<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
--------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-19891
SCHULER HOMES, INC.
(Exact name of registrant as specified in its charter)
Delaware 99-0293125
(State or jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
828 Fort Street Mall, Suite 400
Honolulu, Hawaii 96813-4321
(Address of principal executive offices) (Zip code)
(808) 521-5661
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Class of Common Stock April 30, 1998
--------------------- --------------
<S> <C>
$.01 par value 20,103,843
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
SCHULER HOMES, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Review Report.................... 3
Consolidated Balance Sheets - March 31, 1998 and
December 31, 1997...................................... 4
Consolidated Statements of Income - Three months
ended March 31, 1998 and 1997.......................... 5
Consolidated Statements of Cash Flows - Three
months ended March 31, 1998 and 1997................... 6
Notes to Consolidated Financial Statements................ 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 10
PART II. OTHER INFORMATION......................................... 16
SIGNATURES.......................................................... 17
</TABLE>
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Stockholders
Schuler Homes, Inc.
We have reviewed the accompanying interim consolidated balance sheet of Schuler
Homes, Inc. as of March 31, 1998, and the related consolidated statements of
income and cash flows for the three-month periods ended March 31, 1998 and 1997.
These financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying interim consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles. See Note 1.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Schuler Homes, Inc. as of December
31, 1997, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the year then ended (not presented herein) and in our
report dated March 5, 1998, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of December 31, 1997, is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
ERNST & YOUNG LLP
Honolulu, Hawaii
May 11, 1998
3
<PAGE>
SCHULER HOMES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,1998 December 31, 1997
------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents (restricted-Note 2)........ $ 5,305,000 $ 3,842,000
Receivables ......................................... 1,203,000 880,000
Prepaid income taxes ................................ 328,000 1,682,000
Amount due from affiliate (Note 5) .................. 25,000 24,000
Real estate inventories (Note 3) .................... 291,004,000 291,081,000
Investments in unconsolidated joint ventures......... 14,555,000 16,026,000
Deposits............................................. 3,578,000 1,691,000
Deferred offering costs, net......................... 1,114,000 1,171,000
Notes receivable (Note 2)............................ 2,359,000 2,406,000
Deferred income taxes ............................... 4,501,000 4,002,000
Intangibles, net..................................... 13,561,000 13,742,000
Other assets......................................... 3,840,000 4,024,000
------------ ------------
Total assets......................................... $341,373,000 $340,571,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable....................................... $ 5,257,000 $ 12,805,000
Accrued expenses....................................... 12,163,000 13,207,000
Notes payable to bank (Notes 4 and 10)................. 98,400,000 91,077,000
Notes payable to others................................ 2,697,000 2,627,000
6-1/2% convertible subordinated debentures due 2003.... 57,500,000 57,500,000
------------ ------------
Total liabilities...................................... 176,017,000 177,216,000
Commitments and contingencies (Notes 4 and 8)
Stockholders' equity (Note 9):
Common stock, $.01 par value; 30,000,000 shares
authorized; 20,874,927 shares issued at
March 31, 1998 and December 31, 1997............ 209,000 209,000
Additional paid-in capital......................... 93,100,000 93,100,000
Retained earnings.................................. 77,047,000 75,046,000
Treasury stock, at cost; 774,000 shares at
March 31, 1998 and December 31, 1997 ........... (5,000,000) (5,000,000)
------------ ------------
Total stockholders' equity............................. 165,356,000 163,355,000
------------ ------------
Total liabilities and stockholders' equity............. $341,373,000 $340,571,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
4
<PAGE>
SCHULER HOMES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------
1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
Residential real estate sales.......................... $55,512,000 $49,995,000
Costs and expenses:
Residential real estate sales...................... 43,887,000 41,464,000
Selling and commissions............................ 3,920,000 3,463,000
General and administrative......................... 3,770,000 2,920,000
----------- -----------
Total costs and expenses........... 51,577,000 47,847,000
Income from unconsolidated joint ventures.............. 358,000 7,000
----------- -----------
Operating income .................................. 4,293,000 2,155,000
Other income (expense)................................. (1,036,000) (899,000)
----------- -----------
Income before provision for income taxes............ 3,257,000 1,256,000
Provision for income taxes (Note 6).................... 1,256,000 479,000
----------- -----------
Net income ......................................... $ 2,001,000 $ 777,000
----------- -----------
----------- -----------
Net income per share (Note 7):
Basic and diluted................................... $ 0.10 $ 0.04
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
5
<PAGE>
SCHULER HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ............................................................... $ 2,001,000 $ 777,000
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization expense................................ 731,000 539,000
Income from unconsolidated joint ventures............................ (268,000) (16,000)
Sales financed by Company ........................................... --- (143,000)
Principal payments of notes receivable............................... 94,000 1,447,000
Changes in assets and liabilities, net of effects from
purchase of Melody
Homes and Mortgage:
(Increase) decrease in receivables............................... (323,000) 142,000
(Increase) decrease in prepaid income taxes...................... 1,354,000 55,000
(Increase) decrease in real estate inventories................... (256,000) (5,024,000)
(Increase) decrease in deposits.................................. (1,886,000) (87,000)
(Increase) decrease in other assets.............................. 128,000 (454,000)
Increase (decrease) in accounts payable.......................... (7,548,000) (3,607,000)
Increase (decrease) in accrued expenses.......................... (1,091,000) 1,534,000
Change in deferred income taxes.................................. (498,000) 1,371,000
------------ ------------
Net cash provided by (used in) operating activities........... (7,562,000) (3,466,000)
INVESTING ACTIVITIES:
Payment for purchase of Melody Homes and Mortgage, net of cash acquired... --- (29,508,000)
Advances to unconsolidated joint ventures................................. (53,000) (44,000)
Repayments of advances to unconsolidated joint ventures................... 42,000 64,000
Capital distributions from unconsolidated joint ventures.................. 1,750,000 48,000
Purchase of furniture, fixtures, and equipment............................ (93,000) (298,000)
------------ ------------
Net cash provided by (used in) investing activities............. 1,646,000 (29,738,000)
FINANCING ACTIVITIES:
Proceeds from bank borrowings............................................. 68,415,000 57,771,000
Principal payments on bank borrowings..................................... (61,092,000) (22,848,000)
Advances to affiliate..................................................... (25,000) (27,000)
Repayment of advances to affiliate........................................ 24,000 26,000
Net decrease in deferred offering costs................................... 57,000 57,000
------------ ------------
Net cash provided by (used in) financing activities.............. 7,379,000 34,979,000
------------ ------------
Increase (decrease) in cash............................................... 1,463,000 1,775,000
Cash and cash equivalents (restricted) at beginning of period............. 3,842,000 1,619,000
------------ ------------
Cash and cash equivalents (restricted) at end of period................... $ 5,305,000 $ 3,394,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
6
<PAGE>
SCHULER HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. General
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included.
These financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements for the year ended December 31, 1997
contained in the Company's 1997 annual report on Form 10-K.
The Company has experienced, and expects to continue to experience,
significant variability in quarterly sales and net income. The results of
any interim period are not necessarily indicative of the results that can
be expected for the entire year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Certain amounts in the Consolidated Statements of Cash Flows for the
quarter ended March 31, 1997 have been reclassified to conform to the 1998
presentation.
2. Notes Receivable
Notes receivable consist primarily of notes receivable on seller financed
sales of residential units and residential lots.The notes provide for terms
and conditions similar to those offered by financial institutions and are
collateralized by the residential units and residential lots sold. Certain
of the notes are collateralized by second mortgages relating to home buyers
who purchased homes as part of the Company's "zero-down" sales program.
Revenue and profit recognition on such transactions are deferred until the
down payment requirement for revenue and profit recognition is satisfied.
In March 1997, the Company sold second mortgage notes of approximately
$2,500,000, resulting in the recognition of sales and gross profit of
approximately $11,303,000 and $817,000 (net of discount and collection
reserve relating to sale), respectively (includes five sales which closed
during the first quarter of 1997). The collection reserve results in a
restriction on the Company's cash in the amount of approximately $506,000.
3. Real Estate Inventories
Inventories which are substantially completed are carried at the lower of
cost or fair value less cost to sell. Fair value is determined by applying
a risk adjusted discount rate to estimates of future cash flows. In
addition, land held for future development or inventories under current
development are adjusted to fair value, only if an impairment to their
value is indicated.
The estimates of future cash flows require significant judgment relating to
the level of sales prices, rate of new home sales, amount of marketing
costs and price discounts needed in order to stimulate sales, rate of
increase in the cost of building materials and labor, introduction of
building code modifications, and economic and real estate market conditions
in general. Accordingly, there exists at any date, a reasonable
possibility that changes in estimates will occur in subsequent periods.
7
<PAGE>
Real estate inventories at March 31, 1998 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Unimproved land held for future development............ $ 48,912,000
Development projects in progress....................... 201,494,000
Completed inventory (including lots held for sale)..... 40,598,000
---------------
$ 291,004,000
---------------
---------------
</TABLE>
Completed inventory includes residential units which are substantially
ready for occupancy.
4. Notes Payable to Bank
At March 31, 1998, $39,200,000 of the Company's line of credit is unused,
of which $3,209, 000 is restricted as to withdrawal for outstanding but
unused letters of credit.
In March 1997, the Company amended its Credit Agreement, increasing the
unsecured revolving line of credit facility from $110,000,000 to
$137,600,000. The facility expires on July 1, 1999 and includes an option
for the lenders to extend the term for an additional year. The Company can
select an interest rate based on either LIBOR (1, 2, 3 or 6 month term) or
prime for each borrowing. Based on the Company's leverage ratio, as
defined, the interest rate may vary from LIBOR plus 1.5% to 2% or prime
plus 0% to 0.25%. At March 31, 1998, the Company's outstanding borrowings
were at interest rates of LIBOR plus 1.75% (7.5%) and prime plus 0% (8.5%).
The Company's ability to draw upon its line of credit is dependent upon
meeting certain financial ratios and covenants.
The Company paid interest (relating to notes payable to bank, notes payable
to others and the convertible subordinated debentures) of approximately
$3,701,000 during the quarter ended March 31, 1998. Interest incurred
during the quarter ended March 31, 1998 totaled $2,942,000, of which
approximately $2,116,000 was capitalized to real estate inventories and
approximately $826,000 was expensed and not capitalized, as such interest
related to assets which did not meet the requirements for capitalization.
The difference between the amount of interest paid and the amount incurred
is comprised of accrued interest payable. Interest, previously capitalized
to real estate inventories, expensed as a component of cost of residential
real estate sales during the quarters ended March 31, 1998 and 1997 totaled
$1,694,000 and $1,466,000, respectively.
5. Related Party Transactions
The Company charged $25,000 for the quarter ended March 31, 1998 to James
K. Schuler & Associates, Inc. (an affiliate) under the management agreement
entered into between the Company and James K. Schuler & Associates, Inc.,
pursuant to which certain management and administrative personnel of the
Company will perform certain functions for James K. Schuler & Associates,
Inc., to be reimbursed by James K. Schuler & Associates, Inc. At March 31,
1998, the $25,000 was included in Amount Due from Affiliate. Subsequent to
March 31, 1998, the receivable was paid in full.
From time to time, the Company engages the law firms in which directors of
the Company are partners. During the quarterly period ended March 31,
1998, legal fees of approximately $103,000 to such firms were incurred by
the Company.
6. Income Taxes
During the three months ended March 31, 1998, the Company made income tax
payments of $400,000.
7. Net Income Per Share
Basic net income per share for the quarters ended March 31, 1998 and 1997
were computed using the weighted average number of common shares
outstanding during the quarters of 20,100,927 and 20,100,177, respectively.
8
<PAGE>
The computation of diluted net income per share for the quarters ended
March 31, 1998 and 1997 resulted in amounts greater than the basic net
income per share. Accordingly, the basic net income per share is also
presented as the diluted net income per share.
8. Commitments and Contingencies
At March 31, 1998, the Company had under contract to purchase for
approximately $8,880,000, land for residential development.
In April 1996, the Company was served with a purported class action
complaint by owners of units and the Association of Owners of Fairway
Village at Waikele alleging, among other things, material construction
defects and deficiencies, misrepresentations regarding the cost of
insurance and breach of a covenant of good faith and fair dealing. The
complaint does not specify an amount of damages, but includes a claim for
punitive damages. Although this litigation is at an early stage of
discovery, based on its current understanding of the lawsuit, the Company
believes the claims to be largely without merit and that potential third
party defendants and insurance coverage exist to offset a material portion
of any damages from the alleged claims. The Court has denied the motion to
certify the class and the litigation continues to be vigorously defended.
A court date has been set for April 1999. If this lawsuit were decided
adversely to the Company in all material respects, it could have a material
adverse effect on the Company's business, financial condition and results
of operations.
The Company is also from time to time involved in routine litigation or
threatened litigation arising in the ordinary course of its business. Such
matters, if decided adversely to the Company, would not, in the opinion of
management, have a material adverse effect on the financial condition of
the Company.
9. Stockholders' Equity
During March of 1998, options to purchase 183,850 shares of common stock
were approved to be granted.
10. Subsequent Events
On May 6, 1998, the Company consummated its offering of $100,000,000
aggregate principal amount of 9% Senior Notes, which are due April 15,
2008. The Company received net proceeds from the offering of approximately
$97,300,000 (net of discounts and estimated offering costs of approximately
$2,700,000). The Company used such proceeds to repay a portion of the
Company's borrowings under its line of credit. The offering costs will be
amortized over the term of the notes using the interest method.
In April 1998, the Company amended certain provisions of its Revolving
Credit Facility to provide for the issuance of the Senior Notes.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for historical information contained herein, the matters discussed
in this report contain forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those risks discussed herein,
and other risks detailed in the Company's Annual Report on Form 10-K and other
documents filed by the Company with the Securities and Exchange Commission from
time to time.
OVERVIEW
Schuler Homes, Inc. designs, constructs, markets and sells single-family
residences, townhomes and condominiums primarily to entry-level and first-time
move-up buyers. The Company operates in five geographic markets: Colorado,
Hawaii, Northern California, Oregon and Washington.
For the quarter ended March 31, 1998, sales of residential real estate
(revenue) were $55.5 million and operating income was $4.3 million, compared to
revenues of $50.0 million and operating income of $2.2 million during the first
quarter last year. Net income was $2.0 million ($0.10 per share) for the
quarter ended March 31, 1998, compared to net income of $777,000 ($0.04 per
share) during the 1997 first quarter. From the first quarter of 1997 to the
first quarter of 1998, revenues grew 11.0%, net income grew 157.5%, the number
of units closed increased from 240 to 390 and gross profit and operating margins
improved.
On May 6, 1998, the Company consummated its offering of $100 million
aggregate principal amount of 9% Senior Notes due 208. The Company received net
proceeds from the offering of approximately $97.3 million (net of discounts and
estimated offering costs of approximately $2.7 million). The Company used such
net proceeds to repay a portion of the Company's borrowings under its line of
credit. The offering costs will be amortized over the term of the notes using
the interest method. In April 1998, the Company amended certain portions of its
Revolving Credit Facility to provide for the issuance of the senior Notes.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of the Company's revenues represented by each income statement line item
presented.
<TABLE>
<CAPTION>
% Change in Dollar Amounts
Three months ended March 31, From
1998 1997 1997 to 1998
---- ---- ------------
<S> <C> <C> <C>
Residential real estate sales................... 100.0% 100.0% 11.0%
Costs and expenses:
Residential real estate sales............... 79.1 82.9 5.8
Selling and commissions..................... 7.0 6.9 13.2
General and administrative.................. 6.8 5.8 29.1
------ ------
Total costs and expenses.......... 92.9 95.6 7.8
Income from unconsolidated joint ventures....... 0.6 0.0 5,014.3
------ ------
Operating income............................ 7.7 4.4 99.2
Other income (expense).......................... (1.8) (1.8) 15.2
------ ------
Income before provision for income taxes.... 5.9 2.6 159.3
Provision for income taxes...................... 2.3 1.0 162.2
------ ------
Net income.................................. 3.6% 1.6% 157.5
------ ------
------ ------
</TABLE>
10
<PAGE>
RESIDENTIAL REAL ESTATE SALES
The Company's sales of residential real estate for the quarter ended
March 31, 1998 were approximately $55.5 million as compared to approximately
$50.0 million during the quarter ended March 31, 1997. This represents an
increase of approximately $5.5 million or 11.0%. The increase in revenues
reflects a larger number of unit sales closed in the first quarter of 1998
relative to the first quarter of 1997, partially offset by a decrease in
average sales prices. The increased number of unit closings came primarily
from the Colorado division (acquired January of 1997), partially offset by
lower unit closings in the Hawaii division. The Company's average sales
price per unit declined to $170,000, a 3.4% decline from an average sales
price per unit of $176,000. The decrease in the average sales price per unit
was primarily attributable to the lower average sales prices of homes in
Colorado relative to Hawaii. During the first quarter of 1997, the Company
recognized $10.1 million of deferred revenue related to 53 of the 70 sales
that closed in 1996 pursuant to the Company's zero-down sales program, in
which the Company provided new home buyers with second mortgages of up to 20%
of the purchase price. Revenue and profit recognition on these zero-down
sales were deferred until the requirements for revenue and profit recognition
were satisfied, which occurred during the first quarter of 1997 when the
second mortgages were sold.
The following table sets forth the number of sales closed during the
quarters ended March 31, 1998 and 1997, which includes closings of homes and
lots sold pursuant to the Company's "zero-down" sales program and 100% of the
sales closed at projects developed by the Company's joint ventures in Hawaii and
Washington.
<TABLE>
<CAPTION>
Three months ended March 31
1998 1997
---- ----
<S> <C> <C>
Consolidated:
Colorado 242 167
Hawaii (1) 59 68
Northern California 15 ---
Oregon 10 ---
--- ---
Total Consolidated 326 235
Unconsolidated Joint Ventures:
Hawaii (2) 3 5
Washington (3) 61 ---
--- ---
Total 390 240
--- ---
--- ---
</TABLE>
(1) Includes homes and lots sold and closed pursuant to the Company's
"zero-down" sales program in Hawaii. Approximately $0.7 million of
revenues associated with 4 "zero-down" closings were deferred during the
first three months of 1997 until the related notes receivable are paid in
full. There were no "zero-down" closings in the first quarter of 1998.
(2) Reflects 100% of the information with respect to the Company's two 50%
owned joint ventures in Hawaii, Iao Partners and Waiakoa Estates
Subdivision Joint Venture.
(3) Reflects 100% of the information with respect to Stafford Homes, in which
the Company acquired a 49% interest in July, 1997.
COSTS AND EXPENSES - RESIDENTIAL REAL ESTATE SALES
Cost of residential real estate sales represents the acquisition and development
costs of a project attributable to the homes closed. Acquisition and
development costs primarily include land acquisition costs, sitework and
construction payments to contractors, engineering and architectural costs, loan
fees, interest and other indirect costs attributable to
11
<PAGE>
development and project management activities and miscellaneous construction
costs.
Cost of residential real estate sales increased from approximately $41.5
million during the quarter ended March 31, 1997 to approximately $43.9 million
during the same period in 1998, representing an increase of approximately $2.4
million or 5.8%. This increase reflects a higher level of unit and dollar sales
closed the first quarter of 1998 relative to the first quarter of 1997. As a
percentage of revenues, cost of residential real estate sold decreased to 79.1%
from 82.9%. This decrease is largely attributable to higher average selling
prices in the Company's Colorado operation and higher gross margins in the
Company's Hawaiian operation due to lower recognition of deferred revenues
pursuant to the Company's "zero-down" sales program.
Total interest incurred during the quarters ended March 31, 1998 and 1997
was approximately $2.9 million and $2.8 million, respectively. Of the amounts
incurred, approximately $826,000 and $667,000 was expensed currently (included
in Other Expense) in the first quarters of 1998 and 1997, respectively, and the
remaining interest incurred was capitalized to development projects. Interest
capitalized to projects is expensed through cost of residential real estate
sales as sales are closed and revenue is recognized in the particular project.
The amount of previously capitalized interest, which was expensed through cost
of residential real estate sales, totaled $1.7 million and $1.5 million during
the quarters ended March 31, 1998 and 1997, respectively.
Average debt outstanding was approximately $163.1 million and $155.6
million during the first quarters of 1998 and 1997, respectively. The Company's
average interest rate on its debt for the quarters ended March 31, 1998 and 1997
was approximately 7.3% and 7.4%, respectively. The Company's notes payable bear
interest based on prime or LIBOR. Changes in the prime or LIBOR rates will
affect the amount of interest being capitalized to inventory and subsequently
expensed through cost of residential real estate sales as sales are closed and
revenue is recognized.
COST AND EXPENSES - SELLING AND COMMISSIONS
Sales and marketing costs represented approximately 7.0% and 6.9% of sales
of residential real estate during the quarters ended March 31, 1998 and 1997,
respectively.
COSTS AND EXPENSES - GENERAL AND ADMINISTRATIVE
General and administrative expense includes salaries, office and other
administrative costs. Indirect costs attributable to specific projects are
capitalized and deducted as part of cost of residential real estate sales.
General and administrative expenses increased by $850,000 during the first
quarter of 1998 as compared to the same period in 1997 primarily due to
expansion at the Company's U. S. mainland divisions. As a percentage of sales,
general and administrative expense increased from 5.8% during the quarter ended
March 31, 1997 to 6.8% during the quarter ended March 31, 1998, which is a
result of the same items mentioned in the preceding sentence.
INCOME FROM UNCONSOLIDATED JOINT VENTURES
Income from unconsolidated joint ventures represents the Company's 49%
interest in the operations of Stafford and its 50% interest in the operations
of two joint ventures in Hawaii. The increase in this income from the first
three months of 1997 to the same period in 1998 is primarily the result of the
acquisition of the 49% interest in Stafford in July 1997.
OTHER INCOME (EXPENSE)
Other income (expense) represents (i) interest incurred less interest
capitalized to inventory (interest expense), (ii) amortization of financing
fees, net of amounts capitalized to inventory, and (iii) amortization of
goodwill and of a covenant-not-to-compete, both as a result of the Melody Homes
acquisition; less interest income. The increase in other expense of $137,000
from the first three months of 1997 to the comparable period in 1998 is
primarily due to an increase in interest expense.
12
<PAGE>
PROVISION FOR INCOME TAXES
The Company's effective income tax rate for the first quarters of 1998 and
1997 was approximately 38.6% and 38.1%, respectively.
VARIABILITY OF RESULTS
The Company has experienced, and expects to continue to experience,
significant variability in sales and net income. Factors that contribute to
variability of the Company's results include: the timing of home closings, a
substantial portion of which historically have occurred in the last month of
each quarter; the Company's ability to continue to acquire additional land on
favorable terms for future developments; the condition of the real estate
markets and economies in states in which the Company operates; the cyclical
nature of the homebuilding industry and changes in prevailing interest rates;
costs of material and labor; and delays in construction schedules caused by
timing of inspections and approval by regulatory agencies, including zoning
approvals and receipt of entitlements, the timing of completion of necessary
public infrastructure, the timing of utility hookups and adverse weather
conditions. The Company's historical financial performance is not necessarily a
meaningful indicator of future results and, in general, the Company's financial
results will vary from development to development, and from fiscal quarter to
fiscal quarter.
Certain of the Company's currently planned projects, as well as future
projects, are anticipated to be longer term in nature than those developed in
the past by the Company. The increased length of such projects further exposes
the Company to the risks inherent in the homebuilding industry, including
reductions in the value of land inventory.
The Company's recent expansion to markets in the mainland United States
further exposes the Company to risks inherent in those markets. For example, as
a result of the Company's acquisition of Melody, it will encounter construction
issues and risks such as expansive soils and extreme seasonal weather conditions
(dissimilar to those encountered in Hawaii).
The Company will continue to consider its expansion into additional
selected residential housing markets in the United States mainland and into
certain foreign countries and into other related industries. The Company has
and would consider the acquisition of or joint venture with an existing company,
as well as its own acquisition and development of homebuilding projects in
certain areas, in order to facilitate its expansion. No assurances can be given
that the Company will be able to successfully establish operations outside of
its existing Hawaiian markets or that such expansion will not adversely affect
its results of operations.
BACKLOG
The Company's homes are generally offered for sale in advance of their
construction upon applicable regulatory approval and sold pursuant to standard
sales contracts. The Company's standard sales contract may be canceled by the
buyer at any time prior to closing. The Company does not recognize revenues on
homes covered by such contracts until the sales are closed. Homes covered by
such sales contracts are considered by the Company as its backlog.
The following table sets forth the Company's backlog for both homes and
residential lots at March 31, 1998 and 1997, which includes homes and lots sold
pursuant to the Company's "zero-down" sales program and 100% of the backlog
related to projects developed by the Company's joint ventures in Hawaii and
Washington.
13
<PAGE>
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
-------------- --------------
Aggregate Aggregate
Number Sales Value Number Sales Value
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Consolidated:
Colorado 340 $ 53,084,000 361 $53,701,000
Hawaii 85 24,970,000 96 23,755,000
Northern California 21 2,995,000 --- ---
Oregon 22 4,319,000 --- ---
--- ------------ --- -----------
Total Consolidated 468 85,368,000 457 77,456,000
Unconsolidated Joint Ventures:
Hawaii 5 585,000 11 1,413,000
Washington 80 19,564,000 --- ---
--- ------------ --- -----------
Total 553 $105,517,000 468 $78,869,000
--- ------------ --- -----------
--- ------------ --- -----------
</TABLE>
The average sales prices of the homes and lots comprising backlog for
consolidated projects at March 31, 1998 and 1997 were $182,000 and $169,000,
respectively. Due to the ability of buyers to cancel their sales contracts, no
assurances can be given that homes or residential lots in backlog will result in
actual closings.
LIQUIDITY AND CAPITAL RESOURCES
The Company uses it liquidity and capital resources to, among other things,
(i) support its operations including its inventories of homes, home sites and
land; (ii) provide working capital; (iii) fund market expansion, including
acquisitions, investments in and advances to joint ventures, and start-up
operations; and (iv) make interest payments on outstanding debt.
CAPITAL RESOURCES
The Company anticipates continuing to acquire land for use in its future
homebuilding operations including finished lots and partially developed land.
The Company currently intends to acquire a portion of the land inventories
required in future periods through takedowns of lots subject to option contracts
entered into in prior periods and under new option contracts. The use of option
contracts lessens the Company's land-related risk and improves liquidity.
Because of increased demand for partially developed and finished lots in certain
of the markets where the Company builds homes, the Company's ability to acquire
lots using option contracts has been reduced or has become more expensive.
In connection with the purchase of its 49% interest in Stafford, the
Company entered into an agreement to make loans available to Stafford in an
aggregate principal amount of up to $5.0 million (of which $1.5 million was
outstanding on March 31, 1998). In addition, the Company has an option to
purchase the remaining 51% interest in Stafford based on a pre-determined
formula, subject to certain contingencies. If the Company acquired a majority
interest in Stafford, which may occur as early as January 1999, the Company may
refinance or assume Stafford's existing debt. As of March 31, 1998, Stafford's
total assets were approximately $35.3 million and notes payable were
approximately $24.1 million, of which $1.5 million was outstanding to the
Company.
The Company anticipates that it has adequate financial resources to satisfy
its current and near-term capital requirements based on its current capital
resources and additional liquidity available under existing credit agreements.
The Company believes that it can meet its long-term capital needs (including,
among other things, meeting future debt payments and refinancing or paying off
other long-term debt as it becomes due) from operations and external financing
sources, assuming that no significant adverse changes in the Company's business,
or general economic conditions, occur as a result of the various risk factors
described elsewhere herein and in the Company's Annual Report on Form 10-K, in
particular, increases in interest rates.
14
<PAGE>
LINES OF CREDIT AND NOTES PAYABLE
In March 1997, the Company amended its Revolving Credit Facility,
increasing the amount of the Revolving Credit Facility from $110.0 million to
$137.6 million. The Revolving Credit Facility expires on July 1, 1999 and
includes an option for the lenders to extend the term for an additional year.
The Revolving Credit Facility contains covenants, including certain financial
covenants and also contains provisions which may, in certain circumstances,
limit the amount the Company may borrow. At April 30, 1998 and March 31, 1998,
the Company had bank notes payable of approximately $110.8 million and $98.4
million, respectively.
On May 6, 1998, the Company consummated its offering of $100 million
aggregate principal amount of 9% Senior Notes, which are due April 15, 2008.
The Company received net proceeds from the offering of approximately $97.3
million (net of discounts and estimated offering costs of approximately $2.7
million). The Company used such proceeds to repay a portion of the Company's
borrowings under its line of credit. The offering costs will be amortized over
the term of the notes using the interest method. In April 1998, the Company
amended certain provisions of its Revolving Credit Facility to provide for the
issuance of the Senior Notes.
At April 30, 1998, the Company has a commitment to purchase a parcel of
land for approximately $2.2 million. The Company expects to utilize a
combination of cash flow from operations and bank financing to purchase the land
parcel. The Company intends to consummate the purchase of the land parcel in
1998. However, no assurances can be given that the purchase will be completed.
The Company has no material off-balance sheet financing arrangements that
would tend to affect future liquidity. The Company believes that cash flow from
operations and borrowings under its credit facilities will provide adequate cash
to fund the Company's operations at least through 1998. However, there can be
no assurance that the Company will not require additional financing within this
time frame. The Company may need to raise additional funds in order to support
more rapid expansion, respond to competitive pressures, acquire complementary
businesses or respond to unanticipated requirements. The Company may seek to
raise additional funds through private or public sales of debt or equity
securities, bank debt, or otherwise. There can be no assurance that such
additional funding, if needed, will be available on terms attractive to the
Company, or at all.
15
<PAGE>
SCHULER HOMES, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In April 1996, the Company was served with a purported class action
complaint by owners of units and the Association of Owners of Fairway
Village at Waikele alleging, among other things, material construction
defects and deficiencies, misrepresentations regarding the cost of
insurance and breach of a covenant of good faith and fair dealing. The
complaint does not specify an amount of damages, but includes a claim for
punitive damages. Although this litigation is at an early stage of
discovery, based on its current understanding of the lawsuit, the Company
believes the claims to be largely without merit and that potential third
party defendants and insurance coverage exist to offset a material portion
of any damages from the alleged claims. The Court has denied the motion to
certify the class and the litigation continues to be vigorously defended.
A court date has been set for April 1999. If this lawsuit were decided
adversely to the Company in all material respects, it could have a material
adverse effect on the Company's business, financial condition and results
of operations.
The Company is also from time to time involved in routine litigation or
threatened litigation arising in the ordinary course of its business. Such
matters, if decided adversely to the Company, would not, in the opinion of
management, have a material adverse effect on the financial condition of
the Company.
Items 2 through 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Document Description
------ --------------------
<S> <C>
4.4 Indenture between the Company and U.S. Trust Company of
California, N.A., as Trustee, dated as of May 6, 1998.
4.5 Form of Senior Notes (included in Exhibit 4.4).
10.1 Second Amendment to Loan Documents between the Company,
certain Banks, First Hawaiian Bank and Bank of America
NT & SA, dated April 29, 1998.
