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 June 30, 1996
---------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________ to__________ .
Commission File Number 1-11416
----------
UDC HOMES, INC.
------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
Delaware 86-0702254
- - ----------------------- ---------------------------------
(State of Organization) (IRS Employer Identification No.)
4812 South Mill Avenue, Tempe, Arizona 85282
- - -------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(602) 820-4488
-------------------------------
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 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 by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES X NO
-------- --------
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: Common Stock, $0.01 par value,
1,000 shares. See Part II, Item 5 herein.
1
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
Part I. Financial Information
<S> <C> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets
At June 30, 1996 and September 30, 1995....................................................... 3
Consolidated Statements of Operations For the three months
ended June 30, 1996, the period from November 14, 1995 to June
30, 1996, the three and nine months ended June 30, 1995 and
the period from
October 1, 1995 to November 13, 1995.......................................................... 5
Consolidated Statements of Cash Flows For the three months
ended June 30, 1996, the period from November 14, 1995 to June
30, 1996, the nine months ended June 30, 1995 and the period
from October 1,
1995 to November 13, 1995..................................................................... 6
Condensed Notes to Consolidated Financial Statements.......................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................................... 20
Part II. Other Information
Item 1. Legal Proceedings............................................................................. 32
Item 5. Other Information............................................................................. 35
Item 6. Exhibits and Reports on Form 8-K.............................................................. 36
Signatures...................................................................................................... 37
</TABLE>
2
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
------------ -------------
June 30, September 30,
1996 1995
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Housing:
Cash............................................................................... $ 4,619 $ 4,591
Notes, interest and other receivables.............................................. 1,432 4,193
Housing inventory.................................................................. 140,557 142,947
Land held for development.......................................................... 97,478 179,476
Land held for sale................................................................. 42,142 39,496
Property and equipment, net........................................................ 14,382 13,663
Investments in and receivables from unconsolidated affiliated partnership 2,834 5,213
Reorganization value in excess of amounts allocable to identifiable assets 23,280 --
Other.............................................................................. 2,897 6,838
----------- -----------
329,621 396,417
----------- -----------
Builder bonds and mortgage operations:
Interest and other receivables..................................................... 905 736
Mortgage-backed securities and residential mortgages............................... 20,945 29,366
Other.............................................................................. 109 799
----------- -----------
21,959 30,901
----------- -----------
Total assets......................................................................... $ 351,580 $ 427,318
=========== ===========
</TABLE>
See condensed notes to consolidated financial statements.
3
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Dollars in thousands)
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
------------ ------------
June 30, September 30,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities not subject to compromise:
Housing:
Accounts payable................................................................... $ 20,907 $ 22,702
Accrued liabilities and expenses................................................... 44,949 48,640
Notes payable...................................................................... 88,935 144,850
Senior unsecured notes payable..................................................... 70,000 --
Subordinated notes payable......................................................... 45,000 --
----------- -----------
269,791 216,192
----------- -----------
Builder bonds and mortgage operations:
Accrued liabilities and expenses................................................... 391 366
Collateralized mortgage obligations................................................ 13,629 17,061
Mortgage lines of credit........................................................... 3,929 11,389
----------- -----------
17,949 28,816
----------- -----------
Total liabilities not subject to compromise.......................................... 287,740 245,008
----------- -----------
Liabilities subject to compromise.................................................... -- 205,264
----------- -----------
Total liabilities.................................................................... 287,740 450,272
----------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock; $.01 par value, 1,000 shares authorized, issued and
outstanding at June 30, 1996..................................................... -- --
Predecessor preferred stock........................................................ -- 100
Predecessor common stock; 50,000,000 shares authorized,
11,392,059 shares issued and outstanding at September 30, 1995 -- 114
Additional paid in capital......................................................... 78,000 118,390
Accumulated deficit................................................................ (14,160) (141,558)
----------- -----------
Total stockholders' equity (deficit)................................................. 63,840 (22,954)
----------- -----------
Total liabilities and stockholders' equity .......................................... $ 351,580 $ 427,318
=========== ===========
</TABLE>
See condensed notes to consolidated financial statements.
4
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
------------------------------ -------------------------------------------------
Three months Period from Three months Nine months Period from
ended November 14, 1995 ended ended October 1 to
June 30, to June 30, June 30, June 30, November 13,
1996 1996 1995 1995 1995
------------- ----------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Housing sales revenues........................... $ 116,148 $ 248,351 $ 111,984 $ 323,252 $ 29,624
Cost of housing sales (including $5.5 million and
$18.2 million of land purchased from affiliated
partnerships for the three months and nine months
ended June 30, 1995, respectively)............. 99,521 216,266 103,831 291,324 27,205
------------ ------------- ----------- ----------- -----------
Gross margin..................................... 16,627 32,085 8,153 31,928 2,419
------------ ------------- ----------- ----------- -----------
Other expenses (income):
Selling and administrative..................... 13,721 31,408 11,820 40,747 5,034
Builder bond and mortgage operations, net (614) (850) 564 1,261 (28)
Interest....................................... 5,850 14,421 572 711 706
Land write-downs............................... -- -- 750 51,601 --
Other.......................................... (14) 366 (718) (2,552) (103)
------------ ------------- ----------- ----------- -----------
18,943 45,345 12,988 91,768 5,609
------------ ------------- ----------- ----------- -----------
Equity in losses of unconsolidated
affiliated partnerships (including land write-downs
of $11,644 in the three and nine months
ended June 30, 1995)............................ (355) (900) (800) (13,811) --
------------ ------------- ----------- ----------- -----------
Loss from operations before reorganization
items, income taxes, fresh start reporting
adjustment and extraordinary item............... (2,671) (14,160) (5,635) (73,651) (3,190)
Reorganization items.............................. -- -- (7,399) (7,399) (7,051)
Loss before income taxes, fresh start
reporting adjustment and extraordinary item (2,671) (14,160) (13,034) (81,000) (10,241)
Income taxes...................................... -- -- -- (26,772) --
------------ ------------- ----------- ----------- -----------
Loss before fresh start reporting
adjustment and extraordinary item............... (2,671) (14,160) (13,034) (107,822) (10,241)
Fresh start reporting adjustment................ -- -- -- -- (14,069)
Extraordinary item - gain on debt discharge..... -- -- -- -- 50,264
------------ ------------- ----------- ----------- -----------
Net income (Loss)................................. $ (2,671) $ (14,160) $ (13,034) $ (107,822) $ 25,954
============ ============ =========== =========== ==========
</TABLE>
See condensed notes to consolidated financial statements
5
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
--------------------------------- ---------------------------------
Three months Period from Nine Months Period From
ended November 14, 1995 ended October 1 to
June 30, to June 30, June 30, November 13,
1996 1996 1995 1995
------------ ----------------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................. $ (2,671) $ (14,160) $ (107,822) $ 25,954
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:..............
Depreciation .................... 1,225 2,745 4,124 439
Amortization .................... 241 602 1,176 97
Fresh start reporting adjustment. -- -- -- 14,069
Gain on debt discharge........... -- -- -- (50,264)
Equity in losses of unconsolidated
affiliated partnerships........ 355 900 13,811 --
Land write-downs................. -- -- 51,601 --
Income taxes..................... -- -- 26,772 --
Net change in housing inventory.. (1,254) (22,763) 8,935 10,890
Proceeds from sale of land....... 19,756 32,610 -- --
Net change in land held for
development.................... 8,605 13,316 (26,867) (4,778)
Net change in receivables from
affiliated partnerships........ 2,927 1,620 7,624 95
Decrease (increase) in assets:
Notes, interest and other
receivables.................. 399 1,909 (1,881) 259
Other assets................... (413) (260) 833 (429)
(Decrease) increase in liabilities:
Accounts payable............... (3,558) 38 (18,758) (1,833)
Accrued liabilities and expenses 3,835 8,278 8,859 3,525
---------- ------------- ------------ --------------
Net cash provided by (used in) operating
activities......................... 29,447 24,835 (31,593) (1,976)
---------- ------------- ------------ -------------
</TABLE>
See condensed notes to consolidated financial statements.
6
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
-------------------------------- ----------------------------
Three Months Period from Nine Months Period from
Ended November 14, 1995 ended October 1 to
June 30, to June 30, June 30, November 13,
1996 1995 1995 1995
------------ ----------------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from investing activities:
(Increase) decrease in mortgage-backed securities
and residential mortgages.......................... 2,003 2,134 9,367 6,287
Change in property and equipment..................... (2,386) (2,487) 7,894 (471)
-------------- -------------- -------------- -----------
Net cash provided by (used in) investing activities (383) (353) 17,261 5,816
-------------- -------------- -------------- -----------
Cash flows from financing activities:
Proceeds from notes payable.......................... 102,117 254,332 459,481 8,637
Payments on notes payable............................ (126,816) (304,349) (428,242) (11,022)
Proceeds from issuance of subordinated notes......... -- 10,000 -- 30,000
Proceeds from issuance of common stock............... -- -- -- 78,000
Payments on senior unsecured notes payable........... -- -- (3,000) (83,000)
Payments on collateralized mortgage obligations...... (1,196) (3,185) (2,930) (247)
Increase (decrease) in mortgage lines of credit...... (2,333) (1,661) (6,782) (5,799)
-------------- -------------- -------------- -----------
Net cash provided by (used in) financing activities.... (28,228) (44,863) 18,527 16,569
-------------- -------------- -------------- -----------
Net increase (decrease) in cash........................ 836 (20,381) 4,195 20,409
Cash, beginning of period.............................. 3,783 25,000 1,151 4,591
-------------- -------------- -------------- -----------
Cash, end of period.................................... $ 4,619 $ 4,619 $ 5,346 $ 25,000
============== ============== ============== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized... $ 8,171 $ 12,542 $ 1,351 $ 254
============== ============== ============== ===========
Supplemental disclosure of noncash investing and financing activities:
See Note 2 for a discussion of the Company's reorganization under Chapter 11.
</TABLE>
See condensed notes to consolidated financial statements.
7
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. General
-------
The information contained in the following notes to the consolidated
financial statements is condensed from that which would appear in the annual
consolidated financial statements. The consolidated financial statements and
related notes thereto contained in the Annual Report on Form 10-K for the fiscal
year ended September 30, 1995 filed by UDC Homes, Inc. ("UDC" or the "Company")
with the Securities and Exchange Commission should be referred to in conjunction
with these consolidated financial statements. The results of operations for the
interim periods presented are not necessarily indicative of the results to be
expected for the entire year. Certain amounts in the consolidated financial
statements of prior periods have been reclassified to conform to the current
presentation.
The consolidated financial statements included herein are unaudited;
however, they include all adjustments of a normal recurring nature which, in the
opinion of management, are necessary to present fairly the consolidated
financial position, results of operations and cash flows for interim periods.
Because of the adoption of fresh start reporting (Note 2), the June 30, 1996
balance sheet, the statement of operations for the three months ended June 30,
1996, the statement of operations for the period from November 14, 1995 to June
30, 1996, the statement of cash flows for the three months ended June 30, 1996
and the statement of cash flows for the period from November 14, 1995 to June
30, 1996 have not been prepared on the same basis of accounting and are not
comparable to financial statements for prior dates and periods.
2. Reorganization under Chapter 11 and Fresh Start Reporting
---------------------------------------------------------
As described in the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1995, the Company consummated its plan of
reorganization (the "Plan") on November 14, 1995 (the "Consummation Date").
In accounting for the effects of the Plan, the Company implemented the
"fresh start" reporting principles of American Institute of Certified Public
Accountants Statement of Position 90-7 ("SOP 90-7"), "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code." Pursuant to SOP 90-7, the
Company implemented fresh start reporting on the Consummation Date because the
fair value of the Company's assets immediately before the Consummation Date was
less than the total of all post-petition liabilities and allowed pre-petition
claims, and holders of the existing voting shares immediately before the
Consummation Date received none of the newly issued shares of Common Stock of
the reorganized Company.
8
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company's consolidated balance sheet as of June 30, 1996 was
prepared as if the Company became a new reporting entity at the Consummation
Date, and reflects certain reorganization adjustments, including the restatement
of assets and liabilities to approximate fair value and the discharge of certain
outstanding liabilities relating to creditors' claims against the Company. The
statements of operations and the statements of cash flows for the three months
ended June 30, 1996 and the period from November 14, 1995 to June 30, 1996
incorporate the effects of fresh start reporting. However, the statements of
operations for the period from October 1, 1995 to November 13, 1995, the three
months ended June 30, 1995 and the nine months ended June 30, 1995, and the
statements of cash flows for the period from October 1, 1995 to November 13,
1995 and the nine months ended June 30, 1995 are based on historical cost of the
predecessor Company. Accordingly, the Company has presented statements of
operations and statements of cash flows for the three months ended June 30,
1996, the period from November 14, 1995 to June 30, 1996 and the period from
October 1, 1995 to November 13, 1995, but has not presented a statement of
operations and statement of cash flows for the nine months ended June 30, 1996.
A vertical line has been drawn on the accompanying financial statements to
distinguish between the reorganized Company and the predecessor Company.
The reorganization value of the Company's equity was established based
upon the Company's "enterprise value," as determined by the Company. Enterprise
value represents an estimated value of the Company based upon its reorganized
capital structure at the Consummation Date, and was determined to be equal to
the $108.0 million purchase price paid by DMB Residential, LLC ("DMB") to
acquire all of the Company's new shares of Common Stock for $78.0 million and
$30.0 million of new Series C Subordinated Notes. The majority of the Company's
value arises from the Company's housing inventory, land held for development and
land held for sale. The fair value of the Company's housing inventory was
calculated on a house- by-house basis by determining an estimated selling price
for each home and deducting costs to complete, costs of disposal and a
reasonable profit, considering the stage of completion of each home. The fair
value of the Company's land held for development and land held for sale was
generally determined by independent third party appraisals. Although all assets
and liabilities were revalued, no significant adjustments were made to the
Company's other assets and liabilities, as their fair values generally
approximated historical cost at the Consummation Date.
SOP 90-7 requires an allocation of enterprise value in conformity with
the purchase accounting provisions of Accounting Principles Board Opinion No. 16
("APB 16"), "Business Combinations." In applying APB 16, the combined fair value
of the Company's liabilities and equity exceeded the fair value of the Company's
identifiable assets by $22.8 million at the Consummation Date. The statement of
operations for the period from October 1, 1995 to November 13, 1995 contains a
$50.3 million gain on debt discharge relating from consummation of the Plan and
a $14.1 million loss from the fresh start reporting adjustment.
9
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The effect of the Plan and the application of SOP 90-7 on the Company's
November 13, 1995 pre-consummation balance sheet is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Consummation of Plan
-------------------------
November 13, Capital
1995 Contribution Reorganized
Pre-consummation and Debt Balance
Balance Sheet Discharge Fresh Start Sheet
---------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
------
Housing:
Cash............................................. $ -- $ 25,000 (1) $ -- $ 25,000
Notes, interest and other receivables 3,779 -- (424) (6) 3,355
Housing inventory................................ 132,057 -- 116 (6) 132,173
Land held for development........................ 184,254 -- (40,507) (6) 143,747
Land held for sale............................... 39,496 -- 2,303 (6) 41,799
Property and equipment, net...................... 13,695 -- 945 (6) 14,640
Investment in and receivables from
unconsolidated affiliated partnership........... 5,118 -- 236 (6) 5,354
Reorganization value in excess of amounts
allocable to identifiable assets................ -- -- 22,760 (6) 22,760
Other............................................ 7,720 -- (4,187) (6) 3,533
------------------ -------- --------- ----------
386,119 25,000 (18,758) 392,361
Builder bonds and mortgage operations............... 24,219 -- 86 (6) 24,305
------------------ -------- --------- ----------
Total assets.................................. $ 410,338 $ 25,000 $ (18,672) $ 416,666
================== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
Liabilities not subject to compromise:
Housing:
Accounts payable................................. $ 20,869 $ -- $ -- $ 20,869
Accrued liabilities and expenses................. 52,094 -- (1,090) (6) 51,004
Notes payable.................................... 142,465 -- (3,513) (6) 138,952
Senior unsecured notes payable................... -- 70,000 (2) -- 70,000
Subordinated notes payable....................... -- 35,000 (3) -- 35,000
------------------ -------- --------- ----------
215,428 105,000 (4,603) 315,825
Builder bonds and mortgage operations............... 22,841 -- -- 22,841
------------------ -------- --------- ----------
Total liabilities not subject to compromise......... 238,269 105,000 (4,603) 338,666
Liabilities subject to compromise................... 205,264 (205,264)(4) -- --
------------------ -------- --------- ----------
Total liabilities................................... 443,533 (100,264) (4,603) 338,666
Stockholders' equity (deficit)...................... (33,195) 125,264 (5) (14,069) (7) 78,000
------------------ -------- --------- ----------
Total liabilities and stockholders' equity.... $ 410,338 $ 25,000 $ (18,672) $ 416,666
=================== ======== ========= ==========
</TABLE>
See following page for footnote explanations.
10
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
FOOTNOTES
---------
<S> <C> <C>
(1) Cash remaining after application of $83.0 million of $108.0 million
purchase price from DMB to the repayment of senior unsecured notes
payable.
(2) Issuance of new senior unsecured notes payable to holders of the following claims:
Old senior unsecured notes...........................................$ 64,100
Old convertible subordinated notes................................... 5,900
--------------
$ 70,000
==============
(3) Issuance of new subordinated notes to the following:
DMB .................................................................$ 30,000
Holders of old prime preferred stock................................. 3,000
Holders of old convertible subordinated notes........................ 2,000
--------------
$ 35,000
==============
(4) Repayment or forgiveness of debt as follows:
Cash paid to holders of old senior unsecured notes...................$ 83,000
New senior unsecured notes and new subordinated notes
issued to holders of old senior unsecured notes
and old convertible subordinated notes............................. 72,000
Forgiveness of remaining debt subject to compromise.................. 50,264
--------------
$ 205,264
==============
(5) Consists of the following:
New issuance of common stock to DMB..................................$ 78,000
New issuance of subordinated notes to holders of
old prime preferred stock.......................................... (3,000)
Gain on debt discharge............................................... 50,264
--------------
$ 125,264
==============
(6) Adjustment of assets and liabilities to fair market value.
(7) Elimination of pre-consummation stockholders' equity accounts and revaluation of
stockholders' equity to reorganization value.
</TABLE>
11
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Accounting Policies
-------------------
As of the Consummation Date, the Company changed its method of applying
the principles of Statement of Financial Accounting Standards ("SFAS") No. 34,
"Capitalization of Interest Cost," in order to better match the capitalization
of interest with actual construction and development efforts as defined by SFAS
No. 34. In connection with such change, the Company also significantly narrowed
its definition of housing under construction and land under development to
exclude land undergoing only periodic entitlement efforts, the effect of which
is to decrease the amount of interest capitalized and ultimately charged to
expense through cost of sales, and increase interest expense in the period
incurred.
As of the Consummation Date, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." SFAS No. 121 requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. If the sum of the expected
future cash flows (undiscounted and without interest charges) from an asset to
be held and used is less than the carrying amount of the assets, an impairment
loss must be recognized for the difference between the carrying amount and fair
value. Assets to be disposed of must be valued at the lower of the carrying
amount or fair value less costs to sell. In accordance with the Company's
application of fresh start reporting (Note 2), the Company recorded its assets
at fair value at the Consummation Date. Therefore, the adoption of SFAS No. 121
had no impact on the reorganized Company's consolidated financial statements.
