Company or to
any Guarantor, (e) Existing Debt (without duplication of Debt indicated under
clauses (a)-(d) above) of the Company and its Restricted Subsidiaries other than
Debt to be repaid from the proceeds of the sale of the Notes, (f) Non-Recourse
Debt, (g) Debt in respect of performance, completion, guarantee, surety and
similar bonds or banker's acceptances provided by the Company or any of its
Restricted Subsidiaries in the ordinary course of business, (h) additional Debt
of the Company or any Guarantor in an amount not to exceed $7,500,000 at any
time outstanding, (i) Debt referred to in the definition of Interest Rate
Protection Agreement, (j) Purchase Money Obligations incurred in the ordinary
course of business in an amount not exceeding $5,000,000 at any time
outstanding, and (k) Refinancing Debt.
Notwithstanding the foregoing, and subject to the immediately
succeeding paragraph, the Company and the Guarantors may Incur Debt if, at the
time such Debt is so Incurred and after giving effect thereto and the
application of the proceeds therefrom, the Company's Coverage Ratio shall not be
less than 2.0 to 1.0.
The Company shall not, and the Company will not cause or permit any
Guarantor to, directly or indirectly, Incur any Debt that purports to be by its
terms (or by the terms of any agreement governing such Debt) subordinated to any
other Debt of the Company or of such Guarantor, as the case may be, unless such
Debt is also by its terms (or by the terms of any agreement governing such Debt)
made expressly subordinated to the Notes or the Guarantee of such Guarantor, as
the case may be, to the same extent and in the same manner as such Debt is
subordinated to such other Debt.
LIMITATION ON RESTRICTED PAYMENTS.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make any Restricted Payment, if, after
giving effect thereto (a) an Event of Default, or an event that through the
passage of time or the giving of notice, or both, would become an Event of
Default, shall have occurred and be continuing, or (b) the Company would be
unable to incur $1.00 of additional Debt under the second paragraph set forth
under the caption "Limitation on Debt," or (c) the aggregate amount of all
Restricted Payments made by the Company and its Restricted Subsidiaries (the
amount expended or distributed for such purposes, if other than cash, to be
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determined in good faith by the board of directors of the Company) from and
after February 2, 1998 shall exceed the sum of (i) the aggregate of 50% of the
Consolidated Net Income of the Company accrued for the period (taken as one
accounting period) commencing with February 1, 1998 to and including the first
full month ended immediately prior to the date of such calculation (or, in the
event Consolidated Net Income is a deficit, then minus 100% of such deficit),
(ii) the aggregate net proceeds (the amount of such proceeds, if other than
cash, to be determined in good faith by the board of directors of the Company)
received by the Company from the issuance or sale (other than to a Subsidiary of
the Company) of its capital stock (other than Redeemable Stock), including the
principal amount of any of the Convertible Notes outstanding on February 2, 1998
and any other convertible or exchangeable notes issued after February 2, 1998 or
other convertible or exchangeable securities issued after February 2, 1998, in
any such case to the extent such principal amount is converted or exchanged into
capital stock from and after February 2, 1998, and options, warrants and rights
to purchase its capital stock (other than Redeemable Stock); PROVIDED that the
net proceeds received by the Company from the Equity Offering shall be excluded
from this clause (ii), (iii) in the case of the disposition or repayment of any
Investment constituting a Restricted Payment made after February 2, 1998
(excluding any Investment described in clause (4) of the following paragraph,
but including upon the redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary), an amount equal to the lesser of the return of capital
with respect to such Investment and the cost of such Investment, in either case,
reduced (but not below zero) by the excess, if any, of the cost of the
disposition of such Investment over the gain, if any, realized by the Company or
such Restricted Subsidiary in respect of such disposition of such Investment and
(iv) $5,000,000.
The foregoing paragraph will not prevent: (1) the payment of any
dividend within 60 days after the date of its declaration if such dividend could
have been made on the date of its declaration in compliance with the foregoing
provisions; (2) so long as no Default or Event of Default shall have occurred
and be continuing, the redemption, repurchase or other acquisition or retirement
of any shares of any class of capital stock of the Company or any Subsidiary of
the Company in exchange for, or out of the net cash proceeds of, a substantially
concurrent (x) capital contribution to the Company from any Person (other than a
Subsidiary of the Company) or (y) issue and sale of other shares of capital
stock (other than Redeemable Stock) of the Company to any Person (other than to
a Subsidiary of the Company); provided, however, that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase or other
acquisition or retirement shall be excluded from clause (ii) of the preceding
paragraph; (3) so long as no Default or Event of Default shall have occurred and
be continuing, any redemption, repurchase or other acquisition or retirement of
subordinated Debt by exchange for, or out of the net cash proceeds of, a
substantially concurrent (x) capital contribution to the Company from any Person
(other than a Subsidiary of the Company) or (y) issue and sale of (A) capital
stock (other than Redeemable Stock) of the Company to any Person (other than to
a Subsidiary of the Company); provided, however, that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase or other
acquisition or retirement shall be excluded from clause (ii) of the preceding
paragraph; or (B) Debt of the Company issued to any Person (other than a
Subsidiary of the Company), so long as such Debt (x) has no stated maturity
earlier than February 1, 2008, (y) has a Weighted Average Life to Maturity equal
to or greater than the remaining Weighted Average Life to Maturity of the Notes
and (z) is subordinated to the Notes in the same manner and at least to the same
extent as the subordinated Debt so purchased, exchanged, redeemed, acquired or
retired; (4) Investments constituting Restricted Payments made as a result of
the receipt of non-cash consideration from any Asset Sale made pursuant to and
in compliance with the covenant described under "Limitation on Asset Sales"; (5)
so long as no Default or Event of Default has occurred and is continuing, the
repurchase or redemption of shares of capital stock from any officer, director
or employee of the Company or its Restricted Subsidiaries whose employment has
been terminated or who has died or become disabled in an aggregate amount not to
exceed $250,000 per annum; (6) so long as no Default or Event of Default shall
have occurred and be continuing, the making of Restricted Payments in an
aggregate amount not to exceed $5,000,000 and (7) the redemption of the
Convertible Notes, provided that amounts paid pursuant to clauses (1), (5) and
(6) (but not clauses (2), (3), (4) or (7)) shall reduce amounts available for
future Restricted Payments under the preceding paragraph.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
RESTRICTED SUBSIDIARIES.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, assume or otherwise cause or
suffer to exist or to become effective any consensual encumbrance or restriction
on the ability of any Restricted Subsidiary of the Company to (a) pay dividends
or make any other
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distributions on its capital stock to the Company or any of its Restricted
Subsidiaries; (b) make payments in respect of any Debt owed to the Company or
any of its Restricted Subsidiaries; or (c) make loans or advances to the Company
or any of the Company's Restricted Subsidiaries; provided, however, that the
following restrictions shall not be prohibited pursuant to this provision: (i)
those contained in the Indenture, the Existing Indenture, a Bank Facility, a
Warehouse Facility and Refinancing Debt (to the extent restrictions contained in
such Refinancing Debt are not more restrictive than those contained in the Debt
being refinanced); (ii) consensual encumbrances or restrictions binding upon any
person at the time such Person becomes a Subsidiary of the Company; provided
that such encumbrances or restrictions are not created, incurred or assumed in
contemplation of such Person becoming a Subsidiary of the Company and do not
extend to any other property of the Company or another of its Subsidiaries;
(iii) restrictions contained in security agreements permitted by the Indenture
securing Debt permitted by the Indenture to the extent such restrictions
restrict the transfer of assets subject to such security agreements; (iv) any
encumbrance or restriction consisting of customary non-assignment provisions in
leases to the extent such provisions restrict the transfer of the leases; (v)
any encumbrance or restriction pursuant to an agreement in effect on February 2,
1998; or (vi) any restrictions with respect to a Subsidiary of the Company
imposed pursuant to an agreement which has been entered into for the sale or
disposition of all or substantially all the capital stock or assets of such
Subsidiary.
LIMITATION ON LIENS.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or permit to
exist any Lien upon or with respect to any of the assets of the Company or any
such Subsidiary, whether now owned or hereafter acquired, or on any income or
profits therefrom, other than Liens which constitute Permitted Liens at the date
such Liens are created, unless contemporaneously therewith or prior thereto all
payments due under the Indenture and the Notes are secured on an equal and
ratable basis with the obligation or liability so secured until such time as
such obligation or liability is no longer secured by a Lien. The Indenture will
also provide that no Liens will be permitted to be created or suffered to exist
on any Debt from the Company in favor of any Restricted Subsidiary.