10.2 Guaranty between the Company, certain Banks, First
Hawaiian Bank and Bank of America NT & SA, dated April
29, 1998.
10.3 Release of Negative Pledge Agreement between the
Company, certain Banks, First Hawaiian Bank, dated
April 29, 1998.
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K. Current reports on Form 8-K dated April 16, 1998 and
May 6, 1998.
16
<PAGE>
SCHULER HOMES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
SCHULER HOMES, INC.
Date: May 11, 1998 By: /s/ James K. Schuler
----------------------------
James K. Schuler
Chairman of the Board,
President and Chief Executive
Officer
(principal executive officer)
Date: May 11, 1998 By: /s/ Pamela S. Jones
----------------------------
Pamela S. Jones
Senior Vice President of
Finance, Chief Financial
Officer and Director (principal
financial officer)
Date: May 11, 1998 By: /s/ Douglas M. Tonokawa
----------------------------
Douglas M. Tonokawa
Vice President of Finance,
Chief Accounting Officer
(principal accounting officer)
17
<PAGE>
- --------------------------------------------------------------------------------
SCHULER HOMES, INC.
THE GUARANTORS PARTY HERETO
AND
U.S. TRUST COMPANY OF CALIFORNIA, N.A.
AS TRUSTEE
------------
INDENTURE
DATED AS OF MAY 6, 1998
------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . .1
SECTION 1.01. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.02. OTHER DEFINITIONS. . . . . . . . . . . . . . . . . . . 11
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. . . 13
SECTION 1.04. RULES OF CONSTRUCTION. . . . . . . . . . . . . . . . . 13
ARTICLE 2 THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.01. FORM AND DATING. . . . . . . . . . . . . . . . . . . . 13
SECTION 2.02. EXECUTION AND AUTHENTICATION.. . . . . . . . . . . . . 20
SECTION 2.03. REGISTRAR AND PAYING AGENT.. . . . . . . . . . . . . . 20
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. . . . . . . . . . 21
SECTION 2.05. SECURITYHOLDER LISTS.. . . . . . . . . . . . . . . . . 21
SECTION 2.06. TRANSFER AND EXCHANGE. . . . . . . . . . . . . . . . . 21
SECTION 2.07. REPLACEMENT SECURITIES.. . . . . . . . . . . . . . . . 22
SECTION 2.08. OUTSTANDING SECURITIES.. . . . . . . . . . . . . . . . 22
SECTION 2.09. SECURITIES HELD BY THE COMPANY OR A RELATED PERSON.. . 23
SECTION 2.10. TEMPORARY SECURITIES.. . . . . . . . . . . . . . . . . 23
SECTION 2.11. CANCELLATION.. . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.12. DEFAULTED INTEREST.. . . . . . . . . . . . . . . . . . 23
SECTION 2.13. PERSONS DEEMED OWNERS. . . . . . . . . . . . . . . . . 23
SECTION 2.14. COMPUTATION OF INTEREST. . . . . . . . . . . . . . . . 24
ARTICLE 3 REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.01. NOTICES TO TRUSTEE.. . . . . . . . . . . . . . . . . . 24
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED.. . . . . . . . 24
SECTION 3.03. NOTICE OF REDEMPTION.. . . . . . . . . . . . . . . . . 24
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.. . . . . . . . . . . . 25
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. . . . . . . . . . . . . . 25
SECTION 3.06. SECURITIES REDEEMED IN PART. . . . . . . . . . . . . . 25
ARTICLE 4 COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.01. PAYMENT OF SECURITIES. . . . . . . . . . . . . . . . . 26
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY. . . . . . . . . . . . 26
SECTION 4.03. REPORTS TO HOLDERS.. . . . . . . . . . . . . . . . . . 26
SECTION 4.04. COMPLIANCE CERTIFICATE.. . . . . . . . . . . . . . . . 27
SECTION 4.05. STAY, EXTENSION AND USURY LAWS.. . . . . . . . . . . . 27
SECTION 4.06. CORPORATE EXISTENCE. . . . . . . . . . . . . . . . . . 27
SECTION 4.07. NOTICE OF DEFAULT. . . . . . . . . . . . . . . . . . . 27
i
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EXECUTION COPY
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SECTION 4.08. CHANGE OF CONTROL. . . . . . . . . . . . . . . . . . . 28
SECTION 4.09. MAINTENANCE OF CONSOLIDATED NET WORTH. . . . . . . . . 29
SECTION 4.10. LIMITATION ON ADDITIONAL INDEBTEDNESS. . . . . . . . . 31
SECTION 4.11. LIMITATION ON RESTRICTED PAYMENTS. . . . . . . . . . . 32
SECTION 4.12. LIMITATION ON PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES.. . . . . . . . . . . . . . . . . . . . . 34
SECTION 4.13. LIMITATION ON LIENS. . . . . . . . . . . . . . . . . . 35
SECTION 4.14. LIMITATION ON TRANSACTIONS WITH RELATED PERSONS. . . . 36
SECTION 4.15. LIMITATION ON ASSET DISPOSITIONS.. . . . . . . . . . . 36
SECTION 4.16. LIMITATION ON BUSINESS ACTIVITIES. . . . . . . . . . . 39
SECTION 4.17. LIMITATION ON DESIGNATION OF RESTRICTED AND UNRESTRICTED
SUBSIDIARIES.. . . . . . . . . . . . . . . . . . . . . 39
SECTION 4.18. ADDITIONAL GUARANTORS. . . . . . . . . . . . . . . . . 39
ARTICLE 5 SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 5.01. LIMITATION ON MERGERS AND SALES OF ASSETS BY THE
COMPANY AND THE GUARANTORS . . . . . . . . . . . . . . 40
SECTION 5.02. SUCCESSOR SUBSTITUTED. . . . . . . . . . . . . . . . . 40
ARTICLE 6 DEFAULTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . 41
SECTION 6.01. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . 41
SECTION 6.02. ACCELERATION.. . . . . . . . . . . . . . . . . . . . . 42
SECTION 6.03. OTHER REMEDIES.. . . . . . . . . . . . . . . . . . . . 42
SECTION 6.04. WAIVER OF PAST DEFAULTS. . . . . . . . . . . . . . . . 43
SECTION 6.05. CONTROL BY MAJORITY. . . . . . . . . . . . . . . . . . 43
SECTION 6.06. LIMITATION ON SUITS. . . . . . . . . . . . . . . . . . 43
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.. . . . . . . . . 44
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.. . . . . . . . . . . . . . 44
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.. . . . . . . . . . . 44
SECTION 6.10. PRIORITIES.. . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.11. UNDERTAKING FOR COSTS. . . . . . . . . . . . . . . . . 45
SECTION 6.12. WAIVER OF STAY EXTENSION OR USURY LAWS.. . . . . . . . 45
ARTICLE 7 TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 7.01. DUTIES OF TRUSTEE. . . . . . . . . . . . . . . . . . . 45
SECTION 7.02. RIGHTS OF TRUSTEE. . . . . . . . . . . . . . . . . . . 46
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.. . . . . . . . . . . . . 47
SECTION 7.04. TRUSTEE'S DISCLAIMER.. . . . . . . . . . . . . . . . . 47
SECTION 7.05. NOTICE OF DEFAULTS.. . . . . . . . . . . . . . . . . . 47
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. . . . . . . . . . . . . 47
SECTION 7.07. COMPENSATION AND INDEMNITY.. . . . . . . . . . . . . . 47
SECTION 7.08. REPLACEMENT OF TRUSTEE.. . . . . . . . . . . . . . . . 48
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.. . . . . . . . . . . 49
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. . . . . . . . . . . . . 49
ii
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SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. . . 49
ARTICLE 8 DISCHARGE AND DEFEASANCE . . . . . . . . . . . . . . . . . . . . 50
SECTION 8.01. DISCHARGE AND DEFEASANCE UPON DEPOSIT OF MONEYS OR
U.S. GOVERNMENT OBLIGATIONS. . . . . . . . . . . . . . 50
SECTION 8.02. TERMINATION OF THE OBLIGATIONS PURSUANT TO REDEMPTION. 51
SECTION 8.03. SURVIVAL OF COMPANY'S OBLIGATIONS. . . . . . . . . . . 51
SECTION 8.04. APPLICATION OF TRUST MONEY.. . . . . . . . . . . . . . 52
SECTION 8.05. REPAYMENT TO COMPANY.. . . . . . . . . . . . . . . . . 52
SECTION 8.06. REINSTATEMENT. . . . . . . . . . . . . . . . . . . . . 52
ARTICLE 9 AMENDMENTS, MODIFICATIONS AND WAIVERS. . . . . . . . . . . . . . 53
SECTION 9.01. WITHOUT CONSENT OF HOLDERS.. . . . . . . . . . . . . . 53
SECTION 9.02. WITH CONSENT OF HOLDERS. . . . . . . . . . . . . . . . 54
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. . . . . . . . . . 54
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS. . . . . . . . . . . 55
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES. . . . . . . . . 55
SECTION 9.06. TRUSTEE PROTECTED. . . . . . . . . . . . . . . . . . . 55
ARTICLE 10 GUARANTEE OF SECURITIES. . . . . . . . . . . . . . . . . . . . . 55
SECTION 10.01. GUARANTEE. . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 10.02. EXECUTION AND DELIVERY OF GUARANTEE. . . . . . . . . . 58
SECTION 10.03. ADDITIONAL GUARANTORS. . . . . . . . . . . . . . . . . 58
SECTION 10.04. RELEASE OF A GUARANTOR.. . . . . . . . . . . . . . . . 58
ARTICLE 11 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 11.01. TRUST INDENTURE ACT CONTROLS.. . . . . . . . . . . . . 59
SECTION 11.02. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 11.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. . . . . . 60
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.. . 60
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. . . . . 61
SECTION 11.06. RULES BY TRUSTEE AND AGENTS. . . . . . . . . . . . . . 61
SECTION 11.07. LEGAL HOLIDAYS.. . . . . . . . . . . . . . . . . . . . 61
SECTION 11.08. NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDER,
OFFICERS, DIRECTORS OR EMPLOYEES . . . . . . . . . . . 61
SECTION 11.09. DUPLICATE ORIGINALS. . . . . . . . . . . . . . . . . . 62
SECTION 11.10. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . 62
SECTION 11.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. . . . . 62
SECTION 11.12. SUCCESSORS.. . . . . . . . . . . . . . . . . . . . . . 62
iii
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SECTION 11.13. SEPARABILITY.. . . . . . . . . . . . . . . . . . . . . 62
SECTION 11.14. BENEFITS OF INDENTURE. . . . . . . . . . . . . . . . . 62
SECTION 11.15. TABLE OF CONTENTS, HEADINGS, ETC.. . . . . . . . . . . 62
</TABLE>
iv
<PAGE>
--------------
EXECUTION COPY
--------------
INDENTURE dated as of May 6, 1998 between SCHULER HOMES, INC., a Delaware
corporation (the "Company"), the Guarantors signatory hereto (the "Guarantors")
and U.S. TRUST COMPANY OF CALIFORNIA, N.A., a national banking association duly
organized and existing under the laws of the United States, as trustee (the
"Trustee").
Each party agrees for the benefit of the other parties and for the equal
and ratable benefit of the Holders of the Company's 9% Senior Notes due 2008
(the "Securities") as follows:
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"ADDITIONAL ASSETS" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; or (ii) the Capital Stock
of a Person that becomes a Restricted Subsidiary as a result of the acquisition
of such Capital Stock by the Company or another Restricted Subsidiary; PROVIDED,
HOWEVER, that any such Restricted Subsidiary is primarily engaged in a Related
Business.
"ADDITIONAL INTEREST" means additional interest payable with respect to the
Securities pursuant to that certain Registration Rights Agreement dated
April 30, 1998 by and among the Company, the Guarantors and the other parties
named therein.
"AGENT" means any Registrar, Paying Agent, or co-Registrar.
"ASSET DISPOSITION" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of (i) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares and, to the
extent required by local ownership laws in foreign countries, shares owned by
foreign shareholders); (ii) all or substantially all the assets of any division,
business segment or comparable line of business of the Company or any Restricted
Subsidiary; or (iii) any other assets of the Company or any Restricted
Subsidiary having a fair market value (as determined in good faith by the Board
of Directors) in excess of $500,000 disposed of in a single transaction or
series of related transactions outside of the ordinary course of business of the
Company or such Restricted Subsidiary (other than, in the case of (i), (ii) and
(iii) above, a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Wholly Owned Subsidiary).
"AVERAGE LIFE" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (i) the sum of the products of
the numbers of years from the date of determination to the dates of each
successive scheduled principal payment (assuming the exercise by the obligor of
such Indebtedness of all unconditional (other than as to the giving of notice)
extension options of each such scheduled payment date) of such
1
<PAGE>
Indebtedness multiplied by the amount of such principal payment by (ii) the sum
of all such principal payments.
"BANK CREDIT FACILITY" means the Revolving Credit Facility and any bank (or
similar financial institution) credit agreement or credit facility entered into
in the future by the Company or any Restricted Subsidiary, as any of the same
may be amended, waived, modified, Refinanced or replaced from time to time.
"BANKRUPTCY LAW" means Title 11, United States Code, or any similar Federal
or similar law for the relief of debtors.
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in any place where payments of
principal or interest are made under the Indenture or other place where the
corporate trust office of the Trustee is located or where the Company has its
chief executive office or other locations as are authorized or obligated by law
or executive order to close.
"CAPITALIZED LEASE OBLIGATIONS" means any Obligations under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP.
"CAPITAL STOCK" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"CHANGE OF CONTROL" means the occurrence of (or if earlier, the actual
knowledge of the Company of) any of the following events:
(i) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), is or becomes the beneficial owner (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of
this clause such person or group shall be deemed to have "beneficial ownership"
of all shares that any such person or group has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of (A) more than 50% of the total voting power of the
Voting Stock of the Company or (B) greater total voting power of the Voting
Stock of the Company than held by the Schuler Family PROVIDED THAT such "change
of control" shall be deemed to occur on the earlier of the filing of the Form
13D under the Securities Act by such beneficial or the actual knowledge of the
Company of such acquisition;
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with any
new directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company was approved by a majority vote of
the directors of the Company 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 then in office; or
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(iii) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the sale of
all or substantially all the assets of the Company to another Person, other than
any such sale to one or more Restricted Subsidiaries, and in the case of any
such merger or consolidation, the securities of the Company that are outstanding
immediately prior to such transaction and which represent 100% of the aggregate
voting power of the Voting Stock of the Company are changed into or exchanged
for cash, securities or property, unless pursuant to such transaction such
securities are changed into or exchanged for, in addition to any other
consideration, securities of the surviving corporation, or a parent corporation
that owns all of the Capital Stock of such surviving corporation, that represent
immediately after such transaction, at least a majority of the aggregate voting
power of the Voting Stock of the surviving corporation or such parent
corporation, as the case may be.
"COMMON STOCK" means the common stock, par value $.01 per share, of the
Company.
"COMPANY" means Schuler Homes, Inc. and any other obligor until a successor
replaces it pursuant to the applicable provision hereof and thereafter means the
successor.
"CONSOLIDATED COVERAGE RATIO" with respect to the Company as of any date of
determination 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 Indebtedness which is being Incurred is Incurred
in connection with an acquisition by the Company or a Restricted Subsidiary, the
Consolidated Coverage Ratio shall be determined after giving effect to both the
Consolidated Interest Incurred related to the Incurrence of such Indebtedness
and the EBITDA as if the acquisition had occurred at the beginning of the four
fiscal quarter period (x) of the Person becoming a Restricted Subsidiary 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.
"CONSOLIDATED INTEREST EXPENSE" of the Company means, for any period, the
aggregate amount of interest which, in accordance with GAAP, 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), plus the product of
(i) cash dividends paid on any Preferred Stock of the Company, times (ii) 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, (i)
the aggregate amount of interest which, in accordance with GAAP, would be
included on an
3
<PAGE>
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 discount or premium, if any, and all other
non-cash interest expense), plus (or minus, if negative) (ii) the difference
between capitalized interest for such period and the interest component of cost
of goods sold for such period, plus (iii) the product of (A) cash dividends paid
on any Preferred Stock of the Company, times (B) 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" for any period, means the aggregate of the Net
Income of the Company and its Restricted Subsidiaries for such period, on a
consolidated basis, determined in accordance with GAAP, PROVIDED that (i) the
Net Income of any Person in which the Company or any Restricted Subsidiary has,
a joint interest with a third party (other than an Unrestricted Subsidiary)
shall be included only to the extent of the lesser of (A) the amount of
dividends or distributions actually paid to the Company or a Restricted
Subsidiary or (B) the Company's direct or indirect proportionate interest in the
Net Income of such Person, PROVIDED that, so long as the Company or a Restricted
Subsidiary has an unqualified legal right to require the payment of a dividend
or distribution, Net Income shall be determined solely pursuant to clause (B);
(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; and
(iii) the Net Income of any Unrestricted Subsidiary shall be included only to
the extent of the amount of dividends or distributions (the fair value of which,
if other than in cash, to be determined by the Board of Directors, in good
faith) by such Subsidiary to the Company or to any of its consolidated
Restricted Subsidiaries; (iv) the Net Income of any Unrestricted Subsidiary, any
Homebuilding Joint Venture or any other Person in which the Company or any
Restricted Subsidiary has a joint interest with a third party that is not
existing on December 31, 1997 shall be included only to the extent that the
aggregate amount of dividends or distributions (the fair value of which, if
other than cash, to be determined by the Board of Directors, in good faith) by
such Subsidiary or Homebuilding Joint Venture to the Company or to any of its
consolidated Restricted Subsidiaries exceeds the aggregate amount of unpaid
loans or advances and unreturned capital contributions made by the Company or
any Restricted Subsidiary in or to such Subsidiary or Homebuilding Joint
Venture; and (v) all non-cash items (other than income tax expense, depreciation
expense, amortization expense and any item that will require cash payments in
the future and for which an accrual reserve is, or is required by GAAP to be,
made) decreasing Consolidated Net Income shall be added back in calculating
Consolidated Net Income and all non-cash items increasing Consolidated Net
Income shall be deducted in calculating Consolidated Net Income.
"CONSOLIDATED NET WORTH" with respect to the Company means the consolidated
stockholders' equity of the Company and its Restricted Subsidiaries, as
determined in accordance with GAAP.
4
<PAGE>
"CONSOLIDATED TANGIBLE NET WORTH" with respect to the Company means
Consolidated Net Worth, less the Intangible Assets of the Company and its
Restricted Subsidiaries.
"CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the address of the
Trustee specified in Section 11.02 or such other address as the Trustee may give
notice of to the Company.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
"DEPOSITORY" or "DTC" means The Depository Trust Company and any successor
to DTC in its capacity as depository for any Securities.
"DEFAULT" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"DISQUALIFIED STOCK" means, with respect to any Person, that portion of any
Capital Stock which by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the Holder
thereof, in whole or in part, in each case on or prior to the final maturity
date of the Securities; PROVIDED that Capital Stock that would be "Disqualified
Stock" solely by virtue its containing a customary requirement that the issuer
offer to repurchase such Capital Stock upon a change of control of the issuer
will not be deemed to be "Disqualified Stock."
"EBITDA" of the Company for any period means the sum of Consolidated Net
Income plus Consolidated Interest Expense plus, without duplication, the
following to the extent deducted in calculating such Consolidated Net Income:
(i) income tax expense, (ii) depreciation expense and (iii) amortization
expense, in each case for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of and the depreciation and
amortization of, a Subsidiary of the Company shall be added to Consolidated Net
Income to compute EBITDA only to the extent (and in the same proportion) that
the net income of such Subsidiary was included in calculating Consolidated Net
Income.
"EQUITY OFFERING" means any public or private sale of equity securities
(excluding Disqualified Stock) of the Company other than any private sales to
Related Persons of the Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles as in effect on the
date of the Offering.
"GUARANTEE" means the guarantee of the Company's Obligations hereunder made
by a Guarantor in favor of the Holders pursuant to the terms of Article 10
hereof.
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<PAGE>
"GUARANTORS" means (i) Schuler Homes of California, Inc., Schuler Homes of
Washington, Inc., Melody Homes, Inc., Schuler Realty/Maui, Inc., Schuler
Realty/Oahu, Inc., Lokelani Construction Corporation, Melody Mortgage Co., SHLR
of Washington, Inc. and Schuler Homes of Oregon, Inc., (ii) any other Guarantors
under any Bank Credit Facility, (iii) any other Subsidiary existing on the
Issuance Date which is a Restricted Subsidiary (other than, in the Company's
discretion, any Restricted Subsidiary with a Consolidated Tangible Net Worth of
not more than $5,000,000), and (iv) any other Person that executes a Guarantee
in accordance with the provisions of the Indenture, and their respective
successors and assigns.
"HEDGING OBLIGATIONS" of any Person means the net Obligations of such
Person pursuant to any Interest Rate Agreement or any foreign exchange contract,
currency swap agreement or other similar agreement to which such Person is a
party or a beneficiary.
"HOLDER" or "SECURITYHOLDER" means the Person in whose name any of the
Securities is registered on the register for the Securities.
"HOMEBUILDING JOINT VENTURE" means any Person in which the Company or any
of its Subsidiaries has an ownership interest but less than an 80% ownership
interest that, in each case, was formed for and is engaged in homebuilding
operations.
"INCUR" means issue, assume, guarantee, incur or otherwise become liable
for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary; PROVIDED FURTHER, HOWEVER, that
in the case of a discount security, neither the accrual of interest nor the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness. The term "Incurrence" when used as a noun shall have a
correlative meaning.
"INDEBTEDNESS" means on any date of determination (without duplication),
(i) the principal of and premium (if any) in respect of (A) indebtedness of such
Person for money borrowed and (B) indebtedness evidenced by notes, debentures,
bonds or other similar instruments for the payment of which such Person is
responsible or liable; (ii) all Capitalized Lease Obligations of such Person;
(iii) all Obligations of such Person issued or assumed as the deferred purchase
price of property or services, all conditional sale Obligations of such Person
and all Obligations of such Person under any title retention agreement (but
excluding accounts payable and accrued expenses arising in the ordinary course
of business and which are not more than 90 days past due or are in dispute)
which would appear as a liability on a balance sheet of a Person prepared on a
consolidated basis in accordance with GAAP, which purchase price or obligation
is due more than six months after the date of placing such property in service
or taking delivery and title thereto or the completion of such services
(PROVIDED that, in the case of Obligations of an acquired Person assumed in
connection with an acquisition of such Person, such Obligations would constitute
Indebtedness of such Person); (iv) all Obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than Obligations with respect to letters of
credit securing Obligations (other than Obligations described in (i) through
(iii) above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon
6
<PAGE>
or, if and to the extent drawn upon, such drawing is reimbursed no later than
the tenth Business Day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit); (v) the amount of all
Obligations of such Person with respect to the redemption, repayment or other
repurchase of any Disqualified Stock; (vi) all Obligations of the type referred
to in clauses (i) through (v) of other Persons and all dividends of other
Persons for the payment of which, in either case, such Person is responsible or
liable, directly or indirectly, as obligor, guarantor or otherwise, including by
means of any guarantee; (vii) all Obligations of the type referred to in clauses
(i) through (vi) of other Persons secured by any lien on any property or asset
of such Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of such
property or assets or the amount of the obligation so secured; and (viii) to the
extent not otherwise included in this definition, Hedging Obligations of such
Person. The amount of Indebtedness of any Person at any date shall be (a) the
outstanding balance at such date of all unconditional Obligations as described
above, (b) the maximum reasonably anticipated liability, upon the occurrence of
the contingency, other than a contingency solely within the control of such
Person, giving rise to the obligation, of any contingent Obligations as
described above (in the case of clauses other than (iii)) and the amount shown
as a liability on a balance sheet of a Person as described in clause (iii)
above, in each case at such date; PROVIDED, HOWEVER, that the amount outstanding
at any time of any Indebtedness issued with original issue discount shall be
deemed to be the face amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such indebtedness at such time as
determined in conformity with GAAP.
"INDENTURE" means this Indenture, as amended, supplemented or otherwise
modified from time to time, in accordance with the terms hereof.
"INDEPENDENT FINANCIAL ADVISOR" means a firm (i) which does not, and whose
directors, officers and employees or Related Persons do not, have a direct or
indirect financial interest in the Company and (ii) which, in the 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. Ownership of not more than 10%
of the Company and/or management on behalf of the beneficial owners of not more
than 10% of the Company shall not, in itself, prevent a firm from being an
"Independent Financial Advisor."
"INTANGIBLE ASSETS" means the amount (to the extent reflected in
determining consolidated stockholders' equity) of (A) all write-ups (other than
write-ups of tangible assets of a going concern business made within twelve
months after the acquisition of such business) in the book value of any asset
owned by the Company or any Restricted Subsidiary, and (B) all goodwill, trade
names, trademarks, patents, unamortized debt discount and expense and other like
intangibles.
"INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
compensate the Company or any Restricted Subsidiary for fluctuations in interest
rates.
"INVESTMENT" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable
7
<PAGE>
on the balance sheet of such Person) or other extensions of credit (including by
way of guarantee or similar arrangement) or capital contribution to (by means of
any transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by such Person.
"ISSUANCE DATE" means the date of issuance of $100,000,000 of Securities in
the Offering.
"MORTGAGE" means a first priority mortgage or first priority deed of trust
on improved real property.
"NET INCOME" of any Person means the net income (loss) of such Person,
determined in accordance with GAAP; excluding, however, from the determination
of Net Income all gains (to the extent that they exceed all losses) realized
upon the sale or other disposition (including, without limitation, dispositions
pursuant to sale leaseback transactions) of any real property or equipment of
such Person, which is not sold or otherwise disposed of in the ordinary course
of business, or of any capital stock of such Person or its subsidiaries owned by
such Person.
"NET PROCEEDS" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Disposition
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Disposition),
net of the direct costs relating to such Asset Disposition (including, without
limitation, legal, accounting and investment banking fees, and sales
commissions) and any related expenses Incurred as a result thereof, taxes paid
or payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements), amounts required to be
applied to the repayment of Senior Debt secured by a lien on the asset or assets
that were the subject of such Asset Disposition and any reserve for adjustment
in respect of the sale price of such asset or assets established in accordance
with GAAP.
"NON-RECOURSE INDEBTEDNESS" means Indebtedness or other Obligations secured
by a lien on property to the extent that the liability for such Indebtedness or
other Obligations is limited to the security of the property without liability
on the part of the Company or any Subsidiary (other than the Subsidiary which
holds title to such property) for any deficiency.
"OBLIGATIONS" means any principal, interest (including interest accruing
after the commencement of any bankruptcy, reorganization, insolvency or similar
proceeding relating to the Company or any of its Subsidiaries whether or not
allowed as a claim in such proceeding), penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.
"OFFERING" means the offering by the Company of $100,000,000 principal
amount of Securities.
"OFFICER" means the Chief Executive Officer, the President, any Vice
President, the Treasurer or the Secretary of the Company or any Guarantor, as
applicable.
8
<PAGE>
"OFFICER'S CERTIFICATE" means a certificate signed by an Officer of the
Company or any Guarantor, as applicable.
"OPINION OF COUNSEL" means a written opinion from legal counsel who may be
an employee of or counsel for the Company or other counsel reasonably acceptable
to the Trustee.
"PERSON" means an individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
partnership, trust, unincorporated organization, or government or any agency or
political subdivision thereof.
"PREFERRED STOCK", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"REFINANCE" means, in respect of Indebtedness, to refinance, extend, renew,
refund, repay, prepay, redeem, defease or retire, or to issue other Indebtedness
in exchange or replacement for, such Indebtedness. "Refinancing" shall have a
correlative meaning.
"RELATED BUSINESS" means any line or lines of business or business activity
reasonably related to (x) the homebuilding business or (y) a business or
business activity of the Company and/or its Restricted Subsidiaries conducted on
the Issuance Date.
"RELATED PERSON" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct or cause the direction of 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.
"RESTRICTED INVESTMENT" means any loan, advance, capital contribution or
transfer (including by way of guaranty or other similar arrangement) in or to
any Unrestricted Subsidiary, Homebuilding Joint Venture or any Person in which
the Company, directly or indirectly, has an ownership interest but less than 80%
ownership interest; PROVIDED, HOWEVER, that loans, advances, capital
contributions or transfers (including by way of guaranty or other similar
arrangement) to a Homebuilding Joint Venture shall be counted as a Restricted
Investment only to the extent that the aggregate at any one time outstanding of
all such amounts expended (or with respect to guaranties or similar arrangement
the amounts then guaranteed) exceed, subsequent to December 31, 1997,
$25,000,000 in the aggregate for all Homebuilding Joint Ventures. Restricted
Investment shall include the fair market value of the net assets of any
Restricted Subsidiary that at any time is designated an Unrestricted Subsidiary.
Any property transferred to an Unrestricted Subsidiary, and the net assets of a
Restricted Subsidiary that is designated an Unrestricted Subsidiary, shall be
valued at fair market value at the time of such transfer, in each case as
determined by the Board of Directors of the Company in good faith.
9
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Restricted Investment shall not include any loan, advance, capital contribution
or transfer made for the purpose of acquiring an ownership interest in a Person
and immediately designating such person as a Restricted Subsidiary, and if
required a Guarantor.
"RESTRICTED SUBSIDIARY" means any Subsidiary in which the Company, directly
or indirectly, has an 80% or greater ownership interest that has not been
designated an Unrestricted Subsidiary.
"REVOLVING CREDIT FACILITY" means that certain Amended and Restated Credit
Agreement, dated April 29, 1998, among the Company, its Subsidiaries named
therein and First Hawaiian Bank and Bank of America National Trust and Savings
Association, as may be further amended, modified, renewed, refunded, extended,
replaced or Refinanced from time to time.
"SCHULER FAMILY" means James K. Schuler, his wife, their respective
descendants, any trust for the benefits of any of the foregoing persons, at
least 50% of the trustees of which are members of the Schuler Family and any
other trust or charitable foundation, the majority of whose trustees or
directors are members of the Schuler Family.
"SEC" means the Securities and Exchange Commission.
"SECURITIES" means the Securities issued under this Indenture.
"SENIOR DEBT" means (i) all Indebtedness now or hereafter outstanding under
the Bank Credit Facility; (ii) any other Indebtedness permitted to be Incurred
by the Company under the terms of the Indenture, unless the instrument under
which such Indebtedness is Incurred expressly provides that it is on a parity
with or subordinated in right of payment to the Securities and (iii) all
Obligations with respect to the foregoing. Notwithstanding anything to the
contrary in the foregoing, Senior Debt will not include (v) Indebtedness which
is classified as Non-Recourse Indebtedness or any unsecured claim arising in
respect hereof by reason of application of section 1111(b)(1) of the U.S.
bankruptcy code, (w) any liability for any federal, state, local or other taxes
owed or owing by the Company, (x) any Indebtedness of the Company to any of its
Subsidiaries or other Related Persons, (y) any trade payables or (z) any
Indebtedness that is Incurred in violation of the Indenture.