At the Consummation Date, in accordance with the application of fresh
start reporting (Note 2), the Company recorded $22.8 million of reorganization
value in excess of amounts allocable to identifiable assets. Subsequent to the
Consummation Date, upon the resolution of certain contingencies existing at the
Consummation Date, the Company recorded an additional $1.1 million of
reorganization value in excess of amounts allocable to identifiable assets. Such
total amount is amortized on a straight line basis over a period of 25 years.
12
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
At the time of its Chapter 11 filing, the Company announced its
intention to sell its Southeast operations. As of the Consummation Date, the
Company held land in Georgia as well as land and housing under construction in
North Carolina. The Company established a $3.6 million reserve at the
Consummation Date for any future losses which may result from the disposal of
the Company's assets in the Southeast.
The activity during the three months ended June 30, 1996 and the period
from November 14, 1995 to June 30, 1996 related to the reserve is as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Period from
Three months November 14,
ended 1995 to June
June 30, 1996 30, 1996
-------------- ---------------
<S> <C> <C>
Balance at beginning of period............................. $ 2,744 $ 3,586
Revenues from operations of discontinued
operations.............................................. 748 10,247
Costs and losses from operations of
discontinued operations................................. (1,786) (12,127)
-------------- ---------------
Balance at end of period................................... $ 1,706 $ 1,706
============== ===============
</TABLE>
13
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Housing Interest
----------------
The Company capitalizes certain interest incurred on housing inventory
and land held for development. Such capitalized interest is charged to expense
through cost of housing sales when home sales are closed. The components of
housing interest are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
--------------------------------- ----------------------------------------
Three Months Period From Three Months Nine Months Period From
Ended November 14, 1995 Ended Ended October 1 to
June 30, to June 30, June 30, June 30, November 13,
1996 1996 1995 1995 1995
------------ ----------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Interest incurred.....................$ 8,555 $ 20,638 $ 4,983 $ 27,057 $ 3,179
Less: Interest capitalized ........... 2,705 6,217 4,411 26,346 2,473
------------- -------------- ------------ ----------- ------------
Interest expensed.....................$ 5,850 $ 14,421 $ 572 $ 711 $ 706
============= ============== ============ =========== ============
Amortization of capitalized
interest included in cost
of sales...........................$ 2,473 $ 4,034 $ 7,339 $ 20,183 $ 1,117
============= ============== ============ =========== ============
</TABLE>
Interest on pre-petition unsecured debt was suspended during the
Company's bankruptcy case. Had the accrual of interest not been suspended,
interest incurred and interest expense for the period from October 1, 1995 to
November 13, 1995 would have increased by approximately $3.0 million and
$300,000, respectively.
As of the Consummation Date, the Company changed its method of
application of capitalization of interest (Note 3).
14
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. Debt Covenants
--------------
In connection with the application of fresh start reporting as of the
Consummation Date, reorganization value in excess of amounts allocable to
identifiable assets was determined to be approximately $22.8 million. The debt
covenants related to the Company's borrowing arrangements were negotiated prior
to the determination of such amount and were based on the assumption that such
amount, when finally determined, would be substantially lower than $22.8
million. As a result, as of the Consummation Date and subsequent thereto, the
Company was in violation of the tangible net worth and debt to tangible net
worth covenants of such borrowing arrangements. In addition, from February 21,
1996 through March 14, 1996, the Company was in violation of certain minimum
available liquidity covenants. In response, the Company and the subject lenders
agreed to a waiver of the violations and a modification of the debt covenants,
and on March 15, 1996, DMB invested $10 million in the Company in exchange for a
new 14.5% Series D Subordinated Note.
6. Contingencies and Legal Matters
-------------------------------
On June 5, 1995, June 14, 1995 and October 25, 1995, three lawsuits,
entitled Michael A. Isco v. Richard C. Kraemer et al. (Case No. CV95-08941),
Larry Alexander et al. v. Arthur Andersen LLP et al. (Case No. CV95-09509), and
Crandon Capital Partners v. Kraemer, et al. (Case No. CV95-17785), respectively
(collectively, the "Arizona Actions"), were filed in Maricopa County, Arizona
Superior Court on behalf of purported classes of former shareholders of the
Company against, among others, certain current and former officers and directors
of the Company, who may be entitled to indemnification from the Company, as well
as the Company's independent public accountants, Arthur Andersen LLP. The
Company is not a named defendant in any of these complaints. Subsequently, the
Arizona Actions were consolidated. The complaints seek, among other things,
unspecified monetary damages and contain allegations which include violations of
Arizona securities laws, fraud, negligent misrepresentation, breach of fiduciary
duty, negligence and gross negligence. The Plan provided for the discharge of
all claims asserted in such class action lawsuits as against the Company, and
the holders of such claims received no distributions on account of such claims.
The Company could, however, be required to indemnify certain of the
director/officer defendants if such defendants incur expenses or liability and
seek indemnification.
These lawsuits were previously disclosed in the Forms 10-Q filed by the
Company for the quarters ended December 31, 1995 and March 31, 1996. As a result
of settlement discussions, an agreement (the "Settlement Agreement") was reached
pursuant to which the plaintiffs and the
15
<PAGE>
director/officer defendants agreed to settle and compromise the Arizona Actions
in their entirety, as such actions relate to the director/officer defendants and
the Company, in exchange for, among other things, $12.75 million. Of such
amount, up to $1.5 million (the self-insured retention under the Company's
applicable directors and officers insurance policies) will be funded by the
Company. Certain issuers of the Company's directors and officers insurance
policies, together with the Company, have agreed to fund the balance of the
settlement. Such settlement is subject to certain conditions, including the
entry of a final, non-appealable judgment by the Maricopa County, Arizona
Superior Court. In connection with such settlement and issues discussed between
the Company and DMB concerning the consummation of the Stock Purchase Agreement,
the director/officer defendants have agreed to limit their aggregate claim for
indemnification arising out of the Arizona Actions in certain circumstances to
$12 million above the following: (A) the balance of the Company's self-insured
retention under applicable insurance policies and (B) applicable insurance held
by the Company with respect to the Arizona Actions. The Company does not believe
that any obligations under its By-laws will exceed its coverage under its
directors and officers insurance policies.
The Settlement Agreement was filed with the Maricopa County, Arizona Superior
Court on January 19, 1996; that Court now must determine whether, after notice
to class members, to approve the Settlement Agreement and to enter a bar order
against the non-settling defendants (the "Good Faith Bar Order"). A Good
Faith/Bar Order is intended to bar any claim for contribution by non-settling
defendants against settling defendants or the Company. The settling parties
filed a joint request that the Court preliminarily approve the settlement,
promptly approve the form of notice to be provided to the class, order that the
class be given notice, and set a final settlement hearing date. On April 5,
1996, the Court entered an order that the class be given notice of the
settlement and an opportunity to object or "opt out". At the end of May, a new
judge was assigned to the Arizona Actions. A hearing scheduled for September 6,
1996 to approve the final settlement and to rule on the entry of a Good
Faith/Bar Order was then vacated and not yet rescheduled. Discovery by the
non-settling defendants is on-going. In addition, the plaintiffs have
subsequently sought to modify the proposed settlement to eliminate any release
of potential claims they might have against the Company's prior independent
auditor, Coopers & Lybrand.
The Company is also involved in various legal proceedings which
generally represent ordinary routine litigation incident to its business, some
of which are covered in whole or in part by insurance.
16
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- - ------- -----------------------------------------------------------------------
of Operations
-------------
Introduction
On November 14, 1995, the Company consummated its plan of
reorganization and emerged from its Chapter 11 bankruptcy proceeding as a new
reporting entity. As a result, the Company's results of operations for the nine
months ended June 30, 1996 presented in the accompanying financial statements
are divided into pre- and post-reorganization periods. The following discussion
and analysis of the Company's operations compares the three and nine months
ended June 30, 1996 with the three and nine months ended June 30, 1995, and does
not distinguish between pre- and post-reorganization periods.
Additionally, the following discussion and analysis of the Company's
operations includes only the Company's continuing operations in Arizona and
California. The Company is liquidating all remaining assets of its Southeast
operations, and management believes that discussion of such operations is no
longer material to obtain an understanding the Company's continuing operations.
Results of Operations
Comparison of three and nine months ended June 30, 1996 and 1995
The following discusses the significant revenue, cost and expense
trends experienced by the Company, comparing the three and nine month periods
ended June 30, 1996 with the three and nine month periods ended June 30, 1995.
17
<PAGE>
Revenues
The following table presents comparative housing revenues by region
(exclusive of the Company's Southeast operations; dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
------------------------------------------- ----------------------------------------------
Dollar/Unit Percentage Dollar/Unit Percentage
Increase Increase Increase Increase
1996 1995 (Decrease) (Decrease) 1996 1995 (Decrease) (Decrease)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arizona:
Dollars............ $79,562 $66,685 $12,877 19.3% $188,899 $185,591 $3,308 1.8%
Units closed....... 429 345 84 24.3% 999 994 5 0.5%
Average price...... $186 $193 $(7) (3.6%) $189 $187 $2 1.1%
California:
Dollars............ $36,586 $29,879 $6,709 22.4% $84,081 $85,627 $(1,546) (1.8%)
Units closed....... 143 122 21 17.2% 321 363 (42) (11.6%)
Average price...... $256 $245 $11 4.5% $262 $236 $26 11.0%
Company total:
Dollars............ $116,148 $96,564 $19,584 20.2% $272,980 $271,218 $1,762 0.6%
Units closed....... 572 467 105 22.5% 1,320 1,357 (37) (2.7%)
Average price...... $203 $207 $(4) (1.9%) $207 $200 $7 3.5%
</TABLE>
In the quarter ended June 30, 1996, the Company experienced increases
in housing revenues and units closed, and a decrease in average sales prices as
compared to the corresponding quarter in 1995. The Company believes that the
increase in units closed was due to renewed confidence in the Company following
consummation of its Chapter 11 case. Additionally, closings in the 1995 quarter
were adversely affected by homebuyer concerns about the Company's financial
condition, restrictions on the Company's ability to finance construction and
generally higher mortgage interest rates. The decrease in average sales prices
was primarily due to changes in the mix of product types closed in Arizona,
offset by the introduction of new, higher-priced projects in California.
In the nine months ended June 30, 1996, the Company experienced an
increase in housing revenues and average sales prices and a decrease in units
closed as compared to the corresponding period in 1995. Closings in the nine
months ended June 30, 1996 were adversely affected by restrictions on the
Company's ability to purchase lots during the pendency of its bankruptcy case.
Such restrictions delayed the commencement of construction of homes and delayed
closings which otherwise would have been expected to occur during the period,
particularly during the quarter ended December 31, 1995. Further, the Company
believes that such delays adversely affected sales and the Company's
cancellation rate during the bankruptcy. The increases in average sales prices
were primarily due to price increases in both regions and the introduction of
new, higher priced projects in California.
18
<PAGE>
The following table presents the family and retirement components of
housing revenues by region (exclusive of the Company's Southeast operations;
dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------------------- --------------------------------------------
1996 1995 1996 1995
----------------- ------------------ -------------------- -------------------
% of % of % of % of
Dollars Total Dollars Total Dollars Total Dollars Total
------- ----- ------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Family revenues:
Arizona............ $ 67,794 58.3% $ 57,568 59.6% $ 157,758 57.8% $ 152,997 56.4%
California......... 26,007 22.4% 25,090 26.0% 55,248 20.2% 65,900 24.3%
-------- ------ --------- ------- --------- ------ ------- -------
Total.............. 93,801 80.7% 82,658 85.6% 213,006 78.0% 218,897 80.7%
-------- ------ --------- ------- -------- ------- -------- ------
Retirement revenues:
Arizona............ 11,767 10.1% 9,117 9.4% 31,140 11.4% 32,594 12.0%
California......... 10,581 9.1% 4,789 5.0% 28,834 10.6% 19,727 7.3%
--------- ------- --------- ------- --------- ------- ------- -------
Total.............. 22,348 19.2% 13,906 14.4% 59,974 22.0% 52,321 19.3%
-------- ------ --------- ------- --------- ------- ------- ------
Company total........ $ 116,148 100.0% $ 96,564 100.0% $ 272,980 100.0% $271,218 100.0%
========= ======= ======== ======= ========= ======= ======== =======
</TABLE>
During the quarter and nine months ended June 30, 1996, the Company
experienced a percentage decrease in family revenues and a corresponding
increase in retirement revenues. The decrease in family revenues was primarily
due to reduced closings of the Company's California family projects and
increased revenues from the Company's California retirement projects. The
increase in California retirement revenues was due to a change in the mix of
product types closed at the Company's California retirement communities.
19
<PAGE>
Net orders:
The following table presents comparative net orders by region (exclusive of
the Company's Southeast operations; dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
------------------------------------------- ----------------------------------------------
Dollar/Unit Percentage Dollar/Unit Percentage
Increase Increase Increase Increase
1996 1995 (Decrease) (Decrease) 1996 1995 (Decrease) (Decrease)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arizona:
Dollars............ $ 65,232 $55,793 $ 9,439 16.9% $214,510 $195,470 $19,040 9.7%
Units ordered...... 353 290 63 21.7% 1,161 1,038 123 11.8%
Average price...... $185 $192 $(7) (3.6%) $185 $188 $(3) (1.6%)
California:
Dollars............ $33,739 $24,594 $9,145 37.1% $90,315 $91,774 $(1,459) (1.6%)
Units ordered...... 125 103 22 21.4% 344 361 (17) (4.7%)
Average price...... $270 $239 $31 12.9% $263 $254 $9 3.5%
Company total:
Dollars............ $98,971 $80,387 $18,584 23.1% $304,825 $287,244 $17,581 6.1%
Units ordered...... 478 393 85 21.6% 1,505 1,399 106 7.6%
Average price...... $207 $205 $2 1.0% $203 $205 $(2) (1.0%)
</TABLE>
Net orders represents the aggregate dollar value and number of homes
for which the Company has received purchase deposits and signed sales contracts
during the period, net of cancellations. In the quarter ended June 30, 1996, the
Company experienced an increase in net orders. The Company believes that the
increase in net orders was due to continued strong home buyer demand in the
Phoenix area and improving home buyer demand in California, as well as improved
confidence in the Company's financial strength following consummation of its
Chapter 11 case. The Company believes that the decrease in net orders in
California for the nine months ended June 30, 1996 was due to a lack of
inventory availability arising from restrictions on the Company's ability to
purchase lots during its Chapter 11 case and lingering effects on customer
confidence arising from the Company's Chapter 11 case.
20
<PAGE>
Net sales backlog:
Net sales backlog represents the aggregate dollar value and number of
homes ordered, net of cancellations, pending delivery, for which the Company has
received purchase deposits and signed sales contracts. The following table
presents comparative net sales backlog by region at June 30, 1996 and 1995
(exclusive of the Company's Southeast operations; dollars in thousands).
<TABLE>
<CAPTION>
Dollar/Unit Percentage
Increase Increase
1996 1995 (Decrease) (Decrease)
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Arizona:
Dollars........................ $150,038 $132,887 $17,151 12.9%
Units in backlog............... 801 693 108 15.6%
Average sales price............ $187 $192 $(5) (2.6%)
California:
Dollars........................ $55,669 $60,695 $(5,026) (8.3%)
Units in backlog............... 200 216 (16) (7.4%)
Average sales price............ $278 $281 $(3) (1.1%)
Total:
Dollars........................ $205,707 $193,582 $12,125 6.3%
Units in backlog............... 1,001 909 92 10.1%
Average sales price............ $206 $213 $(7) (3.3%)
</TABLE>
Cancellations as a percentage of gross sales contracts written were 26%
and 28% for the quarters ended June 30, 1996 and 1995, respectively. Generally,
canceled sales contracts are replaced with new sales contracts within a
relatively short time period after cancellation. The Company believes that the
inability of home buyers to sell their current homes or to qualify for mortgages
historically have been the primary causes of cancellations. The Company also
believes that cancellations are sometimes attributable to buyers' personal or
employment-related changes in circumstances. Except in instances where
substantial expenditures on buyer options have been made by the Company in
construction, the Company generally has released canceling buyers from their
contracts at minimal or no cost.
The increase in units in backlog in Arizona was due primarily to strong
net sales in the nine months ended June 30, 1996 arising from continued strong
home buyer demand in the Phoenix area and improved confidence in the Company's
financial strength following consummation of its Chapter 11 case. The change in
units in backlog in California was not significant. The decreases in average
sales price in backlog in Arizona and California were primarily the result of
changes in the mix of product types in backlog.
21
<PAGE>
Gross margins
The following table presents comparative gross margins by region
(exclusive of the Company's Southeast operations; dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
---------------------------------------- -------------------------------------------
1996 1995 1996 1995
------------------ ------------------- ------------------- --------------------
Dollars % Dollars % Dollars % Dollars %
------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arizona............. $12,508 15.7% $10,153 15.2% $25,467 13.5% $31,769 17.1%
California.......... 4,119 11.3% (1,366) (4.6%) 7,441 8.8% 2,967 3.5%
------- -------- ------- -------
Company Total....... $16,627 14.3% $8,787 9.1% $32,908 12.1% $34,736 12.8%
======= ====== ======= =======
</TABLE>
Fresh start reporting requires that the purchase accounting principles
of APB 16 be followed in the valuation of the reorganized Company's balance
sheet as of the Consummation Date (the "Opening Balance Sheet"). APB 16 requires
that the basis assigned to purchased inventories include a portion of the profit
which would otherwise have been recognized upon the closing of the related home
sale, consistent with the concept that the earnings process occurs throughout
the construction process. The further construction is complete on a given home,
the more profit is capitalized in the Opening Balance Sheet. Accordingly,
margins on homes held at the Consummation Date and closed in the earlier fiscal
periods after the application of purchase accounting will generally be depressed
relative to homes closed later in the fiscal year. Further, all homes under
construction as of the Consummation Date will generally have margins less than
those on homes on which construction began after the Consummation Date. The
impact of purchased profit on gross margin is partially offset by the
elimination of capitalized interest in inventory in the Opening Balance Sheet
and less interest being capitalized as a result of the change in the Company's
method of applying the capitalization of interest principles of SFAS No. 34 to
housing inventory discussed in Note 3 to the accompanying consolidated financial
statements.
The Company's gross margins increased in the quarter ended June 30,
1996 from the corresponding period in the prior year primarily due to the
revaluation of the Company's housing inventory and land held for development to
fair value at the Consummation Date, which resulted in lower land basis and
higher gross margins, and the effect of reduced interest capitalization and
corresponding absorption as discussed above. Such higher gross margins were
offset by the amortization of approximately $1.8 million of purchased profit.
Additionally, gross margin in California in 1995 was negatively impacted by
significant warranty costs resulting from defective materials supplied by
certain subcontractors and the Company's decision to reduce sales prices and
liquidate remaining inventory in certain close-out subdivisions.
22
<PAGE>
The Company's gross margins decreased in the nine months ended June 30,
1996 from the corresponding period in the prior year primarily as a result of
the amortization of $8.4 million of purchased profit, offset by lower land basis
resulting from the revaluation of the Company's housing inventory and land held
for development at the Consummation Date. Further, the Company believes that
margins were adversely affected by price reductions enacted during the summer
months of 1995 to entice buyers who may have been hesitant to purchase a UDC
home because of its Chapter 11 filing.