TRANSACTIONS WITH AFFILIATES.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into any transactions with
Affiliates of the Company unless (i) such transactions are between or among the
Company and its Restricted Subsidiaries, (ii) such transactions are in the
ordinary course of business and consistent with past practice or (iii) the terms
of such transactions are fair and reasonable to the Company or such Restricted
Subsidiary, as the case may be, and are at least as favorable as the terms which
could be obtained by the Company or such Restricted Subsidiary, as the case may
be, in a comparable transaction made on an arm's-length basis between
unaffiliated parties. In the event of any transaction or series of transactions
occurring subsequent to February 2, 1998 with an Affiliate of the Company which
involves in excess of $1,000,000 and is not permitted under clause (i) of the
preceding sentence, all of the disinterested members of the Board of Directors
shall by resolution determine that such transaction or series of transactions
meets the criteria set forth in clause (iii) of the preceding sentence. In the
event of any transaction or series of transactions occurring subsequent to
February 2, 1998 with an Affiliate of the Company which involves in excess of
$10,000,000 and is not permitted under clause (i) above, the Company will be
required to deliver 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. Notwithstanding the foregoing, such provisions do not prohibit and will
not apply to (1) any Restricted Payment which is permitted by the "Limitation on
Restricted Payments" covenant or (2) the payment of compensation to directors of
the Company who are not employees of the Company and wages and other
compensation to officers of the Company or any of its Subsidiaries.
LIMITATION ON ASSET SALES.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly consummate an Asset Sale, unless (i) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (as determined in good faith by the board of directors of the Company or
the Restricted Subsidiary, as the case may be) of the assets disposed of,
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and (ii) the consideration for such Asset Sale consists of at least 85% cash;
provided that (x) the amount of liabilities assumed by the transferee, (y) any
notes or other obligations received by the Company or such Restricted Subsidiary
and immediately converted into cash or (z) with respect to the sale or other
disposition of all of the capital stock of any Restricted Subsidiary, the amount
of liabilities that remain the obligation of such Restricted Subsidiary
subsequent to such sale or other disposition, shall be deemed to be "cash."
Within 12 months from the date that any Asset Sale is consummated, the
Net Proceeds thereof will be reinvested in Additional Assets or applied to the
redemption or repurchase of Debt of the Company which ranks pari passu with the
Notes or Debt of a Restricted Subsidiary of the Company which is not
subordinated to other debt of such Restricted Subsidiary (which, in each case,
will be a permanent reduction of such Debt). To the extent that the Net Proceeds
of an Asset Sale are not so applied, the Company or such Restricted Subsidiary,
as the case may be, will, within 30 days from the expiration of such 12-month
period, use the remaining Net Proceeds (less any amounts used to pay reasonable
fees and expenses connected with a Net Proceeds Offer) to make an offer to
repurchase the Notes at a price equal to 100% of the principal amount thereof,
plus accrued interest to the Net Proceeds Repurchase Date ("a Net Proceeds
Offer").
Notwithstanding the foregoing, the Net Proceeds of an Asset Sale are
not required to be applied in accordance with the preceding paragraph, unless
and until the aggregate Net Proceeds for all such Asset Sales in a 12-month
period exceeds $5,000,000.
To accept a Net Proceeds Offer a holder shall deliver to the Company
(or to a Paying Agent designated by the Company for such purpose) on or before
the 30th day after the date of the Net Proceeds Offer (the "Net Proceeds
Repurchase Date"), a written notice of the holder's acceptance of the Net
Proceeds Offer, together with the Notes with respect to which the offer is being
accepted, duly endorsed for transfer to the Company. Such written notice may be
withdrawn upon further written notice to the Trustee on or prior to the third
day preceding the Net Proceeds Repurchase Date.
If the Net Proceeds Repurchase Date is between a regular record date
for the payment of interest and the next succeeding interest payment date, any
Note to be repurchased must be accompanied by funds equal to the interest
payable on such succeeding interest payment date on the principal amount to be
repurchased (unless such Note shall have been called for redemption, in which
case no such payment shall be required), and the interest on the principal
amount of the Note being repurchased will be paid on such next succeeding
interest payment date to the registered holder of such Note on the immediately
preceding record date. A Note repurchased on an interest payment date need not
be accompanied by any payment, and the interest on the principal amount of the
Note being repurchased will be paid on such interest payment date to the
registered holder of such Note on the immediately preceding record date.
If any repurchase pursuant to the foregoing provisions constitutes a
tender offer as defined under the Exchange Act, the Company will comply with the
requirements of Rule l4e-1 and any other tender offer rules under the Exchange
Act which then may be applicable.
Any amount of Net Proceeds remaining after a Net Proceeds Offer shall
be returned by the Trustee to the Company and may be used by the Company for any
purpose not inconsistent with the Indenture.
CERTAIN DEFINITIONS
In addition to the terms defined above, the Indenture contains, among
other things, the following definitions:
"ADDITIONAL ASSETS" means assets used or usable by the Company or any
of its Restricted Subsidiaries in the operation of the existing lines of
business of the Company and its Restricted Subsidiaries.
"AFFILIATE" of any Person means (i) any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person and (ii) any other Person that beneficially owns at
least 10% of the voting common stock of such Person. For the purposes of this
definition, "control" when used with
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respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"ASSET SALE" for any Person means the sale, lease, conveyance or other
disposition (including, without limitation, by merger, consolidation or sale and
leaseback transaction, and whether by operation of law or otherwise) of any of
that Person's assets (including, without limitation, the sale or other
disposition of capital stock of any Subsidiary of such Person, whether by such
Person or such Subsidiary) outside the ordinary course of business, whether
owned on February 2, 1998, or subsequently acquired in one transaction or a
series of related transactions, in which such Person and/or its Subsidiaries
receive cash and/or other consideration (including, without limitation, the
unconditional assumption of Indebtedness of such Person and/or its Subsidiaries)
of $2,500,000 or more as to each such transaction or series of related
transactions; provided, however, that (i) a transaction or series of related
transactions that results in a Change of Control shall not constitute an Asset
Sale, (ii) sales, leases, conveyances or other dispositions of real estate
related to the homebuilding business of the Company or its Subsidiaries will not
constitute Asset Sales, and (iii) transactions between the Company and any
Guarantor, or among such Guarantors will not constitute Asset Sales.
"BANK FACILITY" means, collectively, one or more commitments from one
or more banks or other lending institutions to lend funds, together with any and
all agreements, documents and instruments from time to time delivered in
connection therewith as such commitments or any such agreements, documents or
instruments may be in effect or amended, amended and restated, renewed,
extended, restructured, supplemented or otherwise modified from time to time and
any credit agreement, loan agreement, note purchase agreement, indenture or
other agreement, document or instrument refinancing, refunding or otherwise
replacing such Bank Facility, whether or not with the same agent, trustee,
representative lenders or holders, and, subject to the proviso to the next
succeeding sentence, irrespective of any changes in the terms and conditions
thereof. Without limiting the generality of the foregoing, the term "Bank
Facility" shall include any amendment, amendment and restatement, renewal,
extension, restructuring, supplement or modification to any Bank Facility and
all refundings, refinancings and replacements of any Bank Facility, including
any agreement (i) extending the maturity of any Debt incurred thereunder or
contemplated thereby, (ii) adding or deleting borrowers or guarantors
thereunder; provided that such borrowers and issuers include one or more of the
Company and its Subsidiaries and their respective successors and assigns, (iii)
increasing the amount of Debt Incurred thereunder or available to be borrowed
thereunder; provided that on the date thereof such Debt would not be prohibited
by clause (b) of the definition of Permitted Debt set forth under the
"Limitation on Debt" covenant, or (iv) otherwise altering the terms and
conditions thereof in a manner not prohibited by the terms of the Indenture.
"COMMON STOCK" means the common stock, par value $.01 per share, of the
Company.
"CONSOLIDATED INTEREST EXPENSE" of the Company means, for any period,
the aggregate amount of interest which, in accordance with generally accepted
accounting principles, would be included on an income statement for the Company
and its Restricted Subsidiaries on a consolidated basis, whether expensed
directly, or included as a component of cost of goods sold, or allocated to
joint ventures or otherwise (including, but not limited to, imputed interest
included on capitalized lease obligations, all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, the net costs associated with hedging obligations, 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 non-cash
interest expense), excluding interest expense related to mortgage banking
operations, plus the product of (x) the sum of (i) cash dividends paid on any
Preferred Stock of the Company plus (ii) cash dividends, the principal amount of
any debt securities issued as a dividend, the liquidation value of any Preferred
Stock issued as a dividend and the fair market value (as determined by the
Company's board of directors in good faith) of any other non-cash dividends, in
each case, paid on any Preferred Stock of any Restricted Subsidiary of Company
(other than a Wholly-Owned Restricted Subsidiary), times (y) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current effective aggregate federal, state and local tax rate of the Company,
expressed as a decimal.