"SUBSIDIARY" means a corporation, a majority of the capital stock with
voting power to elect directors of which is directly or indirectly owned by the
Company and its Subsidiaries, or any Person in which the Company and its
Subsidiaries has at least a majority ownership interest.
"TIA" means the Trust Indenture Act of 1939 as in effect on the date of
this Indenture, except as provided in Section 9.03.
"TRUST OFFICER" means any officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"TRUSTEE" means the party named as such in this Indenture until a successor
replaces it and thereafter means the successor.
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"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary in which the Company,
directly or indirectly, has less than an 80% ownership interest PROVIDED that
such Subsidiary is not a Homebuilding Joint Venture; (ii) any Subsidiary in
which the Company, directly or indirectly, has an 80% or greater ownership
interest, which, in accordance with the provisions of the Indenture, has been
designated in a resolution adopted by the Board of Directors of the Company as
an Unrestricted Subsidiary, in each case unless and until such Subsidiary shall,
in accordance with the provisions of the Indenture, be designated by a
resolution of the Company as a Restricted Subsidiary; and (iii) any Subsidiary
in which the Company, directly or indirectly, has an 80% or greater ownership
interest, a majority of the voting stock of which shall at the time be owned
directly or indirectly by one or more Unrestricted Subsidiaries. At the
Issuance Date, the Company will not have designated any Subsidiaries as
Unrestricted Subsidiaries.
"U.S. GOVERNMENT OBLIGATIONS" means direct non-callable Obligations of, or
non-callable Obligations guaranteed by, the United States of America for the
payment of which the full faith and credit of the United States of America is
pledged.
"VOTING STOCK", with respect to any Person, means securities of any class
of Capital Stock of such Person entitling the Holders thereof (whether at all
times or only so long as no senior class of stock has voting power by reason of
any contingency) to vote in the election of members of the Board of Directors of
such Person.
"WHOLLY OWNED SUBSIDIARY" means a Subsidiary, all of the capital stock
(whether or not voting, but exclusive of directors' qualifying shares or shares
in foreign Subsidiaries required by local laws to be held by foreign nationals)
of which is owned by the Company or a Wholly Owned Subsidiary.
"1993 SUBORDINATED NOTES" means the Company's $57,500,000 61/2% Convertible
Subordinated Debentures due 2003.
"1993 INDENTURE" means the indenture governing the 1993 Subordinated Notes.
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
DEFINED IN
TERM SECTION
---- -------
<S> <C>
"Agent Members" ............................... 2.01
"Base Guaranty Liability" ..................... 10.01
"Cedel" ....................................... 2.01
"Certificated Security" ....................... 2.01
"Change of Control Notice" .................... 4.08
"Change of Control Price" ..................... 4.08
"Change of Control Repurchase Date" ........... 4.08
"Change of Control Repurchase Right" .......... 4.08
"Company" ..................................... Preamble
"Discharged" .................................. 8.01
"DTC" ......................................... 2.01
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"Euroclear" ................................... 2.01
"Event of Default" ............................ 6.01
"Global Legend" ............................... 2.01
"Global Securities" ........................... 2.01
"Guarantee" ................................... 10.01
"Guarantees" .................................. 10.01
"Guarantors" .................................. Preamble
"Institutional Accredited Investor" ........... 2.01
"Legal Holiday" ............................... 11.07
"Minimum Net Worth" ........................... 4.09
"Net Proceeds Offer" .......................... 4.15
"Net Proceeds Offer Notice" ................... 4.15
"Net Proceeds Repurchase Date" ................ 4.15
"Net Worth" ................................... 4.09
"Net Worth Offer" ............................. 4.09
"Net Worth Offer Amount" ...................... 4.09
"Net Worth Notice" ............................ 4.09
"Net Worth Price" ............................. 4.09
"Net Worth Repurchase Date" ................... 4.09
"Net Worth Repurchase Right" .................. 4.09
"Notice of Default" ........................... 6.01
"Offshore Securities Exchange Date" ........... 2.01
"Option of Holder to Elect Purchase" .......... 4.08
"Paying Agent" ................................ 2.03
"Purchase Amount" ............................. 4.15
"Qualified Institutional Buyer" ............... 2.01
"Registrar" ................................... 2.03
"Regulation S Global Securities ............... 2.01
"Regulation S Permanent Global Security" ...... 2.01
"Regulation S Temporary Global Security" ..... 2.01
"Repurchase Date" ............................. 4.08
"Repurchase Price" ............................ 4.08
"Restricted Global Security" .................. 2.01
"Restricted Payments" ......................... 4.11
"Securities" .................................. Preamble
"Securities Act" .............................. 2.01
"Securities Act Legend" ....................... 2.01
"Successor" ................................... 5.01
"Trigger Date" ................................ 4.09
"Trustee" ..................................... Preamble
</TABLE>
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
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The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the Indenture Securities means the Company.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by SEC rule under the TIA have
the meanings so assigned to them by such definitions.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural and in the plural include the
singular;
(5) "including" means including, without limitation;
(6) provisions apply to successive events and transactions; and
(7) "herein," "hereof" and "hereunder" and other words of similar import
refer to this Indenture as a whole and not to any particular Article, Section or
other Subdivision.
ARTICLE 2
THE SECURITIES
SECTION 2.01. FORM AND DATING.
(a) Form Generally.
(i) Securities offered and sold in reliance on Rule 144A
promulgated under the Securities Act shall be issued initially in the form of
one or more permanent global Securities (each a "Restricted Global Security"),
registered in the name of the Depositary or its nominee, substantially in the
form of Exhibit A, deposited with the Trustee, as custodian for the Depositary
or its nominee, duly executed by the Company
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and authenticated by the Trustee as herein provided. The aggregate principal
amount of the Restricted Global Security may from time to time be increased or
decreased by adjustments made on the records of the Trustee, as custodian for
the Depositary or its nominee, as hereinafter provided.
(ii) Securities offered and sold in offshore transactions in
reliance on Regulation S promulgated under the Securities Act shall be issued
initially in the form of one or more temporary global Securities, registered in
the name of the Depositary or its nominee, substantially in the form of Exhibit
A (the "Regulation S Temporary Global Securities") deposited with the Trustee,
as custodian for the Depositary or its nominee, duly executed by the Company and
authenticated by the Trustee as provided herein. Thereafter, following receipt
by the trust administrator responsible for administering this Indenture of an
Officer's Certificate of the Company to such effect, at any time on or after
June 15, 1998 (the "Offshore Securities Exchange Date"), the Trustee shall
exchange the outstanding principal amount of Securities represented by the
Regulation S Temporary Global Securities for one or more permanent global
Securities registered in the name of the Depositary or its nominee,
substantially in the form hereinabove recited without the Securities Act Legend
(as defined below) (the "Regulation S Permanent Global Securities"; and together
with the Regulation S Temporary Global Security, the "Regulation S Global
Securities") duly executed by the Company and authenticated by the Trustee as
provided herein. In connection with such exchange, the Trustee shall hold the
Regulation S Permanent Global Securities as custodian for the Depositary or its
nominee, reflect on its books and records the date of such exchange and cancel
the Regulation S Temporary Global Securities. Restricted Global Securities and
Regulation S Global Securities are sometimes referred to herein as the "Global
Securities". The aggregate principal amount of Regulation S Global Securities
may from time to time be increased or decreased by adjustments made on the
records of the Trustee, as custodian for the Depositary or its nominee, as
hereinafter provided.
(iii) Following the original issuance of Securities, Securities
offered and sold to an institutional "accredited investor" (within the meaning
of Rule 501 (a) (1), (2), (3) or (7) of Regulation D promulgated under the
Securities Act and which is not a Qualified Institutional Buyer (as defined
below), an "Institutional Accredited Investor"), shall be issued in the form of
one or more physical certificated Securities (each a "Certificated Security")
registered in the name of the purchaser thereof. Certificated Securities may
only be issued in the circumstances described in subparagraph (c)(ii) and
paragraph (d) below.
(b) Restrictive Legends.
(i) Each Restricted Global Security, each Regulation S Global
Security and each Certificated Security shall bear the following legend (the
"Securities Act Legend") on the face thereof until the provisions of (d)(ii) or
paragraph (d)(iii) relating to the removal of such legend are complied with:
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THE SECURITY (OR ITS PREDECESSORS) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE
SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON
THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY
RULE 144A THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER
OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A)
SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) (a) TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144 OF THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN
A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR
(d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT PROVIDED THAT IN THE CASE OF A TRANSFER PURSUANT TO THIS
CLAUSE (d), SUCH TRANSFER IS EFFECTED BY THE DELIVERY TO THE TRANSFEREE OF
DEFINITIVE SECURITIES REGISTERED IN ITS NAME (OR ITS NOMINEE'S NAME) IN THE
BOOKS MAINTAINED BY THE REGISTRAR, AND IS SUBJECT TO THE RECEIPT BY THE
REGISTRAR (AND THE COMPANY, IF IT SO REQUESTS) OF A CERTIFICATION OF THE
TRANSFEROR AND AN OPINION OF COUNSEL TO THE EFFECT THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (2) TO THE COMPANY OR (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.
(ii) Each Global Security shall bear the following legends (the
"Global Legend") on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK), A NEW YORK
CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED
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BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR
TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL SINCE AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. THIS GLOBAL SECURITY IS EXCHANGEABLE FOR SECURITIES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY
IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS
SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO
A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY
OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN SUCH LIMITED
CIRCUMSTANCES.
The Securities may have such other notations, legends or endorsements
required by law, stock exchange rule or usage. Each Security shall be dated the
date of its authentication.
(c) Book Entry Provisions for Global Securities.
(i) Each Restricted Global Security initially shall (i) be
registered in the name of a nominee of the Depositary and (ii) bear legends as
set forth in paragraph (b) above. Each Regulation S Temporary Global Security
initially shall (i) be registered in the name of a nominee for the Depositary
for the accounts of Morgan Guaranty Trust Company of New York, Brussels office,
as operator of the Euroclear System ("Euroclear") and Cedel Bank, societe
anonyme ("Cedel"), (ii) be delivered to the Trustee as custodian on behalf of
the Depositary and (iii) bear legends as set forth in paragraph (b) above. Each
Regulation S Permanent Global Security initially shall (i) be registered in the
name of a nominee of the Depositary, (ii) be delivered to the Trustee as
custodian on behalf of the Depositary and (iii) bear the legend as set forth in
subparagraph (b)(ii) above. Prior to the Offshore Securities Exchange Date,
interests in the Regulation S Temporary Global Security may only be held through
Euroclear and Cedel. Following the Offshore Securities Exchange Date, interests
in the Regulation S Permanent Global Security may be held by any member of, or
participants in, the Depositary ("Agent Members").
Agent Members shall have no rights under the Indenture with respect to
any Global Security held on their behalf by the Depositary, or the Trustee as
its custodian, or under the Global Security, and the Depositary may be treated
by the Company, the Trustee and any agent of any of them as the absolute owner
of such Global Security for all purposes whatsoever including, without
limitation, the giving of notices and action upon instructions. Notwithstanding
the foregoing, nothing herein shall prevent the
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Company, the Trustee or any agent of any of them from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or impair, as between the Depositary and its Agent Members, the operation of
customary practices governing the exercise of the rights of a Holder of any
Global Security.
(ii) Except as provided in paragraph (c) (iv), transfers of a Global
Security shall be limited to transfers of such Global Security in whole, but not
in part, to the Depositary, its successors or their respective nominees.
Certificated Securities shall be transferred to all beneficial owners in
exchange for their beneficial interests in any Restricted Global Security or
Regulation S Global Security, respectively, if (i) the Depository notifies the
Company that it is unwilling or unable to continue as Depository for such
Restricted Global Security or Regulation S Global Security, as the case may be,
and a successor depository is not appointed by the Company within 90 days of
such notice, (ii) the Company, in its sole discretion, shall so request or (iii)
an Event of Default has occurred and is continuing and the Registrar shall have
received a request from the Depository to issue such Certificated Securities.
(iii) Any beneficial interest in one of the Global Securities that is
transferred to a Person who takes delivery in the form of an interest in another
Global Security will, upon transfer, cease to be an interest in such Global
Security and become an interest in the other Global Security and, accordingly,
will thereafter be subject to all transfer restrictions, if any, and other
procedures applicable to beneficial interests in such other Global Security for
as long as it remains such an interest.
(iv) In connection with the transfer of an entire Restricted Global
Security or Regulation S Global Security to beneficial owners pursuant to the
second sentence of subparagraph (ii) of this paragraph, the Restricted Global
Security or Regulation S Global Security, as the case may be, shall be deemed to
be surrendered to the Trustee for cancellation, and the Company shall execute,
and the Trustee shall authenticate and deliver, to each beneficial owner
identified by the Depositary in exchange for its beneficial interest, as
notified by the Depositary, in such Restricted Global Security or Regulation S
Global Security, as the case may be, an equal aggregate principal amount of
Certificated Securities of authorized denominations.
(v) Any Certificated Security delivered in exchange for an interest
in a Restricted Global Security pursuant to subparagraph (ii) or (iv) of this
paragraph (c) shall, except as otherwise provided by paragraph (d)(iii), bear
the Securities Act Legend.
(d) Special Transfer Provisions. Unless and until the Securities Act
Legend is removed from a Certificated Security or Global Security pursuant to
subparagraph (iii) below (including as a result of an exchange completed on the
Offshore Securities Exchange Date pursuant to paragraph (a)(ii) above), the
following additional provisions shall apply to the proposed transfer, exchange
or replacement of Certificated Securities:
(i) The following provisions shall apply with respect to the
registration of any proposed transfer of a Security (or interest in a Global
Security) to any
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Institutional Accredited Investor which is not a Qualified Institutional Buyer
(within the meaning of Rule 144A under the Securities Act, a "Qualified
Institutional Buyer") or to a Non-U.S. Person (as defined in Regulation S):
(A) The Registrar shall register the transfer of any
Certificated Security containing the Securities Act Legend or any
interest in a Restricted Global Security if (x) the requested transfer
is after the time period referred to in Rule 144(k) under the
Securities Act as in effect with respect to such transfer or (y) the
proposed transferee (excluding Non-U.S. Persons) has delivered to the
Registrar a certificate substantially in the form of Exhibit C-1
hereto or if the transferee is a Non-U.S. Person, the proposed
transferor has delivered to the Registrar a certificate substantially
in the form of Exhibit C-2 hereto.
(B) If the proposed transferor is an Agent Member
holding a beneficial interest in a Restricted Global Security and the
proposed transferee is an Institutional Accredited Investor which is
not a Qualified Institutional Buyer, upon receipt by the Depositary
and Registrar of (x) the documents required by subparagraph (d)(i)(A)
above (if such transfer is pursuant to clause (y) of subparagraph
(d)(i)(A) above) and (y) instructions given in accordance with the
Registrar's procedures, the Registrar shall reflect on its books and
records the date of such transfer and a decrease in the principal
amount of such Restricted Global Security in an amount equal to the
principal amount of the beneficial interest in such Restricted Global
Security to be transferred and the Company shall execute, and the
Trustee shall authenticate and deliver, one or more Certificated
Securities of like tenor and amount.
(ii) The following provisions shall apply with respect to the
registration of any proposed transfer of a Security (or interest in a Global
Security) to a Qualified Institutional Buyer:
(A) The Registrar shall register the transfer of any
Certificated Security containing the Securities Act Legend if (x) the
requested transfer is after the time period referred to in Rule 144(k)
under the Securities Act as in effect with respect to such transfer or
(y) such transfer is being made by a proposed transferor who has
checked the box provided for on the form of Security stating, or has
otherwise advised the Company and the Registrar in writing, that the
sale has been made in compliance with the provisions of Rule 144A to a
transferee who has signed the certification provided for on the form
of Security stating, or has otherwise advised the Company and the
Registrar in writing, that it is purchasing the Security for its own
account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a Qualified
Institutional Buyer within the meaning of Rule 144A, and is aware that
the sale to it is being made in reliance on Rule 144A and the
transferor is relying upon its foregoing representations in order to
claim the exemption from registration provided by Rule 144A.
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(B) If the Security to be transferred is a Certificated
Security containing the Securities Act Legend and the proposed
transferee is an Agent Member holding such interest on behalf of a
Qualified Institutional Buyer, upon receipt by the Registrar of (x)
the documents referred to in subparagraph (d)(i)(A) above (if such
transfer is pursuant to clause (y) of subparagraph (d)(i)(A) above)
and (y) instructions given in accordance with the Registrar's
procedures, the Registrar shall reflect on its books and records the
date of such transfer and an increase in the principal amount of the
Restricted Global Security in an amount equal to the principal amount
of the Certificated Security to be transferred and the Trustee shall
cancel the Certificated Security so transferred.
(iii) Upon the registration of transfer, exchange or replacement of
Securities bearing the Securities Act Legend, the Registrar shall deliver only
Securities that bear the Securities Act Legend unless the requested transfer,
exchange or replacement (i) is after the time period referred to in Rule 144(k)
under the Securities Act as in effect with respect to such transfer, exchange or
replacement, (ii) is made under the circumstances contemplated by the second
subparagraph of paragraph (a) or (c) there is delivered to the Registrar an
opinion of counsel reasonably satisfactory to the Company to the effect that
neither such legend nor the related restrictions on transfer are required in
order to maintain compliance with the provisions of the Securities Act. Upon
the registration of transfer, exchange or replacement of Securities not bearing
the Securities Act Legend, the Registrar shall deliver Securities that do not
bear the Securities Act Legend.
(iv) By its acceptance of any Security bearing the Securities Act
Legend, each Holder of such a Security acknowledges the restrictions on transfer
of such Security set forth herein and in the Securities Act Legend and agrees
that it will transfer such Security only as provided herein. The Registrar
shall not register a transfer of any Security unless such transfer complies with
the restrictions on transfer of such Security set forth herein. In connection
with any transfer of Securities, each Holder agrees by its acceptance of the
Securities to furnish the Registrar or the Company such certifications, legal
opinions or other information as either of them may reasonably require to
confirm that such transfer is being made pursuant to an exemption from, or a
transaction not subject to, the registration requirements of the Securities Act;
provided that the Registrar shall not be required to determine (but may rely on
a determination made by the Company with respect to) the sufficiency of any such
certifications, legal opinions or other information.
The Registrar shall retain copies of all letters, notices and other written
communications received pursuant to this paragraph (d) in accordance with its
customary procedures. The Company shall have the right to inspect and make
copies of all such letters, notices or other written communications at any
reasonable time upon the giving of reasonable written notice to the Registrar.
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SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Securities.
If an Officer whose signature is on a Security no longer holds that office
at the time the Security is authenticated, the Security shall nevertheless be
valid.
A Security shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Security
has been authenticated under this Indenture.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities executed by the Company to the
Trustee for authentication; and the Trustee shall (subject to the last sentence
of this paragraph), upon a written order or orders of the Company signed by an
Officer of the Company, authenticate and make available, for delivery such
Securities. The order shall specify the amount of Securities to be
authenticated and the date on which such Securities are to be authenticated.
The aggregate principal amount of Securities outstanding at any time may not
exceed $175,000,000 except to the extent of replaced Securities issued pursuant
to Section 2.07.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Securities. An authenticating agent may authenticate Securities
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
a Related Person.
The Securities shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain in the Borough of Manhattan, The City of New
York, an office or agency where Securities may be presented for registration of
transfer or for exchange ("Registrar") and an office or agency where Securities
may be presented for payment ("Paying Agent"); 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 Registrar shall keep a register of the Securities and
of their transfer and exchange. The Company may appoint or change one or more
co-Registrars and one or more additional paying agents without notice and may
act in any such capacity on its own behalf. The term "Paying Agent" includes
any additional paying agent.
The Company shall enter into an appropriate agency agreement with any Agent
not a party to this Indenture. The agreement shall implement the provisions of
this Indenture that relate to such Agent. The Company shall notify the Trustee
of the name and address of any Agent not a party to this Indenture. If the
Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as
such, and shall be entitled to appropriate compensation therefor pursuant to
Section 7.07.
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The Company initially appoints the Trustee as Paying Agent and Registrar.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
Each Paying Agent shall hold in trust for the benefit of the
Securityholders or the Trustee all moneys held by such Paying Agent for the
payment of principal of or interest on the Securities, and shall notify the
Trustee in writing of any default by the Company in making any such payment.
While any such default continues, the Trustee may require a Paying Agent to pay
to the Trustee all money held by it upon demand. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, such Paying Agent shall have no further liability for the
money. If the Company, a Subsidiary or a Related Person, or either of them acts
as Paying Agent, it shall segregate and hold as a separate trust fund all money
held by it as Paying Agent.
SECTION 2.05. SECURITYHOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Registrar, the Company shall furnish
to the Trustee on or before each interest payment date and at such other times
as the Trustee may request in writing a list, in such form and as of such date
as the Trustee may require, of the names, addresses and tax identification
numbers of Securityholders.
SECTION 2.06. TRANSFER AND EXCHANGE.
Where Securities are presented to the Registrar or a co-Registrar with a
request to register the transfer or to exchange them for an equal principal
amount of Securities of other authorized denominations, the Registrar shall
register the transfer or make the exchange if the requirements of
Section 8-401(a) of the New York Uniform Commercial Code as then in effect are
met. To permit registrations of transfer and exchanges, the Trustee shall
authenticate Securities at the Registrar's written (if the Registrar is not the
Trustee) request. The Company or the Trustee, as the case may be, shall not be
required (a) to issue, authenticate, register the transfer of or exchange any
Security during a period beginning at the opening of business 15 days before the
mailing of a notice, of redemption of the Securities selected for redemption
under Section 3.02 and ending at the close of business on the day of such
mailing, or (b) to register the transfer of or exchange any Security so selected
for redemption in whole or in part, except the unredeemed portion of Securities
being redeemed in part.
No Holder shall Incur a service charge for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any transfer, registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 2.10, 3.06 or 9.05 not involving any
transfer.
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SECTION 2.07. REPLACEMENT SECURITIES.
If the Holder of a Security claims that the Security has been mutilated,
lost, destroyed or wrongfully taken, the Company shall issue and the Trustee
shall authenticate a replacement Security if the requirements of Section 8-405
of the New York Uniform Commercial Code are met and, in the case of a mutilated
Security, such mutilated Security is surrendered to the Trustee. If required by
the Trustee or the Company, an indemnity bond must be sufficient, in the
judgment of both, to protect the Company, the Trustee, or any Agent from any
loss which any of them may suffer if a Security is replaced. The Company and
the Trustee may charge for their expenses in replacing a Security.
In case any such mutilated, destroyed or wrongfully taken Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security when due.
Every replacement Security is an additional Obligation of the Company.
SECTION 2.08. OUTSTANDING SECURITIES.
Securities outstanding at any time are all the Securities authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation and those described in this Section as not outstanding. A Security
does not cease to be outstanding because the Company or one of its Subsidiaries
or Related Persons holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it, or a court
holds, that the replaced Security is held by a BONA FIDE purchaser.
If the Paying Agent (other than the Company) holds on a redemption date,
repurchase date or maturity date money sufficient to pay Securities payable on
that date, then on and after that date, such Securities shall be deemed to be no
longer outstanding and interest on them shall cease to accrue.
SECTION 2.09. SECURITIES HELD BY THE COMPANY OR A RELATED PERSON.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company or a Subsidiary or a Related Person shall be disregarded, except
that for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent, only Securities which the
Trustee actually knows are so owned shall be so disregarded.
SECTION 2.10. TEMPORARY SECURITIES.
Until definitive Securities are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Securities. Temporary Securities
shall be substantially in the form of definitive Securities but may have
variations that the Company considers appropriate
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for temporary Securities. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate definitive Securities in exchange for
temporary Securities.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Securities surrendered for registration
of transfer, exchange, payment or cancellation and may destroy canceled
Securities and deliver a certificate of any such destruction to the Company.
The Company may not issue new Securities to replace Securities that it has paid
or delivered to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If and to the extent the Company defaults in a payment of interest on the
Securities, it shall pay the defaulted interest in any lawful manner plus, to
the extent not prohibited by applicable statute or case law, interest at the
rate then borne by the Securities on the defaulted interest. It shall pay the
defaulted interest to the persons who are Securityholders on a subsequent
special record date. The Company or Trustee (at the direction of the Company)
shall fix such record date and payment date. At least 15 days before the record
date, the Company or Trustee (at the direction of the Company PROVIDED THAT the
Trustee shall have received the same at least ten but not more than 30 days
prior thereto or such shorter period prior thereto as is acceptable to the
Trustee) shall mail to Securityholders a notice that states the record date,
payment date and amount of interest to be paid.
SECTION 2.13. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may
conclusively presume and shall treat the person in whose name such Security is
registered as the owner of such Security for the purpose of receiving payment of
principal of and (subject to Section 2.08 and Section 2.12) interest on such
Security and for all other purposes whatsoever, whether or not such Security be
overdue, and neither the Company, the Trustee nor any agent of the Company or
the Trustee shall be affected by notice to the contrary.
None of the Company, the Trustee, any Paying Agent or the Registrar will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of or actions taken in respect of beneficial
ownership interests of a Security in global form or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests
(including but not limited to CUSIP numbers, if any).
SECTION 2.14. COMPUTATION OF INTEREST.
Interest on the Securities shall be computed on the basis of a 360-day year
of twelve 30-day months.
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ARTICLE 3
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company wants to redeem all or a portion of the Securities pursuant
to paragraph 6 of the Securities, it shall provide written notice to the Trustee
at least 60 but not more than 90 days prior to the redemption date (unless a
shorter notice period shall be satisfactory to the Trustee) of the redemption
date and the principal amount of Securities to be redeemed.
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED.
If less than all the Securities are to be redeemed, the Trustee shall
select the particular Securities (or portions thereof) to be redeemed on either
a PRO RATA basis or by lot or such other method as the Trustee shall determine,
in its sole discretion, to be fair and appropriate, such determination to be
final and conclusive for all purposes hereunder, but in any event, in such
manner as complies with applicable legal and stock exchange requirements. The
Trustee shall make the selection from Securities outstanding not previously
called for redemption. The Trustee may select for redemption portions of the
principal of Securities that have denominations larger than $1,000. Securities
and portions of them it selects shall be in amounts of $1,000 or whole multiples
of $1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a redemption date, the
Company shall mail by first-class mail a notice of redemption to each Holder
whose Securities are to be redeemed.
The notice shall identify the Securities and the principal amount thereof
to be redeemed (including the applicable CUSIP number, if any) and shall state:
(1) the redemption date;
(2) the redemption price (including the amount of accrued interest to be
paid on the Securities called for redemption);
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price; and
(5) that interest on Securities called for redemption ceases to accrue on
and after the redemption date.
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At the Company's written direction, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event
the Company will provide the Trustee with the information required by clauses
(1) through (5).
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once a notice of redemption is mailed, Securities or portions thereof
called for redemption become due and payable on the redemption date at the
redemption price and, on and after such date (unless the Company shall default
in the payment of the redemption price), such Securities shall cease to bear
interest. Upon surrender to the Paying Agent, such Securities shall be paid at
the redemption price plus accrued interest and Additional Interest, if any, to
the redemption date.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
On or before 12:00 Noon San Francisco time on the redemption date, the
Company shall deposit with the Paying Agent money in funds immediately available
on the redemption date sufficient to pay the redemption price of and accrued
interest on all Securities to be redeemed on that date.
SECTION 3.06. SECURITIES REDEEMED IN PART.
Upon surrender of a Security that is redeemed in part, the Trustee shall
authenticate for the Holder a new Security equal in principal amount to the
unredeemed portion of the Security surrendered.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF SECURITIES.
The Company shall pay the principal of and interest on the Securities on
the dates and in the manner expressly provided in the Securities. Principal and
interest shall be considered paid on the date due if the Paying Agent holds on
that date money sufficient to pay all principal and interest then due.
The Company shall pay interest on overdue principal at the rate borne by
the Securities. The Company shall pay interest on overdue installments of
interest at the same rate to the extent not prohibited by applicable statute or
case law.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in the Borough of Manhattan, The City of New
York, an office or agency where Securities may be surrendered for registration
of transfer or exchange and where notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company
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shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee.
The Company may also from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; PROVIDED,
HOWEVER, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, The City of New York for such purposes. The Company will give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee in
the Borough of Manhattan, The City of New York, an agency of the Company in
accordance with Section 2.03.
SECTION 4.03. REPORTS TO HOLDERS.
The Company shall deliver to the Trustee and the Trustee will mail to each
Holder within 15 days after the Company files with the SEC copies of the
quarterly and annual reports and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) with respect to the Company and the Guarantors, if any,
which the Company and the Guarantors may be required to file with the SEC
pursuant to Section 13 or 15(d) of the Exchange Act. The Company also shall
comply with the other provisions of TIA Section 314(a).
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 SEC 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 SEC 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 of
Securities.
SECTION 4.04. COMPLIANCE CERTIFICATE.
The Company shall 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 in performing any of its
obligations under this Indenture and the Securities. If the Company has
knowledge of any such Default, the certificate shall describe the Default and
its status.
SECTION 4.05. STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of,
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any stay, extension or usury law wherever enacted, now or at any time hereafter
in force, which may affect the covenants or the performance of this Indenture;
and the Company (to the extent that it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law, and covenants that it will not,
by resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
SECTION 4.06. CORPORATE EXISTENCE.
Subject to Article 5, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
and the corporate existence of each of its Restricted Subsidiaries in accordance
with the respective organizational documents of each Restricted Subsidiary and
the rights (charter and statutory), licenses and franchises to the Company and
its Restricted Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be
required to preserve any such right, license or franchise, or the corporate
existence of any Restricted Subsidiary if, in the judgment of the Board of
Directors of the Company, (i) such preservation or existence is not material to
the conduct of business of the Company and its Restricted Subsidiaries taken as
a whole, and (ii) the loss of such right, license or franchise or the
dissolution of such Restricted Subsidiary does not have a material adverse
impact on the Holders.
SECTION 4.07. NOTICE OF DEFAULT.
In the event that any Default under Section 6.01 hereof shall occur the
Company will give prompt written notice of such Default to the Trustee.
SECTION 4.08. CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each Holder shall have the
right to require that the Company repurchase all or a portion of such Holder's
Securities at a purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest and Additional Interest, if any, to the
date of repurchase (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), in
accordance with the provisions of this Section 4.08.