Selling and administrative expenses
The following table presents selling and administrative expenses for
the three and nine month periods ended June 30, 1996 and 1995 (exclusive of the
Company's Southeast operations, $7.1 million of reorganization items in the nine
months ended June 30, 1996 and $7.4 million of reorganization items in the three
and nine months ended June 30, 1995; dollars in thousands).
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
June 30, June 30,
------------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Selling and administrative expenses:
Variable component.............................. $ 4,610 $ 4,015 $ 10,901 $ 11,558
Fixed component................................. 9,111 5,759 25,080 21,788
---------- ---------- ---------- ---------
Total selling and
administrative expenses..................... $ 13,721 $ 9,774 $ 35,981 $ 33,346
========== ========== ========== =========
As a percentage of total sales:
Variable component.............................. 4.0% 4.2% 4.0% 4.3%
Fixed component................................. 7.8% 5.9% 9.2% 8.0%
---------- ---------- ---------- ---------
Total selling and
administrative expenses..................... 11.8% 10.1% 13.2% 12.3%
========== ========== ========== =========
</TABLE>
The variable component of selling and administrative expenses
represents sales commissions, depreciation of model furnishings and closing
costs. The change in variable selling and administrative expenses as a
percentage of housing sales was not significant.
23
<PAGE>
The fixed component of selling and administrative expenses represents
all other selling and administrative expenses which primarily do not vary with
housing sales volume. In the quarter and nine months ended June 30, 1996, fixed
selling and administrative expenses in total dollars increased primarily due to
compensation-related costs arising from severance payments due to the Company's
former president and certain other former executive officers, partially offset
by an overall reduction in overhead costs.
Liquidity and Capital Resources
The Company's capital resources are primarily invested in its housing
inventory, land held for development and land held for sale. The following table
presents the regional components of housing inventory, land held for development
and land held for sale (dollars in thousands):
<TABLE>
<CAPTION>
June 30, September 30, Increase
1996 1995 (Decrease)
-------- ------------- --------
<S> <C> <C> <C>
Housing inventory:
Arizona $ 81,579 $ 70,245 $ 11,334
California 58,978 59,732 (754)
Southeast 0 12,970 (12,970)
-------- -------- --------
Company total $140,557 $142,947 $ (2,390)
======== ======== ========
Land held for development:
Arizona $ 57,248 $ 97,825 $(40,577)
California 40,231 81,651 (41,420)
-------- -------- -------
Company total $ 97,479 $179,476 $(81,997)
======== ======== ========
Land held for sale:
Arizona $ 41,927 $ 21,198 $ 20,729
California 0 2,638 (2,638)
Southeast 215 15,660 (15,445)
-------- -------- --------
Company total $ 42,142 $ 39,496 $ (2,646)
======== ======== ========
</TABLE>
Land held for development at June 30, 1996 reflects a write-down to fair value
as of the Consummation Date of $40.5 million, resulting from the Company's
adoption of fresh start reporting. Land held for sale reflects a writeup to fair
value of $2.3 million as of the Consummation Date, transfers from land held for
development of $32.1 million subsequent to the Consummation Date and sales with
a basis of $31.8 million subsequent to the Consummation Date. The fair value of
housing inventory approximated its book value at the Consummation Date.
On June 28, 1996, the Company completed an asset sale transaction in which it
sold to DMB/AEW Land Holdings One, LLC, an affiliate of DMB and AEW, for cash
$19.8 million of assets the Company had previously designated as land held for
sale. Proceeds of the sale were used to retire
24
<PAGE>
two of the Company's term facilities, reduce the loan-to-value ratios to 60% on
three other term facilities, and reduce the outstanding balance on the Company's
principle revolving facility. The sale also created additional acquisition and
development fund availability in the Company's principle revolving facility. The
Company has entered into a management agreement with the DMB/AEW affiliate
pursuant to which the Company will receive a fixed monthly fee for the
management and marketing of the assets to third party buyers.
At June 30, 1996, the Company finances its home building, land development and
mortgage operations as discussed below:
Construction and Acquisition and Development Financing - The Company's
largest credit facility is a $150 million facility with a group of banks, $140.1
million of which is a revolving facility and an aggregate of $9.9 million of
which is available pursuant to three separate term facilities. The revolving
facility is available for both construction and acquisition and development ("A
& D") activities in Arizona and California, with the amount available for A & D
activities limited to a maximum of $37.5 million. The revolving facility accrues
interest at prime plus 1.0% or, at the Company's option, LIBOR plus 3.25%,
payable monthly. If certain performance standards are met, including ratios of
debt to tangible net worth, interest coverage and liquidity, the revolving
facility will accrue interest at a rate as low as prime plus 0.5% or, at the
Company's option, LIBOR plus 2.75%. The revolving facility matures on March 31,
1999, but the commitment amount decreases by $25 million per quarter commencing
February 1, 1998 (the "Conversion Date") and the facility ceases to revolve six
months prior to the maturity date. On the Conversion Date, the interest rate on
the revolving facility increases to prime plus 1.5% or, at the Company's option,
LIBOR plus 3.50%. Following the Conversion Date, no new A & D projects will be
permitted, and no new unit starts will be allowed after 12 months following the
Conversion Date. The revolving facility requires payment of quarterly commitment
fees ranging from 0.5% per annum of the commitment amount to 1.0% per annum of
the commitment amount payable quarterly in advance and unused commitment fees
equal to 0.25% per annum of the average unused commitment amount payable
quarterly in arrears. In addition, the revolving facility requires payment of
syndication and agency fees. The term facilities initially accrue interest at
prime plus 2.0%, payable monthly. However, the interest rate with respect to
$9.9 million principal amount of the term loans would have increased
retroactively for the duration of such facilities to 15% per annum if the
average loan-to-value ratio with respect to such facilities was not reduced to
60% prior to May 16, 1996. The Company requested and received on May 15, 1996 an
extension of the date by which the loan-to-value ratio must be reduced to 60%
from May 16, 1996 to August 15, 1996. Subsequently, the Company consummated on
June 28, 1996 an asset sale transaction which resulted in a reduction of the
loan-to-value ratio to 60%. The term facilities require quarterly principal
reductions and mature, with respect to $9.9 million of principal, on September
30, 1998. Each term facility requires payment of release prices upon the sale of
assets securing such facility. The term facilities include a 1.0% per annum
commitment fee payable annually in advance and, in some circumstances, agency
and syndication fees. In addition, the term facilities for $9.9 million of
principal require payment of exit fees at maturity ranging from 1.0% to 2.0%,
depending upon the average loan-to-value ratio of such facilities at certain
dates. The revolving and term facilities are secured by portions of the
Company's (and its consolidated entities') housing inventory, land held for
development and land
25
<PAGE>
held for sale. As of June 30, 1996, $9.9 million was outstanding under the term
facilities and $49.9 million was outstanding under the revolving facility.
The Company also has a $55.5 million credit facility consisting of a
$12.5 million construction facility for homes at Westbrook Village ("WBV"), a
$10.8 million WBV A & D facility, a $20.0 million general construction facility
and a $1.8 million term facility. The $1.8 million term facility accrues
interest at prime plus 2.0%, payable monthly together with principal payments of
$254,000 through September 1, 1996 and $339,000 from October 1, 1996 through
maturity on October 31, 1997. In addition, the $1.8 million term facility
requires payment quarterly of a loan fee of 2% per annum of the outstanding
principal amount. The $1.8 million term facility is secured by various portions
of the Company's land held for development. The $12.5 million WBV construction
facility and the $10.8 million WBV A & D facility accrue interest at prime plus
1.5% (with the construction facility reducing to prime plus 1.25% on October 1,
1996 if certain conditions are met), payable monthly. Additionally, (I) a loan
fee of 1% per annum of $12.5 million is payable quarterly (with the loan fee
reducing to 0.75% on October 1, 1996 if certain conditions are met) on the $12.5
million WBV construction facility and (ii) a loan fee of 1% per annum of $10.8
million is payable quarterly on the $10.8 million WBV A & D facility through
April 1, 1996 and a loan fee of 1% per annum of the maximum committed amount of
the WBV A & D facility as of July 1, 1996 is payable quarterly for the period
from July 1, 1996 through June 30, 1997. The $10.8 million WBV A & D facility
matures on July 1, 1997 and the $12.5 million WBV construction facility matures
on January 1, 1998. The facilities are secured by WBV housing inventory and land
held for development. The $20.0 million general construction facility accrues
interest at prime plus 1.5% (reducing to prime plus 1.25% on October 1, 1996 if
certain conditions are met), payable monthly. Additionally, a commitment fee of
1% per annum of $20.0 million is payable quarterly (reducing to 0.75% on October
1, 1996 if certain conditions are met). Also, a non-use fee of 1/24 of 1% of the
amount by which the outstanding balance is less than $10.0 million is due
monthly beginning March 25, 1996. The $20.0 million general construction
facility matures on November 7, 1996, with two one year extensions available if
certain conditions are met. Any advances under this loan will be secured by
portions of the Company's housing inventory. As of June 30, 1996, $5.6 million
was outstanding under the WBV construction facility and $1.8 million was
outstanding under the term facility. No amounts were outstanding under the
general construction facility or the WBV A & D facility.
The construction and A & D facilities described above contain various
covenants, including but not limited to, covenants regarding: (I) encumbrances;
(ii) minimum available liquidity; (iii) maximum total debt to tangible net
worth; (iv) minimum tangible net worth; (v) minimum cumulative net cash flow to
total debt service; (vi) minimum ratio of earnings before interest, taxes,
depreciation and amortization to interest paid; (vii) restrictions on mergers,
consolidations and acquisitions; (viii) restrictions on asset sales; and (ix)
restrictions on incurrence of additional indebtedness. Among other things, such
covenants may limit the Company's ability to obtain additional financing when
needed and on terms acceptable to the Company. Further, the availability of
funds under the revolving facilities is dependent upon compliance with such
covenants, certain loan-to-value ratios stated in each facility and the levels
of pre-sold and speculative construction. Accordingly, all of the committed
credit may not be available to the Company at any particular time.
26
<PAGE>
Any inability of the Company to obtain financing when needed in amounts or on
terms favorable to the Company could have a material adverse effect on the
Company's business, operating results and financial condition.
As discussed in the section entitled "Debt Covenants" in Item 1. above,
the Company was in violation of the tangible net worth and debt to tangible net
worth covenants of the above-described facilities as of and subsequent to the
Consummation Date. In addition, from February 21, 1996 to March 14, 1996, the
Company was in violation of certain minimum available liquidity covenants. In
response, the Company and the subject lenders agreed to a waiver of the
violations and a modification of the debt covenants, and on March 15, 1996, DMB
invested $10 million in the Company in exchange for a new 14.5% Series D
Subordinated Note.
Other Secured Borrowings - In addition to the credit facilities
described above, the Company has various notes outstanding collateralized
primarily by land held for development. The notes bear interest at rates ranging
from prime plus 0.25% to prime plus 2.0% and are due at various dates.
At June 30, 1996, $25.9 million was outstanding under these notes.
New Series A and B Senior Notes and New Series C Subordinated Notes -
Upon consummation of the Plan, the Company issued: (1) the new Series A Senior
Notes in a principal amount of $60 million; (2) the new Series B Senior Notes in
a principal amount of $10 million; and (3) the new Series C Subordinated Notes
in a principal amount of $35 million, $30 million of which were issued to DMB in
exchange for a portion of its $108 million investment. Interest on the new
Senior Notes accrues at a rate of 12.5% per annum, commencing September 1, 1995,
and is payable semi-annually beginning May 1, 1996. Both series of new Senior
Notes mature on May 1, 2000. The new Series B Senior Notes further require
prepayments from the proceeds of certain asset sales in excess of $10 million,
subject to certain limitations related to the Company's new construction and
acquisition and development financing. Both series of new Senior Notes contain
numerous covenants which may, among other things, limit the Company's ability to
obtain additional financing when needed and on terms acceptable to the Company.
Interest on the new Series C Subordinated Notes accrues at the rate of
14.5% per annum and is payable semi-annually beginning November 1, 1996. The new
Series C Subordinated Notes mature November 1, 2000. The payment of interest in
cash on the new Series C Subordinated Notes is restricted by certain limitations
related to the Company's construction and acquisition and development financing.
On May 6, 1996, Eastrich No. 184, LLC acquired $15 million of the Series C
Subordinated Notes from DMB pursuant to a purchase option.
New Series D Subordinated Note - On March 15, 1996, DMB invested $10
million in the Company in exchange for a $10 million new Series D Subordinated
Note. The terms for the new Series D Subordinated Note are identical to the
terms for the new Series C Subordinated Notes discussed above, except that
payments on the new Series D Subordinated Note are subordinate to payments on
the new Series C Subordinated Notes. On May 6, 1996, Eastrich No. 184, LLC
acquired $5 million of the Series D Subordinated Notes from DMB pursuant to a
purchase option.
27
<PAGE>
Common Stock - In connection with the consummation of the Plan, the
Company sold all 1,000 of the authorized shares of Common Stock of the
reorganized Company, par value $0.01 per share, to DMB. DMB then issued a
purchase option to AEW Partners, L.P. ("AEW") which, as amended, gave AEW the
right to purchase 500 of the common shares owned by DMB, $15 million of the new
Series C Subordinated Notes issued to DMB, $5 million of the new Series D
Subordinated Note issued to DMB and 50% of the general partner interest held by
a DMB affiliate in WBV for an aggregate purchase price of $61.25 million, plus
interest (as defined). On April 21, 1996, AEW notified DMB that it elected to
exercise the option, and the purchase by Eastrich No. 184, LLC (as to all
interests except the WBV interest) and Eastrich No. 185, LLC (as to the WBV
interest), as assignees of AEW, pursuant to the exercise of the option was
completed on May 6, 1996.
Mortgage Debt - The Company finances its mortgage operations with a $10
million committed revolving credit facility which matures on August 30, 1996.
This facility is secured by residential mortgages originated in the closing of
the Company's residential home sales. At June 30, 1996, $3.9 million was
available and outstanding under this facility. The Company's collateralized
mortgage obligations are non-recourse and are secured by mortgage backed
securities issued by FNMA, GNMA and FHLMC. These obligations mature as their
corresponding mortgage backed securities mature.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
The statements contained herein which are not historical facts may
constitute "forward- looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, and are subject to the safe harbors created
thereby. These forward-looking statements involve risks and uncertainties,
including, but not limited to, the Company's success in overcoming negative
perceptions on the part of home buyers as a result of its Chapter 11 filing, the
effect of interest rates on demand for the Company's homes, and fluctuating
margins as a result of product mix and other factors. In addition, the Company's
business, operations and financial condition are subject to substantial risks
which are described in the Company's reports and statements filed from time to
time with the Securities and Exchange Commission. These reports and statements
include the Company's Annual Report on Form 10-K for the year ended September
30, 1995 and quarterly reports on Form 10-Q for the quarters ended December 31,
1995 and March 31, 1996.
28
<PAGE>
Part II. Other Information
Item 1. Legal proceedings
- - ------ -----------------
6. Contingencies and Legal Matters
-------------------------------
On June 5, 1995, June 14, 1995 and October 25, 1995, three
lawsuits, entitled Michael A. Isco v. Richard C. Kraemer et al. (Case No.
CV95-08941), Larry Alexander et al. v. Arthur Andersen LLP et al. (Case No.
CV95-09509), and Crandon Capital Partners v. Kraemer, et al. (Case No.
CV95-17785), respectively (collectively, the "Arizona Actions"), were filed in
Maricopa County, Arizona Superior Court on behalf of purported classes of former
shareholders of the Company against, among others, certain current and former
officers and directors of the Company, who may be entitled to indemnification
from the Company, as well as the Company's independent public accountants,
Arthur Andersen LLP. The Company is not a named defendant in any of these
complaints. Subsequently, the Arizona Actions were consolidated. The complaints
seek, among other things, unspecified monetary damages and contain allegations
which include violations of Arizona securities laws, fraud, negligent
misrepresentation, breach of fiduciary duty, negligence and gross negligence.
The Plan provided for the discharge of all claims asserted in such class action
lawsuits as against the Company, and the holders of such claims received no
distributions on account of such claims. The Company could, however, be required
to indemnify certain of the director/officer defendants if such defendants incur
expenses or liability and seek indemnification.
These lawsuits were previously disclosed in the Forms 10-Q filed by the
Company for the quarters ended December 31, 1995 and March 31, 1996. As a result
of settlement discussions, an agreement (the "Settlement Agreement") was reached
pursuant to which the plaintiffs and the director/officer defendants agreed to
settle and compromise the Arizona Actions in their entirety, as such actions
relate to the director/officer defendants and the Company, in exchange for,
among other things, $12.75 million. Of such amount, up to $1.5 million (the
self-insured retention under the Company's applicable directors and officers
insurance policies) will be funded by the Company. Certain issuers of the
Company's directors and officers insurance policies, together with the Company,
have agreed to fund the balance of the settlement. Such settlement is subject to
certain conditions, including the entry of a final, non-appealable judgment by
the Maricopa County, Arizona Superior Court. In connection with such settlement
and issues discussed between the Company and DMB concerning the consummation of
the Stock Purchase Agreement, the director/officer defendants have agreed to
limit their aggregate claim for indemnification arising out of the Arizona
Actions in certain circumstances to $12 million above the following: (A) the
balance of the Company's self-insured retention under applicable insurance
policies and (B) applicable insurance held by the Company with respect to the
Arizona Actions. The Company does not believe that any obligations under its
By-laws will exceed its coverage under its directors and officers insurance
policies.
29
<PAGE>
The Settlement Agreement was filed with the Maricopa County, Arizona Superior
Court on January 19, 1996; that Court now must determine whether, after notice
to class members, to approve the Settlement Agreement and to enter a bar order
against the non-settling defendants (the "Good Faith Bar Order"). A Good
Faith/Bar Order is intended to bar any claim for contribution by non-settling
defendants against settling defendants or the Company. The settling parties
filed a joint request that the Court preliminarily approve the settlement,
promptly approve the form of notice to be provided to the class, order that the
class be given notice, and set a final settlement hearing date. On April 5,
1996, the Court entered an order that the class be given notice of the
settlement and an opportunity to object or "opt out". At the end of May, a new
judge was assigned to the Arizona Actions. A hearing scheduled for September 6,
1996 to approve the final settlement and to rule on the entry of a Good
Faith/Bar Order was then vacated and not yet rescheduled. Discovery by the
non-settling defendants is on-going. In addition, the plaintiffs have
subsequently sought to modify the proposed settlement to eliminate any release
of potential claims they might have against the Company's prior independent
auditor, Coopers & Lybrand.
The Company is also involved in various legal proceedings
which generally represent ordinary routine litigation incident to its business,
some of which are covered in whole or in part by insurance.
30
<PAGE>
Item 5. Other Information
- - ------ -----------------
In connection with its Chapter 11 filing, the Company agreed
to use its reasonable best efforts to maintain its status as a
reporting company under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), for so long as the new Series
A Senior Notes and the new Series B Senior Notes remain
outstanding. Pursuant to such obligation, the Company has been
continuing to file Exchange Act reports with the Securities
and Exchange Commission and the Trustees under the Indentures
relating to the Senior Notes pursuant to its existing Exchange
Act registration while seeking to obtain the listing of the
new Series A Senior Notes and the new Series B Senior Notes
for trading on a national securities exchange pursuant to
Section 12(b) of the Exchange Act. The Company has been unable
to obtain the investment grade rating of the Senior Notes
necessary for listing. At the present time, the Company
intends to continue its existing Exchange Act registration and
fulfill its obligations under the Indentures pursuant to such
registration.