"CONSOLIDATED INTEREST INCURRED" of the Company means, for any period,
(a) the aggregate amount of interest which, in accordance with generally
accepted accounting principles, would be included on an income
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statement for the Company and its Restricted Subsidiaries on a consolidated
basis, whether expensed directly, or included as a component of cost of goods
sold, or allocated to joint ventures or otherwise (including, but not limited
to, imputed interest included on capitalized lease obligations, all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, the net costs associated with hedging
obligations, 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 non-cash interest expense), excluding interest expense
related to the Company's mortgage banking operations, plus or minus, without
duplication, (b) the difference between capitalized interest for such period and
the interest component of cost of goods sold for such period, plus (c) the
product of (x) the sum of (i) cash dividends paid on any Preferred Stock of the
Company plus (ii) cash dividends, the principal amount of any debt securities
issued as a dividend, the liquidation value of any Preferred Stock issued as a
dividend and the fair market value (as determined by the Company's Board of
Directors in good faith) of any other non-cash dividends, in each case, paid on
any Preferred Stock of any Subsidiary of the Company (other than a Wholly-Owned
Restricted Subsidiary), times (y) a fraction, the numerator of which is one and
the denominator of which is one minus the then current effective aggregate
federal, state and local tax rate of the Company, expressed as a decimal.
"CONSOLIDATED NET INCOME" of the Company, for any period, means the net
income (loss) of the Company and its Restricted Subsidiaries for such period,
determined on a consolidated basis, in accordance with generally accepted
accounting principles; provided that, without duplication, (i) the net income of
any Person, other than a Restricted Subsidiary which is consolidated with the
Company, in which any Person other than the Company and its Restricted
Subsidiaries has an interest shall be included only to the extent of the amount
of cash dividends or distributions actually paid to the Company or a Restricted
Subsidiary during such period, (ii) the net income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, (iii) the net income of any Subsidiary of the
Company shall be excluded to the extent such Subsidiary is prohibited, directly
or indirectly, from distributing such net income or any portion thereof to the
Company or a Restricted Subsidiary, (iv) all extraordinary gains and losses
(after taxes) that would be included on an income statement for such period
shall be excluded and (v) all gains and losses (after taxes) attributable to
Asset Sales shall be excluded; provided, that there shall be included in such
net income, without duplication, the net income of any Unrestricted Subsidiary
to the extent such net income is actually received by the Company or any of its
Restricted Subsidiaries in cash during such period.
"CONSOLIDATED NON-CASH CHARGES" of the Company means, for any period,
the aggregate depreciation, amortization and other non-cash charges (other than
reserves or expenses established in anticipation of future cash requirements
such as reserves for taxes and uncollectible accounts) of the Company and its
Restricted Subsidiaries on a consolidated basis for such period, as determined
in accordance with generally accepted accounting principles; provided that
Consolidated Non-cash Charges shall exclude (i) any charges that are not
included for the purpose of determining Consolidated Net Income, (ii) any
charges that are included for the purpose of determining Consolidated Interest
Expense or Consolidated Tax Expense and (iii) any charges representing
capitalized selling, general and administrative expenses that are expensed
during such period as cost of goods sold.
"CONSOLIDATED TANGIBLE ASSETS" of the Company as of any date means the
total amount of assets of the Company and its Restricted Subsidiaries (less
applicable reserves and less the assets securing the payment of Non-Recourse
Debt of the Company and its Restricted Subsidiaries) on a consolidated basis at
the end of the fiscal quarter immediately preceding such date, as determined in
accordance with generally accepted accounting principles, less: (i) unamortized
debt and debt issuance expense, deferred charges, goodwill, patents, trademarks,
copyrights, and all other items which would be treated as intangibles on the
consolidated balance sheet of the Company and its Restricted Subsidiaries
prepared in accordance with generally accepted accounting principles and (ii)
appropriate adjustments on account of minority interests of other Persons
holding equity investments in Restricted Subsidiaries, in the case of each of
clauses (i) and (ii) above, as reflected on the consolidated balance sheet of
the Company and its Restricted Subsidiaries.
"CONSOLIDATED TANGIBLE NET WORTH" of the Company means the Company's
Net Worth less unamortized debt and debt issuance expense, deferred charges,
goodwill, patents, trademarks, copyrights, and all other items
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which would be treated as intangibles on the consolidated balance sheet of the
Company and its Restricted Subsidiaries prepared in accordance with generally
accepted accounting principles.
"CONSOLIDATED TAX EXPENSE" of the Company means, for any period, the
aggregate of the tax expense of the Company and its Restricted Subsidiaries for
such period, determined on a consolidated basis, in accordance with generally
accepted accounting principles.
"CONVERTIBLE NOTES" means up to $15,000,000 principal amount of the
Company's 7% Convertible Subordinated Notes due March 1, 2003.
"COVERAGE RATIO" of the Company means the ratio of the Company's EBITDA
to its Consolidated Interest Incurred for the four fiscal quarters ending
immediately prior to the date of determination. Notwithstanding clause (ii) of
the definition of Consolidated Net Income, if the Debt which is being Incurred
is Incurred in connection with an acquisition by the Company or a Restricted
Subsidiary, the Coverage Ratio shall be determined after giving effect to both
the Consolidated Interest Incurred related to the Incurrence of such Debt and
the EBITDA (x) of the Person becoming a Restricted Subsidiary of the Company or
(y) in the case of an acquisition of assets that constitute substantially all of
an operating unit or business, relating to the assets being acquired by the
Company or a Restricted Subsidiary of the Company.
"DEBT" means, as to any Person, without duplication, (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, (f) Redeemable Stock of such Person and Preferred
Stock of any Subsidiary of such Person, (g) all obligations of such Person with
respect to Interest Rate Protection Agreements and (h) all Debt of others
guaranteed by such Person. The amount of Debt of any Person at any date pursuant
to clauses (a)-(d) and (f) above shall be as would appear as a liability upon a
balance sheet of such Person prepared on a consolidated basis in accordance with
generally accepted accounting principles. Notwithstanding the foregoing, "Debt"
of the Company shall not include the amount reflected on a consolidated balance
sheet of the Company with respect to options to acquire real property which was
purchased by the Company and sold to a third party within 360 days of such
purchase for consideration at least equal to the amount paid by the Company for
such property less an amount equal to the value of such option.
"EBITDA" for the Company, for any period, means, without duplication,
the Consolidated Net Income of the Company plus, to the extent deducted in
calculating Consolidated Net Income, the sum of (a) Consolidated Tax Expense,
(b) Consolidated Interest Expense and (c) Consolidated Non-cash Charges.
"EXISTING DEBT" means all of the Debt of the Company and its Restricted
Subsidiaries that was outstanding on February 2, 1998.
"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt of such other Person (whether by agreement to keepwell or to maintain
financial condition or otherwise), provided that the term "guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business.
"HOMEBUILDING JOINT VENTURE" means (i) any Unrestricted Subsidiary and
(ii) any person which is not a Guarantor in which the Company or any of its
Subsidiaries has an ownership interest and in which no other person has a
greater beneficial ownership interest than the beneficial ownership interest of
the Company that, in each case, was formed for and is engaged in homebuilding
operations.
"INDEPENDENT FINANCIAL ADVISOR" means a firm (i) which does not, and
whose directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the
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judgment of the Board of Directors of the Company, is otherwise independent and
qualified to perform the task for which it is to be engaged.
"INTEREST RATE PROTECTION AGREEMENT" means any arrangement with any
other Person whereby, directly or indirectly, such Person is entitled to receive
from time to time periodic payments calculated by applying either a floating or
a fixed rate of interest on a stated notional amount in exchange for periodic
payments made by such Person calculated by applying a fixed or a floating rate
of interest on the same notional amount and shall include, without limitation,
interest rate swaps, caps, floors, collars and similar agreements; PROVIDED that
any arrangement which is entered into by the Company or any of its Restricted
Subsidiaries in connection with Debt Incurred by the Company or any of its
Restricted Subsidiaries shall constitute Permitted Debt.
"INVESTMENT" means, with respect to any Person, any direct or indirect
loan or other extension of credit 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 by
such Person of any capital stock, bonds, notes, debentures or other securities
or evidences of Debt issued by, any other Person. "Investments" shall exclude
extensions of trade credit by the Company and its Subsidiaries in the ordinary
course of business in accordance with normal trade practices of the Company or
such Subsidiary, as the case may be.