(b) Within 30 days following actual knowledge of any Change of Control,
the Company shall mail a notice to each Holder with a copy to the Trustee
stating:
(i) that a Change of Control has occurred and that such Holder has
the right to require the Company to purchase such Holder's Securities at a
purchase price in cash equal to 101% of the principal amount outstanding at
the repurchase date plus accrued and unpaid interest and Additional
Interest, if any, to the date of repurchase (subject to the right of
Holders of record on the relevant record date to receive interest on the
relevant interest payment date) (the "Repurchase Price");
(ii) the circumstances and relevant facts and relevant financial
information (as determined by the Board of Directors of the Company in good
faith and in compliance with applicable law) regarding such Change of
Control;
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(iii) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed) (the "Repurchase
Date");
(iv) that any Security not tendered or accepted for payment will
continue to accrue interest;
(v) that any Security accepted for payment shall cease to accrue
interest after the Repurchase Date;
(vi) that Holders electing to have a Security purchased will be
required to surrender the Security, with the form entitled "Option of
Holder to Elect Purchase" on the reverse side of the Security completed, to
the Paying Agent at the address specified in the Notice at least five days
before the Repurchase Date;
(vii) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than three days prior to the Repurchase
Date, a telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Security the Holder
delivered for purchase and a statement that such Holder is withdrawing his
election to have the Security purchased;
(viii) that Holders whose Securities were purchased only in part will
be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered; and
(ix) such other information as is required under Section 14 of the
Exchange Act.
(c) On the Repurchase Date, the Company shall (i) accept for payment
Securities or portions thereof properly tendered, (ii) deposit with the Paying
Agent money sufficient to pay the purchase price of all Securities or portions
thereof so accepted and (iii) deliver to the Trustee Securities so accepted
together with an Officer's Certificate stating the Securities or portions
thereof accepted for payment by the Company. The Paying Agent shall promptly
mail or deliver to Holders of Securities so accepted, payment in an amount equal
to the Repurchase Price, and the Trustee shall promptly authenticate and mail or
deliver to such Holders a new Security equal in principal amount of any
unpurchased portion of the Security surrendered. The Company will publicly
announce the results on or as soon as practical after the Repurchase Date. For
purposes of this Section 4.08(c), the Trustee shall act as the Paying Agent.
(d) 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. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its Obligations
under the covenant described hereunder by virtue thereof.
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SECTION 4.09. MAINTENANCE OF CONSOLIDATED NET WORTH.
(a) In the event that the Company's Consolidated 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 $75,000,000 (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), Securities in an aggregate principal amount equal to 10% of the
aggregate amount of the Securities issued under the Indenture (or if less than
10% of the aggregate principal amount of the Securities issued are then
outstanding, all the Securities outstanding at the time) (the "Net Worth Offer
Amount") at a purchase price of 100% of the principal amount thereof, plus
accrued interest and Additional Interest, if any, to the Net Worth Repurchase
Date (the "Net Worth Price"). The Company may credit against the Net Worth
Offer Amount the principal amount of Securities acquired by the Company prior to
the relevant Trigger Date through purchase, optional redemption or exchange. No
credit shall be made for any mandatory repurchase, including without limitation,
repurchases pursuant to a Net Worth Offer, a Change of Control or a Net Proceeds
Offer (as defined in Section 4.15). The Company, however, may not credit a
specific Security in more than one Net Worth Offer. In no event shall the
Consolidated Net Worth for any fiscal quarter included in the calculation of
Minimum Net Worth which results in the making of a Net Worth Offer be counted
toward the determination of whether the Company is required to make a subsequent
Net Worth Offer. The Company shall notify the Trustee promptly after the
occurrence of any of the events specified in this Section 4.09 and shall notify
the Trustee in writing if its Consolidated Net Worth is equal to or less than
the Minimum Net Worth for any fiscal quarter.
(b) 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"). The Company shall also deliver a copy of the
Net Worth Notice to the Trustee. Any such notice shall contain the following:
(1) the Net Worth Repurchase Date;
(2) the date by which the Net Worth Offer must be accepted by a
Holder;
(3) the Net Worth Price and the Net Worth Offer Amount; and
(4) a statement that Securities are to be surrendered for payment of
the Net Worth Price.
(c) To accept a Net Worth Offer a Holder shall deliver to the Company (if
it is acting as its own trustee) or to a trustee designated by the Company for
such purpose in the Net Worth Notice, on or before the 30th day after the date
of the Net Worth Notice, or, if such day is a Legal Holiday, the next subsequent
day which is not a Legal Holiday, (i) written notice of the Holder's acceptance
of such offer, which notice shall set forth the name of the Holder, the
principal amount of Securities (or portions thereof) to be repurchased, a
statement that an acceptance of
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the Net Worth Offer is being made thereby and (ii) the Securities with respect
to which the Net Worth Offer is being accepted, duly endorsed for transfer to
the Company, and the Holder of such Securities shall be entitled to receive from
the Company (if it is acting as its own paying agent) or such Paying Agent
(designated by the Company for such purpose) a nontransferable receipt of
deposit evidencing such deposit. Such written notice may be withdrawn upon
further written notice delivered to such trustee on or prior to the third day
preceding the Net Worth Repurchase Date.
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 Security
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 Security shall have been called for redemption, in which case no
such payment shall be required), and the interest on the principal amount of the
Security being repurchased will be paid on such next succeeding interest payment
date to the registered Holder of such Security on the immediately preceding
record date. A Security repurchased on an interest payment date need not be
accompanied by any payment, and the interest on the principal amount of the
Security being repurchased will be paid on such interest payment date to the
registered Holder of such Security on the immediately preceding record date.
(d) In the event a Net Worth Offer is accepted in accordance with the
terms hereof, the Company shall pay or cause to be paid the applicable Net Worth
Price with respect to the Securities as to which the Net Worth Offer shall have
been accepted (on a PRO RATA basis up to the Net Worth Offer Amount, plus
accrued interest) to the Holder on the Net Worth Repurchase Date.
(e) On the Net Worth Repurchase Date, the Company shall deliver to the
Trustee the amount of Securities to be credited against the Net Worth Offer
Amount and shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust in
accordance with Section 2.04) an amount of money sufficient to pay the Net Worth
Price payable in respect of all of the Securities which are to be repurchased on
that date, but in no event shall the Company be obligated to deposit an amount
in excess of the Net Worth Offer Amount, plus accrued interest.
(f) Both the notice of the Company and the notice of the Holder having
been given as specified in this Section 4.09, the Securities to be repurchased
shall, on the Net Worth Repurchase Date, become due and payable at the Net Worth
Price applicable thereto and from and after such date (unless the Company shall
default in the payment of the Net Worth Price) such Securities shall cease to
bear interest. If any Security shall not be paid upon surrender thereof for
repurchase, the principal and interest (to the extent lawful) shall, until paid,
bear interest from the Net Worth Repurchase Date at the rate borne by such
Security.
(g) Any Security which is to be submitted for repurchase only in part
shall be delivered (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and
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the Trustee shall authenticate and make available for delivery to the Holder of
such Security without any service charge, a new Security or Securities, of any
authorized denomination as requested by such Holder, of the same tenor and in
aggregate principal amount equal to and in exchange for the portion of the
principal of such Security not submitted for repurchase.
(h) 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.
SECTION 4.10. LIMITATION ON ADDITIONAL INDEBTEDNESS.
(a) The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, Incur any Indebtedness unless, after giving effect
thereto, either (i) the ratio of Indebtedness of the Company and the Restricted
Subsidiaries to Consolidated Tangible Net Worth of the Company is less than 2.0
to 1; or (ii) the Consolidated Coverage Ratio exceeds 2.0 to 1.
(b) Notwithstanding the foregoing, the Company and its Restricted
Subsidiaries may Incur:
(i) Indebtedness under one or more Bank Credit Facilities in an
amount not in excess of $125,000,000;
(ii) Indebtedness Incurred as of the Issuance Date;
(iii) Indebtedness represented by Securities issued on the Issuance
Date and the related Guarantees;
(iv) Obligations Incurred under letters of credit, escrow agreements
and surety bonds in the ordinary course of business;
(v) Indebtedness Incurred solely for the purpose of Refinancing or
repaying any existing Indebtedness so long as: (A) the principal amount of
such new Indebtedness does not exceed the principal amount of the existing
Indebtedness Refinanced or repaid (plus the premiums or other payments
required to be paid in connection with such Refinancing or repayment and
the expenses incurred in connection therewith); (B) the maturity of such
new Indebtedness is not earlier than that of the existing Indebtedness to
be Refinanced or repaid; (C) such new Indebtedness, determined as of the
date of Incurrence, has an Average Life at least equal to the remaining
Average Life of the Indebtedness to be Refinanced or repaid; (D) the new
Indebtedness is subordinate to the Securities to the same extent as the
Indebtedness being Refinanced and contains restrictions on payment upon the
occurrence of a default on Senior Debt at least as restrictive in all
material respects as the restrictions on payment contained in the
Indebtedness being Refinanced; and (E) the existing and new Indebtedness
are Obligations of the same entity; and
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(vi) Other Indebtedness Incurred (in addition to Indebtedness
permitted by any other clause of this paragraph) in an aggregate principal
amount at any time outstanding not to exceed $25,000,000.
SECTION 4.11. LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company will not, nor will it permit any Restricted Subsidiary to,
directly or indirectly,
(i) declare or pay any dividend on, or make any distribution in
respect of, or purchase, redeem, or otherwise acquire or retire for value
any Capital Stock of the Company other than through the issuance solely of
the Company's own Capital Stock (other than Disqualified Stock) or rights
thereto;
(ii) make any principal payment on, or redeem, repurchase, defease
or otherwise acquire or retire for value prior to scheduled principal
payments or at maturity, Indebtedness of the Company or any Restricted
Subsidiary which is expressly subordinated in right of payment to the
Securities unless the Company or the Restricted Subsidiary, as the case may
be, uses the proceeds of a substantially contemporaneous Incurrence of new
Indebtedness permitted by clause (v) of the Limitation on Additional
Indebtedness to make such principal payment on, or redeem, repurchase,
defease or otherwise acquire or retire for value such prior Indebtedness;
or
(iii) make any Restricted Investment (such payments or any other
actions described in (i), (ii) and (iii) being referred to herein
collectively as, "Restricted Payments") unless:
(A) at the time of, and after giving effect to, the proposed
Restricted Payment, no Event of Default (and no event that, after
notice or lapse of time, or both, would become an Event of Default)
shall have occurred and be continuing;
(B) the Company is able to Incur an additional $1.00 in
Indebtedness pursuant to the Section 4.10(a); and
(C) at the time of, and after giving effect thereto, the sum
of the aggregate amount expended (or with respect to guarantees or
similar arrangements the amount then guaranteed) for all such
Restricted Payments (the amount expended for such purposes, if other
than in cash, to be determined by the Board of Directors of the
Company, whose determination shall be conclusive and evidenced by a
resolution of such Board of Directors filed with the Trustee)
subsequent to December 31, 1997 shall not exceed the sum of (1) 50% of
the aggregate Consolidated Net Income (or, in case such aggregate
Consolidated Net Income shall be a deficit, minus 100% of such
deficit) of the Company accrued on a cumulative basis subsequent to
December 31, 1997; (2) the aggregate net proceeds, including the fair
market value of property other than cash (as determined by the Board
of Directors of the Company, whose determination shall
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be conclusive and evidenced by a resolution of such Board of Directors
filed with the Trustee) received by the Company from the issuance or
sale, after the Issuance Date, of Capital Stock (other than
Disqualified Stock) of the Company, including Capital Stock (other
than Disqualified Stock) of the Company issued subsequent to the
Issuance Date or upon the conversion of Indebtedness of the Company
issued subsequent to the Issuance Date and initially issued for cash,
(3) an amount equal to the sum of (aa) 100% of dividends or
distributions (the fair value of which, if other than cash, to be
determined by the Board of Directors of the Company in good faith)
paid to the Company (or any Restricted Subsidiary) by an Unrestricted
Subsidiary, Homebuilding Joint Venture or any other Person in which
the Company (or any Restricted Subsidiary), directly or indirectly,
has an ownership interest but less than an 80% ownership interest; and
(bb) the portion (proportionate to the Company's equity interest in
the Subsidiary) of the fair market value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; PROVIDED, HOWEVER, that the
foregoing sum shall not exceed, in the case of an Unrestricted
Subsidiary, the amount of Restricted Investments previously made (and
treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary; and (cc) $10,000,000.
(b) The foregoing shall not prevent (i) the payment of any dividend within
60 days after the date of declaration thereof, if at said date of declaration
the making of such payment would have complied with the provisions of this
limitation on dividends; PROVIDED, HOWEVER, that such dividend shall be included
in future calculations of Restricted Payments, (ii) the retirement of any shares
of the Company's Capital Stock by exchange for, or out of proceeds of the
substantially concurrent sale of, other shares of its Capital Stock (other than
Disqualified Stock); PROVIDED, HOWEVER, that the aggregate net proceeds from
such sale shall be excluded from the calculation of the amounts under subclause
(C)(2) above, (iii) the redemption, repayment, repurchase, defeasance or other
retirement of Indebtedness with proceeds received from the substantially
concurrent sale of shares of the Company's Capital Stock (other than
Disqualified Stock); PROVIDED, HOWEVER, that the aggregate net proceeds from
such sale shall be excluded from the calculation of the amounts under subclause
(C)(2) above.
SECTION 4.12. LIMITATION ON PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES.
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or consensual restriction on the ability of any Restricted
Subsidiary (i) to pay dividends or make any other distributions on its Capital
Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to
the Company, (ii) to make any loans or advances to the Company or (iii) to
transfer any of its property or assets to the Company, except: (A) any
encumbrance or restriction pursuant to an agreement in effect at or entered into
on the Issuance Date; (B) any encumbrance or restriction with respect to a
Restricted Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by such Restricted Subsidiary which was entered into on or prior to the
date on which such Restricted Subsidiary was acquired by the Company (other than
as
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consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company) and outstanding on such date; (C) any
encumbrance or restriction pursuant to an agreement effecting a Refinancing of
Indebtedness Incurred pursuant to an agreement referred to in clause (A) or (B)
of this Section 4.12. (or effecting a Refinancing of such Refinancing
Indebtedness pursuant to this clause (C)) or contained in any amendment to an
agreement referred to in clause (A) or (B) of this covenant or this clause (C);
PROVIDED, HOWEVER, that the encumbrances and restrictions with respect to such
Restricted Subsidiary contained in any such Refinancing agreement or amendment
are no more restrictive in any material respect than the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in such
agreements; (D) any such encumbrance or restriction consisting of customary
contractual non-assignment provisions to the extent such provisions restrict the
transfer of rights, duties or Obligations under such contract; (E) in the case
of clause (iii) above, restrictions contained in security agreements or
mortgages securing Indebtedness of a Restricted Subsidiary to the extent such
restrictions restrict the transfer of the property subject to such security
agreements or mortgages; (F) any restriction with respect to a Restricted
Subsidiary imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Capital Stock or assets of such
Restricted Subsidiary pending the closing of such sale or disposition; and
(G) any restriction imposed by applicable law.
SECTION 4.13. LIMITATION ON LIENS.
The Company will not, and will not permit any Restricted Subsidiary to,
issue, assume, guarantee or suffer to exist any Indebtedness secured by any
mortgage, pledge, lien or other encumbrance of any nature (herein collectively
referred to as a "lien" or "liens") upon any property of the Company or any
Restricted Subsidiary, or on any shares of stock of any Restricted Subsidiary,
without in any such case effectively providing that the Securities (together
with, if the Company shall so determine, any other Indebtedness of the Company
or such Restricted Subsidiary ranking PARI PASSU with the Securities) shall be
secured equally and ratably with such Indebtedness, except that the foregoing
restrictions shall not apply to:
(i) liens existing on the Issuance Date;
(ii) pledges, guarantees and deposits under workers' compensation laws,
unemployment insurance laws or similar legislation, good faith deposits under
bids, tenders or contracts, deposits to secure public or statutory obligations
or appeal or similar bonds, and liens created by special assessment districts
used to finance infrastructure improvements;
(iii) liens existing on property or assets of any entity on the date on
which it becomes a Restricted Subsidiary, which secured Indebtedness is not
incurred in contemplation of such entity becoming a Restricted Subsidiary,
PROVIDED that such liens are not extended to other property or assets of such
Restricted Subsidiary, any other Restricted Subsidiary or the Company;
(iv) liens on or leases of model home units;
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(v) the replacement of any of the items set forth in clauses (i) through
(iv) above, PROVIDED that (A) the principal amount of the Indebtedness secured
by liens shall not be increased, (B) such Indebtedness, determined as of the
date of Incurrence, has an Average Life at least equal to the remaining Average
Life of the Indebtedness to be Refinanced, (C) the maturity of such Indebtedness
is not earlier than that of the Indebtedness to be Refinanced, and (D) the liens
shall be limited to the property or part thereof which secured the lien so
replaced or property substituted therefor as a result of the destruction,
condemnation or damage of such property;
(vi) liens or priorities Incurred in the ordinary course of business,
such as, without limitation, laborers', employees', carriers', mechanics',
vendors' and landlords' liens or priorities;
(vii) liens for certain taxes and certain survey and title exceptions;
(viii) liens arising out of judgments or awards against the Company or any
Restricted Subsidiary with respect to which the Company or such Restricted
Subsidiary is in good faith prosecuting an appeal or proceeding for review and
with respect to which it has secured a stay of execution pending such appeal or
proceeding for review;
(ix) liens on property owned by any Homebuilding Joint Venture PROVIDED
that the Indebtedness secured by such liens is Non-Recourse Indebtedness; and
(x) liens which would otherwise be subject to the foregoing restrictions
which, when the Indebtedness relating to those liens is added to all other then
outstanding Indebtedness of the Company and the Restricted Subsidiaries secured
by liens and not listed in clauses (i) through (ix) above, does not exceed 20%
of Consolidated Tangible Net Worth.
SECTION 4.14. LIMITATION ON TRANSACTIONS WITH RELATED PERSONS.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into any transaction or series of
transactions with Related Persons 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 Persons who are not Related Persons. In the event of
any transaction or series of transactions occurring subsequent to the Issuance
Date with a Related Person 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 the Issuance Date with a Related Person
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
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point of view. Notwithstanding the foregoing, such provisions do not prohibit
and will not apply to (1) any Restricted Payment which is permitted by
Section 4.11 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 in the ordinary course of business
consistent with past practice.
SECTION 4.15. LIMITATION ON ASSET DISPOSITIONS.
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, consummate an Asset Disposition,
unless:
(i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Disposition 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, and
(ii) the consideration for such Asset Disposition consists of at
least 75% 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."
(b) Within 12 months from the date that any Asset Disposition is
consummated, the Net Proceeds thereof will be reinvested in Additional Assets or
applied to the redemption or repurchase of Indebtedness of the Company which
ranks senior or PARI PASSU with the Securities or Indebtedness of a Restricted
Subsidiary which is not subordinated to other Indebtedness of such Restricted
Subsidiary (which, in each case, shall be a permanent reduction of such
Indebtedness). To the extent that the Net Proceeds of an Asset Disposition 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 (as defined below)) to make an
offer (a "Net Proceeds Offer") to repurchase the Securities at a price equal to
100% of the principal amount thereof, plus, subject to section (c) below,
accrued interest, and Additional Interest, if any, to the date of such
repurchase, which date shall be on or before the 30th day after the date of the
Net Proceeds Offer (the "Net Proceeds Repurchase Date"), in accordance with the
provisions of clause (c) below.
Notwithstanding the foregoing, the Net Proceeds of an Asset Disposition are
not required to be applied in accordance with the preceding paragraph, unless
and until the aggregate Net Proceeds for all such Asset Dispositions in a
12-month period (measured on a rolling basis) exceeds $5,000,000. In addition,
for purposes of this clause (b), Net Proceeds made available for use by the
Company in connection with a Net Proceeds Offer which exceed the amount of Net
Proceeds necessary to repurchase the Securities shall not be considered to be
Net Proceeds after consummation of such Net Proceeds Offer.
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(c) If the Company or one of its Restricted Subsidiaries is required to
make a Net Proceeds Offer pursuant to clause (b) above, the Company or such
Restricted Subsidiary, or, at the request of the Company, the Trustee, shall
give notice of the Net Proceeds Offer to each Holder (the "Net Proceeds Offer
Notice"). The Company shall also deliver a copy of the Net Proceeds Offer
Notice to the Trustee. Any such notice shall contain all instructions and
materials necessary to enable such Holders to deliver Securities pursuant to the
Net Proceeds Offer including, without limitation, the following:
(1) the Net Proceeds Repurchase Date;
(2) the date by which the Net Proceeds Offer must be accepted;
(3) the applicable amount of Net Proceeds being applied to the
repurchase of Securities in the Net Proceeds Offer (the "Purchase Amount"); and
(4) that Securities are to be surrendered for payment.
To accept a Net Proceeds Offer a Holder shall deliver to the Company (if it
is acting as its own trustee) or to a trustee designated by the Company for such
purpose in the notice referred to above on or before the Net Proceeds Repurchase
Date, or, if such day is a Legal Holiday, the next subsequent day which is not a
Legal Holiday, (i) written notice of the Holder's acceptance of the Net Proceeds
Offer, which notice shall set forth the name of the Holder, the principal amount
of Securities (or portions thereof) to be repurchased and a statement that an
election to accept the Net Proceeds Offer is being made thereby, and (ii) the
Securities with respect to which the Net Proceeds Offer is being accepted, duly
endorsed for transfer to the Company. The Holder of such Securities shall be
entitled to receive from the Company (if it is acting as its own trustee) or
such other trustee designated by the Company for such purpose a nontransferable
receipt of deposit evidencing such deposit. Such written notice may be
withdrawn upon further written notice to such 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
Security 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 Security shall have been called for redemption, in
which case no such payment shall be required), and the interest on the principal
amount of the Security being repurchased will be paid on such next succeeding
interest payment date to the registered Holder of such Security on the
immediately preceding record date. A Security repurchased on an interest
payment date need not be accompanied by any payment, and the interest on the
principal amount of the Security being repurchased will be paid on such interest
payment date to the registered Holder of such Security on the immediately
preceding record date.
In the event a Net Proceeds Offer shall be accepted in accordance with the
terms hereof, the Company shall pay or cause to be paid the PRO RATA portion of
the Purchase Amount with respect to the Securities as to which the Net Proceeds
Offer shall have been accepted to the Holder of such Securities on the Net
Proceeds Repurchase Date.
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On or prior to a Net Proceeds Repurchase Date, the Company shall deposit
with the Trustee or with a trustee designated by the Company for such purpose
(or, if the Company is acting as its own trustee, segregate and hold in trust in
accordance with Section 2.04) an amount of money equal to the Purchase Amount.
Both the notice of the Company and the notice of the Holder having been
given as specified above, the Securities to be repurchased shall, on the Net
Proceeds Repurchase Date, become due and payable and from and after such date
(unless the Company shall default in the payment of the Purchase Amount) such
Securities shall cease to bear interest. If any Security shall not be paid upon
surrender thereof for repurchase, the principal and interest shall, until paid,
bear interest from the Net Proceeds Repurchase Date at the rate borne by such
Security.
Any Security which is to be submitted for repurchase only in part shall be
delivered pursuant to this provision (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder thereof
or his attorney duly authorized in writing), and the Company shall execute, and
the Trustee shall authenticate and make available for delivery to the Holder of
such Security without any service charge, a new Security or Securities, of any
authorized denomination as requested by such Holder, of the same tenor and in
aggregate principal amount equal to and in exchange for the portion of the
principal of such Security not submitted for repurchase.
(d) 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 14e-1 and any other tender offer rules under the Exchange
Act which then may be applicable.
(e) 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 this Indenture.
SECTION 4.16. LIMITATION ON BUSINESS ACTIVITIES.
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than a Related Business.
SECTION 4.17. LIMITATION ON DESIGNATION OF RESTRICTED AND UNRESTRICTED
SUBSIDIARIES.
The Company will not permit any Restricted Subsidiary to be designated as
an Unrestricted Subsidiary unless the Company and its Restricted Subsidiaries
would thereafter be permitted to (i) Incur at least $1.00 of Indebtedness
pursuant to the Section 4.10(a) and (ii) make a Restricted Payment of at least
$1.00 pursuant to Section 4.11(a).
The Company will not permit any Unrestricted Subsidiary to be designated as
a Restricted Subsidiary unless such Subsidiary has outstanding no Indebtedness
except such Indebtedness as the Company could permit it to become liable for
immediately after becoming a Restricted Subsidiary under the provisions of
Section 4.10.
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SECTION 4.18. ADDITIONAL GUARANTORS.
The Company shall cause any Subsidiary which is designated as a Restricted
Subsidiary (other than, in the Company's discretion, any Restricted Subsidiary
with a Consolidated Tangible Net Worth of not more than $5,000,000) and, at the
Company's discretion, any Unrestricted Subsidiary may be a Guarantor to,
simultaneously with its designation as a Restricted Subsidiary, execute and
deliver (i) a supplemental indenture to this Indenture, providing for the
guarantee of payment of the Securities by such Subsidiary pursuant to the terms
of Article Ten hereof and Exhibit B hereto and (ii) a Guarantee in the form of
Exhibit B hereto.
ARTICLE 5
SUCCESSORS
SECTION 5.01. LIMITATION ON MERGERS AND SALES OF ASSETS BY THE COMPANY AND
THE GUARANTORS
(a) The Company will not consolidate with, merge into or transfer all or
substantially all of its assets to another Person unless (i) such Person (if
other than the Company) is a corporation organized under the laws of the United
States or any state thereof or the District of Columbia and expressly assumes
all the Obligations of the Company under the Indenture and the Securities;
(ii) immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; (iii) the Consolidated Net Worth
of the obligor of the Securities immediately after giving effect to such
transaction (exclusive of any adjustments to Consolidated Net Worth relating to
transaction costs and accounting adjustments resulting from such transaction) is
not less than the Consolidated Net Worth of the Company immediately prior to
such transaction; and (iv) the surviving corporation would be able to Incur at
least an additional $1.00 of Indebtedness pursuant to Section 4.10(a).
(b) No Guarantor may consolidate with or merge with or into (whether or
not such Guarantor is the surviving person) another corporation, Person or
entity, whether or not a Related Person of such Guarantor unless: (i) subject
to the provisions of the following paragraph, the Person formed by or surviving
any such consolidation or merger (if other than such Guarantor) assumes all the
Obligations of such Guarantor, pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, under the Securities, the
Indenture, the Registration Rights Agreement and the Guarantees; (ii)
immediately after giving effect to such transaction, no Default or Event of
Default exists; and (iii) the Company would be permitted by virtue of the
Company's pro forma Consolidated Coverage Ratio, immediately after giving effect
to such transaction, to Incur at least $1.00 of additional Indebtedness pursuant
to the Consolidated Coverage Ratio test set forth in the covenant described
below under Section 4.10.
The Company shall deliver to the Trustee prior to the consummation of any
proposed transaction an Officer's Certificate to the foregoing effect and an
Opinion of Counsel stating that the proposed transaction and such supplemental
indenture comply with this Indenture.
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SECTION 5.02. SUCCESSOR SUBSTITUTED.
Upon any consolidation, merger, sale, assignment, transfer, lease or other
disposition of all or substantially all of the assets of the Company in
accordance with Section 5.01, the Successor shall succeed to, and be substituted
for, and may exercise every right and power of, and shall assume every duty and
Obligation of, the Company under this Indenture with the same effect as if such
Successor had been named as the Company herein. When the Successor assumes all
Obligations of the Company hereunder, all Obligations of the predecessor shall
terminate.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(1) the Company fails to pay the principal of any Security when the same
becomes due and payable at maturity, upon acceleration or otherwise;
(2) the Company fails to pay interest on any Security when the same
becomes due and payable and such failure continues for a period of 30 days;
(3) the Company or any Guarantor defaults in the observance or performance
of any other covenant or agreement of the Company or Guarantor in the
Securities, the Guarantees or this Indenture and the default continues for the
period and after the notice specified below;
(4) the Company or any of its Restricted Subsidiaries pursuant to or
within the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an
involuntary case,
(C) consents to the appointment of a Custodian of it or for all or
substantially all of its property, or
(D) makes a general assignment for the benefit of its creditors; or
(5) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(A) is for relief against the Company in an involuntary case,
(B) appoints a Custodian of the Company for all or substantially all
of its property, or
(C) orders the liquidation of the Company,
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and the order or decree remains unstayed and in effect for 90 days.
(6) an Event of Default shall have occurred under one or more mortgage,
indenture (including this Indenture) or instrument under which is issued or
which secures or evidences Indebtedness of the Company or any of its Restricted
Subsidiaries (other than Non-Recourse Indebtedness) which default constitutes a
failure to pay principal of such Indebtedness in an amount of $5,000,000 or more
when due and payable (other than as a result of acceleration) or results in
Indebtedness (other than Non-Recourse Indebtedness) in the aggregate of
$5,000,000 or more becoming or being declared due and payable before it would
otherwise become due and payable, whether such Indebtedness now exists or is
created hereafter;
(7) entry of a final judgment for the payment of money against the Company
or any Restricted Subsidiary in an amount of $5,000,000 or more which remains
undischarged or unstayed for a period of 60 days after the date on which the
right to appeal such judgment has expired or becomes subject to an enforcement
proceeding;
(8) any Guarantee ceases to be in full force and effect (other than in
accordance with the terms of such Guarantee and this 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 Guarantee and
this Indenture);
A default under clause (3) or (7) is not an Event of Default until the
Trustee or the Holders of at least 25% in principal amount of the Securities
then outstanding notify the Company of the Default and the Company does not cure
the Default within 45 days after receipt of the notice. 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 Securities then
outstanding request the Trustee to give such notice on their behalf, the Trustee
shall do so.
The Trustee shall not be deemed to have notice of any Default hereunder
unless it shall have actual knowledge of such Default or it shall have received
written notice thereof making specific reference to such Default as a Default.
SECTION 6.02. ACCELERATION.
If an Event of Default (other than an Event of Default specified in
Section 6.01(4) or Section 6.01(5) with respect to the Company) occurs and is
continuing, the Trustee by notice to the Company, or the Holders of at least 25%
in principal amount of the Securities then outstanding by notice to the Company
and the Trustee, may declare the principal of and accrued interest on all the
Securities to be due and payable. Upon such declaration such principal and
interest shall be due and payable immediately. If an Event of Default specified
in Section 6.01(4) or Section 6.01(5), with respect to the Company occurs, all
unpaid principal and accrued interest on the Securities then outstanding shall
IPSO FACTO become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Securityholder. The Holders of a
majority in principal amount of the Securities then outstanding by notice to the
Trustee may rescind an acceleration and its consequences if the rescission would
not conflict
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with any judgment or decree and if all existing Events of Default have been
cured or waived except nonpayment of principal or interest that has become due
solely because of the acceleration.
SECTION 6.03. OTHER REMEDIES.
Notwithstanding any other provision of this Indenture, if an Event of
Default occurs and is continuing, the Trustee may pursue any available remedy by
proceeding at law or in equity to collect the payment of principal of or
interest on the Securities or to enforce the performance of any provision of the
Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Subject to Sections 6.07 and 9.02, the Holders of a majority in principal
amount of the Securities then outstanding by notice to the Trustee may waive an
existing Default and its consequences. When a Default is waived, it is cured
and ceases; but no such waiver shall extend to any other default.
SECTION 6.05. CONTROL BY MAJORITY.