Item 6. Exhibits and Reports on Form 8-K
------ --------------------------------
(a) Exhibits
4.1 Form of 14.5 % Series D Subordinated Note
Due 2000 and dated March 15, 1996 and
Addendum and Amendment thereto dated July
24, 1996.
10.1 Separation Agreement and Release dated July
12, 1996 between the Company and Jacques C.
Lazard.
10.2 First Amendment to the UDC Term Loan
Agreement dated May 15, 1996 between UDC
Homes, Inc., as borrower, and Bank One,
Arizona, NA as lender.
10.3 First Amendment to the Mountainbrook Term
Loan Agreement dated May 15, 1996 between
Mountainbrook Village Joint Venture, Inc.,
as borrower, and Bank One, Arizona, NA as
lender.
10.4 First Amendment to the Sunrise Term Loan
Agreement dated May 15, 1996 between Sunrise
Limited Partnership, as borrower, and Bank
One, Arizona, NA as lender.
31
<PAGE>
10.5 First Amendment to the Realty Dealers Term
Loan Agreement dated May 15, 1996 between
Realty Dealers, LTD., as borrower, and Bank
One, Arizona, NA as lender.
10.6 Second Amendment to the UDC Master Revolving
Line Of Credit (Borrowing Base) Loan
Agreement dated June 30, 1996 between UDC
Homes, Inc., LTD., as borrower, and Bank
One, Arizona, NA, Bankers Trust Company,
Wells Fargo Bank, National Association, The
First National Bank of Boston, Wells Fargo
Realty Advisors Funding, Incorporated, and
Guaranty Federal Bank, F.S.B. as lenders.
10.7 Letter Agreement dated June 14, 1996
modifying the Third Restated Revolving Line
of Credit Agreement between Westbrook
Village Venture and UDC Homes, Inc., as
borrowers, and Bank of America Arizona, as
lender.
10.8 Letter Agreement dated June 14, 1996
modifying the Master Term Loan Agreement
between UDC Homes, Inc., as borrower, and
Bank of America Illinois and Bank of America
National Trust & Savings Association, as
lenders.
10.9 Letter Agreement dated June 14, 1996
modifying the Third Restated Acquisition and
Development Loan Agreement between Westbrook
Village Venture and UDC Homes, Inc, as
borrowers and Bank of America Arizona as
lender.
32
<PAGE>
(b) Reports on Form 8-K
1. The Company filed a report on Form 8-K dated
April 17, 1996 regarding the extension of a
purchase option granted by DMB to AEW. No
financial statements were filed as a part of
the report.
2. The Company filed a report on Form 8-K dated
April 23, 1996 regarding the appointment of
a new president and chief executive officer
and AEW's exercise of the purchase option
granted to it by DMB. No financial
statements were filed as a part of the
report.
3. The Company filed a report on Form 8-K dated
June 24, 1996 regarding the resignation of
its executive vice president/chief financial
officer, the appointment of a new senior
executive vice president/chief financial
officer and the appointment of a new senior
executive vice president. No financial
statements were filed as a part of the
report.
33
<PAGE>
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 thereunto duly authorized.
UDC HOMES, INC.
---------------------------------
(Registrant)
August 14, 1996 By: /s/ Kenda B. Gonzales
--------------- -------------------------
Date Kenda B. Gonzales
Senior Executive Vice President and
Chief Financial Officer
August 14, 1996 By: /s/ Jacques C. Lazard
--------------- -------------------------
Date Jacques C. Lazard
Executive Vice President
34
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Page No.
- - ----------- --------
4.1 Form of 14.5 % Series D Subordinated Note Due 2000 and
dated March 15, 1996 and Addendum and Amendment thereto
dated July 24, 1996.
10.1 Separation Agreement and Release dated July 12, 1996
between the Company and Jacques C. Lazard.
10.2 First Amendment to the UDC Term Loan Agreement dated May
15, 1996 between UDC Homes, Inc., as borrower, and Bank
One, Arizona, N.A. as lender.
10.3 First Amendment to the Mountainbrook Term Loan Agreement
dated May 15, 1996 between Mountainbrook Village Joint
Venture, Inc., as borrower, and Bank One, Arizona, N.A.
as lender.
10.4 First Amendment to the Sunrise Term Loan Agreement dated
May 15, 1996 between Sunrise Limited Partnership, as
borrower, and Bank One, Arizona, N.A. as lender.
10.5 First Amendment to the Realty Dealers Term Loan
Agreement dated May 15, 1996 between Realty Dealers,
LTD., as borrower, and Bank One, Arizona, N.A. as
lender.
10.6 Second Amendment to the UDC Master Revolving Line Of
Credit (Borrowing Base) Loan Agreement dated June 30,
1996 between UDC Homes, Inc., LTD., as borrower, and
Bank One, Arizona, NA, Bankers Trust Company, Wells
Fargo Bank, National Association, The First National
Bank of Boston, Wells Fargo Realty Advisors Funding,
Incorporated, and Guaranty Federal Bank, F.S.B. as
lenders.
35
<PAGE>
10.7 Letter Agreement dated June 14, 1996 modifying the Third
Restated Revolving Line of Credit Agreement between
Westbrook Village Venture and UDC Homes, Inc., as
borrowers, and Bank of America Arizona, as lender.
10.8 Letter Agreement dated June 14, 1996 modifying the
Master Term Loan Agreement between UDC Homes, Inc., as
borrower, and Bank of America Illinois and Bank of
America National Trust & Savings Association, as
lenders.
10.9 Letter Agreement dated June 14, 1996 modifying the Third
Restated Acquisition and Development Loan Agreement
between Westbrook Village Venture and UDC Homes, Inc, as
borrowers and Bank of America Arizona as lender.
36
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR UNDER ANY STATE SECURITIES LAWS, AND HAS NOT BEEN
ISSUED PURSUANT TO AN INDENTURE QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939,
AS AMENDED. THIS NOTE MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF, IN WHOLE OR IN PART, IN THE ABSENCE OF (1) A CURRENT AND
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS WITH RESPECT TO THIS NOTE, OR (2) AN OPINION OF COUNSEL, IN FORM
AND SUBSTANCE ACCEPTABLE TO UDC HOMES, INC., THAT SUCH REGISTRATION IS NOT
REQUIRED.
14 1/2% SERIES D SUBORDINATED NOTE DUE 2000
$5,000,000.00 March ___, 1996
Phoenix, Arizona
FOR VALUE RECEIVED, UDC Homes, Inc., a Delaware corporation, promises
to pay to the order of _________________ the principal sum of Five Million and
00/100 Dollars ($5,000,000.00) on November 1, 2000 with interest on the unpaid
principal balance from the date hereof at the rate and on the other terms and
conditions set forth below.
This Note is one of a series of Notes in the aggregate principal amount
of $10,000,000.00 constituting 14 1/2% Series D Subordinated Notes due 2000 of
the Company. The agreements set forth herein are for the equal and ratable
benefit of all holders of the Notes.
ARTICLE 1
DEFINITIONS AND RULES OF CONSTRUCTION
SECTION 1.1 Definitions
-----------
"Affiliate" of any Person means any Person directly or indirectly
controlling or controlled by, or under direct or indirect common control with,
the referent Person. For purposes of this definition, control of a Person shall
mean the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise.
"Bankruptcy Law" means title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Banks" means the lenders under the Exit Financing, including without
limitation, all current lenders, and all other assignees, transferees, pledgees,
and participants with respect to the
1
<PAGE>
Exit Financing whether now or hereafter existing.
"Board of Directors" means the Board of Directors of a Person or any
authorized committee of the Board of Directors of such Person.
"Business Day" means any day other than a Legal Holiday.
"Capital Stock" of any Person means any and all shares, rights to
purchase, warrants or options (whether or not currently exercisable),
participations, or other equivalents of or interests in (however designated) the
equity (which includes, but is not limited to, common stock, preferred stock and
partnership and joint venture interests) of such Person (excluding any debt
securities that are convertible into, or exchangeable for, such equity).
"Closing Date" means November 14, 1995.
"Common Equity" of any Person means all Capital Stock of such Person
that is generally entitled to (i) vote in the election of directors of such
Person, or (ii) if such Person is not a corporation, vote or otherwise
participate in the selection of the governing body, partners, managers or others
that will control the management and policies of such Person.
"Company" means UDC Homes, Inc., a Delaware corporation, and any
successor to UDC Homes, Inc., pursuant to the applicable provisions of this
Note.
"Consolidated Net Worth" of the Company as of any date means the
stockholders' equity (including any Preferred Stock that is classified as equity
under GAAP, other than Disqualified Stock) of the Company and its Subsidiaries
on a consolidated basis at the end of the fiscal quarter immediately preceding
such date, as determined in accordance with GAAP.
"Custodian" shall have the meaning specified in Section 6.1.
"Default" means any event, act or condition that after notice or the
passage of time or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, 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 option of the holder thereof, in whole or in part, on or prior to the
maturity date of this Note.
"Event of Default" shall have the meaning specified in Section 6.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exit Financing" means (i) the Term Loan, (ii) UDC Master Revolving
Line of Credit
2
<PAGE>
(Borrowing Base) Loan Agreement, dated November 8, 1995, by and between UDC
Homes, Inc. and Bank One, Arizona, NA, and Bankers Trust Company, in their
individual capacities and as agents for themselves and one or more other banks,
and their respective successors, assigns, and participants and all related loan
documents referred to therein, (iii) Master Revolving Line of Credit
Construction Loan Agreement, dated November 6, 1995, between UDC Homes, Inc. and
Bank of America Arizona and all related loan documents referred to therein, (iv)
Third Restated Acquisition and Development Loan Agreement, dated November 6,
1995, between UDC Homes, Inc., Westbrook Village Venture and Bank of America
Arizona and all related loan documents referred to therein, (v) Third Restated
Revolving Line of Credit Construction Loan Agreement, dated November 6, 1995,
between UDC Homes, Inc., Westbrook Village Venture and Bank of America Arizona
and all related loan documents referred to therein, (vi) UDC Homes, Inc. Letter
Agreement addressed to Bank of America Arizona dated November 6, 1995 re: ME II
Limited Partnership, (vii) UDC Homes, Inc. Letter Agreement addressed to Bank of
America Arizona dated November 6, 1995 re: Mill & Ellis Office Limited
Partnership, and (viii) all other guarantees, subordination agreements and other
documents executed by the Company or its Affiliates in connection with the
facilities and other arrangements described in clauses (i) through (vii), as
such facilities and other arrangements described in clauses (i) through (vii)
may be amended, modified, renewed, extended, restated, replaced or otherwise
changed from time to time.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, as in effect on the date hereof.
"Holder" means a Person in whose name the Note is registered.
"Interest Payment Date" shall have the meaning specified in Section
2.6.
"Legal Holiday" shall have the meaning specified in Section 8.5.
"Notes" means this 14 1/2% Series D Subordinated Note due 2000 in the
principal amount of $5,000,000, any Notes issued upon the transfer or exchange
of this Note, any Notes issued in payment of interest pursuant to Section 2.7
hereof and all other identical Notes in the series identified as 14 1/2% Series
D Subordinated Notes due 2000 with an aggregate principal amount of $10,000,000.
"Officers" means the President, the Treasurer, any Assistant Treasurer,
Controller, Secretary or any Vice President of a Person.
"Officers' Certificate" means a certificate signed by two Officers, one
of whom must be the Person's chief operating officer, chief financial officer or
controller of financial accounting.
3
<PAGE>
"Opinion of Counsel" means an opinion from legal counsel who is
acceptable to the Person receiving the opinion. The counsel may be counsel to
the Company.
"Person" means any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Preferred Stock" of any Person means all Capital Stock of such Person
which has a preference in liquidation or preference with respect to the payment
of dividends.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Notes" means the Series A Senior Notes, the Series B Senior
Notes and the Series C Senior Notes.
"Series A Senior Notes" means the Company's 12 1/2% Series A Senior
Notes due May 1, 2000 issued pursuant to an indenture dated as of November 14,
1995 between the Company and American Bank National Association, as trustee.
"Series B Senior Notes" means the Company's 12 1/2% Series B Senior
Notes due May 1, 2000 issued pursuant to an indenture dated as of November 14,
1995 between the Company and American Bank National Association, as trustee.
"Series C Senior Notes" means the Company's 14 1/2% Series C
Subordinated Notes due November 1, 2000 issued pursuant to an indenture dated as
of November 14, 1995 between the Company and American Bank National Association,
as trustee.
"Subsidiary" of any Person means (i) any corporation of which at least
a majority of the aggregate voting power of all classes of the Common Equity is
owned by such Person directly or (ii) any entity other than a corporation in
which such person, directly or indirectly, owns at least a majority of the
Common Equity of such entity.
"Successor" shall have the meaning specified in Section 5.1.
"Term Loan" means (i) UDC Term Loan Agreement (Bank Group), dated
November 9, 1995, by and between UDC Homes, Inc. and Bank One, Arizona, NA, and
Bankers Trust Company, in their individual capacities and as agents for
themselves and one or more other banks, and their respective successors,
assigns, and participants and all related loan documents referred to therein;
(ii) UDC Term Loan Agreement (BOAZ), dated November 8, 1995, between UDC Homes,
Inc. and Bank One, Arizona, NA, and its successors, assigns and participants and
all related loan documents referred to therein; (iii) Realty Dealers Term Loan
Agreement, dated November 8, 1995, by and between Realty Dealers, Ltd., and Bank
One, Arizona, NA, which
4
<PAGE>
is guaranteed by UDC Homes, Inc. and all related loan documents referred to
therein; (iv) Sunrise Term Loan Agreement, dated November 8, 1995, between
Sunrise Limited Partnership and Bank One, Arizona, NA, which is guaranteed by
UDC Homes, Inc. and all related loan documents referred to therein; (v)
MountainBrook Term Loan Agreement, dated November 8, 1995, between MountainBrook
Village Joint Venture and Bank One, Arizona, NA, which is guaranteed by UDC
Homes, Inc. and all related loan documents referred to therein; (vi) Master Term
Loan Agreement, dated November 6, 1995, between UDC Homes, Inc., Bank of America
Illinois and Bank of America National Trust & Savings Association and all
related loan documents referred to therein; (vii) Term Loan Agreement (Terra),
dated November 6, 1995, between Terra California Limited Partnership, UDC Homes,
Inc. and Bank of America Illinois and all related loan documents referred to
therein; and (viii) all other guarantees, subordination agreements and other
documents executed by the Company or its Affiliates in connection with the
facilities described in clauses (i) through (vii) as such facilities and other
arrangements described in clauses (i) through (vii) may be amended, modified,
renewed, extended, restated, replaced or otherwise changed from time to time.
"Transfer" shall have the meaning specified in Section 2.1.
SECTION 1.2 Rules of Construction
---------------------
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the
plural include the singular; and
(e) provisions apply to successive events and transactions.
ARTICLE 2
THE NOTES
SECTION 2.1 Transfer and Exchange
---------------------
The Notes have not been registered under the Securities Act or under
any state securities laws, and have not been issued pursuant to an indenture
qualified under the Trust Indenture Act of 1939, as amended, in reliance upon
specific exemptions from the registration requirements of such laws. The Notes
may not be sold, transferred, pledged, hypothecated or otherwise disposed of
(each, a "Transfer"), in whole or in part, in the absence of: (a) a current and
5
<PAGE>
effective registration statement under the Securities Act and applicable state
securities laws, or (b) an opinion of counsel, in form and substance acceptable
to the Company that such registration is not required. A Holder engaging in a
Transfer of the Notes permitted pursuant to this Section 2.1 shall present its
Note for Transfer duly endorsed or accompanied by a written instruction of
Transfer in a form satisfactory to the Company, duly executed by the Holder or
the Holder's attorney duly authorized in writing. Any permitted transferee of a
Note shall be bound by the terms and conditions hereof, including without
limitation the restrictions on Transfer set forth in this Section 2.1. No
service charge shall be made to a Holder for any registration of Transfer, but
the Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than such
transfer tax or similar governmental charge payable upon exchanges pursuant to
Section 3.6 or 7.4 hereof). Any Transfer not in compliance with the provisions
of this Section 2.1 shall be null and void.
SECTION 2.2 Replacement Notes
-----------------
If any mutilated Note is surrendered to the Company, or the Company
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, the Company shall issue a replacement Note if the Company's requirements
are met. If required by the Company, an indemnity bond must be supplied by the
Holder that is sufficient in the judgment of the Company to protect the Company
from any loss that it may suffer if a Note is replaced. The Company may charge
the Holder for its expenses in replacing a Note.
SECTION 2.3 Outstanding Notes
-----------------
The Notes outstanding at any time are all the Notes issued by the
Company except for those cancelled by it, those delivered to it for cancellation
and those described in this Section 2.3 as not outstanding.
If a Note is replaced pursuant to Section 2.2 hereof, the replaced Note
ceases to be outstanding.
If the principal amount of any Note is paid under Section 4.1, the Note
ceases to be outstanding and interest on it ceases to accrue.
A Note held by the Company or an Affiliate of the Company will be
treated as being outstanding to the same extent as if it were held by any other
Holder.
SECTION 2.4 Cancellation
------------
The Company shall cancel all Notes (or such portion thereof)
surrendered for registration of Transfer, exchange, payment, replacement or
cancellation. The Company may not issue new Notes to replace Notes that it has
paid or that otherwise are no longer outstanding pursuant to Section 2.3 hereof.
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SECTION 2.5 Interest Rate
-------------
Interest shall accrue on the unpaid principal amount of the Notes (and
overdue installments of interest) at 14 1/2% per annum from the most recent date
on which interest has been paid or, if no interest has been paid, from the date
of issuance, through the date on which the unpaid principal amount is paid in
full. Interest shall be computed on the basis of a 360-day year.
SECTION 2.6 Interest Payment Date
---------------------
Subject to the subordination provisions of Section 2.8, the Company
shall pay interest in arrears semi-annually on May l and November 1 of each
year, or if any such day is not a Business Day, on the next succeeding Business
Day (each an "Interest Payment Date"), with the first Interest Payment Date to
be November 1, 1996. If the Company defaults in a payment of interest on the
Notes, it shall pay the defaulted interest in any lawful manner plus, to the
extent lawful, interest payable on the defaulted interest to the Holders, in
each case at the rate provided in Section 2.5 hereof. The Company shall fix each
such special record date and payment date. At least 15 days before the record
date, the Company shall mail to Holders a notice that states the special record
date, the related payment date and the amount of such interest to be paid.
SECTION 2.7 Method of Interest Payment
--------------------------
The Company shall pay interest on the Notes to the Holders at the close
of business on the record date preceding the next Interest Payment Date, even if
such Notes are cancelled after such record date and on or before such Interest
Payment Date. Subject to Section 2.8, the Company shall pay interest on the
Notes either:
a. after the later of (i) the second anniversary of the Closing
Date and (ii) the date on which the Term Loan is repaid in
full, in cash, provided that the Company may pay such amounts
by check mailed to the Holder's registered address; or
b. at any time by the issuance of Notes in the face amount of the
interest then due.
Notes so issued shall be dated the applicable Interest Payment Date, shall bear
interest from and after such date, and shall be governed by, and subject to the
terms, provisions and conditions hereof, and shall have the same rights and
benefits as Notes previously issued. To the extent the Company pays interest on
the Notes in both cash and Notes on an Interest Payment Date, such cash and
Notes shall be allocated among the Notes on a pro rata basis.