"ISSUE DATE" means the original date of issuance of the Notes.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
assignment (including any assignment of rights to receive payments of money
other than in connection with mortgage banking operations in the ordinary course
of business), charge, security interest or encumbrance of any kind (including
any conditional sale or other title retention agreement or any lease in the
nature thereof) in respect of such asset, any agreement to grant to any Person
any such Lien and any sale and leaseback of any asset.
"MATERIAL SUBSIDIARY" means any Restricted Subsidiary of the Company
which accounted for 10 percent or more of the Consolidated Tangible Assets or
EBITDA of the Company for the fiscal year ending immediately prior to any
Default or Event of Default.
"MORTGAGE" means a first priority mortgage or first priority deed of
trust on improved real property.
"NET PROCEEDS" with respect to any Asset Sale means (i) cash (in U.S.
dollars or freely convertible into U.S. dollars) received by the Company or any
of its Restricted Subsidiaries from such Asset Sale (including cash received as
consideration for the assumption or incurrence of liabilities incurred in
connection with or in anticipation of such Asset Sale), after (a) provision for
all income or other taxes measured by or resulting from such Asset Sale to the
Company or any of its Restricted Subsidiaries, whether or not offset by net
operating loss and tax credit carry-forwards, (b) payment of all brokerage
commissions and the underwriting fees and, without limitation, all other fees
and expenses related to such Asset Sale, and (c) deduction of appropriate
amounts to be provided by the Company or any of its Restricted Subsidiaries as a
reserve, in accordance with generally accepted accounting principles, against
any liabilities associated with the assets sold or otherwise disposed of in such
Asset Sale (including, without limitation, pension and other post-employment
benefit liabilities and liabilities related to environmental matters) or against
any indemnification obligations associated with the sale or other disposition of
the assets sold or otherwise disposed of in such Asset Sale, and (ii) all
noncash consideration received by the Company or any of its Restricted
Subsidiaries from such Asset Sale upon the liquidation or conversion of such
consideration into cash.
"NET WORTH" of the Company means, at any date, the aggregate of
capital, surplus and retained earnings of the Company and its Restricted
Subsidiaries as would be shown on a consolidated balance sheet of the Company
prepared in accordance with generally accepted accounting principles, adjusted
to exclude (to the extent included) investments by the Company and its
Subsidiaries in joint ventures and the amount of equity attributable to
Affiliates other than Restricted Subsidiaries of such Person.
"NON-RECOURSE DEBT" with respect to any Person means Debt of such
Person for which the sole legal recourse for collection of principal and
interest on such Debt is against the specific property identified in the
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instruments evidencing or securing such Debt and such property was acquired with
the proceeds of such Debt or such Debt was Incurred within 90 days after the
acquisition of such property.
"PERMITTED INVESTMENTS" of any Person means Investments of such Person
in (i) direct obligations of the United States or any agency thereof or
obligations guaranteed by the United States or any agency thereof, in each case
maturing within 180 days of the date of acquisition thereof, (ii) certificates
of deposit maturing within 180 days of the date of acquisition thereof issued by
a bank, trust company or savings and loan association which is organized under
the laws of the United States or any state thereof having capital, surplus and
undivided profits aggregating in excess of $250 million and a Keefe Bank Watch
Rating of C or better, (iii) certificates of deposit maturing within 180 days of
the date of acquisition thereof issued by a bank, trust company or savings and
loan association organized under the laws of the United States or any state
thereof other than banks, trust companies or savings and loan associations
satisfying the criteria in (ii) above; provided that the aggregate amount of all
certificates of deposit issued to the Company at any one time by any one such
bank, trust company or savings and loan association will not exceed $100,000,
(iv) commercial paper given the highest rating by two established national
credit rating agencies and maturing not more than 180 days from the date of the
acquisition thereof, (v) repurchase agreements or money-market accounts which
are fully secured by direct obligations of the United States or any agency
thereof and (vi) in the case of the Company and its Subsidiaries, (1) any
receivables or loans taken by the Company or a Subsidiary in connection with the
sale of any asset otherwise permitted by the Indenture, (2) Investments in any
Guarantor, (3) Investments in the Notes or Debt PARI PASSU with the Notes, (4)
Investments in evidences of Debt, securities or other property received from
another Person by the Company or any of its Restricted Subsidiaries in
connection with any bankruptcy proceeding or by reason of a composition or
readjustment of debt or a reorganization of such Person or as a result of
foreclosure, perfection or enforcement of any Lien in exchange for evidences of
Debt, securities or other property of such Person held by the Company or any of
its Restricted Subsidiaries, or for other liabilities or obligations of such
other Person to the Company or any of its Restricted Subsidiaries that were
created, in accordance with the terms of the Indenture, (5) Investments in
Interest Rate Protection Agreements which constitute Permitted Debt, (6)
Investments in any Homebuilding Joint Ventures not in excess of $20 million in
the aggregate for all Homebuilding Joint Ventures and (7) Investments in an
aggregate amount outstanding not greater than $5,000,000.
"PERMITTED LIENS" with respect to the Company and its Restricted
Subsidiaries means (i) (x) until such time as the Company shall have less than
an aggregate of $40,000,000 of maximum availability under one or more Bank
Facilities described in clause (b) of the "Limitation on Debt" covenant which
are secured by any Liens, Liens securing the Company's Bank Facility or Bank
Facilities described in clause (b) of the "Limitation on Debt" covenant, and (y)
from and after the first time at which the Company shall have less than an
aggregate of $40,000,000 of maximum availability under one or more Bank
Facilities which are secured by Liens, Liens on assets of the Company or any
Restricted Subsidiary of the Company securing Debt which may be incurred
pursuant to the "Limitation on Debt" covenant, provided that the aggregate
amount of Debt secured by Liens (excluding Nonrecourse Debt of the Company and
Restricted Subsidiaries and Debt outstanding under the Warehouse Facility) may
not exceed 40 percent of the Company's Consolidated Tangible Assets; (ii) Liens
securing a Warehouse Facility; provided that such Liens shall not extend to any
assets other than the mortgages, promissory notes and other collateral that
secures mortgage loans made by the Company or any of its Restricted
Subsidiaries; (iii) Liens securing Non-Recourse Debt of the Company or any
Restricted Subsidiary of the Company, provided that such Liens apply only to the
property financed out of the net proceeds of such Non-Recourse Debt within 90
days of the incurrence of such Non-Recourse Debt; (iv) Liens securing Debt of a
Person existing at the time that such Person is merged into or consolidated with
the Company or a Restricted Subsidiary; provided that such Liens were not
created in contemplation of such merger or consolidation and do not extend to
any assets or property of the Company or any Restricted Subsidiary, other than
the surviving Person and its Subsidiaries; (v) Liens on assets or property
acquired by the Company or a Restricted Subsidiary; provided that such Liens
were not created in contemplation of such acquisition and do not extend to any
other assets or property (other than proceeds of such acquired assets or
property); (vi) Liens in respect of Interest Rate Protection Agreements which
constitute Permitted Debt; (vii) Liens for taxes, assessments or governmental
charges or claims that either (a) are not yet delinquent or (b) are being
contested in good faith by appropriate proceedings and as to which appropriate
reserves have been established or other provisions have been made in accordance
with generally accepted accounting principles; (viii) statutory Liens of
landlords and carriers', warehousemen's, mechanics', suppliers', materialmen's,
repairmen's, contractors' or other Liens imposed by law and arising in the
ordinary course of business; (ix) Liens (other than any Lien imposed
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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; (x)
Liens incurred or deposits made to secure the performance of tenders, bids,
leases, statutory obligations, surety and appeal bonds, progress payments,
government contracts and other obligations of like nature (exclusive of
obligations for the payment of borrowed money), in each case, incurred in the
ordinary course of business; (xi) attachment or judgment Liens not giving rise
to a Default or Event of Default; (xii) easements, rights-of-way, restrictions
and other similar charges or encumbrances not materially interfering with the
ordinary conduct of the business of the Company or any of its Subsidiaries;
(xiii) leases or subleases granted to others not materially interfering with the
ordinary conduct of the business of the Company or any of its Restricted
Subsidiaries; (xiv) Liens securing Refinancing Debt; provided that such Liens
only extend to the assets securing the Debt being refinanced, such refinanced
Debt was previously secured and such Liens do not extend to any other assets of
the Company or the assets of any of the Company's other Subsidiaries; (xv) Liens
securing Purchase Money Obligations (including capitalized lease obligations);
(xvi) Liens existing on February 2, 1998; (xvii) any contract to sell an asset
provided such sale is otherwise permitted under the Indenture; and (xviii) Liens
on property or assets of any Restricted Subsidiary securing Debt of such
Restricted Subsidiary owing to the Company or one or more Restricted
Subsidiaries of the Company.