The Holders of a majority in principal amount of the Securities may direct
the time, method and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust or power conferred on the Trustee with
respect to the Securities, PROVIDED that such directions shall not be in
conflict with any law or the Indenture. Before proceeding to exercise any right
or power under the Indenture at the direction of such Holders, the Trustee shall
be entitled to receive from such Holders security or indemnity satisfactory to
it against the costs, expenses and liabilities which might be Incurred by it in
complying with any such direction.
SECTION 6.06. LIMITATION ON SUITS.
Except as provided in Section 6.07, a Securityholder may pursue a remedy
with respect to this Indenture or the Securities only if:
(1) the Holder gives to the Trustee written notice of a continuing Event
of Default;
(2) the Holders of at least 25% in principal amount of the Securities then
outstanding make a written request to the Trustee to institute proceedings in
respect of such Event of Default;
(3) such Holder or Holders offer to the Trustee reasonable indemnity
against any loss, liability or expense to be thereby incurred (including
reasonable attorneys' fees);
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(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holders of a majority in principal
amount of the Securities then outstanding do not give the Trustee a direction
inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to receive payment of principal of and interest in respect
of any such Security on the stated maturity expressed in such Security, on or
after the respective due dates expressed in the Security, or to bring suit for
the enforcement of any such payment on or after such respective dates, shall not
be impaired or affected without the consent of the Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(l) or (2) occurs and is
continuing, the Trustee may recover judgment in its own name and as trustee of
an express trust against the Company for the whole amount of principal and
interest remaining unpaid.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee may file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Trustee, any
predecessor Trustee and the Securityholders allowed in any judicial proceedings
relative to the Company, its creditors or its property. All rights of action
and claims under this Indenture may be prosecuted and enforced by the Trustee
without the possession of any of the Securities or the production thereof in any
proceeding related thereto. Any such proceeding instituted by the Trustee shall
be brought in its own name as trustee of an express trust.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of the
Securities any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof, or to authorize
the Trustee to vote in respect of the claim of any Holder of the Securities in
any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
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SECOND: to Securityholders for amounts due and unpaid on the Securities for
principal and interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Securities for principal and
interest, respectively; and
THIRD: to the Company.
The Trustee may fix a record date and payment date for any payment by it to
Securityholders pursuant to this Section.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as
Trustee, a court in its discretion may require the filing by any party litigant
in the suit other than the Trustee of an undertaking to pay the costs of the
suit, and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit by a
Holder pursuant to Section 6.07 or a suit by Holders of more than 25% in
principal amount of the Securities.
SECTION 6.12. WAIVER OF STAY EXTENSION OR USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law or any usury or
other law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent person
would exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are expressly set
forth in this Indenture and no others.
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(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture. However, the
Trustee shall examine the certificates and opinions to determine whether or not
they conform to the requirements of this Indenture but need not verify the
accuracy of the content thereof.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act or its own willful misconduct, except
that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section 7.01.
(2) The Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction received by
it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01.
(e) The Trustee may refuse to perform any duty or exercise any right or
power unless it receives indemnity satisfactory to it against any loss,
liability or expense (anticipated or actual which have or may arise), including
reasonable attorneys' fees.
(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree with the Company. Money held in trust by the
Trustee need not be segregated from other funds except to the extent required by
law.
(g) The Trustee shall not be required to give any bond or surety with
respect to the execution of its rights and powers or with respect to this
Indenture.
(h) The Trustee shall not be bound to ascertain or inquire as to the
performance or observance of any covenants, conditions or agreements on the part
of the Company hereunder; but the Trustee may require of the Company full
information and advice as to the performance of the covenants, conditions and
agreements as aforesaid.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may rely on any document believed by it to be genuine and
to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officer's Certificate and/or an Opinion of Counsel in form and substance
reasonably acceptable to
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the Trustee. The Trustee shall not be liable for any action it takes or omits
to take in good faith in reliance on such Certificate or Opinion.
(c) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers.
(e) It shall not be the duty of the Trustee, except as expressly provided
herein, to ensure that any duties or Obligations herein imposed upon the Company
or any other Person are performed, and, except as expressly provided herein, the
Trustee shall not be liable or responsible for the failure of any other Person
to perform any act required of it or them by this Indenture.
(f) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability whatsoever in the
performance of any of its duties hereunder.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Securities and may otherwise deal with the Company or a Related
Person thereof with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights. The Trustee, however, must comply with
Sections 7.10 and 7.11.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or adequacy of this
Indenture or the Securities; it shall not be accountable for the Company's use
of the proceeds from the Securities; and it shall not be responsible for any
statement in the Securities other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default occurs and is continuing and if it is actually known to the
Trustee or the Trustee has received written notice thereof, the Trustee shall
mail to each Securityholder a notice of the Default within 90 days after the
Trustee received said notice. Except in the case of a Default in payment of
principal of or interest on any Security, the Trustee may withhold the notice if
and so long as it, in good faith, determines that withholding the notice is in
the interests of Securityholders.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS.
If required by TIA Section 313(a), within 60 days after each May 1
beginning with May 1, 1999, the Trustee shall mail to each Securityholder as
required by TIA Section 313(c) a brief report dated as of such date that
complies with TIA Section 313(a). The Trustee also shall comply with TIA
Section 313(b) and (c).
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A copy of each report at the time of its mailing to Securityholders shall
be filed by the Trustee with the SEC and each stock exchange, if any, on which
the Securities are listed. The Company shall notify the Trustee when the
Securities are listed on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time such compensation
for its services as shall be agreed upon in writing between the Company and the
Trustee. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall promptly
reimburse the Trustee upon request for all reasonable out-of-pocket expenses
incurred by it in connection with administering this Indenture. Such expenses
shall include the reasonable compensation and out-of-pocket expenses of the
Trustee's agents and counsel.
The Company shall indemnify the Trustee and hold it harmless against any
loss or liability (including the reasonable fees and expenses of counsel)
incurred by it in connection with the administration of this trust and the
performance of its duties hereunder. The Company need not pay for any
settlement made without its consent. The Trustee shall notify the Company
promptly of any claim for which it may seek indemnification. The Company need
not reimburse any expense or indemnify against any loss or liability incurred by
the Trustee through the Trustee's negligence or willful misconduct.
To secure the Company's payment Obligations in this Section, the Trustee
shall have a lien prior to the Securities on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(6) or (7) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the Securities may remove the Trustee by so
notifying the Trustee and the Company and may appoint a successor Trustee with
the Company's consent. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the Trustee or its
property; or
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(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the Securities may appoint a successor
Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the Securities may petition a
federal court or any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may petition
any court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to
Securityholders. The retiring Trustee shall promptly transfer all property held
by it as Trustee to the successor Trustee, subject to the lien provided for in
Section 7.07.
Notwithstanding the replacement of the Trustee pursuant to Section 7.08,
the Company's obligation to compensate the retiring Trustee under Section 7.07
for services rendered prior to its retirement shall continue for the benefit of
the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to another corporation, the
successor corporation without any further act shall be the successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA Section 310(a)(1). The Trustee shall always have a combined capital and
surplus of at least $10,000,000 as set forth in its most recent published annual
report of condition. The Trustee shall comply with TIA Section 310(b), PROVIDED
that there shall be excluded from the operation of TIA Section 310(b)(1) the
1993 Indenture, the 1993 Subordinated Notes and any other indenture or
indentures under which other securities, or certificates of interest or
participation in other securities, of the Company are outstanding and meeting
the requirements for exclusion set forth in TIA Section 310(b)(1).
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SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE 8
DISCHARGE AND DEFEASANCE
SECTION 8.01. DISCHARGE AND DEFEASANCE UPON DEPOSIT OF MONEYS OR U.S.
GOVERNMENT OBLIGATIONS.
This Indenture and the Guarantees shall cease to be of further effect
(except that the Company's Obligations under Sections 7.07 and 8.05 hereof shall
survive) when all outstanding Securities theretofore authenticated and issued
(other than Securities which have been destroyed, lost or stolen and which have
been replaced as provided in Section 2.07 hereof) have been delivered to the
Trustee for cancellation and the Company has paid all sums payable hereunder.
Notwithstanding the first paragraph of this Section 8.01, at the Company's
option indicated by notice to the Trustee, either (a) the Company shall be
deemed to have been Discharged (as defined below) from its Obligations with
respect to the Securities on the 91st day after the applicable conditions set
forth below have been satisfied or (b) the Company shall cease to be under any
obligation to comply with any term, provision or condition set forth in
Sections 4.06 through 4.17 and shall cease to be subject to the provisions of
Section 6.01(3) with respect to Sections 4.06 through 4.17 and Section 6.01(6)
with respect to the Securities at any time after the conditions set forth below
have been satisfied:
(1) the Company shall have deposited or caused to be deposited irrevocably
with the Trustee as trust funds in trust, specifically pledged as security for,
and dedicated solely to, the benefit of the Holders of the Securities (i) money
in an amount, or (ii) U.S. Government Obligations which through the payment of
interest and Additional Interest, if any, and principal in respect thereof in
accordance with their terms will provide, not later than one day before the due
date of any payment, money in an amount, or (iii) a combination of (i) and (ii),
sufficient, in the opinion with respect to (ii) and (iii) of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge each
installment of principal of and interest on the outstanding Securities on the
dates such installments of interest or principal are due;
(2) the Company shall have delivered to the Trustee an Opinion of Counsel
stating that the Holders of the outstanding Securities 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;
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(3) such deposit will not result in a breach or violation of, or
constitute a Default under, this Indenture or any other agreement or instrument
to which the Company is a party or by which it is bound;
(4) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit; and
(5) the Company shall have delivered to the Trustee an Officers
Certificate stating that the conditions set forth in this Section 8.01 have been
satisfied or complied with.
"Discharged" shall mean that the Company and each Guarantor shall be deemed
to have paid, satisfied and discharged the entire Indebtedness represented by,
and Obligations under, the Securities and to have satisfied all the Obligations
under this Indenture and the Guarantees relating to the Securities (and the
Trustee, upon the request of the Company and at the expense of the Company,
shall execute proper instruments acknowledging the same).
SECTION 8.02. TERMINATION OF THE OBLIGATIONS PURSUANT TO REDEMPTION.
The Company and each Guarantor may terminate its Obligations under the
Securities, this Indenture and the Guarantees (except that the Company's
Obligations under Sections 7.07 and 8.05 hereof shall survive) and the Company
and the Guarantors shall be deemed to have been Discharged from its Obligations
with respect to the Securities and the Guarantees if:
(a) either (i) pursuant to Article Three, the Company shall have given
notice to the Trustee and mailed a notice of redemption to each Holder of the
redemption of all of the Securities under arrangements satisfactory to the
Trustee for the giving of such notice or (ii) all Securities have otherwise
become due and payable hereunder;
(b) the Company shall have irrevocably deposited or caused to be deposited
with the Trustee or a trustee reasonably satisfactory to the Trustee, under the
terms of an irrevocable trust agreement in form and substance satisfactory to
the Trustee, as trust funds in trust solely for the benefit of the Holders for
that purpose, money in such amount as is sufficient without consideration of
reinvestment of such interest, to pay principal of, premium, if any, and
interest on the outstanding Securities to maturity or redemption, as certified
in a certificate of a nationally recognized firm of independent public
accountants; PROVIDED that the Trustee shall have been irrevocably instructed to
apply such money to the payment of said principal, premium, if any, and interest
with respect to the Securities;
(c) no Default of Event of Default with respect to this Indenture or the
Securities shall have occurred and be continuing on the date of such deposit or
shall occur as a result of such deposit and such deposit will not result in a
breach or violation of, or constitute a default under, any other instrument to
which the Company is a party or by which it is bound;
(d) the Company shall have paid all other sums payable by it hereunder;
and
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(e) the Company shall have delivered to the Trustee an Officer's
Certificate stating that the conditions set forth in this Section 8.02 have been
complied with.
SECTION 8.03. SURVIVAL OF COMPANY'S OBLIGATIONS.
Notwithstanding the satisfaction and discharge of this Indenture under
Section 8.01 or Section 8.02, the Company's obligations in Sections 2.04, 2.05,
2.06, 2.07, 2.08, 4.01, 4.02, 4.05, 7.07, 7.08, 8.04, 8.05 and 8.06, however,
shall survive until the Securities are no longer outstanding. Thereafter, the
Company's obligations in Sections 7.07, 8.05 and 8.06 shall survive.
SECTION 8.04. APPLICATION OF TRUST MONEY.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 8.01. It shall apply the deposited money
and the money from U.S. Government Obligations in accordance with this
Indenture to the payment of principal of and interest on the Securities.
SECTION 8.05. REPAYMENT TO COMPANY.
The Trustee and the Paying Agent shall promptly pay to the Company upon
request any excess money or securities held by them at any time. The Trustee
and the Paying Agent shall pay to the Company upon request any money held by
them for the payment of principal or interest that remains unclaimed for two
years, PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once in a newspaper of general circulation in the City of New York
or mail to each such Holder notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such publication or mailing, any unclaimed balance of such money then
remaining will be repaid to the Company. After payment to the Company,
Securityholders entitled to the money must look to the Company for payment as
general creditors unless applicable abandoned property law designates another
person.
The Company shall indemnify Trustee to the fullest extent permissible by
law for the Trustee's failure to comply with any abandoned property or escheat
law by acting in accordance with this Section 8.05.
SECTION 8.06. REINSTATEMENT.
If the Trustee is unable to apply any money or U.S. Government Obligations
in accordance with Section 8.01 by reason of any legal proceeding or by reason
of any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, the Company's Obligations
under this Indenture and the Securities shall be revived and reinstated as
though no deposit had occurred pursuant to Section 8.01 until such time as the
Trustee is permitted to apply all such money or U.S. Government Obligations in
accordance with Section 8.01; PROVIDED, HOWEVER, that if the Company has made
any payment of interest on or principal of any Securities because of the
reinstatement of its Obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the money or U.S.
Government Obligations held by the Trustee.
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ARTICLE 9
AMENDMENTS, MODIFICATIONS AND WAIVERS
SECTION 9.01. WITHOUT CONSENT OF HOLDERS.
The Company and the Guarantors, with the consent of the Trustee, may amend,
modify or supplement this Indenture, the Securities or the Guarantees without
notice to or the consent of any Securityholder:
(1) to add to the covenants, agreements and Obligations of the Company for
the benefit of the Holders of all the Securities or to surrender any right or
power conferred in the Indenture upon the Company;
(2) to cure any ambiguity, defect or inconsistency;
(3) to evidence the succession of another corporation to the Company and
the assumption by it of the Obligations of the Company under the Indenture and
the Securities in order to comply with Section 5.01;
(4) to establish the form or terms of the Securities as permitted by
Sections 2.01 and 2.03(a) of the Indenture;
(5) to provide for the acceptance of appointment under the Indenture of a
successor Trustee with respect to the Securities and to add to or change any
provisions of the Indenture as shall be necessary to provide for or facilitate
the administration of the trusts by more than one Trustee;
(6) to secure the Securities;
(7) to make any change that does not adversely affect the rights of any
Securityholder hereunder, including, without limitation, any amendments
reasonably necessary to issue additional Securities hereunder;
(8) to comply with the qualification of this Indenture under the TIA; or
(9) to reflect a Guarantor ceasing to be liable on the Guarantees in
accordance with this Indenture or to reflect additional Guarantors.
For the purposes of Section 9.01, the Trustee may, in its discretion,
determine whether or not the Holder of any Securities would be materially
adversely affected by any amendment or supplement to this Indenture and any such
determination shall be conclusive upon every Holder, whether theretofore or
thereafter entered into. The Trustee shall, subject to the express provisions
of this Indenture, not be liable for any such determination made in good faith
and shall be entitled to, and may rely upon, an Opinion of Counsel with respect
thereto.
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SECTION 9.02. WITH CONSENT OF HOLDERS.
The Company and the Guarantors, with the consent of the Trustee, may amend
or supplement this Indenture and waive 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 Securities), the Securities or the
Guarantees without notice to any Securityholder but with the written consent of
the Holders of at least a majority in principal amount of the Securities then
outstanding (which may include consents obtained in connection with a tender
offer or exchange offer for the Securities). Subject to Section 6.07, the
Holders of a majority in principal amount of the Securities then outstanding may
waive compliance by the Company or any Guarantor with any provision of this
Indenture, the Securities or the Guarantees without notice to any
Securityholder. However, without the consent of each Securityholder affected,
an amendment, supplement or waiver, including a waiver pursuant to Section 6.04,
may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the rate of or change the time for payment of interest,
including defaulted interest, on any Security;
(3) reduce the principal of or change the stated maturity of any Security
(including, without limitation, the optional redemption provisions, but
excluding Sections 4.08, 4.09 and 4.15);
(4) change the place or currency of payment of principal or interest, if
any, on any Note;
(5) waive a Default or Event of Default in the payment of principal of or
interest on any Security or reduce the above-stated percentage of Holders of the
Securities necessary to modify or amend the Indenture;
(6) make any change in Section 6.04, Section 6.07 or Section 9.02;
(7) release any Guarantor from any of its Obligations under its Guarantee
or this Indenture otherwise than in accordance with the terms hereof.
Promptly after an amendment under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing the amendment.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment or supplement,
but it shall be sufficient if such consent approves the substance thereof.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment to this Indenture, the Securities or the Guarantees shall
comply with the TIA as then in effect.
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SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent to it
by a Holder of a Security is a continuing consent by the Holder and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security, even if notation of the consent is not
made on any Security. However, any such Holder or subsequent Holder may revoke
the consent as to his Security or portion of a Security if the Trustee receives
the notice of revocation before the date the amendment, supplement or waiver
becomes effective. An amendment, supplement or waiver becomes effective in
accordance with its terms and thereafter binds every Securityholder.
After an amendment, supplement or waiver becomes effective with respect to
the Securities, it shall bind every Securityholder unless it makes a change
described in any of clauses (1) through (7) of Section 9.02. In that case the
amendment, supplement or waiver shall bind each Holder of a Security who has
consented to it and; PROVIDED that notice of such amendment, supplement or
waiver is reflected on a Security that evidences the same debt as the consenting
Holder's Security, every subsequent Holder of a Security or portion of a
Security that evidences the same debt as the consenting Holder's Security.
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES.
If an amendment, supplement or waiver changes the terms of a Security, the
Trustee may require the Holder of the Security to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms.
SECTION 9.06. TRUSTEE PROTECTED.
The Trustee need not sign any amendment, supplement or waiver authorized
pursuant to this Article that the Trustee shall conclude in its reasonable
judgment adversely affects the Trustee's rights. The Trustee shall be entitled
to receive and rely upon an Opinion of Counsel and an Officer's Certificate that
any supplemental indenture complies with this Indenture.
ARTICLE 10
GUARANTEE OF SECURITIES
SECTION 10.01. GUARANTEE.
Subject to the provisions of this Article 10, each Guarantor (which term
includes any successor Person under this Indenture and any additional Guarantor
pursuant to Section 4.16 of this Indenture) for consideration received hereby
jointly and severally unconditionally and irrevocably guarantees on an unsecured
basis, ranking senior in right of payment to all existing and future
subordinated Indebtedness of such Guarantors and ranking PARI PASSU with such
Guarantors' other existing and future senior unsecured Indebtedness (each a
"Guarantee", and collectively, the "Guarantees") to each Holder of a Security
authenticated and delivered by the
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Trustee and to the Trustee and its successors and assigns, irrespective of the
validity and enforceability of this Indenture, the Securities or the Obligations
of the Company or any other Guarantor to the Holders or the Trustee hereunder or
thereunder, that: (a) the principal of, premium, if any, and interest and
Additional Interest, if any, on the Securities will be duly and punctually paid
in full when due, whether, without limitation, at maturity, as a result of
redemption, upon a Change of Control, as a result of a Net Worth Offer, a Net
Proceeds Offer, by acceleration or otherwise, and interest on the overdue
principal, premium, if any, and (to the extent permitted by law) interest, if
any, on the Securities and all other payment Obligations of the Company or the
Guarantors to the Holders or the Trustee hereunder or thereunder (including
fees, expenses or other) will be promptly paid in full or performed, all in
accordance with the terms hereof and thereof and (b) in case of any extension of
time of payment or renewal of any Securities or any such other Obligations, the
same will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, whether, without limitation, at stated
maturity, as a result of redemption, upon a Change of Control, as a result of a
Net Worth Offer, a Net Proceeds Offer, by acceleration or otherwise. Failing
payment when due of any amount so guaranteed for whatever reason, each Guarantor
will be obligated to pay or perform the same immediately. An Event of Default
under this Indenture or the Securities shall constitute an event of default
under the Guarantees, and shall entitle the Holders of Securities to accelerate
the Obligations of the Guarantors hereunder in the same manner and to the same
extent as the Obligations of the Company.
Each of the Guarantors hereby agrees that its Obligations hereunder shall
be absolute and unconditional, irrespective of, and shall be unaffected by, the
invalidity, irregularity or unenforceability of the Securities or this
Indenture, the absence of any action to enforce the same, any waiver,
modification or consent by any holder of the Securities with respect to any
provisions hereof or thereof, any release of any other Guarantor, the recovery
of any judgment against the Company, any action to enforce the same, whether or
not a Guarantee is affixed to any particular Security, or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
Guarantor. Each of the Guarantors hereby waives the benefit of diligence,
presentment, demand of payment, filing of claims with a court in the event of
merger, insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenants that its Guarantee will not be discharged except by complete
performance of the Obligations contained in the Securities, this Indenture and
its Guarantee. If any Holder or the Trustee is required by any court or
otherwise to return to the Company or to any Guarantor, or any custodian,
trustee, liquidator or other similar official acting in relation to the Company
or such Guarantor, any amount paid by the Company or such Guarantor to the
Trustee or such Holder, its Guarantee, to the extent theretofore discharged,
shall be reinstated in full force and effect. Each Guarantor further agrees
that, as between it, on the one hand, and the Holders of Securities and the
Trustee, on the other hand, (a) subject to this Article 10, the maturity of the
Obligations guaranteed hereby may be accelerated as provided in Article 6 hereof
for the purposes of its Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the Obligations
guaranteed hereby, and (b) in the event of any declaration of acceleration of
such Obligations as provided in Article 6 hereof, such Obligations (whether or
not due and payable) shall forthwith become due and payable by such Guarantor
for the purpose of its Guarantees.
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The Guarantees shall remain in full force and effect and continue to be
effective should any petition be filed by or against the Company for liquidation
or reorganization, should the Company become insolvent or make an assignment for
the benefit of creditors or should a receiver or trustee be appointed for all or
any significant part of the Company's assets, and shall, to the fullest extent
permitted by law, continue to be effective or be reinstated, as the case may be,
if at any time payment of the Securities are, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or returned by any
obligee on the Securities, whether as a "voidable preference," "fraudulent
transfer" or otherwise, all as though such payment had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Securities shall, to the fullest extent permitted by law, be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
For purposes of this Article 10, each Guarantor's liability (a Guarantor's
"Base Guaranty Liability") shall be that amount from time to time equal to the
aggregate liability of a Guarantor hereunder, but shall be limited to the lessor
of (A) the aggregate amount of the obligation as stated in the first sentence of
this Section 10.01 with respect to the Securities or (B) the amount, if any,
which would not have (i) rendered such Guarantor "insolvent" (as such term is
defined in Section 101(29) of the Federal Bankruptcy Code and in Section 271 of
the Debtor and Creditor Law of the State of New York, as each is in effect at
the date of this Indenture) or (ii) left it with unreasonably small capital at
the time its Guarantee of the Securities was entered into, after giving effect
to the incurrence of existing Debt immediately prior to such time, PROVIDED,
that, it shall be a presumption in any lawsuit or other proceeding in which a
Guarantor is a party that the amount guaranteed is the amount set forth in (A)
above unless a creditor, or representative of creditors of such Guarantor or a
trustee in bankruptcy of the Guarantor, as debtor in possession, otherwise
proves in such a lawsuit that the aggregate liability of the Guarantor is
limited to the amount set forth in (B). In making any determination as to the
solvency or sufficiency of capital of a Guarantor in accordance with the
previous sentence, the right of such Guarantor to contribution from other
Guarantors, to subrogation pursuant to the next paragraph and any other rights
such Guarantor may have contractual or otherwise shall be taken into account.
Each Guarantor shall be subrogated to all rights of the Holder of any
Securities and the Trustee against the Company or any of the other Guarantors in
respect of any amounts paid to the Holder and the Trustee by such Guarantor
pursuant to the provisions of this Guarantee; PROVIDED, HOWEVER, that such
Guarantor shall not be entitled to enforce, or to receive any payments arising
out of or based upon, such right of subrogation until the principal of, premium,
if any, and interest on all the Securities have been paid in full.
Nothing contained in this Article 10 or elsewhere in this Indenture or in
any Security is intended to or shall impair, as between the Guarantors and the
Holders and the Trustee, the obligation of each Guarantor, which is absolute and
unconditional, to pay the Holders and the Trustee the principal of, premium, if
any, and interest on the Securities as and when the same shall become due and
payable in accordance with the provisions of this Guarantee, nor shall anything
herein or therein prevent the Trustee or any Holder from exercising all remedies
otherwise permitted by applicable law upon Default under this Indenture.
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The Guarantors shall have the right to seek contribution from any
non-paying Guarantor so long as the exercise of such right does not impair the
rights of the Holders under the Guarantees.
SECTION 10.02. EXECUTION AND DELIVERY OF GUARANTEE.
To further evidence the Guarantee set forth in Section 10.01, each
Guarantor hereby agrees that a notation of such Guarantee, substantially in the
form included in Exhibit B hereto, shall be endorsed on each Security
authenticated and delivered by the Trustee after such Guarantee is executed and
executed by either manual or facsimile signature of an officer of each
Guarantor. The validity and enforceability of any Guarantee shall not be
affected by the fact that it is not affixed to any particular Security.
Each of the Guarantors hereby agrees that its Guarantee set forth in
Section 10.01 shall remain in full force and effect notwithstanding any failure
to endorse on each Security a notation of such Guarantee.
If an officer of a Guarantor whose signatures is on this Indenture or a
Security no longer holds that office at the time the Trustee authenticates such
Security or at any time thereafter, such Guarantor's Guarantee of such Security
shall be valid nevertheless.
The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of any Guarantee set forth in
this Indenture on behalf of the Guarantor.
SECTION 10.03. ADDITIONAL GUARANTORS.
Any person may become a Guarantor by executing and delivering to the
Trustee (a) a supplemental indenture in form and substance satisfactory to the
Trustee, which subjects such person to the provisions of Article 10 of this
Indenture as a Guarantor, and (b) an Opinion of Counsel to the effect that such
supplemental indenture has been duly authorized and executed by such person and
constitutes the legal, valid, binding and enforceable obligation of such person
(subject to such customary exceptions concerning fraudulent conveyance laws,
creditors' rights, equitable principles, and other customary matters, as may be
acceptable to the Trustee in its discretion).
SECTION 10.04. RELEASE OF A GUARANTOR.
(a) Upon the sale or disposition of all of the assets or all of the
Capital Stock of a Guarantor by the Company or a Subsidiary of the Company, or
upon the consolidation or merger of a Guarantor with or into any Person (in each
case, other than to the Company or a Related Person of the Company) in
compliance with Section 5.01, or upon the designation of a Subsidiary as an
Unrestricted Subsidiary which has been designated by the Company as a Guarantor,
such Guarantor shall be deemed automatically and unconditionally released and
discharged from all Obligations under this Article 10 without any further action
required on the part of the Trustee or any Holder, and all Obligations of such
Guarantor, if any, in respect of any Indebtedness of the Company shall also
terminate upon such transaction; PROVIDED, HOWEVER, that
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each such Guarantor is sold or disposed of in accordance with Section 4.15 and
Section 5.01 hereof, respectively; PROVIDED, FURTHER, that the foregoing proviso
shall not apply to the sale or disposition of a Guarantor in a foreclosure to
the extent that such proviso would be inconsistent with the requirements of any
Uniform Commercial Code.
(b) The Trustee shall deliver an appropriate instrument evidencing the
release of a Guarantor upon receipt of a request of the Company accompanied by
an Officer's Certificate certifying as to the compliance with this
Section 10.04. Any Guarantor not so released or the entity surviving such
Guarantor, as applicable, will remain or be liable under its Guarantee as
provided in this Article 10.
The Trustee shall execute any documents reasonably requested by the Company
or a Guarantor in order to evidence the release of such Guarantor from its
Obligations under its Guarantee endorsed on the Securities and under this
Article 10.
Except as set forth in Articles 4 and 5 and this Section 10.04, nothing
contained in this Indenture or in any of the Securities shall prevent any
consolidation or merger of a Guarantor with or into the Company or another
Guarantor or shall prevent any sale or conveyance of the property of a Guarantor
as an entirety or substantially as an entirety to the Company or another
Guarantor.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision shall control.
SECTION 11.02. NOTICES.
Any notice or communication by the Company or the Trustee to the other is
duly given if in writing and delivered in person, mailed by first-class mail or
by express delivery to the other's address stated in this Section 11.02. The
Company or the Trustee by notice to the other may designate additional or
different addresses for subsequent notices or communications.
Any notice or communication to a Securityholder shall be mailed by
first-class mail to his address shown on the register kept by the Registrar.
Failure to mail a notice or communication to a Securityholder or any defect in
it shall not affect its sufficiency with respect to other Securityholders.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company mails a notice or communication to Securityholders, it shall
mail a copy to the Trustee and each Agent at the same time.
58
<PAGE>
All notices or communications shall be in writing.
The Company's address is:
Schuler Homes, Inc. 828 Fort Street Mall, 4th Floor Honolulu, Hawaii 96813
Attention: Corporate Secretary
The Trustee's address is:
U.S. Trust Company of California, N.A., One Embarcadero Center, Suite 2050,
San Francisco, California 94111, Attention: Corporate Trust Department
SECTION 11.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture the Company shall furnish to the Trustee:
(1) an Officers' Certificate stating that, in the opinion of the signer,
all conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with; and
(2) to the extent expressly required by the Indenture or as otherwise may
be reasonably requested by the Trustee, an Opinion of Counsel stating that, in
the opinion of such counsel, all such conditions precedent have been complied
with.
Each signer of an Officer's Certificate or an Opinion of Counsel may (if so
stated) rely, effectively, upon an Opinion of Counsel as to legal matters and an
Officer's Certificate as to factual matters if such signer reasonably and in
good faith believes in the accuracy of the document relied upon.
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or opinion has
read such covenant or condition;
59
<PAGE>
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of such person, such
condition or covenant has been complied with.
SECTION 11.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for their respective functions.
SECTION 11.07. LEGAL HOLIDAYS.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions are not required to be open in The City of New York, in the State
of New York, City of Los Angeles in the State of California or in the city in
which the Trustee administers its corporate trust business in respect of this
Indenture or the city in which the Company has its chief executive officer. If
a payment date is a Legal Holiday at a place of payment, payment may be made at
that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue on that payment for the intervening period.