The Company shall also comply with any notice requirements with respect
to its payment of interest on the Notes as provided in its agreements with the
Banks under the Exit Financing.
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SECTION 2.8 Subordination
-------------
(a) The indebtedness evidenced by the Notes is subordinated in
right of payment, to the extent and in the manner provided in this Section 2.8,
to the prior payment in full of all trade debt, Exit Financing and Senior Notes.
The subordination is for the benefit of the trade creditors, the Banks and the
holders of Senior Notes, and the Company agrees to take such action and execute
such documents as may be necessary or appropriate from time to time to
acknowledge or effectuate the subordination as provided in this Section 2.8.
This Section 2.8 shall remain in full force and
effect, and shall not be subject to modification, as long as either (i) any
amount under the Exit Financing or Senior Notes is outstanding or (ii) any of
the Banks are committed to have or otherwise agreed to make loans and advances
or otherwise extend credit to the Company pursuant to any of the Exit Financing;
provided, however, that this Section 2.8 shall only be in effect with respect to
trade debt so long as Senior Notes are outstanding. For purposes of this Section
2.8, the Exit Financing and the indebtedness under the Exit Financing shall
include all amounts now or hereafter outstanding with respect to the Exit
Financing, including without limitation, principal, interest, fees, costs,
expenses, indemnification obligations and other amounts.
(b) Upon any payment or distribution, whether of cash,
securities or other property, to creditors of the Company in a liquidation
(total or partial), reorganization or dissolution of the Company, whether
voluntary or involuntary, or in a bankruptcy, reorganization, insolvency,
receivership, assignment for the benefit of creditors, marshalling of assets or
similar proceeding relating to the Company or its property (any such proceeding,
a "Bankruptcy Proceeding"):
(i) the Banks, the holders of Senior Notes and trade
creditors shall be entitled to receive payment in full, in cash
equivalents, of all amounts due with respect to trade debt and under
the Exit Financing and Senior Notes, as the case may be, before Holders
shall be entitled to receive any payment of principal of, or interest
accruing before or after the commencement of a bankruptcy case by or
against the Company, whether or not interest constitutes an allowed
claim against the Company, or any other distribution with respect to,
the Notes; and
(ii) until all trade debt, Exit Financing and Senior
Notes are paid in full in cash or cash equivalents as provided in
clause (i) above and all obligations of the Banks and each of them to
make loans and advances or otherwise extend credit to the Company
pursuant to the Exit Financing have expired or terminated, any
distribution to which Holders would be entitled but for this Section
2.8 shall be made to the trade creditors, Banks and the holders of
Senior Notes as their interests may appear.
Upon any distribution of assets of the Company
referred to in this Section 2.8(b), the Holders shall be entitled to rely upon
any order or decree of a court of competent jurisdiction in which the applicable
Bankruptcy Proceeding is pending for the purpose of
8
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ascertaining (i) the Persons entitled to participate in such distribution, (ii)
the identities of the trade creditors, Banks or the holders of Senior Notes,
(iii) the amount of indebtedness outstanding to trade creditors or under the
Exit Financing or Senior Notes or the amounts payable thereon, (iv) the amount
or amounts paid or distributed thereon, and (v) all other facts pertinent
thereto or to this Section 2.8(b) (such information described in clauses (i)
through (v), the "Applicable Information"), and Holders shall be entitled to
rely upon a certificate of the liquidating trustee or agent or other such Person
making any distribution to the Holders (each of such Persons, a "Distribution
Agent") for the purpose of ascertaining the Applicable Information.
(c) The payment of principal shall be fully subordinated to
the Exit Financing and Senior Notes, and no such payments of principal or
redemption shall be made (notwithstanding any contrary provision hereof) unless
and until (i) the Company has paid in full (including pursuant to a redemption,
if applicable) all of the Exit Financing and Senior Notes and (ii) all
obligations of the Banks and each of them to make loans and advances or
otherwise extend credit to the Company pursuant to the Exit Financing have
expired or terminated. Payments of interest may be made on the Notes in
accordance with the terms hereof; provided, however, that notwithstanding any
contrary provision hereof, no interest shall be paid (a) at any time a default
exists under the Exit Financing or Senior Notes, or at any time that there will
be a default under the Exit Financing or Senior Notes with the passage of time
or upon the giving of notice, or (b) when the payment of interest would
constitute or result in a default under the Exit Financing or Senior Notes.
(d) If a distribution is made to Holders that because of this
Section 2.8 should not have been made to them, the Holders who receive the
distribution shall hold it in trust for the Banks, the holders of Senior Notes
and trade creditors, as the case may be, and pay it over to them as their
interests may appear.
(e) The Company shall promptly notify the Holders by an
appropriate Officers' Certificate of the Company delivered to the Holders of any
facts known to the Company that would cause a payment of principal of or
interest on the Notes to violate this Section 2.8, but failure to give such
notice shall not affect the subordination of the Notes to the Exit Financing and
the Senior Notes provided in this Section 2.8.
(f) After all indebtedness under the Exit Financing and the
Senior Notes is paid in cash or cash equivalents in full and until the Notes are
paid in full and all obligations of the Banks and each of them to make loans and
advances or otherwise extend credit to the Company pursuant to the Exit
Financing have expired or terminated, Holders shall be subrogated to the rights
of the Banks and the holders of Senior Notes to receive distributions applicable
to the Exit Financing and the Senior Notes to the extent that distributions
otherwise payable to Holders have been applied to payments with respect to the
Exit Financing or Senior Notes. A distribution made under this Section 2.8 to
Banks and the holders of Senior Notes which otherwise would have been made to
Holders is not, as between the Company and the Holders, a payment by the Company
with respect to Exit Financing or Senior Notes.
9
<PAGE>
(g) No right of any Bank or trade creditor or of any present
or future holder of Senior Notes to enforce the subordination of the
indebtedness evidenced hereby shall be impaired by any act or failure to act by
the Company or anyone in custody of its assets or property or by its failure to
comply with the terms hereof. No renewal, modification, replacement,
restatement, change or extension of the Exit Financing, no release or surrender
of any security for the Exit Financing or the obligations of any endorsers,
sureties or guarantors thereof, and no delay or omission in exercising, or
waiver of, any right or power on account of or in connection with the Exit
Financing, shall in any manner impair or affect the provisions of this Section
2.8.
(h) Whenever a distribution is to be made to the Holders or a
notice to be given to the Holders, trade creditors or the Banks, the
distribution may be made and the notice may be given to their designated
representatives, if any, as from time to time specified by notice to the
Company.
(i) A Default or Event of Default on the Notes may not be
declared while any of the Exit Financing or Senior Notes remains outstanding or
committed and may not be declared until all obligations of the Banks and each of
them to make loans and advances or otherwise extend credit to the Company
pursuant to the Exit Financing have expired or terminated.
ARTICLE 3
REDEMPTION
SECTION 3.1 Notices
-------
So long as such redemption is not in violation of any of the covenants
or provisions of the Exit Financing or Senior Notes or Section 2.8 hereof, the
Notes may be redeemed in whole or in part together with the payment of unpaid
principal plus all accrued interest at any time without the payment of any
premium or penalty after the Company has redeemed or otherwise paid in full all
of the Senior Notes. The Company shall comply with any notice requirements with
respect to its election to redeem any or all of the Notes as provided in its
agreements with the Banks under the Exit Financing.
SECTION 3.2 Selection of Notes To Be Redeemed
---------------------------------
If fewer than all of the Notes are to be redeemed, the Company shall
select the Notes to be redeemed on a pro rata basis. The particular Notes to be
redeemed shall be selected by the Company from the outstanding Notes not
previously redeemed. Notes and portions of them selected shall be in amounts of
$1,000 or whole multiples of $1,000. Except as provided in the preceding
sentence, provisions hereof that apply to Notes called for redemption also apply
to portions of Notes called for redemption.
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SECTION 3.3 Notices to Holders
------------------
At least 15 days but not more than 60 days before a redemption date,
the Company shall mail a notice to each Holder whose Notes are to be redeemed at
the last registered address of such Holder. The notice shall identify the Notes
to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
redemption date, upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion will be issued;
(d) that Notes called for redemption must be surrendered to
the Company at the address specified in such notice to collect the
redemption price; and
(e) that, unless the Company defaults in making the redemption
payment, interest on Notes called for redemption ceases to accrue on
and after the redemption date.
SECTION 3.4 Effect of Notice of Redemption
------------------------------
Once notice of redemption is mailed, Notes called for redemption become
due and payable on the redemption date at the redemption price.
SECTION 3.5 Deposit of Redemption Price
---------------------------
On or prior to the redemption date, the Company shall pay the
redemption price of, and accrued interest on, all Notes to be redeemed on that
date. Each Holder shall surrender the Notes to the Company to collect the
redemption payments.
If the Company complied with the preceding paragraph, interest on the
Notes or portions thereof to be redeemed (whether or not such Notes are
presented for payment) will cease to accrue on the applicable redemption date.
If any Note called for redemption shall not be so paid upon surrender because of
the failure of the Company to comply with the preceding paragraph, then interest
will be paid on the unpaid principal from the redemption date until such
principal is paid and on any interest not paid on such unpaid principal, in each
case, at the rate provided herein.
SECTION 3.6 Notes Redeemed in Part
----------------------
Upon surrender of a Note that is redeemed in part, the Company shall
issue for the Holder at the expense of the Company a new Note equal in principal
amount to the unredeemed
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portion of the Note surrendered.
ARTICLE 4
COVENANTS
SECTION 4.1 Payment of Notes
----------------
The Company shall pay the principal of and interest on the Notes on the
dates and in the manner provided herein. Each Holder shall surrender the Notes
to the Company to collect principal payments.
The Company shall pay interest on overdue principal at the rate equal
to the per annum interest rate that appears herein to the extent lawful; the
Company shall pay interest on overdue installments of interest at the same rate
as is payable on overdue principal to the extent lawful.
SECTION 4.2 SEC Reports: Financial Statements
---------------------------------
(a) The Company shall cause to be mailed to the Holders, at
their addresses appearing in the register of Notes maintained by the Company and
within 15 days after it files the same with the SEC, copies of the annual
reports and 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) that the Company is required to file with the SEC pursuant to Section
13 or 15(d) of the Exchange Act. The Company shall remain subject to the
requirements of such Section 13 or 15(d) so long as it is required to do so by
any of the provisions thereof and shall file all information, documents and
other reports as may be required thereunder, as required under clause (b) of
this Section 4.2.
(b) The Company shall cause any audited financial statements
and its quarterly unaudited financial statements to be mailed to the Holders at
their addresses appearing in the register of Notes maintained by the Company.
SECTION 4.3 Corporate Existence
-------------------
Subject to the provisions of Article 5 hereof, the Company shall do or
cause to be done all reasonable things necessary to preserve and keep in full
force and effect its corporate existence.
SECTION 4.4 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, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the Company's
obligation to pay the Notes; and the Company (to the extent that it may lawfully
do so) hereby expressly waives all benefit or advantage of any such law insofar
12
<PAGE>
as such law applies to the Notes, 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 Holders, but will suffer and permit the execution of every such power as
though no such law had been enacted.
ARTICLE 5
SUCCESSORS
SECTION 5.1 Limitations on Mergers and Consolidations
-----------------------------------------
The Company will not consolidate or merge (whether or not the Company
shall be the surviving corporation) or sell, assign, transfer or lease, all or
substantially all of its properties and assets, as an entirety, to any Person
unless: (i) the Person formed by or surviving any such consolidation or merger
(if other than the Company), or to which any such sale, assignment, transfer or
lease shall be made (collectively, the "Successor"), is a corporation organized
and existing under the laws of the United States or any state thereof or the
District of Columbia, and the Successor assumes all of the obligations of the
Company hereunder; and (ii) immediately after giving effect to such transaction
on a pro forma basis, the Consolidated Net Worth of the Company or the
Successor, as the case may be, would be at least equal to the Consolidated Net
Worth of the Company immediately prior to such transaction.
The Company shall deliver to the Holders prior to the consummation of
the proposed transaction an Officers' Certificate to the foregoing effect and an
Opinion of Counsel stating that the proposed transaction and assumption of the
Notes referred to in clause (i) of the preceding paragraph comply with the terms
hereof.
SECTION 5.2 Successor Corporation Substituted
---------------------------------
Upon any consolidation or merger, or any sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company or
any assignment of its obligations hereunder in accordance with Section 5.1, the
Successor formed by such consolidation or merger or to which such sale, lease,
conveyance or other disposition or assignment is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company
hereunder with the same effect as if such Successor had been named originally as
the Company herein, and the Company, in the case of a sale, lease, conveyance or
other disposition or assignment, shall be released from all obligations
hereunder.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1 Event of Default
----------------
An "Event of Default" may occur only after the Company has redeemed or
otherwise paid in full all of the Senior Notes and Exit Financing and then only
upon:
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(a) failure by the Company to pay interest on any of the Notes
when it becomes due and payable and the continuance of any such failure
for 30 days;
(b) failure by the Company to pay the principal or premium of
any of the Notes when it becomes due and payable;
(c) failure by the Company to comply with any agreement or
covenant in this Note and continuance of such failure for 65 days after
notice of such failure has been given to the Company by the Holders of
at least 25% of the aggregate principal amount of the Notes then
outstanding;
(d) the Company pursuant to or within the meaning of any
Bankruptcy Law:
(1) commences a voluntary case,
(2) consents to the entry of any order for relief
against it in an involuntary case,
(3) consents to the appointment of a Custodian of it
or for all or substantially all of its property, or
(4) seeks to effect a general assignment for the
benefit of its creditors; or
(e) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(1) is for relief against the Company as debtor in an
involuntary case,
(2) appoints a Custodian of the Company or a
Custodian for all or substantially all of the property of the
Company, or
(3) orders the liquidation of the Company,
and the order or decree remains unstayed and in effect for 90 days.
The term "Custodian" means any receiver, trustee assignee, liquidator
or similar official under any Bankruptcy Law.
A Default under clause (c) above is not an Event of Default until the
Holders of at least 25% in principal amount of the then outstanding Notes notify
the Company of the Default and the Company fails to cure the Default within 65
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."
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<PAGE>
SECTION 6.2 Acceleration
------------
If an Event of Default (other than an Event of Default with respect to
the Company specified in clause (d) or (e) of Section 6.1) shall have occurred
and be continuing hereunder, the Holders of at least 25% in aggregate principal
amount of the Notes then outstanding by written notice to the Company may
declare all amounts owing under the Notes to be due and payable immediately.
Upon such declaration of acceleration, the aggregate principal amount of, and
all accrued and unpaid interest on, the outstanding Notes shall immediately
become due and payable. If an Event of Default specified in clause (d) or (e) of
Section 6.1 and involving the Company occurs, all outstanding Notes shall ipso
facto become due and payable without any action or notice on the part of any
Holder. The Holders of a majority in aggregate principal amount of the Notes
then outstanding may waive an existing Default or Event of Default (other than
any Default or Event of Default in payment of principal or interest on the
Notes) hereunder and its consequences. The Holders of a majority in principal
amount of the then outstanding Notes by written notice to the Company may
rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal on the Notes which resulted solely from such
acceleration) have been cured or waived.
SECTION 6.3 Other Remedies
--------------
If an Event of Default occurs and is continuing, the Holders may pursue
any available remedy to collect the payment of principal or interest on the
Notes or to enforce the performance of any provision hereof.
A delay or omission by any Holder 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 to the extent permitted by law.
SECTION 6.4 Waiver of Past Defaults
-----------------------
Subject to Section 6.7 and Section 8.2, the Holders of a majority in
principal amount of the then outstanding Notes by notice to the Company may
waive an existing Default or Event of Default and its consequences (including
waivers obtained in connection with a tender offer or exchange offer for Notes),
except a continuing Default or Event of Default in the payment of the principal
of or interest on any Note. Upon any such waiver, such Default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
cured for every purpose hereof; but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereon.
SECTION 6.5 Control by Majority
-------------------
The Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for any
remedy available to the Holders or exercising any power conferred on them.
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SECTION 6.6 Limitations on Suits
--------------------
Except as provided in Section 6.7, a Holder may pursue a remedy with
respect to the Notes only if:
(a) the Holder gives to the Company and the other Holders
written notice of a continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the
then outstanding Notes agree in writing to pursue the remedy; and
(c) during the 60-day period following the giving of the
notice described in clause (a) above, the Holders of a majority in
principal amount of the then outstanding Notes do not give the Holder a
direction inconsistent with the request.
A Holder may not use this Note to prejudice the rights of another
Holder or to obtain a preference or priority over another Holder.
SECTION 6.7 Rights of Holders to Receive Payment
------------------------------------
Notwithstanding any other provision hereof, the right of any Holder of
a Note to receive payment of principal and interest on the Note, on or after the
respective due dates expressed in the Note, 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.
ARTICLE 7
AMENDMENTS
SECTION 7.1 Without Consent of Holders
--------------------------
Upon resolution of the Company's Board of Directors authorizing any
such amendment, the Company may amend this Note or waive any provision hereof
without the consent of any Holder:
(a) to cure any ambiguity, defect or inconsistency;
(b) to comply with Section 5.1;
(c) to provide for uncertificated Notes in addition to
certificated Notes; or
(d) to make any change that does not adversely affect the
legal rights
16
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hereunder of any Holder.
SECTION 7.2 With Consent of Holders
-----------------------
Except as provided below in this Section 7.2, upon resolution of the
Company's Board of Directors authorizing any such amendment, the Company may
amend this Note without notice to any Holder but with the written consent
(including consents obtained in connection with a tender offer or exchange offer
for Notes) of the Holders of at least a majority in principal amount of the then
outstanding Notes.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment or waiver, but
it shall be sufficient if such consent approves the substance thereof.
The Holders of a majority in principal amount of the Notes then
outstanding may waive compliance in a particular instance by the Company with
any provision hereunder (including waivers obtained in connection with a tender
offer or exchange offer for Notes). However, without the consent of each Holder
affected, an amendment or waiver under this Section may not:
(a) reduce the amount of Notes whose Holders are needed to
consent to an amendment, supplement or waiver;
(b) reduce the rate of or change the time for payment of
interest, including default interest, on any Note;
(c) reduce the principal of or change the maturity of any
Note;
(d) make any Note payable in money other than that stated in
the Note;
(e) make any change in Sections 6.4 or 6.7 hereof or in this
sentence of this Section 7.2; or
(f) modify the ranking of the Notes.
The right of any Holder to participate in any consent required or
sought pursuant to any provision hereunder (and the obligation of the Company to
obtain any such consent otherwise required from such Holder) may be subject to
the requirement that such Holder shall have been the Holder of record of any
Notes with respect to which such consent is required or sought as of a date
identified by the Company in a notice furnished to Holders in accordance with
the terms of Section 7.3.