"PERSON" means any individual, corporation, partnership, association,
trust or other entity or organization, including a government or political
subdivision or agency or instrumentality thereof.
"PREFERRED STOCK" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred or preference stock whether outstanding on or issued
after February 2, 1998, and including, without limitation, all classes and
series of preferred or preference stock.
"PURCHASE MONEY OBLIGATIONS" means Debt of any Person secured by Liens
(i) on property purchased, acquired, or constructed by such Person or its
Subsidiaries after February 2, 1998 and used in the ordinary course of business
by such Person and (ii) securing the payment of all or any part of the purchase
price or construction cost of such assets and limited to the property so
acquired and improvements thereof; provided that such Debt is incurred no later
than 90 days after the acquisition of such property or completion of such
construction or improvements.
"REDEEMABLE STOCK" means, with respect to any Person, any class or
series of capital stock of such Person that is redeemable at the option of the
holder (except pursuant to a change in control provision that does not (i) cause
such capital stock to become redeemable in circumstances which would not
constitute a Change of Control and (ii) require the Company to pay the
redemption price therefor prior to the Change of Control Repurchase Date) or is
subject to mandatory redemption or otherwise matures prior to the final stated
maturity of the Notes.
"REFINANCING DEBT" means Debt that refunds, refinances or extends any
Notes, Existing Notes, Existing Debt (other than Existing Debt to be repaid with
the net proceeds of the offering of the Notes) or other Debt incurred by the
Company or its Restricted Subsidiaries permitted under the terms of the
Indenture, but only to the extent that (i) the Refinancing Debt is subordinated
to the Notes to the same extent as the Debt being refunded, refinanced or
extended, if at all, (ii) the Refinancing Debt is scheduled to mature either (a)
no earlier than the Debt being refunded, refinanced or extended, or (b) after
the maturity date of the Notes, (iii) the portion, if any, of the Refinancing
Debt that is scheduled to mature on or prior to the maturity date of the Notes
has a Weighted Average Life to Maturity at the time such Refinancing Debt is
Incurred that is equal to or greater than the Weighted Average Life to Maturity
of the portion of the Debt being refunded, refinanced or extended that is
scheduled to mature on or prior to the maturity date of the Notes, and (iv) the
gross proceeds of such Refinancing Debt are an amount that is equal to or less
than the aggregate principal amount then outstanding under the Debt being
refunded, refinanced or extended (plus the premiums or other payments paid in
connection therewith (which shall not exceed the stated amount of any premium or
other payment required to be paid in connection with such a renewal, extension,
substitution, refunding, refinancing, redemption, repurchase or replacement
pursuant to the terms of the Debt being renewed, extended, substituted,
refunded, refinanced, amended, modified, supplemented, redeemed, repurchased or
replaced) and the expenses incurred in connection therewith).
"RESTRICTED PAYMENTS" means with respect to the Company or any
Restricted Subsidiary (i) the declaration or payment of any dividend or other
distribution on any shares of such Person's capital stock (except (x) dividends
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or distributions in additional shares of capital stock of the Company other than
Redeemable Stock or (y) the declaration or payment of any dividend or other
distribution by a Restricted Subsidiary to the Company or another Restricted
Subsidiary), (ii) any payment on account of the purchase, redemption or other
acquisition of (a) any shares of such Person's capital stock or (b) any option,
warrant or other right to acquire shares of such Person's capital stock, except,
in each case, capital stock held by the Company or a Restricted Subsidiary,
(iii) any Investment (other than a Permitted Investment) in any Person, or (iv)
any principal payment, redemption, repurchase, defeasance or other acquisition
or retirement, prior to scheduled principal payment or scheduled maturity, of
Debt of the Company or its Subsidiaries which is subordinated in right of
payment to the Notes (other than Debt held by the Company or a Restricted
Subsidiary).
"RESTRICTED SUBSIDIARY" means any Subsidiary which is not an
Unrestricted Subsidiary.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation or
entity 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 (ii) any partnership or joint
venture at least a majority of the voting power of which 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 or a successor thereto.
"UNRESTRICTED SUBSIDIARY" means each of the Subsidiaries of the Company
(other than a Guarantor) so designated by a resolution adopted by the Board of
Directors of the Company as provided below; provided that (a) neither the
Company nor any of its other Subsidiaries (other than Unrestricted Subsidiaries)
(1) provides any direct or indirect credit support for any Debt of such
Subsidiary (including any undertaking, agreement or instrument evidencing such
Debt) or (2) is directly or indirectly liable for any Debt of such Subsidiary,
and (b) the creditors with respect to Debt for borrowed money of such Subsidiary
have agreed in writing that they have no recourse, direct or indirect, to the
Company or any other Subsidiary of the Company (other than Unrestricted
Subsidiaries), including, without limitation, recourse with respect to the
payment of principal or interest on any Debt of such Subsidiary. The Board of
Directors of the Company may designate an Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that (i) any such redesignation will be deemed
to be an Incurrence by the Company and its Restricted Subsidiaries of the Debt
(if any) of such redesignated Subsidiary for purposes of the "Limitation on
Debt" covenant set forth in the Indenture as of the date of such redesignation,
(ii) any Debt of such Unrestricted Subsidiary could then be Incurred in
accordance with the "Limitation on Debt" covenant set forth in the Indenture on
the date of such redesignation and (iii) the Liens of such Unrestricted
Subsidiary could then be incurred in accordance with the "Limitation on Liens"
covenant set forth in the Indenture as of the date of such redesignation.
Subject to the foregoing, the Board of Directors of the Company also may
designate any Restricted Subsidiary to be an Unrestricted Subsidiary; provided
that (i) all previous Investments by the Company and its Restricted Subsidiaries
in such Restricted Subsidiary (net of any returns previously paid on such
Investments) will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the "Limitations on Restricted Payments" covenant set forth in the Indenture,
(ii) the Company and its Restricted Subsidiaries could incur $1.00 of additional
Indebtedness under the Coverage Ratio test contained in the "Limitations on
Debt" covenant set forth in the Indenture and (iii) no Default or Event of
Default shall have occurred or be continuing. Any such designation or
redesignation by the Board of Directors of the Company will be evidenced to the
Trustee by the filing with the Trustee of a certified copy of the resolution of
the Board of Directors of the Company giving effect to such designation or
redesignation and an Officers' Certificate certifying that such designation or
redesignation complied with the foregoing conditions and setting forth the
underlying calculations.
"WAREHOUSE FACILITY" means a Bank Facility to finance the making of
mortgage loans originated by the Company or any of its Subsidiaries.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Debt or
portion thereof, if applicable, at any date, the number of years obtained by
dividing (i) the then outstanding principal amount of such Debt or portion
thereof, if applicable, into (ii) the sum of the products obtained by
multiplying (a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal, including payment at
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final maturity, in respect thereof, by (b) the number of years (calculated to
the nearest one-twelfth) that will elapse between such date and the making of
such payment.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" means any Restricted Subsidiary of
the Company of which 100% of the outstanding capital stock is owned by one or
more Wholly Owned Restricted Subsidiaries of the Company or by the Company and
one or more Wholly Owned Restricted Subsidiaries of the Company. For purposes of
this definition, any directors' qualifying shares shall be disregarded in
determining the ownership of a Subsidiary.
EVENTS OF DEFAULT
The following shall constitute Events of Default with respect to the
Notes: (i) failure to pay the principal of any Note when such principal becomes
due and payable at maturity, upon acceleration or otherwise; (ii) failure to pay
interest on any Note when due, and such failure continues for a 30-day period;
(iii) a default in the observance or performance of any other covenant or
agreement of the Company or the Guarantors in the Note, the Guarantee or the
Indenture that continues for the period and after the notice specified below;
(iv) an event of default shall have occurred under one or more evidences of Debt
of the Company or any of its Restricted Subsidiaries (other than Non-Recourse
Debt) with an outstanding aggregate principal amount of $5,000,000 or more,
whether such Debt now exists or is created hereafter, which event of default (1)
consists of the failure by the Company or any Restricted Subsidiary to make any
payment in respect of such Debt at its final maturity or (2) results in the
acceleration of such Debt which acceleration shall be in effect; (v) any final
judgment or judgments for payment of money in excess of $5,000,000 in the
aggregate shall be rendered against the Company or any of its Restricted
Subsidiaries and shall remain unstayed, unsatisfied or undischarged for the
period and after the notice specified below; (vi) certain events of bankruptcy,
insolvency or reorganization of the Company or Material Subsidiaries; and (vii)
any Guarantee of a Material Subsidiary 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 Guarantee (other than by reason of
release of a Guarantor from its Guarantee in accordance with the terms of the
Indenture and the Guarantee). The Company is required to deliver to the Trustee
within 120 days after the end of each fiscal year of the Company, an officer's
certificate stating whether or not the signatories know of any default by the
Company under the Indenture and the Notes and, if any default exists, describing
such default.