SECTION 11.08. NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS,
OFFICERS, DIRECTORS OR EMPLOYEES
No director, officer, controlling person, employee or stockholder of the
Company, any Guarantor or any successor Person thereof shall have any liability
for any Obligations, covenants or agreements of the Company or any Guarantor
under the Securities or this Indenture or for any claim based on, in respect of
or by reason of such Obligations or their creation. No recourse under or upon
any Obligation, covenant or agreement of the Company or any Guarantor in the
Indenture or in any of the Securities or because of the creation of any
Indebtedness thereby, shall be held against any incorporator, stockholder,
director, employee or controlling person of the Company, any Guarantor or any
successor Person thereof. Each Securityholder by accepting a Security waives
and releases all such liability. The waiver and releases are part of the
consideration for the issue of the Securities.
SECTION 11.09. DUPLICATE ORIGINALS.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement. One signed copy is enough to prove this Indenture.
60
<PAGE>
SECTION 11.10. GOVERNING LAW.
The laws of the State of New York, without regard to principles of
conflicts of law, shall govern this Indenture, the Securities and the
Guarantees.
SECTION 11.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or a Subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
SECTION 11.12. SUCCESSORS.
All agreements of the Company and the Guarantors in this Indenture and the
Securities shall bind their respective successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 11.13. SEPARABILITY.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby
and a Holder shall have no claim therefor against any party hereto.
SECTION 11.14. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities or Guarantees, expressed or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder and the Holders of Securities, any benefits or any legal or
equitable right, remedy or claim under this Indenture.
SECTION 11.15. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part hereof and shall in no way modify or
restrict any of the terms or provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
61
<PAGE>
<TABLE>
<S> <C>
COMPANY: SCHULER HOMES, INC.
Attest: /s/ Pamela S. Jones By: /s/ James K. Schuler
------------------------------------- ----------------------------------------------
Name: PAMELA S. JONES Name: James K. Schuler
Title: Sr. Vice President of Finance Title: President and Chief Executive Officer
Chief Financial Officer
GUARANTORS: SCHULER HOMES OF CALIFORNIA, INC.
SCHULER HOMES OF OREGON, INC.
SCHULER HOMES OF WASHINGTON, INC.
MELODY HOMES, INC.
MELODY MORTGAGE CO.
SCHULER REALTY/MAUI, INC.
SCHULER REALTY/OAHU, INC.
LOKELANI CONSTRUCTION CORPORATION
SHLR OF WASHINGTON, INC.
By: /s/ James K. Schuler
---------------------------------------------
Name: James K. Schuler
Title: President and Chief Executive Officer
Attest: /s/ Pamela S. Jones
-------------------------------------
Name: PAMELA S. JONES
Title: Sr. Vice President of Finance
Chief Financial Officer
TRUSTEE: U.S. TRUST COMPANY OF CALIFORNIA, N.A.
By: /s/ Josephine Libunao
--------------------------------------------
Name: Josephine Libunao
Title: Assistant Vice President
</TABLE>
<PAGE>
S P E C I M E N
EXHIBIT A
SCHULER HOMES, INC.
$_________
CUSIP NO.: _________
THE SECURITY (OR ITS PREDECESSORS) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE
SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON
THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY
RULE 144A THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER
OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A)
SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) (A) TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (B) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144 OF THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN
A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR
(D) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT PROVIDED THAT IN THE CASE OF A TRANSFER PURSUANT TO THIS
CLAUSE (D), SUCH TRANSFER IS EFFECTED BY THE DELIVERY TO THE TRANSFEREE OF
DEFINITIVE SECURITIES REGISTERED IN ITS NAME (OR ITS NOMINEE'S NAME) IN THE
BOOKS MAINTAINED BY THE REGISTRAR, AND IS SUBJECT TO THE RECEIPT BY THE
REGISTRAR (AND THE COMPANY, IF IT SO REQUESTS) OF A CERTIFICATION OF THE
TRANSFEROR AND AN OPINION OF COUNSEL TO THE EFFECT THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (2) TO THE COMPANY OR (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.
A-1
<PAGE>
[For Global Security Only]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK NEW YORK), A NEW YORK
CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. THIS GLOBAL SECURITY IS EXCHANGEABLE FOR SECURITIES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY
IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS
SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO
THE NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE
DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN
SUCH LIMITED CIRCUMSTANCES.
A-2
<PAGE>
REGISTERED REGISTERED
NUMBER DOLLARS
[Face of Security]
SCHULER HOMES, INC.
CUSIP
9% SENIOR NOTE DUE 2008
SCHULER HOMES, INC., a Delaware corporation (herein called the "Company"),
for value received, hereby promises to pay to _________________, or registered
assigns, the principal sum of _____________________ on April 15, 2008, and to
pay interest thereon as provided on the reverse hereof, until the principal
hereof is paid or duly provided for.
Interest Payment Dates: April 15 and October 15
Record Dates: April 1 and October 1
The provisions on the back of this certificate are incorporated as if set
forth on the face hereof.
IN WITNESS WHEREOF, SCHULER HOMES, INC. has caused this instrument to be
duly signed under its corporate seal.
[SEAL]
SCHULER HOMES, INC.
_________________________________
James K. Schuler
President and
Chief Executive Officer
_________________________________
Pamela S. Jones
Senior Vice President of Finance
and Chief Financial Officer
A-3
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred
to in the within-mentioned Indenture.
U.S. TRUST COMPANY OF CALIFORNIA, N.A., as Trustee
By: ____________________________
Authorized Signatory
Dated: May 6, 1998
A-4
<PAGE>
[REVERSE OF SECURITY]
SCHULER HOMES, INC.
9% SENIOR NOTE DUE 2008
1. INTEREST. Schuler Homes, Inc., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Security at
the rate PER ANNUM shown above. The Company will pay interest semi-annually on
April 15 and October 15 of each year, commencing October 15, 1998. Interest on
the Securities will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the date of original issuance of the
Securities set forth on the face of this Security. Interest will be computed on
the basis of a 360-day year of twelve 30-day months.
2. STATED MATURITY. The date on which the principal of the Securities
shall be payable, unless accelerated pursuant to the Indenture, is April 15,
2008.
3. METHOD OF PAYMENT. The Company will pay interest on the Securities
(except defaulted interest) to the persons who are registered Holders of
Securities at the close of business on the record date set forth on the face of
this Security next preceding the applicable interest payment date. Holders must
surrender Securities to a Paying Agent to collect principal payments. The
Company will pay principal and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts.
The Company may, at its option, mail an interest check on a payable date to
a Holder's registered address, provided payments of principal and interest on
Notes with a principal aount of $5,000,000 or more may be made by wire transfer
to an account of the Holder, if such Holder gives 15 days notice to the Company
prior to the relevant record date..
4. PAYING AGENT AND REGISTRAR. Initially, U.S. Trust Company of
California, N.A. (the "Trustee") will act as Paying Agent and Registrar. The
Company may change any Paying Agent, Registrar or co-registrar without notice.
The Company may act in any such capacity.
5. INDENTURE. The Company issued the Securities under an Indenture dated
as of May 6, 1998 (the "Indenture") between the Company and the Trustee. The
terms of the Securities are more fully stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code Sections 77aaa-77bbbb) (the "Act"), as in effect on the
date of the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the Act for a statement of
such terms. The Securities are general unsecured senior obligations of the
Company limited to $175,000,000 aggregate principal amount, $75,000,000 of which
may be issued after the Issuance Date (except for Securities issued in
substitution for destroyed, mutilated, lost or stolen Securities). Terms
A-5
<PAGE>
used herein which are defined in the Indenture have the meanings assigned to
them in the Indenture.
6. OPTIONAL REDEMPTION. The Securities will not be redeemable at the
option of the Company prior to April 15, 2003. Thereafter, the Securities will
be redeemable, at the Company's option, in whole or in part, at any time or from
time to time, upon not less than 30 nor more than 60 days prior notice mailed by
first-class mail to each Holder's registered address, at the following
redemption prices (expressed in percentages of principal amount), plus accrued
and unpaid interest and Additional Interest, if any, to the applicable
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on April 15 of the years set
forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104.500%
2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.000%
2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.500%
2006 and thereafter . . . . . . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to April 15, 2001, the
Company may on any one or more occasions redeem up to 35% of the aggregate
principal amount of Securities originally issued under the Indenture at a
redemption price of 109% of the principal amount thereof, plus accrued and
unpaid interest and Additional Interest, if any, to the redemption date, with
the net cash proceeds of one or more Equity Offerings; PROVIDED that not less
than 65% of the aggregate principal amount of Securities issued on the date of
the Indenture remain outstanding immediately after the occurrence of such
redemption (excluding Securities held by the Company and its Subsidiaries); and
PROVIDED, FURTHER, that such redemption shall occur within 45 days of the date
of the closing of such Equity Offering.
If less than all of the Securities are to be redeemed, the Trustee will
select the Securities to be redeemed on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate.
7. CHANGE OF CONTROL. In the event of a Change of Control (as defined in
the Indenture) with respect to the Company, then each Holder of the Securities
shall have the right, at the Holder's option, to require the Company to buy such
Holder's Securities including any portion thereof which is $1,000 or any
integral multiple thereof on the date (the "Change of Control Repurchase Date")
that is no earlier than 30 days nor later than 60 days after the date of the
Change of Control Notice at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest and Additional Interest, if any, to
the Change of Control Repurchase Date.
8. NET WORTH OFFER. In the event that the Company's Net Worth at the end
of each of any two consecutive fiscal quarters is less than $75,000,000 (the
"Minimum Net Worth"), then the Company shall make a Net Worth Offer to all
Holders to acquire on the date
A-6
<PAGE>
(the "Net Worth Repurchase Date") that is 45 days after the Net Worth Notice,
Securities in an aggregate principal amount equal to 10% of the initial
outstanding principal amount of the Securities (the "Net Worth Offer Amount"),
at a price equal to 100% of the principal amount thereof, plus accrued interest
and Additional Interest, if any, to the Net Worth Repurchase Date. The Company
may credit against the Net Worth Offer Amount the principal amount of Securities
acquired by the Company through purchase, optional redemption or exchange prior
to the Trigger Date.
9. NET PROCEEDS OFFER. Within 12 months from the date that the Company
or any of its Restricted Subsidiaries makes any Asset Disposition, the Net
Proceeds thereof shall, in accordance with Section 4.15 of the Indenture, be
reinvested in Additional Assets or used to repurchase or redeem Indebtedness of
the Company which rank senior or PARI PASSU with the Securities, or Indebtedness
of a Restricted Subsidiary of the Company which is not subordinated to other
Indebtedness of such Restricted Subsidiary (which, in each case, shall be a
permanent reduction of such Indebtedness) or if not so used within 30 days from
the expiration of such 12-month period, to use the remaining Net Proceeds (less
any amounts used to pay reasonable fees and expenses connection with the Net
Proceeds Offer) to make an offer to repurchase Securities at a price equal to
100% of the principal amount thereof plus accrued interest in accordance with
the procedures set forth in the Indenture (a "Net Proceeds Offer").
Notwithstanding the preceding sentence, a Net Proceeds Offer made in connection
with any Asset Disposition need not be applied in accordance with the preceding
sentence, unless and until the aggregate Net Proceeds for all such Asset
Dispositions in a 12-month period (determined on a rolling basis) exceeds
$5,000,000.
10. RESTRICTIVE COVENANTS. The Indenture contains certain restrictive
covenants that limit the ability of the Company and its Restricted Subsidiaries
to incur additional Indebtedness, pay dividends, make certain other
distributions, repurchase Capital Stock or subordinated Indebtedness, create
certain liens, enter into certain transactions with Related Persons or apply the
Net Proceeds from the sale of certain assets.
11. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in registered
form without coupons in denominations of $1,000 and whole multiples of $1,000.
The transfer of Securities may be registered and Securities may be exchanged as
provided in the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents. No service
charge shall be made for any such registration or transfer or exchange, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. The Registrar need not
exchange or register the transfer of any Security selected for redemption in
whole or in part. Also, it need not exchange or register the transfer of any
Securities for a period of 15 days before a selection of Securities to be
redeemed.
12. PERSONS DEEMED OWNERS. The registered Holder of a Security may be
treated as its owner for all purposes.
A-7
<PAGE>
13. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Indenture,
the Securities or the Guarantees may be amended with the consent of the Holders
of at least a majority in principal amount of the Securities outstanding; and
any existing default or Event of Default may be waived with the consent of the
Holders of a majority in principal amount of the Securities. Without the
consent of any Securityholder, the Indenture, the Securities or the Guarantees
may be amended to cure any ambiguity, omission, defect or inconsistency or to
provide for uncertificated Securities in addition to certificated Securities, to
comply with Section 5.01 of the Indenture, to make any change that does not
adversely affect the rights of any Securityholder, to comply with the
qualification of the Indenture under the Trust Indenture Act, or to reflect a
Guarantor ceasing to be liable on the Guarantees because it is no longer a
Subsidiary of the Company or otherwise in accordance with the terms of the
Indenture.
14. DEFAULTS AND REMEDIES. An Event of Default is: (i) failure by the
Company to pay the principal of any Security when such principal becomes due and
payable at maturity, upon acceleration or otherwise (ii) failure by the Company
to pay interest 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 Security, the Guarantee or the Indenture
that continues for the period and after the notice specified below; (iv) certain
events of bankruptcy, insolvency or reorganization of the Company or Restricted
Subsidiaries; (v) an event of default shall have occurred under one or more
evidences of Indebtedness of the Company or any of its Restricted Subsidiaries
(other than Non-Recourse Indebtedness) with an outstanding aggregate principal
amount of $5,000,000 or more, whether such Indebtedness 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 Indebtedness at
its final maturity or (2) results in the acceleration of such Indebtedness which
acceleration shall be in effect; (vi) 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 a period of 60 days after the date on
which the right to appeal such judgment has expired or becomes subject to an
enforcement proceeding and (vii) any Guarantee of a 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
officers' certificate stating whether or not the signatories know of any default
by the Company under this Indenture and, if any default exists, describing such
default.
A default under clause (iii) or (vi) above is not an Event of Default until
the Trustee or the holders of at least 25% in principal amount of the Securities
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 the Securities then outstanding request the
Trustee to give such notice on their behalf, the Trustee shall do so.
A-8
<PAGE>
If an Event of Default occurs (other than due to certain events of
bankruptcy, with respect to the Company) and is continuing, the Trustee, by
notice to the Company, or the Holders of at least 25% in principal amount of the
Securities then outstanding may declare all the Securities to be due and payable
immediately. If an Event of Default occurs due to certain events of bankruptcy,
insolvency or reorganization, with respect to the Company, such amounts shall be
due and payable without any declaration or act on the part of the Trustee or the
Holders of the Securities. Subject to certain exceptions, the Holders of a
majority in principal amount of the Securities then outstanding by notice to the
Trustee may rescind any declaration of acceleration or waive a Default and its
consequences. Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Securities. Subject
to certain limitations, Holders of a majority in principal amount of the
Securities may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or the exercise of any trust or power
conferred on the Trustee. The Trustee may withhold from Securityholders notice
of any continuing default (except a default in payment of principal or interest)
if it determines that withholding notice is in their interests. The Company
must furnish an annual compliance certificate to the Trustee and notify the
Trustee upon the occurrence of a Default.
15. TRUSTEE DEALINGS WITH COMPANY. U.S. Trust Company of California,
N.A., the Trustee under the Indenture, or any banking institution serving as
successor Trustee thereunder, in its individual or any other capacity, accept
deposits from, and perform services for the Company or its Related Persons, and
may otherwise deal with the Company or its Related Persons, as if it were not
the Trustee.
16. NO RECOURSE AGAINST OTHERS. A director, officer, controlling person,
employee or stockholder, as such, of the Company or any Guarantor or any
successor person thereof shall not have any liability for any obligations,
covenants or agreements of the Company or any Guarantor under the Securities or
the Indenture or for any claim based on, in respect of or by reason of such
obligations, covenants or agreements or their creation. Each Securityholder by
accepting a Security waives and releases all such liability. The waiver and
releases are part of the consideration for the issue of the Securities.
17. AUTHENTICATION. This Security shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
18. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenant by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST AND
WITHOUT CHARGE A COPY OF THE INDENTURE. REQUESTS MAY BE MADE TO: Schuler Homes,
Inc., 828 Fort Street Mall, 4th Floor, Honolulu, Hawaii 96813, telephone: (808)
521-5661.
A-9
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to:
______________________________________________________________
(Insert assignee's Soc. Sec. or Tax I.D. No.)
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint ___________________ agent to transfer this Security on
the books of the Company. The agent may substitute another to act for him.
______________________________________________________________
Date: ____________ Signature(s): __________________
(Sign exactly as your name(s)
appear(s) on the other side of
this Security)
Signature(s) guaranteed by: ______________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (Banks, Stock
Brokers, Savings and Loan Associations, and Credit
Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM PURSUANT TO S.E.C.
RULE 17Ad-15.)
A-10
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.08, 4.09 or 4.15, as the case may be, of the Indenture,
check the box:
/ /
If you want to elect to have only part of this Security purchased by the
Company pursuant to Section 4.08, 4.09 or 4.15 of the Indenture, state the
amount:
$___________________________________
(in an integral multiple of $1,000)
Date: Signature(s):
--------------- ------------------
Date: _______________ Signature(s): __________________
(Sign exactly as your name(s)
appear(s) on the other side of
this Security)
Signature(s) guaranteed by: ___________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (Banks, Stock
Brokers, Savings and Loan Associations, and
Credit Unions) WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM
PURSUANT TO S.E.C. RULE 17Ad-15.)
A-11
<PAGE>
EXHIBIT B
GUARANTEE
For value received, the undersigned hereby unconditionally guarantees to
the Holder of this Security the payments of principal of, premium, if any, and
interest on this Security in the amounts and at the time when due and interest
on the overdue principal, premium, if any, and interest, if any, of this
Security, if lawful, and the payment or performance of all other obligations of
the Company under the Indenture or the Securities, to the Holder of this
Security and the Trustee, all in accordance with and subject to the terms and
limitations of this Security, Article 10 of the Indenture and this Guarantee.
This Guarantee will become effective in accordance with Article 10 of the
Indenture and its terms shall be evidenced therein. The validity and
enforceability of any Guarantee shall not be affected by the fact that it is not
affixed to any particular Security.
The obligations of the undersigned to the Holders of Securities and to the
Trustee pursuant to the Guarantee and the Indenture are expressly set forth in
Article 10 of the Indenture and reference is hereby made to the Indenture for
the precise terms of the Guarantee and all of the other provisions of the
Indenture to which this Guarantee relates.
This Guarantee is subject to release upon the terms set forth in the
Indenture.
SCHULER HOMES OF CALIFORNIA, INC.
SCHULER HOMES OF WASHINGTON, INC.
SCHULER HOMES REALTY/MAUI, INC.
SCHULER HOMES REALTY/OAHU, INC.
SCHULER HOMES OF OREGON, INC.
LOKELANI CONSTRUCTION CORPORATION
MELODY HOMES, INC.
MELODY MORTGAGE CO.
SHLR OF WASHINGTON, INC.
By: _____________________________________
Name:
Title:
B-1
<PAGE>
EXHIBIT C-1
FORM OF INSTITUTIONAL ACCREDITED INVESTOR LETTER
We are delivering this letter in connection with a proposed purchase of 9%
Senior Notes due 2008 (the "Securities") of Schuler Homes, Inc. (the "Company").
We hereby confirm that:
(i) we are an "accredited investor" within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended
(the "Securities Act"), or an entity in which all of the equity owners are
accredited investors within the meaning of Rule 501(a)(1), (2), (3) or (7)
under the Securities Act (an "Institutional Accredited Investor");
(ii) any purchase of Securities by us will be for our own account or
for the account of one or more other Institutional Accredited Investors;
(iii) in the event that we purchase any Securities, we will acquire
Securities having a minimum purchase price of at least $100,000 for our own
account and for each separate account for which we are acting;
(iv) we have such knowledge and experience in financial and business
matters that we are capable of evaluating the merits and risks of
purchasing Securities;
(v) we are not acquiring Securities with a view to any distribution
thereof in a transaction that would violate the Securities Act or the
securities laws of any State of the United States or any other applicable
jurisdiction; provided that the disposition of our property and the
property of any accounts for which we are acting as fiduciary shall remain
at all times within our control; and
(vi) we have received a copy of the offering memorandum and we
acknowledge that we have had access to such financial and other
information, and have been afforded the opportunity to ask such questions
of representatives of the Company and receive answers thereto, as we deem
necessary in connection with our decision to purchase Securities.
We understand that the Securities are being offered in a transaction not
involving any public offering within the meaning of the Securities Act and that
the Securities have not been registered under the Securities Act, and we agree,
on our own behalf and on behalf of each account for which we acquire Securities,
that such Securities may be offered, resold, pledged or otherwise transferred
only (i) to a person whom we reasonably believe to be a qualified institutional
buyer (as defined in Rule 144A under the Securities Act) in a transaction
meeting the requirements of Rule 144 under the Securities Act, outside the
United States to a non-U.S.
C-1
<PAGE>
person in a transaction meeting the requirements of Rule 904 under the
Securities Act, or in accordance with another exception from the registration
requirements of the Securities Act (and based upon an opinion of counsel if the
Company so requests), (ii) to the Company or (iii) pursuant to an effective
registration statement, and, in each case, in accordance with any applicable
securities laws of any State of the United States or any other applicable
jurisdiction. We understand that the registrar and transfer agent will not be
required to accept for registration any Securities, except upon presentation of
evidence satisfactory to the Company that the foregoing restrictions on transfer
have been complied with. We further understand and agree that the Securities
purchased by us will bear a legend reflecting the substance of this paragraph.
We agree to notify any subsequent purchasers of Securities from us of the resale
restrictions set forth above
We acknowledge that you, the Company and others will rely upon our
confirmations, acknowledgments and agreements set forth herein, and we agree to
notify you promptly in writing if any of our representations or warranties
herein ceases to be accurate and complete.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
_________________________________
(Name of Purchaser)
By:______________________________
Name:
Title:
Address:__________________________
__________________________
__________________________
C-2
<PAGE>
EXHIBIT C-2
FORM OF CERTIFICATE TO BE DELIVERED
IN CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S
[Date]
U.S. Trust Company of California, N.A.
515 South Flower Street, 28th Floor
Los Angeles, California 90071
Attention: Corporate Trust Department
Re: SCHULER HOMES, INC. (THE "COMPANY")
9% SENIOR NOTES DUE 2008 (THE "SECURITIES")
Ladies and Gentlemen:
In connection with the proposed sale of $_______ aggregate principal amount
of the Securities, we confirm that such sale has been effected pursuant to and
in accordance with Regulation S under the United States Securities Act of 1933,
as amended (the "Securities Act"), and, accordingly, we represent that:
(1) The offer of the Securities was not made to a person in the
United States;
(2) Either (a) at the time the buy offer was originated, the
transferee was outside of the United States or we and any person acting on
our behalf reasonably believe that the transferee was outside of the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated offshore securities market and neither we nor
any person acting on our behalf know that the transaction has been
prearranged for a buyer in the United States;
(3) No directed selling efforts have been made in the United States
in contravention of the requirements of rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) The transaction is not part of a plan or a scheme to evade the
registration requirements of the Securities Act; and
(5) We have advised the transferee of the transfer restrictions
applicable to the Securities.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal
C-1
<PAGE>
proceeding or official inquiry with respect to the matters covered hereby.
Terms used in this certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By: __________________________________
Authorized Signature
C-2
<PAGE>
SECOND AMENDMENT TO LOAN DOCUMENTS
THIS SECOND AMENDMENT TO LOAN DOCUMENTS ("Amendment"), dated April 29,
1998, and effective as of April 29, 1998, is made by and among (i) SCHULER
HOMES, INC., a Delaware corporation (the "Company"); (ii) SCHULER HOMES OF
CALIFORNIA, INC., a California corporation, SCHULER HOMES OF OREGON, INC., an
Oregon corporation, SCHULER HOMES OF WASHINGTON, INC., a Washington corporation,
MELODY HOMES, INC., a Delaware corporation, SCHULER REALTY/MAUI, INC., a Hawaii
corporation, SCHULER REALTY/OAHU, INC., a Hawaii corporation, LOKELANI
CONSTRUCTION CORPORATION, a Delaware corporation, and MELODY MORTGAGE CO., a
Colorado corporation (collectively referred to as the "Guarantors", and
individually referred to as a "Guarantor"), (iii) SHLR OF WASHINGTON, INC., a
Washington corporation (the "Additional Guarantor"), (iv) the banks from time to
time party to this Agreement (collectively referred to as the "Banks", and
individually referred to as a "Bank"), (v) FIRST HAWAIIAN BANK, a Hawaii
corporation, as administrative and co-syndication agent for the Banks (the
"Administrative Agent"), and (vi) BANK OF AMERICA NT&SA, a national banking
association, as documentation and co-syndication agent for the Banks (the
"Documentation Agent", the Administrative Agent and the Documentation Agent are
collectively referred to as the "Agents").
W I T N E S S E T H T H A T:
WHEREAS, the Company, the Banks and the Administrative Agent entered into
that certain Credit Agreement dated as of March 29, 1996 (the "Original Credit
Agreement"), relating to the establishment of a revolving credit facility (the
"Credit Facility") in the principal amount of US$110,000,000.00 (the "Original
Commitment") made available to the Company by the Banks; and
WHEREAS, in connection therewith, the Company, the Banks and the
Administrative Agent executed certain Loan Documents (as defined in the Original
Credit Agreement); and
WHEREAS, the Company, the Banks and the Administrative Agent entered into
that certain Supplement No. 1 to Credit Agreement effective as of January 8,
1997 (the "Supplement"), relating to the use of certain proceeds of Advances (as
defined in the Original Credit Agreement) during the Waiver Period (as defined
in the Supplement); and
WHEREAS, the Company, the Guarantors, the Banks and the Agents entered
into that certain Amended and Restated Credit Agreement dated March 27, 1997
(the "Amended Credit Agreement"), which amended the terms of the Original Credit
Agreement by, among other things, increasing the Original Commitment to US
$137,600,000.00; and
WHEREAS, the Company, the Guarantors and the Additional Guarantor have
requested the Banks and the Agents to further amend the terms of the Amended
Credit Agreement to (i) consent to the Company's issuance of "Senior Notes", as
defined herein, which will be PARI PASSU with the Credit Facility; (ii) to
change the status of the Guarantors from that as "co-borrowers" to "guarantors"
of the Credit Facility, and (iii) to amend other provisions contained therein;
and
<PAGE>
WHEREAS, the Banks and the Agents are willing to comply with such
request, upon and subject to the terms and conditions hereinafter set forth; and
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the Company, the Guarantors, the Additional
Guarantor, the Banks and the Agents hereby agree as follows:
1. DEFINITIONS. All capitalized terms used herein, unless otherwise
defined herein, shall have the same meanings as those ascribed to them in the
Amended Credit Agreement.
2. REPRESENTATIONS AND WARRANTIES. As an essential inducement to the
Banks and the Agents to execute this Amendment, the Company, the Guarantors and
the Additional Guarantor hereby repeat, reaffirm and incorporate herein by
reference all of the representations and warranties contained in Section 5 of
the Amended Credit Agreement.
3. AMENDMENT OF LOAN DOCUMENTS. The Loan Documents are hereby
amended as follows:
(a) All references in the Loan Documents to "Borrower" or
"Borrowers" shall mean Schuler Homes, Inc., a Delaware corporation.
(b) The following definitions shall be included in the Amended
Credit Agreement:
"GUARANTOR" or "GUARANTORS" means, singularly or
collectively, SCHULER HOMES OF CALIFORNIA, INC., a California
corporation, SCHULER HOMES OF OREGON, INC., an Oregon corporation,
SCHULER HOMES OF WASHINGTON, INC., a Washington corporation,
MELODY HOMES, INC., a Delaware corporation, SCHULER REALTY/MAUI,
INC., a Hawaii corporation, SCHULER REALTY/OAHU, INC., a Hawaii
corporation, LOKELANI CONSTRUCTION CORPORATION, a Delaware
corporation, MELODY MORTGAGE CO., a Colorado corporation and SHLR
OF WASHINGTON, INC., a Washington corporation.
"GUARANTY" means an agreement in form and substance
satisfactory to the Banks and the Agents, duly executed by the
Guarantors, jointly and severally guaranteeing the due and
punctual payment of the Note, and the observance and performance
of the Borrower's obligations under the Loan Documents.
"SENIOR NOTES" means the 9.00% Senior Notes due 2008, in
the principal amount of US$100,000,000 issued by the Borrower
pursuant to that certain Offering Memorandum dated April 30, 1998.
(c) The following definitions in the Amended Credit Agreement
are amended as follows:
-2-
<PAGE>
"COMPLETED UNSOLD HOMES" means all condominium units and
one-to-four family residences (including Model Homes) in the
Authorized States owned by the Borrower or its Subsidiaries as
part of their respective real estate development business, for
which construction has been "completed" less than 180 days before
such date, but for which there is in existence no written Contract
for Sale. Construction will be considered "completed" for a
condominium unit when the temporary certificate of occupancy for
such unit has been issued; construction will be considered
"completed" for a one-to-four family residence when all electrical
and plumbing fixtures have been installed and utility services in
connection therewith have been connected. Notwithstanding the
foregoing, Model Homes will continue to be considered Completed
Unsold Homes until the date which is 180 days after the last
production unit in the particular real estate project (for which
such Model Home is used as a model) has been sold.
"CONTRACT FOR SALE" means a sale and purchase agreement
between the Borrower or its Subsidiaries and an unrelated third
party purchaser, who has made an earnest money deposit of not less
than $250.00 and who has been pre-qualified by the Borrower, its
Subsidiaries or an institutional lender; PROVIDED, that such
agreement shall not contain any contingency clause, conditioning
such purchaser's obligation upon the sale of such purchaser's
property.
"CONTRACTED HOMES" means all condominium units and
one-to-four family residences (including Model Homes) in the
Authorized States owned by the Borrower or its Subsidiaries as
part of their respective real estate development business, on
which a building permit has been issued and construction has
begun, and for which the Borrower or its Subsidiaries has entered
into a written Contract for Sale.
"CONTROLLED GROUP" means the Borrower, its Subsidiaries and
all Persons (whether or not incorporated) under common control or
treated as a single employer with the Borrower and its
Subsidiaries pursuant to Section 414(b), (c), (m) or (o) of the
Code.
"ENTITLED LAND" means all land in the Authorized States
owned by the Borrower or its Subsidiaries as part of their
respective real estate development business, which does have
residential zoning and the provision of potable water, sewage and
other utilities available to the boundary of such land.
"ISSUANCE" means the issuance of a Letter of Credit
hereunder at the request of the Borrower and for the account of
the Borrower or its Subsidiaries, pursuant to Section 2.05.
"ISSUING BANK" means any Bank or any Affiliate of any Bank,
other than the Administrative Agent, which issues a Letter of
Credit hereunder at the request of the Borrower and for the
account of the Borrower or its Subsidiaries, in accordance with a
requirement by the beneficiary of such Letter of Credit, and
pursuant to Section 2.05.