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SECTION 7.3 Revocation and Effect of Consents
---------------------------------
Until an amendment (which includes any supplement) or waiver becomes
effective, a consent to it by a Holder of a Note is a continuing consent by the
Holder and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
is not made on any Note. However, any such Holder or subsequent Holder may
revoke the consent as to his or her Note or portion of a Note if the Company
receives written notice of revocation before the date the amendment or waiver
becomes effective. An amendment or waiver becomes effective in accordance with
its terms and thereafter binds every Holder.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment or
waiver. If the Company elects to fix a record date for such purpose, the record
date shall be fixed at such date as the Company shall designate. If a record
date is fixed, then notwithstanding the provisions of the immediately preceding
paragraph, those Persons who were Holders at such record date (or their duly
designated proxies), and only those Persons, shall be entitled to consent to
such amendment or waiver or to revoke any consent previously given, whether or
not such Persons continue to be Holders after such record date. No consent shall
be valid or effective for more than 90 days after such record date unless
consents from Holders of the principal amount of Notes required hereunder for
such amendment or waiver to be effective shall have also been given and not
revoked within such 90-day period.
After an amendment or waiver becomes effective, it shall bind every
Holder, unless it is of the type described in any of clauses (a) through (f) of
Section 7.2. In such case, the amendment or waiver shall bind each Holder of a
Note who has consented to it and every subsequent Holder of a Note that
evidences the same debt as the consenting Holder's Note.
SECTION 7.4 Notation on or Exchange of Notes
--------------------------------
The Company may place an appropriate notation about an amendment or
waiver on any Note thereafter issued. The Company in exchange for all Notes may
issue new Notes that reflect the amendment or waiver.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1 Notices
-------
Any notice or communication by a Holder to the Company is duly given if
in writing and delivered in person or mailed by first-class mail (registered or
certified, return receipt requested), telex, telecopier or overnight air courier
guaranteeing next day delivery, to the following address:
18
<PAGE>
UDC Homes, Inc.
4812 South Mill Avenue
Tempe, Arizona 85282
Attention: Chief Financial Officer
Telecopier No.: (602) 730-3493
Any notice or communication to a Holder shall be mailed by first-class mail to
the Holder's address shown on the register kept by the Company. Failure to mail
a notice or communication to a Holder or any defect in it shall not affect its
sufficiency with respect to other Holders. The Company or a Holder by written
notice to the other may designate additional or different addresses for
subsequent notices or communications.
All notices and communications shall be deemed to have been duly given:
at the time delivered by hand, if personally delivered; five Business Days after
being deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt acknowledged, if telecopied; and the next Business Day
after timely delivery to the courier, if sent by overnight air courier
guaranteeing next day delivery.
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.
SECTION 8.2 Communication by Holders with Other Holders
-------------------------------------------
Holders may communicate with other Holders with respect to their rights
hereunder.
SECTION 8.3 Statements Required in Certificate or Opinion
---------------------------------------------
Each certificate or opinion with respect to compliance with a condition
or covenant provided for herein shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) 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;
(c) 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
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been complied with.
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<PAGE>
Any Officers' Certificate may be based, insofar as it relates to legal
matters, upon an Opinion of Counsel, unless such Officer knows that the opinion
with respect to the matters upon which his certificate may be based as aforesaid
is erroneous, or in the exercise of reasonable care should know that the same
are erroneous. Any Opinion of Counsel may be based, insofar as it relates to
factual matters, upon the certificate, statement or opinion of or
representations by an officer or officers of the Company, or other persons or
firms deemed appropriate by such counsel, unless such counsel knows that the
certificate, statement or opinion or representation with respect to the matters
upon which his certificate, statement or opinion may be based as aforesaid are
erroneous.
Any Officers' Certificate, statement or Opinion of Counsel may be
based, insofar as it relates to accounting matters, upon a certificate or
opinion of or representation by an accountant (who may be an employee of the
Company), or firm of accountants, unless such Officer or counsel, as the case
may be, knows that the certificate or opinion or representation with respect to
the accounting matters upon which his certificate, statement or opinion may be
based as aforesaid are erroneous.
SECTION 8.4 Legal Holidays
--------------
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in The City of New York or at a place of payment are authorized or
obligated by law, regulation or executive order to remain closed. 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 for the intervening period.
SECTION 8.5 No Recourse Against Others
--------------------------
A director, officer or employee of the Company, as such, will have no
liability for any obligations of the Company hereunder. Each Holder by accepting
a Note waives and releases all such liability.
SECTION 8.6 Governing Law
-------------
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
SECTION 8.7 No Adverse Interpretation of Other Agreements
---------------------------------------------
This Note may not be used to interpret an 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 Note. This writing constitutes the
entire agreement of the parties with respect to the subject matter hereof.
Unless expressly otherwise indicate herein, an action or transaction permitted
by one provision hereof must nonetheless comply with all other applicable
provisions
20
<PAGE>
hereof; and any action or transaction not permitted by a provision of this Note
shall not be permitted regardless of whether any other provision hereof might
permit such action or transaction.
SECTION 8.8 Successors
----------
All agreements of the Company herein shall bind its successors. All
agreements of the Holders herein shall bind their successors.
SECTION 8.9 Severability
------------
In case any provision herein 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.
SECTION 8.10 Headings
--------
The headings of the Articles and Sections hereof 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.
SECTION 8.11 Benefits of Note
----------------
Nothing herein, express or implied, shall give to any Person, other
than the Holders, any benefit or any legal or equitable right, or claim
hereunder.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
Company has executed this Note as of the __ day of March, 1996.
UDC Homes, Inc.
---------------------------
Jacques C. Lazard
Executive Vice President
and Chief Financial Officer
21
<PAGE>
ADDENDUM AND AMENDMENT TO
14 1/2% SERIES D SUBORDINATED NOTE
DUE 2000
THIS ADDENDUM AND AMENDMENT (the "Agreement") is executed and
delivered as of this 24th day of July, 1996, by DMB RESIDENTIAL L.L.C.
("Holder"), and UDC HOMES, INC., a Delaware corporation ("Company").
RECITALS:
---------
A. Holder is the holder of that certain 14 1/2% Series D
Subordinated Note Due 2000, dated March 15, 1996 in the original principal
amount of $5,000,000.00 (the "D Note") made by Company.
B. All capitalized terms used herein shall have the meanings
given to such terms in the D Note.
C. Pursuant to the Exit Financing, the Company is required to
obtain consent of the Banks to the issuance of the D Note.
D. As a condition to such approval, certain of the Banks have
required the execution and delivery of this Agreement.
NOW, THEREFORE, in order to induce the Banks to approve the D
Note, Holder and Company agree as follows:
1. Notwithstanding that the Series C Senior Notes are included
as "Senior Notes" pursuant to the terms of the D Note and are referred to as
"Series C Senior Notes", Company and Holder acknowledge and agree for the
benefit of the Banks that (i) the Series C Senior Notes are subordinated to the
Exit Financing pursuant to the terms of the Indenture dated November 14, 1995
between the Company and American Bank National Association, as trustee (the "C
Note Indenture") for the Series C Senior Notes and (ii) nothing contained in the
D Note shall amend or modify such subordination provisions in the C Note
Indenture or be deemed to be the waiver by Banks of any provision thereof and
(iii) any payment or distribution, whether of cash, securities or other
property, to creditors of the Company pursuant to Section 2.8(b) of the D Note,
shall also be subject to the terms and conditions of the C Note Indenture and to
the priorities of distribution set forth therein in favor of the Banks.
2. The Holder agrees to take such further action and execute
such other documents as may be necessary or appropriate from time to time to
acknowledge or effectuate the subordination as provided in Section 2.8 of the D
Note as amended by this Agreement.
<PAGE>
3. Notwithstanding Section 8.11 of the D Note, the Company and
Holder acknowledge and agree that the subordination provisions of the D Note,
including, without limitation, the provisions of Section 2.8 thereof are for the
express benefit of the Banks and, accordingly, the D Note may not be amended or
modified without the consent of the Banks.
4. Holder represents and warrants that a fully executed copy
of this Agreement has been attached to the D Note and the first page of the D
Note includes (either by writing such notation on the face of the D Note or
otherwise permanently affixing a notation thereto) that: "This Promissory Note
is subject to the terms and conditions of that certain Addendum and Amendment
Agreement dated July 24, 1996."
5. This writing constitutes the entire agreement of the
parties with respect to the subject matter herein. This Agreement may not be
amended or modified in any respect without the consent and joinder of the Banks.
This Agreement shall bind and inure to the benefit of the Company, the Holder,
the Banks, and their respective successors and assigns.
6. This agreement may be executed in counterparts, which
together shall constitute a single agreement.
UDC HOMES, INC., a Delaware corporation
By:__________________________________________
Name:________________________________________
Title:_______________________________________
DMB RESIDENTIAL L.L.C., an Arizona limited
liability company
By: DMB Associates, Inc., an Arizona
corporation, Manager
By:__________________________________
Name:________________________________
Title:_______________________________
2
<PAGE>
ADDENDUM AND AMENDMENT TO
14 1/2% SERIES D SUBORDINATED NOTE
DUE 2000
THIS ADDENDUM AND AMENDMENT (the "Agreement") is executed and
delivered as of this 24th day of July, 1996, by EASTRICH NO. 184, LLC
("Holder"), and UDC HOMES, INC., a Delaware corporation ("Company").
RECITALS:
A. Holder is the holder of that certain 14 1/2% Series D
Subordinated Note Due 2000, dated March 15, 1996 in the original principal
amount of $5,000,000.00 (the "D Note") made by Company.
B. All capitalized terms used herein shall have the meanings
given to such terms in the D Note.
C. Pursuant to the Exit Financing, the Company is required to
obtain consent of the Banks to the issuance of the D Note.
D. As a condition to such approval, certain of the Banks have
required the execution and delivery of this Agreement.
NOW, THEREFORE, in order to induce the Banks to approve the D
Note, Holder and Company agree as follows:
1. Notwithstanding that the Series C Senior Notes are included
as "Senior Notes" pursuant to the terms of the D Note and are referred to as
"Series C Senior Notes", Company and Holder acknowledge and agree for the
benefit of the Banks that (i) the Series C Senior Notes are subordinated to the
Exit Financing pursuant to the terms of the Indenture dated November 14, 1995
between the Company and American Bank National Association, as trustee (the "C
Note Indenture") for the Series C Senior Notes and (ii) nothing contained in the
D Note shall amend or modify such subordination provisions in the C Note
Indenture or be deemed to be the waiver by Banks of any provision thereof and
(iii) any payment or distribution, whether of cash, securities or other
property, to creditors of the Company pursuant to Section 2.8(b) of the D Note,
shall also be subject to the terms and conditions of the C Note Indenture and to
the priorities of distribution set forth therein in favor of the Banks.
2. The Holder agrees to take such further action and execute
such other documents as may be necessary or appropriate from time to time to
acknowledge or effectuate the subordination as provided in Section 2.8 of the D
Note as amended by this Agreement.
<PAGE>
3. Notwithstanding Section 8.11 of the D Note, the Company and
Holder acknowledge and agree that the subordination provisions of the D Note,
including, without limitation, the provisions of Section 2.8 thereof are for the
express benefit of the Banks and, accordingly, the D Note may not be amended or
modified without the consent of the Banks.
4. Holder represents and warrants that a fully executed copy
of this Agreement has been attached to the D Note and the first page of the D
Note includes (either by writing such notation on the face of the D Note or
otherwise permanently affixing a notation thereto) that: "This Promissory Note
is subject to the terms and conditions of that certain Addendum and Amendment
Agreement dated July 24, 1996."
5. This writing constitutes the entire agreement of the
parties with respect to the subject matter herein. This Agreement may not be
amended or modified in any respect without the consent and joinder of the Banks.
This Agreement shall bind and inure to the benefit of the Company, the Holder,
the Banks, and their respective successors and assigns.
6. This agreement may be executed in counterparts, which
together shall constitute a single agreement.
UDC HOMES, INC., a Delaware corporation
By:
Name:
Title:
EASTRICH NO. 184 LLC, a(n) ______________
limited liability company
2
SEPARATION AGREEMENT AND RELEASE
This Separation Agreement and Release (the "Agreement") is entered into
on July __, 1996 ("Effective Date"), between UDC HOMES, INC., a Delaware
corporation ("UDC") and JACQUES C. LAZARD ("Lazard").
RECITALS
1. Lazard has been employed as Executive Vice President and Chief
Financial Officer of UDC, which employment is governed by the terms of an
Employment Agreement dated September 15, 1995;
2. UDC wishes to retain Lazard's services from time to time and the
parties want to terminate their employment relationship amicably and resolve all
issues to their mutual satisfaction.
NOW THEREFORE, in exchange for the mutual promises and release set
forth below, the sufficiency of which is acknowledged, the parties agree as
follows:
AGREEMENT
1. Termination
-----------
Lazard's employment with UDC will terminate effective August 31, 1996
(the "Termination Date").
2. Compensation
------------
A. For services rendered from the Effective Date through the
Termination Date, UDC will pay Lazard his current rate of Eighteen Thousand
Seven Hundred and Fifty Dollars ($18,750) per month, less customary
withholdings, PROVIDED that if Lazard accepts a position with DMB Associates,
Inc., AEW Partners, L.P. or any of their affiliated entities prior to the
Termination Date, UDC will pay Lazard an agreed upon bonus for projects
completed in lieu of the above salary.
B. With the first payroll after the Termination Date, UDC will
pay Lazard all salary earned and unused vacation time accrued by Lazard and
remaining unpaid as of the Termination Date, less customary withholdings.
C. For a period of twelve months after the Termination Date,
UDC will pay to Lazard monthly severance benefits in the amount of Forty
Thousand Dollars ($40,000) per month, for a total of Four Hundred Eighty
Thousand Dollars ($480,000), less customary withholdings.
<PAGE>
D. For two years after the Termination Date, UDC will provide
continuing health care coverage under COBRA for Lazard and his eligible
dependents at no cost to Lazard to the extent permitted by UDC's health
insurance plan. If UDC's plan does not permit continuing COBRA coverage for this
period or any portion thereof, UDC will provide Lazard and his eligible
dependents coverage comparable to what he would have received had he remained
employed as a senior executive of UDC during the period in question.
During this period UDC also agrees to maintain in effect any
life and accidental death and dismemberment benefits available to Lazard and his
dependents as of the Termination Date, PROVIDED that such continued
participation is possible under the general terms and provisions of UDC's plans.
If such continued participation is not permitted under such terms and
provisions, UDC will obtain comparable coverage for Lazard and his dependents
under individual policies.
If Lazard becomes covered by another employer's group plan
that provides benefits to Lazard and his dependents comparable to those provided
by UDC, then UDC's plan shall no longer be liable for any benefits under this
section. UDC will fully indemnify Lazard and hold him harmless, on an after-tax
basis, for any tax (including interest and penalties) imposed on Lazard as a
result of UDC providing to him any continued welfare plan coverage or welfare
benefits under this section.
E. Lazard acknowledges that the compensation and benefits
provided in this Agreement are exclusive and constitute all of the benefits and
privileges to which Lazard is entitled on account of or following the
termination of his employment and that these amounts are all Lazard will ever
receive from UDC or any other released party for any and all claims or
obligations as described in paragraph 5 below.
3. Consulting Services
-------------------
From and after the Termination date, Lazard agrees to provide to UDC
consulting services or assistance with special projects as requested from time
to time by UDC's President and as mutually agreed upon. UDC will pay Lazard for
any consulting services rendered at a rate of compensation mutually agreed upon
before such services are undertaken.
4. Cooperation
-----------
Lazard agrees to assist and cooperate fully with UDC and its attorneys
and authorized representatives in the reasonable preparation, defense and
disposition of any legal actions currently pending or that may arise in which
UDC requires or desires Lazard's participation or testimony, except as to legal
actions adverse to financial or accounting entities with whom Lazard maintains
or desires to maintain an amicable working relationship. UDC will promptly
reimburse Lazard for any reasonable expenses or losses incurred by Lazard upon
submission of documentation requesting such reimbursement.
-2-
<PAGE>
5. Releases
--------
In consideration of the promises and benefits provided under this
Agreement, which Lazard acknowledges are sufficient consideration, Lazard (for
himself, his agents, heirs, executors, administrators, and assigns) hereby
knowingly and voluntarily releases, holds harmless and discharges forever UDC;
its parent, subsidiary, affiliate, predecessor and successor corporations or
entities; their current and former shareholders, members, directors, officers,
partners, agents, and employees; and all of their current and former attorneys,
accountants, insurers, agents, heirs, administrators, executors, successors,
assigns and other representatives (collectively, the "Released Parties") from
any and all agreements, debts, claims, demands, obligations, damages,
liabilities and causes of action of every kind or nature, known or unknown,
foreseen or unforeseen, that exist as of the date of this Agreement ("claims"),
PROVIDED THAT this release does not include (i) claims against any of the
individual released parties arising out of conduct that is not undertaken on
behalf of UDC; (ii) claims for breach of this Agreement; and (iii) claims for
indemnification under UDC's Certificate of Incorporation, Restated Bylaws, and
Director and Officer liability coverage to the extent provided as of the
Termination Date.
Without limiting the generality of the above release, Lazard knowingly
and voluntarily releases any claims arising under Title VII of the Civil Rights
Act of 1964, as amended by the Civil Rights Act of 1991, the Arizona Civil
Rights Act, the Employee Retirement Income Security Act, the Americans with
Disabilities Act, and all other statutory, common law or equitable claims
arising out of or related in any way to his employment with UDC or any related
or affiliated entity or the termination thereof.
Lazard acknowledges that the above release is a general release and
that he waives and assumes the risk of any and all claims that exist as of this
date, including those of which he does not know or suspect to exist whether
through ignorance, oversight, error, negligence or otherwise, and which, if
known, would materially affect his decision to enter into this Agreement. Lazard
covenants that he will forever refrain from instituting or in any way pursuing
any action against the Released Parties for any claim whatsoever existing as of
the Effective Date of this Agreement.
UDC releases Lazard from any claims against him on the same terms as
above, PROVIDED THAT (1) such release is conditioned upon Lazard's execution of
a Supplemental Release releasing any claims under the Age Discrimination in
Employment Act; and (2) such release does not include any claims arising out of
conduct by Lazard for which Lazard is not entitled to indemnification under
Delaware law or UDC's Restated Bylaws.
6. Confidentiality
---------------
The parties agree that the terms and conditions of this Agreement and
the events that led to this Agreement are confidential and that they will not,
either directly or indirectly, or through any other person, agent or
representative, disclose any of the above information, except (1) as
-3-
<PAGE>
required by order of a court of competent jurisdiction; (2) as required by law
(including without limitation for Securities Exchange Commission filings); (3)
as necessary to enforce this Agreement, including any litigation related
thereto; and (4) disclosure to the parties' directors, officers, employees,
accountants, attorneys and other representatives on a need-to-know basis. The
parties agree that any disclosures to others regarding the circumstances of
Lazard's departure from UDC will be consistent with UDC's press release issued
June ___, 1996.
7. Intent of Agreement
-------------------
By this Agreement neither party admits any liability or wrongdoing to
the other.
8. Entire Agreement
----------------
This Agreement is the entire, integrated Agreement of the parties and
supersedes any and all prior and contemporaneous agreements, promises,
representations, negotiations, and understandings of the parties, whether
written or oral, including but not limited to (a) the Employment Agreement dated
September 15, 1995; and (2) the Executive Severance Agreement
dated September 12, 1994, as amended May 5, 1995.
9. Modification and Waiver
-----------------------
No modification or amendment to this Agreement shall be effective
unless in writing and signed by all parties to this Agreement. No waiver shall
be effective unless in writing and executed by the party against whom
enforcement of the waiver is sought.