A default under clause (iii) or (v) above is not an Event of Default
until the Trustee or the holders of at least 25% in principal amount of the
Notes then outstanding notify the Company of the default and the Company does
not cure the default within 60 days. The notice must specify the default, demand
that it be remedied and state that the notice is a "Notice of Default." If the
holders of 25% in principal amount of Notes then outstanding request the Trustee
to give such notice on their behalf, the Trustee shall do so.
In case an Event of Default (other than an Event of Default resulting
from certain events of bankruptcy, insolvency or reorganization of the Company)
shall have occurred and be continuing, the Trustee, by notice to the Company, or
the holders of 25% of the principal amount of the Notes then outstanding, by
notice to the Company and the Trustee, may declare the principal of the Notes,
plus accrued interest, to be immediately due and payable. In case an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization of the Company shall occur, such amounts shall be due and payable
without any declaration or any act on the part of the Trustee or the holders of
the Notes. Any declaration of acceleration may be rescinded and past defaults
may be waived by the holders of a majority of the principal amount of the Notes
then outstanding upon conditions provided in the Indenture. Except to enforce
the right to receive payment of principal or interest when due, no holder of a
Note may institute any proceeding with respect to the Indenture or for any
remedy thereunder unless such holder has previously given to the Trustee written
notice of a continuing Event of Default and unless the holders of 25% of the
principal amount of the Notes then outstanding have requested the Trustee to
institute proceedings in respect of such Event of Default and have offered the
Trustee reasonable indemnity against loss, liability and expense to be thereby
incurred, the Trustee has failed so to act for 60 days after receipt of the same
and during such 60-day period the holders of a majority of the principal amount
of the Notes then outstanding have not given the Trustee a direction
inconsistent with the request. Subject to certain restrictions, the holders of a
majority in principal amount of the Notes then outstanding will have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee. The Trustee,
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however, may refuse to follow any direction that conflicts with law or the
Indenture, that is unduly prejudicial to the rights of any holder of a Note or
that would involve the Trustee in personal liability and the Trustee may take
any other action deemed proper by the Trustee which is not inconsistent with
such direction.
MERGERS AND CONSOLIDATIONS
Neither the Company nor any Guarantor will consolidate or merge with or
into, or sell, lease, convey or otherwise dispose of all or substantially all of
its assets (including, without limitation, by way of liquidation or
dissolution), or assign any of its obligations under the Notes, the Guarantees
or the Indenture (as an entirety or substantially as an entirety in one
transaction or series of related transactions), to any Person or permit any of
its Restricted Subsidiaries to do any of the foregoing (in each case other than
with the Company or another Wholly Owned Restricted Subsidiary) unless: (i) the
Person formed by or surviving such consolidation or merger (if other than the
Company or such Guarantor, as the case may be), or to which such sale, lease,
conveyance or other disposition or assignment will be made (collectively, the
"Successor"), is a corporation or other legal entity organized and existing
under the laws of the United States or any state thereof or the District of
Columbia, and the Successor assumes by supplemental indenture in a form
reasonably satisfactory to the Trustee all of the obligations of the Company or
such Guarantor, as the case may be, under the Notes or such Guarantor's
Guarantee, as the case may be, and the Indenture, (ii) immediately after giving
effect to such transaction, no Default or Event of Default has occurred and is
continuing, (iii) immediately after giving effect to such transaction and the
use of any net proceeds therefrom, on a pro forma basis, the Consolidated
Tangible Net Worth of the Company or the Successor (in the case of a transaction
involving, the Company), as the case may be, would be at least equal to the
Consolidated Tangible Net Worth of the Company immediately prior to such
transaction and (iv) in the case of a transaction involving the Company,
immediately after giving effect to such transaction and the use of any net
proceeds therefrom, on a pro forma basis, the Coverage Ratio of the Company or
the Successor (in the case of a transaction involving the Company), as the case
may be, would be such that the Company or the Successor (in the case of a
transaction involving the Company), as the case may be, would be entitled to
Incur at least $1.00 of additional Debt under such Coverage Ratio test in the
"Limitation on Debt" covenant set forth in the Indenture. 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 Guarantee
as provided under "The Guarantees" above.
DEFEASANCE
Under the terms of the Indenture and the Notes, the Company, at its
option, (a) will be discharged from any and all obligations in respect of the
Notes (except in each case for certain obligations to register the transfer or
exchange of Notes, replace stolen, lost or mutilated Notes, maintain paying
agencies and hold moneys for payment in trust) or (b) need not comply with the
covenants of the Indenture nor be subject to the operation of the cross
acceleration provisions described under "Events of Default," in each case, if
the Company irrevocably deposits with the Trustee, in trust, money or U.S.
Government Obligations (as defined in the Indenture) which through the payment
of interest thereon and principal thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of and interest on
the Notes on the dates such payments are due in accordance with the terms of the
Notes.
To exercise either option above, the Company is required to deliver to
the Trustee an opinion of counsel that the holders of the Notes will not
recognize income, gain or loss for Federal income tax purposes as a result of
such defeasance and will be subject to Federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance had not occurred.
In the event the Company exercises its options under clause (b) of the
second preceding paragraph and the Notes are declared due and payable because of
the occurrence of any Event of Default (other than the cross acceleration
provisions described under "Events of Default" which will be inapplicable), the
amount of money and 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
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time of the acceleration resulting from such Event of Default. However, the
Company shall remain liable for such payments.
REPORTS
As long as any of the Notes are outstanding, the Company will deliver
to the Trustee and the Trustee will mail to each Holder within 15 days after the
filing of the same with the Commission copies of the quarterly and annual
reports and of the information, documents and other reports with respect to the
Company and the Guarantors, if any, which the Company and the Guarantors may be
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. The Indenture provides that, notwithstanding that neither the
Company nor any of the Guarantors may be required to remain subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will continue to file with the Commission and provide the Trustee and Holders
with such annual and quarterly reports and such information, documents and other
reports with respect to the Company and the Guarantors as are required under
Sections 13 and 15(d) of the Exchange Act. If filing of documents by the Company
with the Commission as aforementioned in this paragraph is not permitted under
the Exchange Act, the Company shall promptly upon written notice supply copies
of such documents to any prospective holder. In addition, the Indenture requires
that for so long as any of the Notes remain outstanding the Company will make
available to any prospective purchaser of the Notes or beneficial owner of the
Notes in connection with any sale thereof the information required by Rule
144A(d)(4) under the Securities Act, until such time as either the Company has
consummated the Exchange Offer or the holders of Notes have disposed of such
Notes pursuant to an effective registration statement filed by the Company.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent (which may include consents obtained in
connection with a tender offer or exchange offer for Notes) of the Holders of at
least a majority in principal amount of Notes then outstanding, and any existing
Default or Event of Default (other than any continuing Default or Event of
Default in the payment of interest on or the principal of the Notes) under, or
compliance with any provision of, the Indenture may be waived with the consent
(which may include consents obtained in connection with a tender offer or
exchange offer for Notes) of the Holders of a majority in principal amount of
the Notes then outstanding. Without the consent of any Holder, the Company, the
Guarantors and the Trustee may amend the Indenture or the Notes or waive any
provision of the Indenture to cure any ambiguity, defect or inconsistency, to
comply with the "Mergers and Consolidations" section set forth in the Indenture,
to provide for uncertificated Notes in addition to certificated Notes, to make
any change that does not adversely affect the legal rights under the Indenture
of any Holder, to comply with the qualification of the Indenture under the TIA,
or to reflect a Guarantor ceasing to be liable on the Guarantees because it is
no longer a Subsidiary of the Company.
Without the consent of each Holder affected, the Company may not (i)
reduce the amount of Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the rate of or change the time for payment of
interest, including default interest, on any Note, (iii) reduce the principal of
or change the fixed maturity of any Note or alter the provisions with respect to
redemption under the "Optional Redemption" section set forth in the Indenture,
(iv) make any Notes payable in money other than that stated in the Note, (v)
make any change in certain other provisions set forth in the Indenture, (vi)
adversely modify the ranking or priority of the Notes or any Guarantee, (vii)
release any Guarantor from any of its obligations under its Guarantee or the
Indenture otherwise than in accordance with the terms of the Indenture, or
(viii) waive a continuing Default or Event of Default in the payment of
principal of or interest on the Notes.