-3-
<PAGE>
"LAND UNDER DEVELOPMENT" means all land in the Authorized
States owned by the Borrower or its Subsidiaries as part of their
respective real estate development business, on which grading or
construction of on-site infrastructure improvements has begun, and
for which all necessary zoning and large-lot subdivision approvals
have been obtained and are in full force and effect, but for which
construction of the residential improvements thereon has not
begun.
"LETTERS OF CREDIT" means standby letters of credit issued
by the Administrative Agent or the Issuing Bank, at the request of
the Borrower and for the account of the Borrower or its
Subsidiaries, pursuant to the terms and conditions set forth in
Article II of this Agreement.
"LOAN DOCUMENTS" means this Agreement, the Note, the
Guaranty, and all documents delivered to the Administrative Agent
in connection herewith or therewith.
"MATERIAL ADVERSE EFFECT" means (a) a material impairment
of the ability of the Borrower or its Subsidiaries on a
consolidated basis to perform under any Loan Document and avoid
any Event of Default; or (b) a material adverse effect upon the
legality, validity, binding effect or enforceability of any Loan
Document.
"MODEL HOMES" means all condominium units and one-to-four
family residences in the Authorized States owned by the Borrower
or its Subsidiaries as part of their respective real estate
development business, which are used as models or sales offices to
market a particular real estate development project.
"PERMITTED INDEBTEDNESS" means:
(i) the Country Club Village Loan Facility, and the
Country Club Village Subordinate Mortgage;
(ii) the existing Indebtedness and obligations of the
Company as a joint venture partner in Iao Partners (including any
Indebtedness of Iao Partners for which there is recourse to the
Company); PROVIDED, HOWEVER, that the Company shall be permitted,
after March 31, 1997, (A) to incur additional Indebtedness as a
joint venture partner of Iao Partners, (B) to make additional net
investments in Iao Partners, and (C) to make additional net
advances to Iao Partners, in amounts which shall not exceed
$5,000,000.00, in the aggregate, for all such indebtedness,
investments and advances described in (A), (B) and (C) above;
(iii) the existing Subordinated Debt of the Company
(including the Company's existing subordinated convertible
debentures) in the amount of $57,500,000.00;
-4-
<PAGE>
(iv) Indebtedness, not to exceed $5,000,000 in the
aggregate, created or arising under a conditional sale or other
title retention agreement, or incurred as purchase money
financing, with respect to property acquired by any Borrower;
provided that the rights and remedies of the seller under such
agreement in the event of default are limited to repossession or
sale of such property;
(v) Indebtedness to the extent incurred upon the
indorsement of an instrument in order to negotiate the same, and
for taxes, assessments, governmental charges, or levies to the
extent that payment thereof shall not at the time be required to
be made;
(vi) Indebtedness and Guaranty Obligations (except for
indemnification of sureties issuing bonds in connection with the
Borrowers' real estate development businesses), not to exceed
$5,000,000 in the aggregate, incurred in the ordinary course of
the Borrowers' real estate development businesses;
(vii) Premium Payments;
(viii) Guaranty Obligations (a) incurred in respect of
indemnification of sureties for the issuance of bonds in
connection with the Borrowers' real estate development businesses
and (b) associated with the acquisition of Melody Homes, Inc. and
Melody Mortgage Co. by the Company;
(ix) the Senior Notes and any guaranties thereof by any
Guarantor;
(x) the Guaranty; and
(xi) Indebtedness in respect of the Aggregate Commitment
hereunder.
"PERMITTED INVESTMENT" means (a) the creation of or
investment in a wholly-owned Subsidiary of the Borrower which is
used exclusively as an exchange vehicle to facilitate a like-kind
exchange under Section 1031 of the Code; (b) the investment by the
Borrower or its Subsidiary in any other Subsidiary of the
Borrower; (c) loan receivables from sales incentive programs, not
to exceed $10,000,000.00; and (d) any one of the following dollar
denominated investments, maturing within one year from the date of
acquisition, selected by the Company:
(i) marketable direct obligations issued or
unconditionally guaranteed by the United States government or
issued by any agency thereof and backed by the full faith and
credit of the United States;
(ii) marketable direct obligations issued by any
state of the United States or any political subdivision of any
such state or any public instrumentality thereof and, at the time
of acquisition, having the highest credit rating obtainable from
either Standard & Poor's Ratings Group, a division of McGraw-Hill,
Inc. ("S&P") or Moody's Investors Service, Inc. ("Moody's");
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<PAGE>
(iii) commercial paper or corporate promissory
notes bearing at the time of acquisition the highest credit rating
either of S&P or Moody's issued by United States, Australian,
Canadian, European or Japanese bank holding companies or
industrial or financial companies (other than an Affiliate of the
Company);
(iv) certificates of deposit issued by and bankers
acceptances of and interest bearing deposits with any Bank, or any
commercial bank having capital and surplus of at least
$500,000,000 or the equivalent and which issues (or the parent of
which issues) commercial paper or other short term securities
bearing the highest credit rating obtainable from either S&P or
Moody's; and
(v) money market funds organized under the laws
of the United States or any state thereof that invest solely in
any of the foregoing investments permitted under clauses (i),
(ii), (iii) and (iv).
"REAL ESTATE INDEBTEDNESS" means the total amount of: (1)
the Aggregate Commitment; (2) the existing Subordinated Debt of
the Company (including the Company's existing subordinated
convertible debentures) in the amount of $57,500,000.00; (3) the
Senior Notes; and (4) other indebtedness, as may be permitted by
the Banks, in connection with the development of any Real Estate
Development Assets.
"SUBORDINATED DEBT" means Indebtedness of the Borrower or
its Subsidiaries (including subordinated debentures and
subordinated convertible debentures) to another lender or creditor
who has expressly agreed by virtue of documents or instruments
acceptable to the Majority Banks, that the Indebtedness of such
entity to such lender or creditor is subordinated to the
Obligations of the Borrower hereunder, and that such lender or
creditor will not demand or assert payment of any portion of such
lender's or creditor's Indebtedness until the Obligations of the
Borrower hereunder have been paid in full.
"UNENCUMBERED" when used to describe real property owned by
the Borrower or any of its Subsidiaries, means property which is
not subject to any lien, whether the same is recorded, unrecorded,
springing, resulting from a court judgment or arbitration award,
or otherwise; PROVIDED, (i) that the filing of an application for
mechanic's or materialman's lien on such real property under
Chapter 507, Hawaii Revised Statutes, or such similar statutes
under California, Oregon, Washington and Colorado law, shall not
prevent such property from being Unencumbered, as long as the
Borrower or its Subsidiaries are diligently defending or causing
another party in interest to defend such application; (ii) that
the attachment of any such lien to any such property shall not
prevent such property from being Unencumbered, as long as the
Borrower or its Subsidiaries have filed a bond, sufficient to
discharge such lien, with the clerk of the applicable court, as
provided in Section 507-43, Hawaii Revised Statutes, or such
similar statutes under California, Oregon, Washington and Colorado
law; and (iii) that the recording of any lien by the obligee of
any Premium Payment against
-6-
<PAGE>
property for which a Premium Payment is required and has not been paid,
shall not prevent such property from being Unencumbered, as long as the
Borrower or its Subsidiaries have filed a bond, in form and substance
satisfactory to the Majority Banks, in an amount equal to no less than
125% of the claimed amount of the lien.
"UNENTITLED LAND" means all land in the Authorized States
owned by the Borrower or its Subsidiaries as part of their
respective real estate development business, that does not have
residential zoning, or that does have residential zoning but does
not have the provision of potable water, sewage, or other
utilities available to the boundary of such land.
"UNIMPROVED LAND" means all Entitled Land in the Authorized
States owned by the Borrower or its Subsidiaries as part of their
respective real estate development business, on which no
construction of on-site infrastructure improvements has begun.
"UNSOLD HOMES UNDER CONSTRUCTION" means all condominium
units and one-to-four family residences (including Model Homes) in
the Authorized States owned by the Borrower or its Subsidiaries as
part of their respective real estate development business, for
which building permits have been issued and construction has
commenced (and not been abandoned), but not completed, and for
which there is no written contract of sale with an unrelated third
party purchaser. Construction will be considered to have
"commenced" when the slab or foundation for the condominium
building or one-to-four family residence has been completed.
(d) The sixth and seventh sentences of Section 2.02
("Determination of Borrowing Base; Restrictions on Advances, Swing-Line Advances
and Letters of Credit") are amended as follows:
"The aggregate amount of all Advances and Swing-Line Advances
outstanding hereunder, and all Letters of Credit issued and
outstanding hereunder, shall not exceed the Borrowing Base, as
determined by the Administrative Agent for any succeeding month,
less the outstanding principal amount of the Senior Notes, and
shall in no event exceed the amount of the Aggregate Commitment.
In the event the Borrowing Base, for any month, as determined by
the Administrative Agent hereunder, less the principal amount of
the Senior Notes, is less than the aggregate amount of all
outstanding Advances and Swing-Line Advances and all issued and
outstanding Letters of Credit at the date of such determination,
the Borrower shall, within fifteen (15) Business Days of the
receipt of notification by the Administrative Agent, repay
Advances or Swing-Line Advances and/or repay or cash collateralize
issued and outstanding Letters of Credit, in such amounts as may
be necessary to reduce the aggregate amount of all outstanding
Advances and Swing-Line Advances and all issued and outstanding
Letters of Credit, to the amount of the newly-determined Borrowing
Base, less the principal amount of the Senior Notes."
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<PAGE>
(e) The last sentence of Section 2.05(d) is amended as
follows: "The Letters of Credit shall be issued to support performance
requirements and obligations of the Borrower or its Subsidiaries in
connection with their real estate development businesses in the Authorized
States (including any required deposits for like-kind exchanges under Section
1031 of the Code), and to support capital and performance requirements and
obligations of the Captive Insurance Subsidiary, and not in contravention of
any provision of this Agreement or any Requirement of Law."
(f) The first sentence of Section 2.08(b) ("Mandatory
Prepayments") shall be amended as follows: "If the Borrower or any of its
Subsidiaries sells (other than a sale to the Borrower or any other Subsidiary)
any portion of any property or assets of the Borrower or any of its Subsidiaries
for $10,000,000.00 or more, or if the Borrower or any of its Subsidiaries sells,
in a single transaction, all or substantially all of the property or assets of
the Borrower or of any of its Subsidiaries, the Borrower shall use 100% of the
proceeds of such sale (the "Sale Proceeds") to prepay any Advances, subject to
Section 3.04."
(g) Section 4.02(b) ("Continuation of Representations and
Warranties") shall be amended as follows: "The representations and warranties
made by the Borrower herein, and by the Guarantors in the Guaranty, shall be
true and correct on and as of such date, with the same effect as if made on and
as of such date (except to the extent such representations and warranties
expressly refer to an earlier date, in which case they shall be true and correct
as of such earlier date);".
(h) Section 6.02 ("Certificates; Other Information") shall be
amended as follows:
6.02 CERTIFICATES; OTHER INFORMATION The Borrower shall
furnish to the Administrative Agent, with sufficient copies for
each Bank:
(a) not later than forty-five (45) days after the
end of each Quarter, a certificate of a Responsible Officer of the
Borrower, in the form of EXHIBIT F-1 stating that, to the best of
such officer's knowledge, the Borrower and its Subsidiaries during
such period, have observed and performed all of their covenants
and other agreements, and satisfied every condition contained in
this Agreement to be observed, performed or satisfied by the
Borrower and its Subsidiaries and that such officer has obtained
no knowledge of any Default or Event of Default except as
specified in such certificate, which, where a Default or Event of
Default is specified, shall set forth the details of the
occurrence referred to therein, state what action the Borrower or
its Subsidiaries propose to take with respect thereto and at what
time, and describe with particularity any and all applicable
clauses or provisions of this Agreement which have been breached
or violated, together with a calculation of (i) the percentage of
common stock in the Company owned by James K. Schuler as of the
end of such Quarter, (ii) the minimum Consolidated Tangible Net
Worth of the Borrower and its Subsidiaries as of the end of such
Quarter, (iii) the Consolidated Net Earnings for the Borrower and
its Subsidiaries during such Quarter, (iv) the amount of and net
proceeds received from any Equity Offering (other than the
exercise of an
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<PAGE>
employee stock option) or conversion of a subordinated convertible
debenture consummated or effected during such Quarter, (v) Real Estate
Development Assets, Real Estate Indebtedness, and the Development Ratio
for the Borrower and its Subsidiaries as of the end of such Quarter, (vi)
the Fixed Charges Ratio for the Borrower and its Subsidiaries as of the
end of such Quarter, and (vii) the Capitalized Interest for the Borrower
and its Subsidiaries as of the end of such Quarter, showing, for each
item (i) through (vii) above, the comparison between such Quarter and
previous Quarters (beginning with the Quarter ending December 31, 1996).
(b) not later than forty-five (45) days after the
end of each Quarter a certificate of a Responsible Officer of the
Borrower, in the form of EXHIBIT F-2 for each project in which the
Borrower or any of its Subsidiaries has an investment, relating to
the status of all Unentitled Land (location, purchase price,
number of lots and entitlement schedule), Unimproved Land
(location, number of lots and development schedule), and Land
Under Development (location and status of development), as of the
end of the previous Quarter.
(c) not later than fifteen (15) days after the
end of each month, provided, however, that if the end of such
month is also the end of a Quarter, then not later than
twenty-five (25) days after the end of such month, a certificate
of a Responsible Officer of the Borrower, in the form of EXHIBIT
F-3 for each project in which the Borrower or any of its
Subsidiaries has an investment, relating to the status of all
Unsold Homes Under Construction (location and number of homes),
Completed Unsold Homes (location and number of homes), Completed
Unsold Homes Over 180 Days (location and number of homes), and
Contracted Homes (location, number of homes and status of sales),
as of the end of the previous month.
(d) not later than fifteen (15) days after the
end of each month, provided, however, that if the end of such
month is also the end of a Quarter, then not later than
twenty-five (25) days after the end of such month, a Borrowing
Base Certificate of a Responsible Officer of the Borrower, in the
form of EXHIBIT F-4, containing a detailed listing and a summary
of all Real Estate Development Assets, as of the end of the
previous month.
(e) not later than forty-five (45) days after the
end of each Quarter, a Leverage Ratio Certificate of a Responsible
Office of the Borrower, in the form of EXHIBIT F-5, containing a
calculation of the total Indebtedness of the Borrower and its
Subsidiaries, and the Consolidated Tangible Net Worth of the
Borrower and its Subsidiaries, as of the end of the previous
Quarter, based on balance sheet information prepared in accordance
with GAAP.
(f) as soon as available, but not later than
ninety (90) days after the end of each fiscal year, a projected
consolidated balance sheet of the Borrower and its Subsidiaries
for the next two (2) fiscal years, prepared on a Quarterly basis,
and the related projected consolidated statements of income,
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<PAGE>
shareholders' equity and cash flows for such fiscal years, setting forth
in each case in comparative form the figures for the previous fiscal year
(whether such figures for such previous fiscal year were actual or
projected).
(g) promptly, such additional business,
financial, corporate affairs and other information as the
Administrative Agent, at the request of any Bank, may from time to
time reasonably request.
(i) Section 6.12 shall be amended and entitled as follows:
6.12 SUBSIDIARIES. Each Subsidiary of the Borrower shall
unconditionally and jointly and severally guarantee the
obligations of the Borrower under the Loan Documents pursuant to
the Guaranty. The guarantee obligations of each Guarantor will be
a Permitted Indebtedness and senior to all Subordinated Debt, but
PARI PASSU with any guaranties of such Subsidiary provided in
support of the Senior Notes. To the extent that the Borrower or
its Subsidiaries are permitted under this Agreement to incorporate
or otherwise form new Subsidiaries, the Borrower agrees that such
new Subsidiary shall be added as a Guarantor under this Agreement
and the Guaranty, and shall execute such Guaranty; provided,
however, that the Captive Insurance Subsidiary shall not be
subject to this section.
(j) Section 7.02 ("Leverage Ratio) shall be amended as follows:
7.02 LEVERAGE RATIO.
(a) The Borrower shall not, and shall not permit its
Subsidiaries to, allow the Leverage Ratio, measured as of the end
of each Quarter ending March 31, 1997, June 30, 1997, September
30, 1997, December 31, 1997 and March 31, 1998, to exceed 1.50 to
1.
(b) The Borrower shall not, and shall not permit its
Subsidiaries to, allow the Leverage Ratio, measured as of the end
of each Quarter ending June 30, 1998, September 30, 1998, December
31, 1998, March 31, 1999, and June 30, 1999, to exceed 1.35 to 1.
(k) Section 7.03 ("Development Ratio") shall be amended as
follows:
7.03 DEVELOPMENT RATIO. The Borrower shall not, and
shall not permit its Subsidiaries to, allow the Development Ratio,
measured as of the end of each Quarter, to be less than 1.50 to 1.
(l) Section 7.04 ("Fixed Charges Ratio") shall be amended as
follows:
7.04 FIXED CHARGES RATIO. The Borrower shall not, and
shall not permit its Subsidiaries to, allow the Fixed Charges
Ratio, measured as of the end of each Quarter on a rolling four
(4) Quarters basis, to be less than 1.00 to 1 in each
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<PAGE>
Quarter of 1997, 1.25 to 1 in the first two Quarters of 1998, 1.50 to 1
in the last two Quarters of 1998 and 1.75 to 1 in the first two Quarters
of 1999. In addition, the Borrower shall not, and shall not permit its
Subsidiaries to, allow the Fixed Charges Ratio, measured as of the end of
each Quarter on a quarter only basis, to be less than 1.50 to 1 for the
last two Quarters of 1997.
(m) Section 7.07 ("Additional Investments and Acquisitions")
shall be amended as follows:
7.07 ADDITIONAL INVESTMENTS AND ACQUISITIONS. The
Borrower shall not, and shall not permit any of its Subsidiaries
to, except as provided below, directly or indirectly, invest in,
purchase or acquire any interest in real property (fee or
leasehold) or any stocks, bonds, notes, debentures or other
securities of or acquire by purchase or otherwise all or
substantially all of the business or assets, or stock, partnership
interests or other evidence of ownership (beneficial or otherwise)
or make any other investment in, any corporation, association,
partnership, organization or individual; or directly or
indirectly, make or commit to make any loan, advance, guaranty or
extension of credit to any corporation, association, partnership,
organization or individual; or directly or indirectly, assume,
endorse, be or become liable for, or guarantee directly or
indirectly any debt or obligation of any corporation, association,
partnership, organization or individual; PROVIDED HOWEVER, that
notwithstanding the foregoing, the Borrower and its Subsidiaries
may (a) make other real estate investments or acquisitions, the
total capital commitment for which shall not exceed the following
designated amounts for a single project (multiple phases of a
project are considered in the aggregate and not as separate
projects), and not in contravention of any provision of this
Agreement or any Requirement of Law: (i) $25,000,000 for projects
in Washington, Oregon and Northern California, and (ii)
$75,000,000 for projects in Colorado and Hawaii (provided further,
that all existing agreements for real estate acquisitions shall be
excluded from this provision); (b) make other investments in an
amount which shall not exceed $2,000,000 in a Captive Insurance
Subsidiary; (c) make any other Permitted Investment, without the
necessity of obtaining the consent of the Majority Banks; and (d)
make such guaranties as may be necessary in support of the Senior
Notes. If the Borrower wishes to obtain the consent of the
Majority Banks for any proposed deviation from the above, the
Borrower shall furnish to the Administrative Agent, and the
Administrative Agent shall forward to the Banks: (i) a copy of all
contracts to be entered into by the Borrower or its Subsidiaries
with respect to the proposed transaction, (ii) a pro forma budget
and cash flow projection for the proposed transaction, (iii)
supporting market studies and projections as deemed necessary by
the Majority Banks, and (iv) supporting appraisals and/or market
evaluations, if required by the Majority Banks. The
Administrative Agent shall advise the Borrower of the decision by
the Majority Banks within thirty (30) days after the receipt by
the Administrative Agent of all of the required items described
above.
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<PAGE>
(n) Section 7.08 ("Inventory Restrictions") shall be amended as
follows:
7.08 INVENTORY RESTRICTIONS.
(a) The Borrower shall not, and shall not permit
any of its Subsidiaries to, acquire or obtain any interest in, or
contract to acquire or obtain any interest in, any Unentitled
Land.
(b) The Borrower shall not, and shall any permit
any of its Subsidiaries to, allow their inventory of Completed
Unsold Homes to exceed the applicable levels set forth in SCHEDULE
2 attached hereto.
(c) The Borrower shall not, and shall not permit
any of its Subsidiaries to, allow its inventory of Unimproved Land
to exceed 35% of the GAAP consolidated net book value of "Real
Estate Inventories" in the consolidated financial statements of
the Company and its Subsidiaries, the balance of which is included
in the Borrowing Base calculation, as of the end of each month.
(o) Section 7.09 ("Negative Pledge") shall be amended as
follows:
7.09 NEGATIVE PLEDGE. The Borrower and/or any of its
Subsidiaries shall not create, incur, assume, or suffer to exist
any lien, encumbrance, mortgage, security interest, pledge, or
charge of any kind (including. without limitation, any negative
pledge, or any "secret", "springing", or other unrecorded lien)
upon any of their property or assets of any character, whether now
owned or hereafter acquired, or transfer any of such property or
assets for the purpose of subjecting the same to the payment of
any indebtedness or performance of any other obligation, or
acquire or have an option to acquire any property or assets upon
conditional sale or other title retention agreement, device or
arrangement; provided, however, that the Borrower and its
Subsidiaries may create or incur or suffer to be created or
incurred or to exist: (i) liens for taxes or assessments for
governmental charges or levies if payment thereof shall not at the
time be required to be made; (ii) liens in respect of pledges and
deposits under workers' compensation laws or similar legislation,
and in respect of pledges or deposits in connection with appeal or
similar bonds incidental to the conduct of litigation; (iii) liens
incidental to the conduct of the business of the Borrower and its
Subsidiaries not incurred in connection with the borrowing of
money or the obtaining of advances or credit and which do not in
the aggregate materially detract from the value of their assets or
property; (iv) mechanics' and materialmen's liens which have
attached pursuant to Chapter 507, Hawaii Revised Statutes, as long
as the Borrower or its Subsidiaries have filed a bond, sufficient
to discharge such lien, with the clerk of the applicable circuit
court, as provided in Section 507-43, Hawaii Revised Statutes; and
(v) liens specifically allowed with respect to "Permitted
Indebtedness". This negative pledge shall not apply to any
portion of the Borrower's or any of its Subsidiaries' property or
assets transferred, assigned or conveyed upon due consideration to
a "Third Party
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<PAGE>
Purchaser". As used herein, the term "Third Party Purchaser" shall mean
any individual, partnership, corporation, business trust, joint stock
company, trust, unincorporated association, joint venture or governmental
authority, other than the Borrower or any of its Subsidiaries, Waiakoa
Estates Subdivision Joint Venture, Iao Partners, James K. Schuler, Pamela
S. Jones, Harvey L. Goth, Michael T. Jones, Peter M. Aiello, Douglas M.
Tonokawa, Mary K. Flood, David Oyler or Jim Henry.
(p) Section 7.10 ("No High-Rise Construction") shall be amended
as follows:
7.10 NO HIGH-RISE CONSTRUCTION. None of the Borrower or
any of its Subsidiaries shall engage in any development of a
residential or commercial building having more than four (4)
stories, other than Country Club Village.
(q) Section 7.11 ("Capitalized Interest") shall be amended as
follows:
7.11 CAPITALIZED INTEREST. The Borrower shall not, and
shall not permit its Subsidiaries to, allow the Capitalized
Interest, measured as of the end of each Quarter, to exceed 8% of
the value of Real Estate Development Assets.
(r) Section 7.12 ("Transfer of Assets to Captive Insurance
Subsidiary") shall be amended as follows:
7.12 TRANSFER OF ASSETS TO CAPTIVE INSURANCE SUBSIDIARY.
Except as may be permitted in Section 7.07, the Borrower or any of
its Subsidiaries shall not transfer any assets or property to the
Captive Insurance Subsidiary.
(s) Section 8.01(e) ("Event of Default - Cross-Default") shall
be amended by adding a new subsection (iv) as follows: "or (iv) fails to make
any payment in respect of or perform or observe in any material respect any
other condition or covenant of the Senior Notes, if the effect is an event of
default under the Senior Notes;".
(t) Section 8.01(f) ("Event of Default - Insolvency; Voluntary
Proceedings") shall be amended as follows:
(f) INSOLVENCY; VOLUNTARY PROCEEDINGS. The Borrower
or any of its Subsidiaries (i) ceases or fails to be Solvent, or
generally fails to pay, or admits in writing its inability to pay,
its debts as they become due, subject to applicable grace periods,
if any, whether at stated maturity or otherwise; (ii) voluntarily
ceases to conduct its business in the ordinary course, except, in
connection with a merger or acquisition of substantially all of
the assets of such Subsidiary by the Company or another Subsidiary
of the Company; (iii) commences any Insolvency Proceeding with
respect to itself; or (iv) takes any action to effectuate or
authorize any of the foregoing; or
(u) Section 8.01(g) ("Event of Default - Involuntary
Proceedings") shall be amended as follows:
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<PAGE>
(g) INVOLUNTARY PROCEEDINGS. (i) Any involuntary
Insolvency Proceeding is commenced or filed against the Borrower
or any of its Subsidiaries, or any writ, judgment, warrant of
attachment, execution or similar process, is issued or levied
against a substantial part of such party's properties, and any
such proceeding or petition shall not be dismissed, or such writ,
judgment, warrant of attachment, execution or similar process
shall not be released, vacated or fully bonded within 60 days
after commencement, filing or levy; (ii) the Borrower or any of
its Subsidiaries admits the material allegations of a petition
against it in any Insolvency Proceeding, or an order for relief
(or similar order under non-U.S. law) is ordered in any Insolvency
Proceeding; or (iii) the Borrower or any of its Subsidiaries
acquiesces in the appointment of a receiver, trustee, custodian,
conservator, liquidator, mortgagee in possession (or agent
therefor), or other similar Person for itself or a substantial
portion of its property or business; or
(v) Section 8.01(i) ("Event of Default - Monetary Judgments")
shall be amended as follows:
(i) MONETARY JUDGMENTS. One or more
non-interlocutory judgments, orders or decrees shall be entered
against the Borrower or any of its Subsidiaries involving in the
aggregate (existing at any one time for such entity) a liability
(not fully covered by independent third-party insurance) as to any
single or related series of transactions, incidents or conditions,
of $5,000,000 or more, and the same shall remain unsatisfied,
unvacated, unbonded or unstayed pending appeal for a period of 60
days after the entry thereof; or
(w) Section 8.01(j) ("Event of Default - Non-Monetary
Judgments") shall be amended as follows:
(j) NON-MONETARY JUDGMENTS. Any non-monetary
judgment, order or decree shall be rendered against the Borrower
or any of its Subsidiaries which does or would reasonably be
expected to have a Material Adverse Effect, and there shall be any
period of 10 consecutive days during which a stay of enforcement
of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
4. DELIVERY OF RELATED DOCUMENTS. The Company, the Guarantors and
the Additional Guarantor shall deliver to the Administrative Agent on or before
April 29, 1998 the following documents, all of which shall be in form and
substance satisfactory to the Banks and the Agents:
(a) The Guaranty executed by the Guarantors and the Additional
Guarantor;
(b) Properly certified resolutions of the respective Boards of
Directors of the Borrower, the Guarantors and the Additional Guarantor duly
authorizing the execution and delivery of this Second Amendment by such party.
-14-
<PAGE>
(c) An opinion from counsel to the Borrower stating that after
the execution and delivery of this Amendment by the Borrower, the Loan Documents
will continue to be enforceable in accordance with their terms and will continue
to constitute the valid and legally binding obligations of the Borrower.
(d) An opinion from counsel to the Guarantors and the
Additional Guarantor stating that after the execution and delivery of this
Amendment and the Guaranty by the Guarantors and the Additional Guarantor, the
Loan Documents, including the Guaranty, will continue to be enforceable in
accordance with their terms and the Guaranty will constitute the valid and
legally binding obligations of the Guarantors and the Additional Guarantor.
5. CONFORMANCE. The Loan Documents are hereby amended to conform
with this Amendment, but in all other respects such provisions are to be and
continue in full force and effect.
6. CONTINUANCE OF SECURITY. The performance of the obligations of
the Company under the Loan Documents, as herein amended, shall be fully secured
by and entitled to the benefits of the Guaranty and the other Loan Documents,
and any modifications, extensions, renewals or replacements thereof.
7. NO OFFSETS. As of the date hereof, the Company has no claims,
defenses or offsets against the Banks or the Agents, or against the Company's
obligations under the "Loan Documents", as herein amended, whether in connection
with the negotiations for or closing of the Loan, of this Amendment, or
otherwise, and if any such claims, defenses or offsets exist, they are hereby
irrevocably waived and released. As of the date hereof, the Guarantors and the
Additional Guarantor have no claims, defenses or offsets against the Banks or
the Agents, or against the Guarantors' and the Additional Guarantor's
obligations under the Guaranty, whether in connection with the negotiations for
or closing of the Credit Facility, of this Amendment, or otherwise, and if any
such claims, defenses or offsets exist, they are hereby irrevocably waived and
released.
8. NO WAIVER. This Amendment is made on the express condition that
nothing herein contained shall in any way be construed as affecting, impairing
or waiving any rights of the Banks or the Agents under any of the Loan
Documents, as herein amended.
9. ENTIRE AGREEMENT. This Amendment incorporates all of the
agreements between the parties relating to the amendment of the Loan Documents
and supersedes all other prior or concurrent oral or written letters, agreements
or understandings relating to such amendment.
10. HEADINGS. The headings of paragraphs and subparagraphs herein are
inserted only for convenience and reference, and shall in no way define, limit
or describe the scope or intent of any provisions of this Amendment.
11. GOVERNING LAW; SEVERABILITY. This Amendment is executed and
delivered, and shall be construed and enforced, in accordance with and governed
by the laws of the State of Hawaii. If any provision of this Amendment is held
to be invalid or unenforceable, the validity or enforceability of the other
provisions of this Amendment shall remain unaffected.
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<PAGE>
12. SUBMISSION TO JURISDICTION. The Company, the Guarantors and the
Additional Guarantor hereby irrevocably and unconditionally submit, but only for
the purposes of any action or proceeding which the Banks and/or the Agents may
bring to enforce any of the Loan Documents, as amended herein, to the
jurisdiction of the courts of the State of Hawaii and the United States District
Court for the District of Hawaii. Such submission to such jurisdiction shall
not prevent the Banks and the Agents from commencing any such action or
proceeding in any other court having jurisdiction.
13. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument, and in making proof of this
Amendment, it shall not be necessary to produce or account for more than one
such counterpart.
14. EXPENSES. The Company shall pay all expenses incurred by the
Administrative Agent in negotiations for and documentation of this Amendment and
the satisfaction of the conditions thereof, including, but not limited to, fees
and expenses of legal counsel for the Administrative Agent, and any other costs
incurred by the Administrative Agent in connection with any of the matters
described in this Amendment.