10. Knowing and Voluntary Agreement
-------------------------------
The parties enter into this negotiated agreement freely and voluntarily
with full and complete knowledge of the meaning and legal significance of the
terms of this Agreement. In signing this Agreement, the parties acknowledge that
they have had an opportunity to consult with attorneys of their own choosing;
that they have read all the terms of this Agreement; and that they fully
understand and voluntarily accept these terms.
11. Attorneys' Fees and Costs
-------------------------
In the event of litigation involving this Agreement, the unsuccessful
party agrees to pay the prevailing party's reasonable attorneys' fees and costs.
12. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Arizona. The parties agree that any suit involving this
Agreement must be brought in Maricopa County, Arizona.
-4-
<PAGE>
13. Severability
------------
If any provision of this Agreement is unenforceable, the remaining
provisions shall not be impaired or affected in any way.
14. Binding Effect
--------------
This Agreement is binding upon and works to the benefit of the parties
to this Agreement and all other parties designated in Paragraph 5.
DATED: July __, 1996.
--------------------------- -------------------------------
UDC HOMES, INC. Jacques C. Lazard
By Garth Wieger
Its President
-------------------------------
Lorel S. Lazard
-5-
FIRST AMENDMENT
TO
UDC TERM LOAN AGREEMENT (BOAZ)
THIS FIRST AMENDMENT TO UDC TERM LOAN AGREEMENT (BOAZ) (the "First
Amendment") is made and entered into effective as of _______________ __, 1996,
by and between UDC HOMES, INC., a Delaware corporation ("Borrower") and BANK
ONE, ARIZONA, NA, a national banking association (together with its successors
and assigns, "Bank").
RECITALS:
A. On November 8, 1995, Borrower and Bank entered into that certain UDC
Term Loan Agreement (BOAZ) (the "Agreement").
B. Borrower and Bank wish to amend the Agreement in accordance with the
terms of this First Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by Borrower and Bank, Borrower and
Bank agree as follows:
1. Amendment. The first two sentences in Section 2.2.1 of the Agreement
are amended as follows:
The outstanding principal balance of the Commitment Amount
will bear interest from the date advanced at the rate per annum (the
"Interest Rate") equal to the sum of the Prime Rate and 2 percentage
points, with the Interest Rate changing on each day that the Prime Rate
changes; provided, however, that on the 271st day following the Closing
Date, the Interest Rate will convert to 15% per annum, retroactive to
the Closing Date, and that Interest Rate will be in effect through the
Maturity Date unless on the 270th day following the Closing Date, the
Average Loan-to-Value Ratio on such date, as determined by the Bank, is
60% or less, in which case the Interest Rate will be determined without
reference to this proviso. If the Interest Rate is converted
retroactively to 15% per annum pursuant to this Section 2.2, then
within 3 Business Days following such conversion, Borrower shall pay to
the Bank an amount equal to the difference between (a) the interest
that the Borrower previously paid to the Bank for the 270 day period
from the Closing Date to the date of conversion, and (b) the interest
that would have been due and payable by Borrower during such period had
interest been computed at the rate of 15% per annum during such period.
2. Ratification. As amended by this First Amendment, the Agreement is
hereby ratified and confirmed.
3. Counterparts Execution. This Second Amendment may be executed in one
or more counterparts, each of which will be deemed an original and all of which
together will constitute one and the same document. Signature pages may be
detached from the counterparts and attached to a single copy of this Second
Amendment to physically form one document. Telecopied signature pages will be
<PAGE>
acceptable, provided originally signed signature pages are provided to each of
the other parties by overnight courier.
BORROWER:
UDC HOMES, INC.,
a Delaware corporation
By______________________________________
Gina M. Self
Its______________________________________
BANK:
BANK ONE, ARIZONA, NA,
a national banking association
By______________________________________
Carol Grumley
Senior Vice President
2
FIRST AMENDMENT
TO
MOUNTAINBROOK TERM LOAN AGREEMENT
THIS FIRST AMENDMENT TO MOUNTAINBROOK TERM LOAN AGREEMENT (the "First
Amendment") is made and entered into effective as of _______________ __, 1996,
by and between MOUNTAINBROOK VILLAGE JOINT VENTURE, an Arizona general
partnership ("Borrower") and BANK ONE, ARIZONA, NA, a national banking
association (together with its successors and assigns, "Bank").
RECITALS:
A. On November 8, 1995, Borrower and Bank entered into that certain
Mountainbrook Term Loan Agreement (the "Agreement").
B. Borrower and Bank wish to amend the Agreement in accordance with the
terms of this First Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by Borrower and Bank, Borrower and
Bank agree as follows:
1. Amendment. The first two sentences in Section 2.2.1 of the Agreement
are amended as follows:
The outstanding principal balance of the Commitment Amount
will bear interest from the date advanced at the rate per annum (the
"Interest Rate") equal to the sum of the Prime Rate and 2 percentage
points, with the Interest Rate changing on each day that the Prime Rate
changes; provided, however, that on the 271st day following the Closing
Date, the Interest Rate will convert to 15% per annum, retroactive to
the Closing Date, and that Interest Rate will be in effect through the
Maturity Date unless on the 270th day following the Closing Date, the
Average Loan-to-Value Ratio on such date, as determined by the Bank, is
60% or less, in which case the Interest Rate will be determined without
reference to this proviso. If the Interest Rate is converted
retroactively to 15% per annum pursuant to this Section 2.2, then
within 3 Business Days following such conversion, Borrower shall pay to
the Bank an amount equal to the difference between (a) the interest
that the Borrower previously paid to the Bank for the 270 day period
from the Closing Date to the date of conversion, and (b) the interest
that would have been due and payable by Borrower during such period had
interest been computed at the rate of 15% per annum during such period.
2. Ratification. As amended by this First Amendment, the Agreement is
hereby ratified and confirmed.
3. Counterparts Execution. This Second Amendment may be executed in one
or more counterparts, each of which will be deemed an original and all of which
together will constitute one and the same document. Signature pages may be
detached from the counterparts and attached to a single copy of this Second
Amendment to physically form one document. Telecopied signature pages will be
<PAGE>
acceptable, provided originally signed signature pages are provided to each of
the other parties by overnight courier.
BORROWER:
MOUNTAINBROOK VILLAGE JOINT VENTURE,
an Arizona general partnership
By: MOUNTAINBROOK VILLAGE COMPANY,
an Arizona corporation, as the managing general
partner in MountainBrook Village Joint Venture
By______________________________________
Gina M. Self
Its______________________________________
BANK:
BANK ONE, ARIZONA, NA,
a national banking association
By______________________________________
Carol Grumley
Senior Vice President
2
FIRST AMENDMENT
TO
SUNRISE TERM LOAN AGREEMENT
THIS FIRST AMENDMENT TO SUNRISE TERM LOAN AGREEMENT (the "First
Amendment") is made and entered into effective as of _______________ __, 1996,
by and between SUNRISE LIMITED PARTNERSHIP, an Illinois limited partnership
("Borrower") and BANK ONE, ARIZONA, NA, a national banking association (together
with its successors and assigns, "Bank").
RECITALS:
A. On November 8, 1995, Borrower and Bank entered into that certain
Sunrise Term Loan Agreement (the "Agreement").
B. Borrower and Bank wish to amend the Agreement in accordance with the
terms of this First Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by Borrower and Bank, Borrower and
Bank agree as follows:
1. Amendment. The first two sentences in Section 2.2.1 of the Agreement
are amended as follows:
The outstanding principal balance of the Commitment Amount
will bear interest from the date advanced at the rate per annum (the
"Interest Rate") equal to the sum of the Prime Rate and 2 percentage
points, with the Interest Rate changing on each day that the Prime Rate
changes; provided, however, that on the 271st day following the Closing
Date, the Interest Rate will convert to 15% per annum, retroactive to
the Closing Date, and that Interest Rate will be in effect through the
Maturity Date unless on the 270th day following the Closing Date, the
Average Loan-to-Value Ratio on such date, as determined by the Bank, is
60% or less, in which case the Interest Rate will be determined without
reference to this proviso. If the Interest Rate is converted
retroactively to 15% per annum pursuant to this Section 2.2, then
within 3 Business Days following such conversion, Borrower shall pay to
the Bank an amount equal to the difference between (a) the interest
that the Borrower previously paid to the Bank for the 270 day period
from the Closing Date to the date of conversion, and (b) the interest
that would have been due and payable by Borrower during such period had
interest been computed at the rate of 15% per annum during such period.
2. Ratification. As amended by this First Amendment, the Agreement is
hereby ratified and confirmed.
3. Counterparts Execution. This Second Amendment may be executed in one
or more counterparts, each of which will be deemed an original and all of which
together will constitute one and the same document. Signature pages may be
detached from the counterparts and attached to a single copy of this Second
Amendment to physically form one document. Telecopied signature pages will be
<PAGE>
acceptable, provided originally signed signature pages are provided to each of
the other parties by overnight courier.
BORROWER:
SUNRISE LIMITED PARTNERSHIP,
an Illinois limited partnership
By: UDC ADVISORY SERVICES, INC.,
an Illinois corporation, as the sole general
partner in Sunrise Limited Partnership
By______________________________________
Gina M. Self
Its______________________________________
BANK:
BANK ONE, ARIZONA, NA,
a national banking association
By______________________________________
Carol Grumley
Senior Vice President
2
FIRST AMENDMENT
TO
REALTY DEALERS TERM LOAN AGREEMENT
THIS FIRST AMENDMENT TO REALTY DEALERS TERM LOAN AGREEMENT (the "First
Amendment") is made and entered into effective as of _______________ __, 1996,
by and between REALTY DEALERS, LTD., an Illinois limited partnership
("Borrower") and BANK ONE, ARIZONA, NA, a national banking association (together
with its successors and assigns, "Bank").
RECITALS:
A. On November 8, 1995, Borrower and Bank entered into that certain
Realty Dealers Term Loan Agreement (the "Agreement").
B. Borrower and Bank wish to amend the Agreement in accordance with the
terms of this First Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by Borrower and Bank, Borrower and
Bank agree as follows:
1. Amendment. The first two sentences in Section 2.2.1 of the Agreement
are amended as follows:
The outstanding principal balance of the Commitment Amount
will bear interest from the date advanced at the rate per annum (the
"Interest Rate") equal to the sum of the Prime Rate and 2 percentage
points, with the Interest Rate changing on each day that the Prime Rate
changes; provided, however, that on the 271st day following the Closing
Date, the Interest Rate will convert to 15% per annum, retroactive to
the Closing Date, and that Interest Rate will be in effect through the
Maturity Date unless on the 270th day following the Closing Date, the
Average Loan-to-Value Ratio on such date, as determined by the Bank, is
60% or less, in which case the Interest Rate will be determined without
reference to this proviso. If the Interest Rate is converted
retroactively to 15% per annum pursuant to this Section 2.2, then
within 3 Business Days following such conversion, Borrower shall pay to
the Bank an amount equal to the difference between (a) the interest
that the Borrower previously paid to the Bank for the 270 day period
from the Closing Date to the date of conversion, and (b) the interest
that would have been due and payable by Borrower during such period had
interest been computed at the rate of 15% per annum during such period.
2. Ratification. As amended by this First Amendment, the Agreement is
hereby ratified and confirmed.
3. Counterparts Execution. This Second Amendment may be executed in one
or more counterparts, each of which will be deemed an original and all of which
together will constitute one and the same document. Signature pages may be
detached from the counterparts and attached to a single copy of this Second
Amendment to physically form one document. Telecopied signature pages will be
<PAGE>
acceptable, provided originally signed signature pages are provided to each of
the other parties by overnight courier.
BORROWER:
REALTY DEALERS, LTD.,
an Illinois limited partnership
By: UDC ADVISORY SERVICES, INC.,
an Illinois corporation, as the sole general
partner in Realty Dealers, Ltd.
By______________________________________
Gina M. Self
Its______________________________________
BANK:
BANK ONE, ARIZONA, NA,
a national banking association
By______________________________________
Carol Grumley
Senior Vice President
2
SECOND AMENDMENT
TO
UDC MASTER REVOLVING LINE OF CREDIT (BORROWING BASE)
LOAN AGREEMENT
This SECOND AMENDMENT TO UDC MASTER REVOLVING LINE OF CREDIT (BORROWING
BASE) LOAN AGREEMENT (the "Second Amendment"), dated as of May ___, 1996, is
made and entered into by and between UDC HOMES, INC., a Delaware corporation
("Borrower"); BANK ONE, ARIZONA, NA, a national banking association ("BOAZ");
BANKERS TRUST COMPANY, a New York banking corporation ("Bankers Trust"); WELLS
FARGO BANK, NATIONAL ASSOCIATION, a national banking association, successor by
merger to First Interstate Bank of California, a banking corporation organized
and existing under the laws of California ("WFB"); THE FIRST NATIONAL BANK OF
BOSTON, a national banking association ("BkB"); WELLS FARGO REALTY ADVISORS
FUNDING, INCORPORATED, a Colorado corporation ("Wells Fargo"); and GUARANTY
FEDERAL BANK, F.S.B., a federal savings bank ("Guaranty Federal").
RECITALS:
A. Borrower, BOAZ, Bankers Trust, WFB, BkB, Wells Fargo, and Guaranty
Federal are parties to the UDC Master Revolving Line of Credit (Borrowing Base)
Loan Agreement, dated November 8, 1995 (the "Original Revolving Loan
Agreement"). BkB became a party to the Original Revolving Loan Agreement
pursuant to an Assignment and Acceptance, dated November 30, 1995, between BkB
and Bankers Trust. Wells Fargo became a party to the Original Revolving Loan
Agreement pursuant to an Assignment and Acceptance, dated December 5, 1995,
between Bankers Trust and Wells Fargo. Guaranty Federal became a party to the
Original Revolving Loan Agreement pursuant to an Assignment and Acceptance,
dated December 14, 1995, between Bankers Trust and Guaranty Federal and pursuant
to an Assignment and Acceptance, dated December 14, 1995, between BOAZ and
Guaranty Federal. As of December 14, 1995, Borrower, the Administrative Agent,
the Co-Agents, and the Banks entered into a First Amendment to UDC Master
Revolving Line of Credit (Borrowing Base) Loan Agreement (the "First
Amendment"). The Original Revolving Loan Agreement, as amended by the First
Amendment, is referred to in this Second Amendment as the "Revolving Loan
Agreement". Capitalized terms used in this Second Amendment and not defined in
this Second Amendment have the meanings ascribed to them in the Revolving Loan
Agreement.
B. Borrower has requested modifications to certain provisions of the
Revolving Loan Agreement and waivers of certain covenants in the Revolving Loan
Agreement. The Administrative Agent, the Co-Agents, and the Banks are willing to
agree to the modifications and waivers provided in this Second Amendment, on the
terms and conditions set forth in this Second Amendment.
AGREEMENT:
NOW THEREFORE, For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower, the Administrative
Agent, the Co-Agents, and the Banks agree as follows:
<PAGE>
1. Waivers.
--------
(a) The Administrative Agent, the Co-Agents, and the Banks
waive compliance by Borrower with the following Financial Covenants at
the following designated dates and for the following designated
periods:
(i) The Maximum Total Debt to Tangible Net Worth
Covenant of Section 6.22.3 of the Revolving Loan Agreement as
of the Closing Date and as of December 31, 1995.
(ii) The Minimum Tangible Net Worth Covenant of
Section 6.22.4 of the Revolving Loan Agreement as of the
Closing Date and as of December 31, 1995.
(iii) The Minimum Available Liquidity Covenant of
Section 6.22.1 of the Revolving Loan Agreement for the period
from February 21, 1996 through March 15, 1996.
(b) The Administrative Agent, the Co-Agents, and the Banks
waive compliance by Borrower with the monthly financial statement
reporting requirements of Section 6.4.3(a) of the Revolving Loan
Agreement for the period from November 30, 1995, through February 29,
1996.
(c) The foregoing waivers shall relate only to the Financial
Covenants and reports requirements referred to above and only for the
periods described above. Nothing contained herein shall waive
compliance with any other provisions of the Loan Documents or with
respect to any other period. Nothing contained herein shall obligate
Administrative Agent, Co-Agents or the Banks to grant any additional
waivers to Borrower.
2. Amendment.
----------
(a) Section 6.22.3 of the Revolving Loan Agreement is amended,
as of March 31, 1996, to read as follows:
6.22.3 Maximum Total Debt to Tangible Net Worth
Covenant. Borrower will have a ratio of (a) the Total Debt of
Borrower as of the end of each fiscal quarter of Borrower, to
(b) the Tangible Net Worth of Borrower as of the end of such
fiscal quarter that is equal to or less than the following
amounts:
Date Ratio
---- -----
March 31, 1996 3.40 to 1
June 30, 1996 3.05 to 1
September 30, 1996 2.50 to 1
2
<PAGE>
December 31, 1996 and 2.35 to 1
each fiscal quarter end
thereafter through the
fiscal quarter ending
on June 30, 1997
September 30, 1997 and 1.80 to 1
each fiscal quarter end
thereafter
(b) Section 6.22.4 of the Revolving Loan Agreement is amended,
as of March 31, 1996, to read as follows:
6.22.4 Minimum Tangible Net Worth Covenant. Borrower
will have minimum Tangible Net Worth at the end of each fiscal
quarter of Borrower, in at least the following amounts:
Date Minimum Tangible Net Worth
---- --------------------------
March 31, 1996 $76,222,000
June 30, 1996 $78,158,000
September 30, 1996 $81,850,000
December 31, 1996 and $87,290,000 plus
each fiscal quarter end the cumulative
thereafter Adjusted Net Increase
(c) Section 6.22.6 of the Revolving Loan Agreement is amended
to read as follows:
6.22.6 Interest Coverage Covenant. As of each Test
Date, the ratio of (1) the aggregate total EBITDA of Borrower
for the fiscal quarter ending on the Test Date and for the
immediately preceding 3 fiscal quarters taken as a whole; to
(2) the aggregate total Interest Paid of Borrower for the same
4 quarters taken as a whole, will not be less than the
following amounts:
(a) With respect to the Test Date occurring
on each of September 30, 1996 and December 31, 1996:
1.15 to 1;
(b) With respect to the Test Date occurring
on each of March 31, 1997 and June 30, 1997: 1.30 to
1; and
(c) With respect to the Test Date occurring
on September 30, 1997 and each Test Date thereafter:
1.75 to 1.
(d) Section 6.22.9(s) of the Revolving Loan Agreement is
amended to read as follows:
3
<PAGE>
(s) "Tangible Net Worth" means Borrower's (i) Total
Tangible Assets less (ii) Total Debt excluding Contingent
Liabilities.
(e) All references in the Loan Documents to First Interstate
Bank of California, are hereby amended to be references to WFB.
3. Extension of Eligibility for Certain A&D Finished Lots.
Notwithstanding the provisions of Section 3.4.3 of the Revolving Loan Agreement,
the A&D Lots listed on Schedule 1 to this Second Amendment shall be entitled to
be included as Eligible Collateral (as A&D Lots) from February 12, 1996 through
May 13, 1996.