NO PERSONAL LIABILITY OF 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 or any Guarantor in the
Indenture or in any of the Notes or because of the creation of any Debt
represented thereby, shall be had against any shareholder, officer, director,
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employee or controlling person of the Company, any Guarantor or any successor
Person thereof. Each Holder, by accepting such Notes, will waive and release all
such liability.
CONCERNING THE TRUSTEE
The Indenture contains certain 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 in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest (as defined
in the Indenture), it must eliminate such conflict or resign.
The Holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
occurs and is not cured, the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent person in similar circumstances in
the conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to the Trustee.
GOVERNING LAW
The Indenture, the Notes and the Guarantees will be governed by the internal
laws of the State of New York.
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BOOK-ENTRY; DELIVERY AND FORM
Except as set forth in the next paragraph, the Exchange Notes initially
will be issued in the form of one or more fully registered global Exchange Notes
(collectively, the "Global Exchange Note"). The Global Exchange Note will be
deposited on the Exchange Date with, or on behalf of, DTC and registered in the
name of Cede & Co., as nominee of DTC (such nominee being referred to herein as
the "Global Exchange Note Holder").
Exchange Notes whose holders elect to take physical delivery of their
certificates instead of holding their interests through the Global Exchange Note
(and which are thus ineligible to trade through DTC) will be issued in
registered certificated form ("Certificated Exchange Securities").
DTC is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in such securities between Participants through electronic book-entry changes in
accounts of its Participants. Participants include securities brokers and
dealers (including the Initial Purchaser), banks and trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants") that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through Participants or Indirect Participants.
The Company expects that pursuant to procedures established by DTC (i)
upon deposit of the Global Exchange Note, DTC will credit on its internal
system, the principal amount of the Exchange Notes of the individual beneficial
interests represented by such Global Exchange Note to the respective accounts of
exchanging holders who have accounts with DTC and (ii) ownership of the Exchange
Notes evidenced by the Global Exchange Note will be shown on, and the transfer
of ownership thereof will be effected only through, records maintained by DTC
(with respect to the interests of Participants), Participants and Indirect
Participants. Prospective purchasers are advised that the laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer Exchange Notes
evidenced by the Global Exchange Note will be limited to such extent.
So long as DTC, or its nominee, is the registered owner of the Exchange
Notes, DTC or such nominee will be considered the sole holder under the
Indenture of any Exchange Notes evidenced by the Global Exchange Note.
Beneficial owners of Exchange Notes evidenced by the Global Exchange Note will
not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to the giving of any directions, instructions or
approvals to the Trustee thereunder. Neither the Company nor the Trustee will
have any responsibility or liability for any aspect of the records of DTC or for
maintaining, supervising or reviewing any records of DTC relating to the
Exchange Notes.
Payments in respect of the principal of, premium, if any and interest
on the Global Exchange Note will be made by the Company through the paying agent
to DTC or its nominee, as the case may be, as the registered holder under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names Exchange Notes, including the Global Exchange
Note, are registered as the owners thereof for the purpose of receiving such
payments. Consequently, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of Exchange Notes. The Company believes, however, that it is currently the
policy of DTC to immediately credit the accounts of the relevant Participants
with such payments, in amounts proportionate to their respective holdings of
beneficial interests in the relevant security as shown on the records of DTC.
Payments by Participants and Indirect Participants to the beneficial owners of
Exchange Notes will be governed by standing instructions and customary practice
and will be the responsibility of Participants or Indirect Participants.
As long as the Exchange Notes are represented by a Global Exchange
Note, DTC's nominee will be the holder of the Exchange Notes and therefore will
be the only entity that can exercise a right to repurchase the Notes. See
"Description of the Exchange Notes -- Optional Redemption" and "Description of
the Exchange Notes -- Certain Covenants." Notice by Participants or Indirect
Participants or by owners of beneficial interests in a Global
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Exchange Note held through such Participants or Indirect Participants of the
exercise of the option to elect repurchase of beneficial interests in Exchange
Notes represented by Global Exchange Note must be transmitted to DTC in
accordance with its procedures on a form required by DTC and provided to
Participants. In order to ensure that DTC's nominee will timely exercise a right
to repurchase with respect to a particular Exchange Note, the beneficial owner
of such Exchange Note must instruct the broker or other Participant or Indirect
Participant through which it holds an interest in such Exchange Note to notify
DTC of its desire to exercise a right to repurchase. Different firms have
different cut-off times for accepting instructions from their customers and,
accordingly, each beneficial owner should consult the broker or other
Participant or Indirect Participant through which it holds an interest in an
Exchange Note in order to ascertain the cut-off time by which such an
instruction must be given in order for timely notice to be delivered to DTC. The
Company will not be liable for any delay in delivery to the paying agent of
notices of the exercise of any option to elect repurchase.
If (i) the Company notifies the Trustee in writing that DTC is no
longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Exchange
Notes in the form of Certificated Securities under the Indenture, then, upon
surrender by DTC of the Global Exchange Note, Exchange Notes in such form will
be issued to each person that DTC identifies as being the beneficial owner of
the related Exchange Notes.
Neither the Company nor the Trustee will be liable for any delay by DTC
in identifying the beneficial owners of Exchange Notes and the Company and the
Trustee may conclusively rely on, and will be protected in relying on,
instructions from DTC for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT. The Indenture requires that payments
in respect of the Exchange Notes represented by the Global Exchange Note
(including principal, premium, if any and interest) be made by wire transfer of
immediately available funds to the accounts specified by DTC. With respect to
Certificated Exchange Securities, the Company will make all payments of
principal, premium, if any, and interest by wire transfer of immediately
available funds to the accounts specified by the holders thereof or, if no such
account is specified, by mailing a check to each such holder's registered
address. The Exchange Notes represented by the Global Exchange Note are expected
to trade in DTC's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such Notes will, therefore, be required by DTC to be
settled in immediately available funds. The Company expects that secondary
trading in any Certificated Exchange Securities will also be settled in
immediately available funds.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
For U.S. federal income tax purposes, the exchange of an Old Note for a
Exchange Note pursuant to the Exchange Offer should not be treated as a taxable
exchange for U.S. federal income tax purposes. In that event, holders who
exchange their Old Notes for Exchange Notes would not recognize income, gain or
loss for U.S. federal income tax purposes. In addition, a holder's tax basis in
the Exchange Notes would be equal to its adjusted basis in the Old Notes, and
its holding period would include the period during which it held the Old Notes.
Persons considering the exchange of Old Notes for Exchange Notes pursuant to the
Exchange Offer should consult their own tax advisors concerning the application
of the U.S. federal tax laws to their particular situations as well as any
consequences arising under the laws of any other taxing jurisdiction.
The following summary sets forth certain United States federal tax
consequences resulting from the purchase, ownership and disposition of a Note,
whether an Old Note or a Exchange Note. It does not purport to consider all the
possible tax consequences of the purchase, ownership or disposition of the
Notes, and it is not intended to reflect the individual tax position of any
holder. It deals only with Notes held as capital assets. Except as expressly
indicated, it is addressed only to initial holders who purchased Old Notes at
their issue price (as defined below) and does not deal with holders with a
special tax status or special tax situation, such as financial institutions or
dealers in securities or currencies, Notes held as a hedge against currency
risks or as part of a straddle with other investments or as part of a "synthetic
security" or other integrated investment (including a "conversion transaction")
consisting of a Note and one or more other investments, or situations in which
the functional currency of the Note holder is not the U.S. dollar. This
discussion is based upon the United States federal tax laws and regulations as
now in effect and as currently interpreted, and does not take into account
possible changes in such tax laws or such interpretations, all of which may be
applied retroactively. This discussion does not include any description of the
tax laws of any state or local government within the United States, or of any
foreign government, that may be applicable to the Notes or holders thereof.
TAXATION OF U.S. HOLDERS
For purposes of the discussion below, (i) "U.S. Holder" means a
beneficial owner of a Note that is for United States federal income tax purposes
a citizen or resident of the United States, a corporation, partnership or any of
certain other entities created or organized in or under the laws of the United
States, or any political subdivision thereof, or an estate or trust the income
of which is subject to United States federal income taxation regardless of its
source, and (ii) "Non-U.S. Holder" generally means a person other than a U.S.
Holder. The "issue price" of the Old Notes is the first price to the public (not
including bond houses, brokers or similar persons or organizations acting in the
capacity of underwriters, placement agents or wholesalers) at which a
substantial amount of Old Notes was sold for money.
INTEREST PAYMENTS. Interest on a Note will be includible in a U.S.
Holder's gross income as ordinary U.S. source interest income at the time it is
accrued or received in accordance with the U.S. Holder's method of accounting
for United States federal income tax purposes.