15. BINDING EFFECT. This Amendment shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that the Company shall not assign this Amendment or any of
the rights, duties or obligations of the Company hereunder without the prior
written consent of the Banks and the Agents.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment the
day and year first above written.
SCHULER HOMES, INC.
By /s/ Douglas M. Tonokawa
----------------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
and Chief Accounting Officer
"Borrower"
SCHULER HOMES OF CALIFORNIA, INC.
By /s/ Douglas M. Tonokawa
----------------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
and Chief Accounting Officer
SCHULER HOMES OF OREGON, INC.
By /s/ Douglas M. Tonokawa
----------------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
and Chief Accounting Officer
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<PAGE>
SCHULER HOMES OF WASHINGTON, INC.
By /s/ Douglas M. Tonokawa
----------------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
and Chief Accounting Officer
MELODY HOMES, INC.
By /s/ Douglas M. Tonokawa
----------------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
and Chief Accounting Officer
SCHULER REALTY/MAUI, INC.
By /s/ Douglas M. Tonokawa
----------------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
and Chief Accounting Officer
SCHULER REALTY/OAHU, INC.
By /s/ Douglas M. Tonokawa
----------------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
and Chief Accounting Officer
LOKELANI CONSTRUCTION CORPORATION
By /s/ Douglas M. Tonokawa
----------------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
and Chief Accounting Officer
MELODY MORTGAGE CO.
By /s/ Douglas M. Tonokawa
----------------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
and Chief Accounting Officer
"Guarantors"
SHLR OF WASHINGTON, INC.
By /s/ Douglas M. Tonokawa
----------------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
and Chief Accounting Officer
"Additional Guarantor"
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<PAGE>
FIRST HAWAIIAN BANK
By /s/ Alvin Takahashi
----------------------------------
Name: Alvin Takahashi
Title: REAL ESTATE LOAN OFFICER
"Administrative Agent"
BANK OF AMERICA NT&SA
By /s/ Cynthia K. Hamilton
----------------------------------
Name: Cynthia K. Hamilton
Title: Vice President
"Documentation Agent"
FIRST HAWAIIAN BANK
By /s/ Alvin Takahashi
----------------------------------
Name: Alvin Takahashi
Title: REAL ESTATE LOAN OFFICER
BANK OF AMERICA NT&SA
By /s/ Cynthia K. Hamilton
----------------------------------
Name: Cynthia K. Hamilton
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Michael A. Parisi
----------------------------------
Name: Michael A. Parisi
Title: CORPORATE BANKING OFFICER
BANK BOSTON, N.A.
By /s/ Nicholas Whiting
----------------------------------
Name: Nicholas Whiting
Title: VICE PRESIDENT
BANK OF HAWAII
By /s/ Joyce Y. Sakai
----------------------------------
Name: Joyce Y. Sakai
Title: Vice President
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<PAGE>
BANK ONE, ARIZONA, NA
By /s/ Louis W. Morano, Jr.
----------------------------------
Name: Louis W. Morano, Jr.
Title: ASSISTANT VICE PRESIDENT
"Banks"
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<PAGE>
GUARANTY
This Guaranty is made by (i) SCHULER HOMES OF CALIFORNIA, INC., a
California corporation, SCHULER HOMES OF OREGON, INC., an Oregon corporation,
SCHULER HOMES OF WASHINGTON, INC., a Washington corporation, MELODY HOMES, INC.,
a Delaware corporation, SCHULER REALTY/MAUI, INC., a Hawaii corporation, SCHULER
REALTY/OAHU, INC., a Hawaii corporation, LOKELANI CONSTRUCTION CORPORATION, a
Delaware corporation, MELODY MORTGAGE CO., a Colorado corporation, (collectively
referred to as the "Co-Guarantors") and (ii) SHLR OF WASHINGTON, INC., a
Washington corporation (the "Additional Guarantor"), (the Co-Guarantors and the
Additional Guarantor are collectively referred to as the "Guarantors", and
individually referred to as a "Guarantor").
WHEREAS, (i) SCHULER HOMES, INC., a Delaware corporation (the "Borrower"),
(ii) the Co-Guarantors, (iii) the banks from time to time party to the Credit
Agreement (collectively referred to as the "Banks", and individually referred to
as a "Bank"), (iv) FIRST HAWAIIAN BANK, a Hawaii corporation, as administrative
and co-syndication agent for the Banks (the "Administrative Agent"), and (v)
BANK OF AMERICA NT&SA, a national banking association, as documentation and
co-syndication agent for the Banks (the "Documentation Agent", the
Administrative Agent and the Documentation Agent are collectively referred to as
the "Agents"), entered into that certain Amended and Restated Credit Agreement
dated March 27, 1997 (the "Credit Agreement"), relating to a revolving credit
facility (the "Credit Facility") in the principal amount of $137,600,000.00 made
available to the Borrower and the Guarantors, as co-borrowers, by the Banks; and
WHEREAS, the Borrower and the Guarantors have requested, and the Banks and
the Agents have agreed, to further amend the Credit Agreement to (i) consent to
the Borrower's issuance of "Senior Notes", which will be PARI PASSU with the
Credit Facility; (ii) to change the status of the Guarantors from that as
"co-borrowers" to "guarantors" of the Credit Facility, and (iii) to amend
certain other provisions, as contained in that certain Second Amendment to Loan
Documents (the "Second Amendment") executed concurrently herewith by the
parties; and
WHEREAS, the Borrower and the Guarantors desire to change the status of the
Guarantors from that as "co-borrowers" to "guarantors" of the Credit Facility in
order to facilitate the issuance of the Senior Notes; and
NOW, THEREFORE, as an essential inducement to the Banks and the Agents to
consent to the issuance of the Senior Notes by the Borrower and to enter into
the Second Amendment, and as a consideration for so doing, the Guarantors hereby
agree with the Banks and the Agents, and with each holder of the Note evidencing
the Credit Facility and each holder of any interest in the Note (each holder of
the Note and each holder of any interest therein being hereinafter collectively
and individually called the "Holder"), as follows:
1. DEFINITIONS As used herein, the following terms shall have the
following meanings:
(a) "INDEBTEDNESS" shall mean (i) all sums due and payable under the Note,
including, without limitation, principal, interest, fees and charges thereunder;
and (ii) any and all other indebtedness or liability of the Borrower to the
Banks and/or the Agents under or arising out of
<PAGE>
the Credit Facility or the Loan Documents, including, as to (i) and (ii) above,
any extension, renewal, reduction, compromise, indulgence, variation or
modification thereof.
(b) "OBLIGATIONS" shall mean each and every agreement, covenant and
condition to be observed or performed by the Borrower under the Loan Documents.
(c) "EXPENSES" shall mean all costs and expenses, including, but not
limited to, attorneys' fees, incurred in connection with the enforcement by the
Banks and the Agents of its rights against the Borrower under the Loan Documents
and against the Guarantors hereunder, following any default in the due and
punctual payment of the Indebtedness, or observance and performance of the
Obligations, by the Borrower.
2. INDEBTEDNESS AND OBLIGATIONS GUARANTEED. The Guarantors hereby jointly
and severally, absolutely, irrevocably and unconditionally guarantee the payment
of the Indebtedness and the observance and performance of the Obligations. In
connection therewith, the Guarantors will pay to the Banks and the Agents, on
demand, all of the Expenses, and will indemnify and hold the Banks and the
Agents harmless from and against any loss, cost, liability or expense which the
Banks and/or the Agents may sustain or incur by reason of the failure of the
Borrower to pay all of the Indebtedness or to observe and perform all of the
Obligations.
3. UNCONDITIONAL AND ABSOLUTE PAYMENT GUARANTY. This is an unconditional
and absolute guaranty of payment and not merely a guaranty of collection, and if
for any reason, any Indebtedness shall not be paid when and as due and payable,
or any Obligation shall not be observed or performed when the same is required
to be observed or performed, the Guarantors undertake promptly to pay all such
Indebtedness, and to observe and perform, or to cause the appropriate party to
observe and perform, each of such Obligations, regardless of any defense or
setoff or counterclaim which the Borrower may have or assert, and regardless of
whether or not any Holder or anyone on behalf of any Holder shall have
instituted any suit, action or proceeding or exhausted its remedies or taken any
steps to enforce any rights against any of such parties or any other person to
collect all or part of any such amounts, or to compel any such performance,
either pursuant to the Loan Documents, or at law or in equity, and regardless of
any other condition or contingency.
4. WAIVER. The Guarantors hereby unconditionally waive any and all
statutory and common law suretyship defenses that now or hereafter may be
available to the Guarantors, including, without limitation (a) any requirement
that any Holder in the event of any default by the Borrower first make demand
upon, or seek to enforce remedies against, the Borrower or any other guarantor
or any security or collateral held by the Banks or the Agents at any time, or to
pursue any other remedy in its power, before being entitled to payment from the
Guarantors of the amounts payable by the Guarantors hereunder, or before
proceeding against the Guarantors; (b) the defense of the statute of limitations
in any action hereunder or for the collection of any Indebtedness or the
performance of any Obligation; (c) any defense that may arise by reason of (i)
the incapacity, lack of authority, death or disability of the Borrower, any
Guarantor or any other person or entity, (ii) the revocation or repudiation of
this Guaranty by the Guarantors, or the revocation or repudiation of any of the
Loan Documents by the Borrower or any other person or entity, (iii) the failure
of the Banks or the Agents to file or enforce a claim against the estate (either
in administration, bankruptcy or any other proceeding) of the Borrower or any
other
2
<PAGE>
person or entity, (iv) the unenforceability in whole or in part of the Loan
Documents or any other document, instrument, or agreement referred to therein,
or any limitation on the liability of the Borrower thereunder, or any limitation
on the method or terms of payment thereunder, which may now or hereafter be
caused or imposed in any manner whatsoever, (v) the election by the Banks and
the Agents, in any proceeding instituted under the federal Bankruptcy Code, of
the application of Section 1111(b)(2) of the federal Bankruptcy Code, or (vi)
any borrowing or grant of a security interest under Section 364 of the federal
Bankruptcy Code; (d) diligence, presentment, demand for payment, protest, notice
of discharge, notice of acceptance of this Guaranty, and indulgences and notices
of any other kind whatsoever; (e) any defense based upon an election of remedies
(including, if available, an election to proceed by non-judicial foreclosure) by
the Banks and the Agents which destroys or otherwise impairs any subrogation
rights of the Guarantors or the right of the Guarantors to proceed against the
Borrower for reimbursement, or both; (f) any defense based upon any taking,
modification or release of any collateral or guaranties for the Indebtedness of
the Borrower to the Banks and the Agents, or any failure to perfect any security
interest in, or the taking of any other action or the failure to take any other
action with respect to any collateral securing payment of the Indebtedness or
performance of the Obligations; (g) any rights or defenses based upon an offset
by the Guarantors against any obligation now or hereafter owed to the Guarantors
by the Borrower; or (h) any right of appraisement with regard to the value of
any collateral which the Banks may apply as a credit to the obligations of the
Borrower, through foreclosure or otherwise, and agrees that the determination by
an independent appraiser appointed by the Banks or the Agents of the value of
such collateral shall be binding upon the Guarantors for all purposes; it being
the intention hereof that the Guarantors shall remain fully liable, as
principal, until the full payment of the Indebtedness, full performance of all
the Obligations, and termination of the obligations of the Banks and the Agents
under the Loan Documents, notwithstanding any act, omission or thing which might
otherwise operate as a legal or equitable discharge of the Guarantors.
5. NO RELEASE OF GUARANTY. The obligations, covenants, agreements and
duties of the Guarantors under this Guaranty shall not be released, affected,
stayed or impaired, except upon the express written consent of the Banks and the
Agents, by (a) any assignment, indorsement or transfer, in whole or in part, of
the Note, although made without notice to or the consent of the Guarantors; or
(b) any alteration, compromise, modification, acceleration, extension or change
to or of the time or manner of payment of any of the Indebtedness, or the
performance or observance of any of the Obligations; or (c) any increase or
reduction in the rate of interest or amount of principal payable on the Note, or
any other Indebtedness; or (d) the voluntary or involuntary liquidation, sale or
other disposition of all or substantially all of the assets of the Borrower or
the Guarantors; or (e) any receivership, insolvency, bankruptcy, reorganization,
dissolution or other similar proceedings, affecting the Borrower or the
Guarantors or any of their assets; or (f) any release of any property from the
lien and security interest created by any of the Loan Documents, the
subordination of any such lien or security interest, or the acceptance of
additional or substitute property as security under the Loan Documents; or (g)
the release or discharge of the Borrower from the observance or performance of
any agreement, covenant, term or condition contained in the Loan Documents; or
(h) the foreclosure of any lien or security interest on any property securing
repayment of the Indebtedness, or the acceptance of a deed or assignment of any
such property in lieu of foreclosure; or (i) any action which the Holder may
take or omit to take by virtue of the Loan Documents or through any course of
dealing with the
3
<PAGE>
Borrower; or (j) the release of any existing guarantor or the addition of a new
guarantor; or (k) the operation of law or any other cause, whether similar or
dissimilar to the foregoing.
6. WAIVER OF SUBROGATION. The Guarantors hereby waive, release and
discharge any claim or right the Guarantors may have to be subrogated to the
rights of the Holder following payment of the Indebtedness and performance of
the Obligations. This waiver, release and discharge shall continue even after
the Indebtedness has been paid in full, the Obligations performed, and the
obligations of the Banks and the Agents under the Loan Documents terminated.
7. SUBORDINATION OF INDEBTEDNESS. Any indebtedness of the Borrower now or
hereafter held by any Guarantor is hereby subordinated to the Indebtedness of
the Borrower to the Holder; and, upon the request of the Holder, such
indebtedness of the Borrower to the Guarantors shall be collected, enforced and
received by the Guarantors as trustee for the Holder and shall be paid over to
the Holder on account of the Indebtedness of the Borrower to the Holder without
reducing or affecting in any manner the liability of the Guarantors under the
other provisions of this Guaranty.
8. CLAIMS IN BANKRUPTCY. The Guarantors will file all claims against the
Borrower in any bankruptcy or other proceeding in which the filing of claims is
required or permitted by law upon any indebtedness of the Borrower to any
Guarantor or claim against the Borrower by any Guarantor, and the Guarantors
hereby assign to the Banks and the Agents all rights of the Guarantors
thereunder. If the Guarantor does not file any such claim, the Banks and the
Agents, as attorney-in-fact for such Guarantor, is hereby authorized to do so in
the name of the Guarantor or, in the discretion of the Banks and the Agents, to
assign the claim and to cause proof of claim to be filed in the name of the
nominee of the Banks and the Agents. The Banks, the Agents or their nominee
shall have the sole right to accept or reject any plan proposed in such
proceeding and to take any other action which a party filing a claim is entitled
to take. In all such cases, whether in administration, bankruptcy or otherwise,
the person or persons authorized to pay such claim shall pay to the Banks and
the Agents the full amount payable on such claim up to the amounts due under
this Guaranty, and, to the full extent necessary for that purpose, the
Guarantors hereby assign to the Banks and the Agents all of the Guarantors'
rights to any such payments or distributions to which the Guarantors would
otherwise be entitled; provided, however, that the Guarantors' obligations
hereunder shall not be satisfied except to the extent that the Banks and the
Agents receive cash by reason of any such payment or distribution. If the Banks
and the Agents receive anything hereunder other than cash, the same shall be
held as collateral for the payment of all amounts due under this Guaranty.
9. FINANCIAL CAPACITY.
(a) The Guarantors hereby agree, as a material inducement to the Banks and
the Agents to enter into the Second Amendment, to furnish to the Banks and the
Agents such financial statements, reports and information as required by
Sections 6.01 and 6.02 of the Credit Agreement. The Banks and the Agents agree
to keep confidential all of the financial information which it receives in
connection herewith, except that such information may be provided to any
assignee as provided in Section 17 hereof.
4
<PAGE>
(b) The Guarantors will promptly notify each Bank through the
Administrative Agent of the commencement of, or any material development in, any
litigation or proceeding affecting any Guarantor which, if adversely determined,
would reasonably be expected to have a Material Adverse Effect (as defined in
the Credit Agreement); or in which the relief sought is an injunction or other
stay of the performance of this Guaranty. Such notice shall be accompanied by a
written statement by the chief executive officer, the president or the chief
financial officer of such Guarantor, or any other officer having substantially
the same authority and responsibility, setting forth details of the occurrence
referred to therein, and stating what action the Guarantors propose to take with
respect thereto and at what time.
10. CONDITION OF BORROWER. The Guarantors are fully aware of the
financial condition of the Borrower and are executing and delivering this
Guaranty based solely upon the Guarantors' own independent investigation of all
matters pertinent hereto, and are not relying in any manner upon any
representation or statement of the Banks or the Agents. The Guarantors
represent and warrant that the Guarantors are in a position to obtain and the
Guarantors hereby assume full responsibility for obtaining, any additional
information concerning the Borrower's financial condition and any other matter
pertinent hereto as the Guarantors may desire, and the Guarantors are not
relying upon or expecting the Banks or the Agents to furnish to the Guarantors
any information now or hereafter in the possession of the Banks or the Agents
concerning the same or any other matter. By executing this Guaranty, the
Guarantors knowingly acknowledge and accept the full range of risks encompassed
within a contract of this type. The Guarantors shall have no right to require
the Banks or the Agents to obtain or disclose any information with respect to
the Indebtedness or the Obligations, the financial condition or character of the
Borrower, the Borrower's ability to pay the Indebtedness or perform the
Obligations, the existence of any collateral or security for any or all of the
Indebtedness or the Obligations, the existence or non-existence of any other
guaranties of all or any part of the Indebtedness or the Obligations, or any
action or non-action on the part of the Banks, the Agents, the Borrower, or any
other person, or any other matter, fact or occurrence whatsoever.
11. REPRESENTATIONS AND WARRANTIES. Each of the Guarantors represents and
warrants to the Banks and the Agents that:
(a) TAX RETURNS AND PAYMENTS. All material tax returns and reports of
each Guarantor required by law to be filed have been duly filed, and all taxes,
assessments, contributions, fees and other governmental charges the liability
for which could exceed $100,000 (other than those currently payable without
penalty or interest and those currently being contested in good faith) upon any
Guarantor or upon any Guarantor's properties, assets or income which are due and
payable have been paid.
(b) LITIGATION. There is, to the knowledge of the Guarantors, no action,
suit, proceeding or investigation pending at law or in equity or before any
Governmental Authority (as defined in the Credit Agreement), or threatened
against or affecting any Guarantor, an adverse ruling in which would or might
materially impair the ability of the Guarantors to observe and perform the
Guarantors' obligations under this Guaranty or have a material adverse effect
upon the legality, validity, binding effect or enforceability of this Guaranty.
5
<PAGE>
(c) COMPLIANCE WITH OTHER INSTRUMENTS; NONE BURDENSOME. To the best of
their knowledge, no Guarantor is in violation of or in default with respect to
any provision of any mortgage, indenture, contract, agreement or instrument
applicable to such Guarantor, or by which such Guarantor is bound, and there is
no provision of any mortgage, indenture, contract, agreement or instrument
applicable to any Guarantor or by which any Guarantor is bound which materially
adversely affects, or in the future (so far as the Guarantors can now foresee)
will materially adversely affect, the business or prospects or condition
(financial or other) of any Guarantor or of any Guarantor's properties or
assets.
(d) FINANCIAL STATEMENTS. Any financial statements heretofore delivered
to the Banks and the Agents by the Guarantors are true and correct in all
respects, and fairly represent the respective financial conditions of the
subjects thereof as of the respective dates thereof; and no materially adverse
change has occurred in the financial conditions reflected therein since the
respective dates thereof.
12. BANKRUPTCY. Until all Indebtedness has been paid to the Banks and the
Agents, all Obligations have been performed, and the obligations of the Banks
and the Agents under the Loan Documents have been terminated, the Guarantors
shall not, without the prior written consent of the Banks and the Agents,
commence or join with any other person in commencing any bankruptcy,
reorganization or insolvency proceedings of or against the Borrower. The
obligations of the Guarantors under this Guaranty shall not be altered, limited
or affected by any proceeding, voluntary or involuntary, involving the
bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement
of the Borrower or by any defense which the Borrower may have by reason of the
order, decree or decision of any court or administrative body resulting from any
such proceeding. The Guarantors acknowledge and agree that any interest on the
Indebtedness which accrues after the commencement of any such proceeding (or, if
interest on any portion of the Indebtedness ceases to accrue by operation of law
by reason of the commencement of said proceeding, such interest as would have
accrued on any such portion of the Indebtedness if said proceeding had not been
commenced) shall be included in the Indebtedness, since it is the intention of
the parties that the amount of the Indebtedness which is guaranteed by the
Guarantors pursuant to this Guaranty should be determined without regard to any
rule of law or order which may relieve the Borrower of any portion of such
Indebtedness. The Guarantors will permit any trustee in bankruptcy, receiver,
debtor in possession, assignee for the benefit of creditors or similar person to
pay the Banks and the Agents, or allow the claim of the Banks and the Agents in
respect of, any such interest accruing after the date on which such proceeding
is commenced. In the event that all or any portion of the Indebtedness is paid
or all or any part of the Obligations are performed by the Borrower, the
obligations of the Guarantors hereunder shall continue and remain in full force
and effect in the event that all or any part of such payment or performance is
avoided or recovered directly or indirectly from the Banks or the Agents as a
preference, fraudulent transfer or otherwise in such proceeding.
13. REMEDIES CUMULATIVE. The liability of the Guarantors, and all rights,
powers and remedies of the Banks and the Agents hereunder and under any other
agreement now or at any time hereafter in force between the Banks, the Agents
and the Guarantors relating to the Indebtedness or the Obligations, shall be
cumulative and not exclusive or alternative, and such rights, powers and
remedies shall be in addition to all other rights, powers and remedies given to
the Banks and the Agents by law.
6
<PAGE>
14. AMENDMENTS; CONTINUING LIABILITY. The terms of this Guaranty may not
be modified or amended except by a written agreement executed by the Guarantors
with the consent in writing of the Holder. The obligations of the Guarantors
under this Guaranty shall be continuing obligations and a separate cause of
action shall be deemed to arise in respect of each default hereunder. The
Guarantors will from time to time deliver, upon request of the Holder,
satisfactory acknowledgments of the Guarantors' continued liability hereunder.
15. MERGER OR CONSOLIDATION OF GUARANTORS. No Guarantor will consolidate
or merge with or into another corporation, person or entity, whether or not
affiliated with such Guarantor without the written consent of the Holder (which
consent shall not be unreasonably withheld). No consolidation or merger (with
or without the consent of the Holder) shall release, affect or impair the
continuing liability and obligation of the Guarantors under this Guaranty.
16. NOTICES. Any notice or demand to be given or served hereunder shall
be in writing and personally delivered, or sent by registered or certified mail
addressed as follows:
To the Banks and
the Agents at: 999 Bishop Street
Honolulu, Hawaii 96813
Attention: Commercial Real Estate Division
To Guarantors at: 828 Fort Street Mall, 4th Floor
Honolulu, Hawaii 96813
Any such address may be changed from time to time by the addressee by serving
notice to the other party as above provided. Service of such notice or demand
shall be deemed complete on the date of actual delivery or at the expiration of
the second day after the date of mailing if mailed in Hawaii, whichever is
earlier.
The Guarantors hereby irrevocably authorize the Agents to accept facsimile
("FAX") transmissions of such notices, requests, demands and documents, provided
such transmission is signed by an officer of any Guarantor. The Guarantors
shall and do hereby hold the Agents harmless from, and indemnify the Agents
against, any loss, cost, expense, claim or demand which may be incurred by or
asserted against the Agents by virtue of the Agents acting upon any such
notices, requests, demands or documents transmitted in accordance with the above
provisions. Any such FAX transmission shall, at the Agents' request, be
separately confirmed by telephone conference between the Agents and the
authorized officer described above, and shall be followed by transmission of the
actual "hard copy" of the notice, request, demand or document in question.
17. PARTIES IN INTEREST. All covenants, agreements, terms and conditions
contained in this Guaranty shall be binding on the Guarantors and the
Guarantors' respective successors, successors in trust and assigns, and shall
bind, inure to the benefit of and be enforceable by the Holder from time to
time. This Guaranty is assignable by the Banks and the Agents with respect to
all or any portion of the Indebtedness or the Obligations without notice to or
consent of the Guarantor, and when so assigned, the Guarantors shall be liable
to the assignee as to any such portion, without in any manner affecting the
liability of the Guarantors with respect to any of the Indebtedness or
Obligations retained by the Banks or the Agents.
7
<PAGE>
18. GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS. This Guaranty
shall be construed and interpreted in accordance with and shall be governed by
the laws of the State of Hawaii. The Banks and the Agents may bring any action
or proceeding to enforce this Guaranty, or any action or proceeding arising out
of this Guaranty, in any court or courts of the State of Hawaii or the United
States District Court for the District of Hawaii. If the Banks and the Agents
commence such an action in a court located in the State of Hawaii, or the United
States District Court for the District of Hawaii, the Guarantors hereby agree
that the Guarantors will submit and does hereby irrevocably submit to the
personal jurisdiction of such courts; if served by mail will acknowledge receipt
of a copy of the summons and complaint within the statutory time limit and in
the manner set forth on the notice and summons; and will not attempt to have
such action dismissed, abated, or transferred on the ground of FORUM NON
CONVENIENS or similar grounds; provided, however, that nothing contained herein
shall prohibit the Guarantors from seeking, by appropriate motion, to remove an
action brought in a Hawaii state court to the United States District Court for
the District of Hawaii. If such action is so removed, however, the Guarantors
shall not seek to transfer such action to any other district nor shall the
Guarantors seek to transfer to any other district any action which the Banks and
the Agents originally commenced in the United States District Court for the
District of Hawaii. Any action or proceeding brought by the Guarantors arising
out of this Guaranty shall be brought solely in a court of competent
jurisdiction located in the State of Hawaii or in the United States District
Court for the District of Hawaii.
19. PARAGRAPH HEADINGS. The headings of paragraphs herein are inserted
only for convenience and shall in no way define, describe or limit the scope or
intent of any provision of the Guaranty.
20. LIABILITY JOINT AND SEVERAL. The obligations of each Guarantor
hereunder shall be joint and several.
21. COUNTERPARTS. This Guaranty may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument, and in making proof of this Guaranty, it
shall not be necessary to produce or account for more than one such counterpart.
IN WITNESS WHEREOF, the Guarantors have executed this instrument as of
APR 29, 1998.
SCHULER HOMES OF CALIFORNIA, INC.
By /s/ Douglas M. Tonokawa
-------------------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance and
Chief Accounting Officer
SCHULER HOMES OF OREGON, INC.
By /s/ Douglas M. Tonokawa
-------------------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance and
Chief Accounting Officer
8
<PAGE>
SCHULER HOMES OF WASHINGTON, INC.
By /s/ Douglas M. Tonokawa
-------------------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance and
Chief Accounting Officer
MELODY HOMES, INC.
By /s/ Douglas M. Tonokawa
-------------------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance and
Chief Accounting Officer
SCHULER REALTY/MAUI, INC.
By /s/ Douglas M. Tonokawa
-------------------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance and
Chief Accounting Officer
SCHULER REALTY/OAHU, INC.
By /s/ Douglas M. Tonokawa
-------------------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance and
Chief Accounting Officer
LOKELANI CONSTRUCTION CORPORATION
By /s/ Douglas M. Tonokawa
-------------------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance and
Chief Accounting Officer
MELODY MORTGAGE CO.
By /s/ Douglas M. Tonokawa
-------------------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance and
Chief Accounting Officer
SHLR OF WASHINGTON, INC.
By /s/ Douglas M. Tonokawa
-------------------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance and
Chief Accounting Officer
9
<PAGE>
LAND COURT SYSTEM REGULAR SYSTEM
- --------------------------------------------------------------------------------
AFTER RECORDATION, RETURN BY MAIL ( ) PICK UP ( )
John R. Aube, Esq.
WATANABE, ING & KAWASHIMA
745 Fort Street, 5th & 6th Floors
Honolulu, Hawaii 96813
- --------------------------------------------------------------------------------
Pages: 4
--------------
TMK: See attached Exhibit "A"
RELEASE OF NEGATIVE PLEDGE AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
That FIRST HAWAIIAN BANK, a Hawaii corporation, whose principal place of
business is at 999 Bishop Street, Honolulu, Hawaii, as administrative and
co-syndication agent (the "Agent") for Bank of America NT&SA, The First National
Bank of Chicago, Bank Boston, N.A., Bank of Hawaii, Bank One, Arizona, NA, and
First Hawaiian Bank, collectively, the "Banks" under that certain Negative
Pledge Agreement dated March 29, 1996, made by Schuler Homes, Inc., a Delaware
corporation, filed in the Office of the Assistant Registrar of the Land Court of
the State of Hawaii as Land Court Document No. 2303947, noted on the Transfer
Certificates of Titles described in Exhibit "A" attached hereto, and also
recorded in the Bureau of Conveyances of the State of Hawaii (the "Bureau") as
Document No. 96-056281, as amended by that certain Amendment to Negative Pledge
Agreement dated March 27, 1997, filed in said Office as Document No. 2374602 and
also recorded in said Bureau as Document No. 97-044909, (hereinafter
collectively called the "Negative Pledge"), in consideration of the sum of Ten
Dollars ($10.00) and other valuable consideration, the receipt of which is
hereby acknowledged, does hereby cancel, release and forever discharge the
Negative Pledge;
PROVIDED ALWAYS that in all other respects, the indebtedness and
obligations secured thereby, shall remain unaltered and unaffected by this
instrument.
<PAGE>
IN WITNESS WHEREOF, said FIRST HAWAIIAN BANK has caused these presents to
be duly executed by its duly authorized officer this 29th day of April, 1998.
FIRST HAWAIIAN BANK
By /s/ Alvin Takahashi
-------------------------------------
ALVIN TAKAHASHI
Its REAL ESTATE LOAN OFFICER
"Agent"
STATE OF HAWAII )
) SS:
CITY AND COUNTY OF HONOLULU )
On this 27th day of April, 1998, personally appeared ALVIN TAKAHASHI,
to me personally known, who, being by me duly sworn or affirmed did say that
such person(s) executed the foregoing instrument as the free act and deed of
such person(s), and if applicable, in the capacity shown, having been duly
authorized to execute such instrument in such capacity.
Ramona K. Wright
/s/ Ramona K. Wright
-----------------------------------
Notary Public, State of Hawaii
My commission Expires: 9/4/00
-------------
-2-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN THE
COMPANY'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,305,000
<SECURITIES> 0
<RECEIVABLES> 1,203,000
<ALLOWANCES> 0
<INVENTORY> 291,004,000
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 341,373,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
57,500,000
0
<COMMON> 209,000
<OTHER-SE> 93,100,000
<TOTAL-LIABILITY-AND-EQUITY> 341,373,000
<SALES> 55,512,000
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 51,577,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,257,000
<INCOME-TAX> 1,256,000
<INCOME-CONTINUING> 2,001,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,001,000
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