SALE, EXCHANGE OR RETIREMENT. A U.S. Holder's tax basis in a Note
generally will be the U.S. dollar cost of the Old Note to such U.S. Holder
reduced by any principal payments received by the U.S. Holder on the Old Note or
the Exchange Note.
Upon sale, exchange or retirement of a Note, a U.S. Holder generally
will recognize gain or loss equal to the difference between the U.S. Holder's
tax basis in the Note and the amount realized on such sale, exchange or
retirement, except to the extent such amount is attributable to accrued
interest. Gain or loss so recognized will be capital gain or loss and will be
long-term capital gain or loss if, at the time of the sale, exchange or
retirement, the Note was held for more than one year. Under current law, net
capital gains of individuals are, under certain circumstances, taxed at lower
rates than items of ordinary income.
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TAXATION OF NON-U.S. HOLDERS
Payments of interest (including original issue discount, if any) and
premium, if any, on a Note to a Non-U.S. Holder will not be subject to United
States federal withholding tax, provided that, in the case of interest, such
person (i) does not own, actually or constructively, 10% or more of the total
combined voting power of all classes of stock entitled to vote in the
Company,(ii) is not a controlled foreign corporation related, directly or
indirectly, to the issuer through stock ownership and (iii) is not a bank
receiving interest described in Section 881(c)(3)(A) of the Code, and provided
that the statement described in the next sentence has been provided. Sections
871(h) and881(c) of the Code require that, in order to obtain the exemption from
withholding tax described in the previous sentence, 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, file a statement with the withholding agent to the
effect that the beneficial owner of the Note is not a United States person.
Under temporary United States Treasury Regulations which apply to both stated
interest and sale or exchange proceeds if either is paid with respect to a Note
on or before December 31, 1999, the statement may be made by (i) the beneficial
owner of a Note certifying on Internal Revenue Service ("IRS") Form W-8, under
penalties of perjury, that it is not a United States person and provides its
name and address or (ii) 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 furnishing the
withholding agent with a copy thereof). Recently issued final Treasury
Regulations (the "Final Regulations"), which apply to interest(including
original issue discount) and sale or exchange proceeds paid with respect to a
Note after December 31, 1999, also provide that the requirement of Section
871(h) and 881(c) generally will be satisfied if beneficial owners (including
partners of certain foreign partnerships), as well as certain foreign
partnerships, meet the two conditions set forth in the preceding sentence.
However, a beneficial owner that is a foreign estate or trust (or fiduciary
thereof), a foreign partnership that has entered into a withholding agreement
with the IRS, or a Non-U.S. Holder holding a Note through its United States
branch will be required to provide its "taxpayer identification number" in
addition to its name and address on Form W-8. Foreign partnerships and their
partners should consult their tax advisors regarding possible additional
reporting requirements.
Notwithstanding the foregoing, if interest or other income received
with respect to the Note is effectively connected with a United States trade or
business conducted by a Non-U.S. Holder (and, in the case of a non-U.S. Holder
to whom an income tax treaty applies, is attributable to a U.S. permanent
establishment of the non-U.S. Holder), such holder, although exempt from the
withholding tax described in the preceding paragraph, will be subject to United
States federal income tax on such interest in the same manner as if it were a
United States person. In addition, if such holder is a corporation, it may be
subject to a branch profits tax at a rate of 30% (or a lower treaty rate) of its
effectively connected earnings and profits that are treated as repatriated
during the taxable year.
A Non-U.S. Holder will not be subject to United States federal income
tax on gain realized on the sale, exchange or other disposition of a Note,
unless(i) such holder is an individual who is present in the United States
for183 days or more in the taxable year of disposition, and either (a) such
individual has a "tax home" (as defined in Section 911(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 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.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. HOLDERS. Information reporting and backup withholding may apply to
payments of interest on or the proceeds from a sale or other disposition of a
Note in the case of certain non-corporate U.S. Holders. Such U.S. Holders
generally will be subject to backup withholding at a rate of 31% unless the
recipient of such payment supplies a taxpayer identification number, certified
under penalty of perjury, as well as certain other information, or otherwise
establishes, in the manner prescribed by law, an exemption from backup
withholding. Any amount withheld under the backup withholding rules is allowable
as credit against the U.S. Holder's federal income tax upon furnishing the
required information.
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NON-U.S. HOLDERS. Generally, information reporting and backup
withholding of federal income tax at a rate of 31% may apply to payments of
principal of and interest and premium, if any, on a Note to a Non-U.S. Holder if
the payee fails to certify that the beneficial owner is a Non-U.S. Holder. The
payment of the proceeds of a disposition of a Note to or through the U.S. office
of a U.S. or foreign broker will be subject to information reporting and backup
withholding, unless the owner provides the certification described above or
otherwise establishes an exemption. The proceeds of a disposition by a Non-U.S.
Holder of a Note to or through a foreign office of a broker will not be subject
to backup withholding. However, if such broker is a U.S. person, a controlled
foreign corporation for federal income tax purposes or a foreign person 50% or
more of whose gross income from all sources for certain periods is from
activities that are effectively connected with a U.S. trade or business,
information reporting will apply unless such broker has documentary evidence in
its files of the owner's foreign status and has no actual knowledge to the
contrary or unless the owner otherwise establishes an exemption. Both backup
withholding and information reporting will apply to the proceeds from such
disposition if the broker has actual knowledge that the payee is a U.S. Holder.
The Final Regulations modify the backup withholding and information
reporting requirements in certain respects for payments made after December
31,1999. Holders are urged to consult their tax advisors regarding the
application of the backup withholding and information reporting rules.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes in exchange for Private
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 Exchange
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 Exchange Notes
received in exchange for Private Notes where such Private Notes were acquired as
a result of market-making activities or other trading activities. The Company
has agreed that it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale for a
period of 180 days after consummation of the Exchange Offer, or such shorter
period as will terminate when all Private Notes acquired by broker-dealers for
their own accounts as a result of market-making activities or other trading
activities have been exchanged for Exchange Notes and resold by such
broker-dealers. A broker-dealer that delivers such a prospectus to purchasers in
connection with such resales will be subject to certain of the civil liability
provisions under the Securities Act and will be bound by the provisions of the
Registration Rights Agreement (including certain indemnification rights and
obligations).
The Company will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange Notes received in exchange for Private Notes
pursuant to the Exchange Offer 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 Exchange 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 Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer in exchange for Private Notes pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such Exchange Notes may be deemed to be an "underwriter" within the meaning
of the Securities Act and any profit on any such resale of Exchange Notes and
any commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. For a period of 180 days
after consummation of the Exchange Offer, or such shorter period as will
terminate when all Private Notes acquired by broker-dealers for their own
accounts as a result of market-making activities or other trading activities
have been exchanged for Exchange Notes and resold by such broker-dealers, 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 such broker-dealers against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon
on behalf of the Company by Greenberg Traurig Hoffman Lipoff Rosen & Quentel,
P.A.
EXPERTS
The Consolidated Financial Statements of the Company and the related
schedule incorporated by reference in this Prospectus have been audited by BDO
Seidman, LLP, independent certified public accountants, to the extent and for
the periods set forth in their reports incorporated by reference herein, and are
incorporated by reference in reliance upon such reports given upon the authority
of said firm as experts in auditing and accounting.
65
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE,
SUCH INFORMATION ENGLE HOMES, INC. OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE EXCHANGE AGENT. NEITHER THIS
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER,
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
PAGE
----
Available Information............................iii
Incorporation of Certain Documents by Reference..iii
Summary..........................................1
Risk Factors....................................12
The Exchange Offer..............................17
Private Placement...............................23
Use of Proceeds.................................23
Capitalization..................................24
Selected Consolidated Financial and Operating
Data.........................................25
Management's Discussion and Analysis of Financial
Condition and Results of Operations..........27
Business........................................33
Management......................................39
Description of the Exchange Notes...............41
Book Entry; Delivery and Form...................60
United States Federal Income Tax Considerations.62
Plan of Distribution............................65
Legal Matters...................................65
Experts.........................................65
[LOGO]
ENGLE HOMES, INC.
OFFER TO EXCHANGE
UP TO $150,000,000 OF ITS
9 1/4% SERIES C SENIOR NOTES DUE 2008 FOR ANY AND ALL OUTSTANDING
9 1/4% SENIOR NOTES DUE 2008
($100,000,000 PRINCIPAL AMOUNT OUTSTANDING)
AND 9 1/4% SERIES B SENIOR NOTES DUE 2008
($50,000,000 PRINCIPAL AMOUNT OUTSTANDING)
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PROSPECTUS
==================================================
JULY 23, 1998
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