4. Approval for Additional Qualifying Subordinated Indebtedness.
(a) The following is added to the end of Section 6.22.9(r) of
the Revolving Loan Agreement, authorizing the issuance of certain
additional subordinated indebtedness on the terms and conditions set
forth below:
"Qualifying Subordinated Indebtedness" also means Borrower's
14 1/2% Series D Subordinated Notes, due 2000, in the original
aggregate amount of $10,000,000, plus the amount of all
interest payments made on such subordinated indebtedness by
the issuance of additional subordinated indebtedness;
provided, however, that in order to be considered as
Qualifying Subordinated Indebtedness, the Series D
Subordinated Notes must be in form satisfactory to the
Co-Agents and be fully subordinated with no payments (other
than interest paid in kind by the issuance of additional
subordinated indebtedness) until the later of (1) the date all
of the Term Loan Facilities are paid in full or (2) 2 years
after the Closing Date. Thereafter, only interest on the
Series D Subordinated Notes will be payable and then only to
the extent that (3) the making of such interest payment would
not, after giving effect to such payment, cause or contribute
to a violation of any of the financial covenants of Borrower
set forth in this Section 6.22 or otherwise cause or
contribute to an Event of Default or Unmatured Event of
Default and (4) Borrower is entitled to pay Dividends pursuant
to the covenants in the Loan Documents. Upon the occurrence of
an Event of Default or an Unmatured Event of Default, no
payments of principal or interest will be payable on the
Series D Subordinated Notes. If, at any time, the Series D
Subordinated Notes fail to satisfy the requirements set forth
in this Section 6.22.9(r) for Qualifying Subordinated
Indebtedness, such Series D Subordinated Notes will no longer
be Qualifying Subordinated Indebtedness but will be treated as
Indebtedness.
(b) The last sentence of Section 6.22.9(l) of the Revolving
Loan Agreement is amended to read as follows:
Without limiting the generality of the foregoing, the term
"Indebtedness" includes the New A Notes, the New B Notes,
Borrower's Series C Subordinated Notes (described in Section
6.22.9(r), to the extent such Series C Subordinated Notes do
not qualify as Qualifying Subordinated Indebtedness, and
Borrower's Series D Subordinated Notes (described in Section
6.22.9(r), to the extent such Series D Subordinated Notes do
not qualify as Qualifying Subordinated Indebtedness.
4
<PAGE>
(c) All of the provisions of the Revolving Loan Agreement
relating to Qualifying Subordinated Indebtedness, with the exception of
Sections 4.1.3 and 4.1.10 of the Revolving Loan Agreement, shall apply
with equal force to Borrower's Series D Subordinated Notes and, without
limiting the generality of the foregoing, Borrower confirms that all of
the representations and warranties in Article 5 of the Revolving Loan
Agreement relating to Qualifying Subordinated Indebtedness are and will
be true, complete and accurate with respect to Borrower's Series D
Subordinated Notes.
(d) Co-Agents hereby approve the form of Borrower's Series D
Subordinated Note (the "Series D Form Note") attached to this Second
Amendment as Exhibit A and the issuance of $10,000,000 in Qualifying
Subordinated Indebtedness pursuant to the Series D Form Note; provided,
however, that (i) the Series D Subordinated Note may be issued only to
DMB and AEW and (ii) the holder of the Series D Subordinated Note shall
execute and deliver the Amendment Agreement in the form attached to
this Second Amendment as Exhibit B. The issuance of the $10,000,000
Series D Subordinated Note will be accomplished by the conversion of
the $10,000,000 capital surplus contributed to Borrower on March 15,
1996 to Qualifying Subordinated Indebtedness and such conversion is
approved, any other provision of the Revolving Loan Agreement to the
contrary notwithstanding.
(e) Borrower agrees that the Series D Subordinated Note
described in Paragraph 4(d) above will be issued to DMB and AEW.
Borrower also confirms and agrees that the provisions of Sections 8.1.8
and 8.1.9 of the Revolving Loan Agreement will apply to the Series D
Subordinated Note as well as to the Series C Subordinated Note owned by
DMB and AEW. If requested by Administrative Agent, Borrower will cause
DMB and AEW to execute documents in form satisfactory to Administrative
Agent, confirming the subordination of the Series D Subordinated Note
to all of the Obligations and confirming such other matters as
Administrative Agent may require.
5. Miscellaneous Provisions.
-------------------------
(a) References in the Revolving Loan Agreement to the
"Borrower/Bank Group Term Loan Agreement", the "Borrower/BOAZ Term Loan
Agreement", the "MountainBrook Term Loan Agreement", the "Realty
Dealers Term Loan Agreement", and the "Sunrise Term Loan Agreement" are
deemed to include all modifications, amendments, extensions, renewals
or supplements to any of the documents, agreements or instruments
included in such terms.
(b) The reference in Section 3.4.1 of the Revolving Loan
Agreement to Exhibit 3.2.5(l) is amended to refer to Exhibit 3.2.5(k).
6. Inducements to the Banks. As additional consideration and inducement
to the Administrative Agent, the Co-Agents, and the Banks to grant the waivers
and modifications set forth in this Second Amendment and to agree to the other
terms of this Second Amendment, with knowledge that the Administrative Agent,
the Co-Agents, and the Banks would not enter into this Second Amendment but for
the provisions of this Paragraph 6:
(a) Borrower represents and warrants to the Administrative
Agent, the Co-Agents, and the Banks that:
5
<PAGE>
(i) All Obligations under the Revolving Loan
Agreement (as amended by this Second Amendment), the Loan
Documents, and the Borrower/Bank Group Term Loan Agreement are
and continue to be valid, binding and enforceable obligations
of Borrower, enforceable in accordance with their terms, and
are and continue to be secured by the Collateral, in the case
of the Revolving Loan Agreement Obligations, and by the
Borrower/Bank Group Term Loan Collateral, in the case of the
obligations of the Borrower with respect to the Borrower/Bank
Group Term Loan;
(ii) All of the representations and warranties set
forth in the Revolving Loan Agreement (as amended by this
Second Amendment), the other Loan Documents, and the
Borrower/Bank Group Term Loan Agreement and the related Loan
Documents continue to be true and correct as of the date
hereof;
(iii) With respect to the Revolving Loan Agreement
(as amended hereby), all property and interests (including,
without limitation, property and interests that constitute
Eligible Collateral, property and interests that are not
included in the Eligible Collateral) encumbered under any
Deeds of Trust constitute, and shall continue to be, first
priority liens and collateral security for all of the
Obligations, and the value of such Collateral is and has at
all times been, in the aggregate, greater than the amount of
the Obligations;
(iv) With respect to the Borrower/Bank Group Term
Loan Agreement, all property and interests (including, without
limitation, property and interests that constitute
"Collateral" under the Borrower/Bank Group Term Loan
Agreement) encumbered under any "Deeds of Trust" given
pursuant to the Borrower/Bank Group Term Loan Agreement
constitute, and shall continue to be, first priority liens and
collateral security for all of the "Obligations" under the
Borrower/Bank Group Term Loan Agreement; and
(v) Borrower has no defense, setoff, claim or
counterclaim against the Administrative Agent, the Co-Agents,
or the Banks in regard to its obligations under the Revolving
Loan Agreement, as amended by this Second Amendment, any other
Loan Document, the Borrower/Bank Group Term Loan Agreement,
any document, instrument, transaction, act or omission arising
out of or related to the Obligations, the Revolving Loan
Agreement (as amended by this Second Amendment), the
Borrower/Bank Group Term Loan Agreement or any other
obligation to the Banks, the Administrative Agent or the
Co-Agents, or any of them, including without limitation, the
following (collectively, the "Other Borrower Loans"): the
Borrower/BOAZ Term Loan and the Borrower/BOAZ Term Loan
Agreement; the MountainBrook Term Loan and the MountainBrook
Term Loan Agreement; the Realty Dealers Term Loan and the
Realty Dealers Term Loan Agreement; and the Sunrise Term Loan
and the Sunrise Term Loan Agreement.
(b) Borrower and all guarantors fully, finally, and forever
release and discharge the Administrative Agent, the Co-Agents, and the
Banks, and their respective successors, assigns, directors, officers,
employees, agents, and representatives from any and all actions, causes
of action, claims, debts, demands, liabilities, obligations, and suits,
of whatever kind or nature, in law or equity of Borrower or any of the
guarantors whether now known or unknown: (i) in respect of the loans
made pursuant to the Revolving Credit Agreement (as amended hereby),
the Borrower/Bank Group Term Loan Agreement, and the Other Borrower
Loans or the acts or
6
<PAGE>
omissions of the Administrative Agent, the Co-Agents, and/or the Banks,
or any of them, in respect thereto and (ii) arising from events
occurring prior to the execution and delivery of this Second Amendment
by Borrower.
(c) In connection with the releases and waivers contained
herein, Borrower and each guarantor hereby expressly waive any and all
rights and benefits conferred upon it by the provisions of Section 1542
of the California Civil Code (or similar provisions of any other
applicable law) which provides:
"A general release does not extend to claims which
the creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him must
have materially affected his settlement with the debtor."
Borrower and each guarantor have been advised by their legal counsel,
or Borrower and each guarantor have made a reasoned and fully informed
decision not to be so represented by counsel, and understand and
acknowledge the significance and consequences of this release and of
this specific waiver of Section 1542, and Borrower and each guarantor
expressly consent that the releases contained herein shall be given
full force and effect according to each and all of its express terms
and provisions including those relating to unknown and unsuspected
claims, demands and causes of action, if any, as well as those relating
to any other claims, demands and causes of action hereinabove
specified. The foregoing shall not be deemed to be an agreement by the
Administrative Agent, the Co-Agents or the Banks that California law is
the governing law under the Loan Documents.
7. Ratification. As modified by this Second Amendment, the Revolving
Loan Agreement is ratified and confirmed and continues in full force and effect.
8. Counterpart Execution. This Second Amendment may be executed in one
or more counterparts, each of which will be deemed an original and all of which
together will constitute one and the same document. Signature pages may be
detached from the counterparts and attached to a single copy of this Second
Amendment to physically form one document. Telecopied signature pages will be
acceptable, provided originally signed signature pages are provided to each of
the other parties by overnight courier.
9. Integration. This Second Amendment shall constitute one of the Loan
Documents, and the Loan Documents, together with this Second Amendment and the
Borrower/Bank Group Term Loan Agreement, contain the complete understanding and
agreement of Borrower, the Administrative Agent, the Co-Agents and the Banks
with respect to the transactions contemplated by the Revolving Loan Agreement
(except as between the Administrative Agent, the Co-Agents and the Banks with
respect to matters set forth in the Agency/Participation Agreement) and
supersede all prior representations, warranties, agreements, arrangements,
understandings, and negotiations, including the Loan Commitment.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment.
BORROWER: UDC HOMES, INC.,
a Delaware corporation
By:_____________________________________
Name: Gina M. Self
Title: Assistant Vice President
8
<PAGE>
BOAZ: BANK ONE, ARIZONA, NA, a national
banking association, individually as a Bank
and in its capacity as the Administrative Agent
and as one of the Co-Agents
By:____________________________________________
Name:__________________________________________
Title:_________________________________________
9
<PAGE>
BANKERS TRUST: BANKERS TRUST COMPANY, a New York
banking corporation, individually as a Bank
and in its capacity as one of the Co-Agents
By:____________________________________________
Name: A.B.V. Johnson
Title:_________________________________________
10
<PAGE>
WFB: WELLS FARGO BANK, NATIONAL ASSOCIATION, a
national banking association, successor by merger to First
Interstate Bank of California, a banking corporation organized
and existing under the laws of California
By:___________________________________________________________
Name:_________________________________________________________
Title:________________________________________________________
11
<PAGE>
BkB: THE FIRST NATIONAL BANK OF BOSTON,
a national banking association
By:_________________________________________
Name: Kevin C. Hake
Title: Vice President
12
<PAGE>
WELLS FARGO: WELLS FARGO REALTY ADVISORS FUNDING,
INCORPORATED, a Colorado corporation
By WELLS FARGO REAL ESTATE GROUP,
a California corporation, as agent
By:________________________________
Name: John McKinney
Title: Vice President
13
<PAGE>
GUARANTY FEDERAL: GUARANTY FEDERAL BANK, F.S.B.,
a federal savings bank
By:_________________________________________
Name: Richard V. Thompson
Title: Vice President
14
<PAGE>
CONSENT
-------
The undersigned consent and agree to the foregoing. The undersigned
represent and warrant to Administrative Agent, Co-Agents and Banks that all of
the representations and warranties of the undersigned set forth in the Loan
Documents continue to be true and correct as of the date hereof. The undersigned
ratify and confirm all of their agreements and obligations pursuant to and in
connection with the Loan Documents. The undersigned hereby join in the release
and other provisions contained in Section 6 of the foregoing Second Amendment
and agree to be bound by all of the provisions thereof, and the undersigned
otherwise fully, finally and forever release and discharge Administrative Agent,
Co- Agents and Banks and their respective successors, assigns, directors,
officers, employees, agents and representatives from any and all actions, causes
of actions, claims, debts, demands, liabilities, obligations and suits, of
whatever nature, in law or equity of the undersigned, whether now known or
unknown to the undersigned, (i) in respect of the loans made pursuant to the
Revolving Credit Agreement (as amended by the foregoing Second Amendment), the
Borrower/Bank Group Term Loan Agreement, and the Other Borrower Loans or the
acts or omissions of Administrative Agent, the Co-Agents, and/or Banks, or any
of them, in respect thereto and (ii) arising from events occurring prior to the
execution and delivery of this Consent.
UDC HOMES CONSTRUCTION, INC., an Arizona
corporation
By:__________________________________________
Its:_________________________________________
UDC ADVISORY SERVICES, INC., an Illinois
corporation
By:__________________________________________
Its:_________________________________________
UDC MORTGAGE ACCEPTANCE CORPORATION,
an Arizona corporation
By:__________________________________________
Its:_________________________________________
15
<PAGE>
UDC MORTGAGE FINANCE GENERAL
PARTNERSHIP, an Arizona general partnership
By: UDC Homes, Inc., a Delaware corporation,
General Partner
By:_______________________________________
Its:______________________________________
ABERDEEN SERVICES, INC., a
By:_______________________________________________
Its:______________________________________________
UDC HOMES OF GEORGIA, INC., a Georgia
corporation
By:_______________________________________________
Its:______________________________________________
REA ACQUISITION CORPORATION, an Arizona
corporation
By:_______________________________________________
Its:______________________________________________
MOUNTAINBROOK VILLAGE COMPANY, an
Arizona corporation
By:_______________________________________________
Its:______________________________________________
MBV GOLF COURSE, INC., an Illinois corporation
By:_______________________________________________
Its:______________________________________________
16
<PAGE>
SCHEDULE 1
A&D LOTS ENTITLED TO EXTENDED ELIGIBILITY
<PAGE>
EXHIBIT A
FORM OF SERIES D SUBORDINATED NOTE
<PAGE>
EXHIBIT B
FORM OF AMENDMENT TO SERIES D NOTE
June 14, 1996
Westbrook Village Venture and
UDC Homes, Inc.
c/o UDC Homes, Inc.
4812 South Mill Avenue
Tempe, Arizona 85282
Re: Modification of Financial Covenants
Ladies and Gentlemen:
On November 6 ,1995, Bank of America Arizona, an Arizona corporation
("Bank") and Westbrook Village Venture, an Arizona joint venture partnership,
and UDC Homes, Inc., a Delaware corporation (collectively, the "Borrowers")
entered into that certain Third Restated Revolving Line of Credit Construction
Agreement (the "Loan Agreement") which provided for, among other things, a loan
(the "Loan") in the maximum committed amount of Twelve Million Five Hundred
Thousand and No/100 Dollars ($12,500,000.00). The Loan was also evidenced by
that certain Third Restated Promissory Note Secured by Restated Deed of Trust
(Revolving Line of Credit Construction Loan) (the "Construction Note") dated
November 6, 1995. The Construction Note is secured by, among other things that
certain Restated Deed of Trust with Assignment of Rents, Security Agreement and
Fixture Filing dated October 7, 1993, and recorded October 12, 1993, as
instrument no. 93-0693875, Official Records of Maricopa County, Arizona (the
"Restated Deed of Trust").
All of the documents executed in connection with the Loan, including,
without limitation, the Loan Agreement, the Construction Note and the Restated
Deed of Trust, as any or all of them may have been amended or modified, shall
hereinafter be collectively referred to as the "Existing Loan Documents", which
together with this letter agreement (this "Agreement"), and all of the documents
executed in connection herewith, are herein collectively referred to as the
"Loan Documents".
<PAGE>
The Borrowers have breached certain financial covenants contained
within the Loan Agreement (the "Identified Defaults"), as more specifically
described in Exhibit "A" attached hereto. Since the dates of the Identified
Defaults the Bank has been forbearing on a day to day basis. Now Borrowers have
requested that Bank waive the covenant breaches in connection with the
Identified Defaults, and the Bank, although under no obligation to do so, is
willing to do so upon the terms and conditions set forth herein.
Section 11.24.4 of the Loan Agreement is hereby amended to read as
follows:
"11.24.4 Minimum Consolidated Adjusted Tangible Net Worth of UDC
-------------------------------------------------------
UDC shall have at the Closing date and at the end of the following
calendar quarters a minimum Consolidated Adjusted Tangible Net Worth as follows:
Consolidated Adjusted
Date Tangible Net Worth
---- ------------------
3/31/96 $108,000,000
6/30/96 $107,000,000
9/30/96 $110,000,000
12/31/96 $110,000,000
3/31/97 $111,000,000
6/30/97 $113,500,000
9/30/97 $122,500,000
12/31/97 $130,000,000
3/31/98 $130,000,000
6/30/98 $130,000,000
9/30/98 $130,000,000
For purposes of the Agreement, "Consolidated Adjusted Tangible Net Worth" shall
mean the gross book value of all assets appearing on the balance sheets of UDC,
and each subsidiary of UDC determined on a consolidated basis in accordance with
generally accepted accounting practices ("GAAP"), consistently applied (and
excluding all goodwill except goodwill permitted to be recorded under GAAP on
the purchase by DMB of the capital stock of UDC less any subsequent amortization
of goodwill properly recorded under GAAP), trademarks, tradenames, patents,
organization expense, treasury stock, unamortized debt discount expense,
deferred
<PAGE>
research and development costs, deferred marketing expenses and other like
intangibles and monies due from affiliates (excluding investments in or
receivables from affiliated land banks), officers, directors or shareholders of
UDC, less Consolidated Liabilities (other than debt subordinated to Bank in a
manner acceptable to Bank in its sole and absolute discretion). For purposes of
calculating Consolidated Adjusted Tangible Net Worth, both the $35,000,000
principal amount, and the deferred interest of the C Subordinated Notes, and the
$10,000,000 principal amount and the deferred interest of the D Subordinated
Notes shall be considered equity. "Consolidated Liabilities" shall mean all
indebtedness of UDC and/or any subsidiary of UDC determined on a consolidated
basis in accordance with GAAP including accrued and deferred income taxes, and
any reserves against assets, but excluding debt subordinated to Bank in a manner
acceptable to Bank in its sole and absolute discretion."
Section 11.24.6 of the Loan Agreement is hereby amended to read as
follows:
"11.24.6 EBITDA Interest Coverage Ratio of UDC
-------------------------------------
UDC shall have, on a consolidated, rolling four-quarter basis, an
EBITDA Interest Coverage Ratio at the end of the following calendar quarters, as
follows:
Date Ratio
---- -----
9/30/96 1.08:1
12/31/96 1.12:1
3/31/97 1.25:1
6/30/97 1.25:1
9/30/97 1.50:1
12/31/97 and thereafter 2.00:1
For purposes of this Agreement, "EBITDA Interest Coverage Ratio" shall mean the
ratio of EBITDA to the actual interest paid on all indebtedness. For purposes of
this Agreement, "EBITDA" shall mean earnings (net income) before interest,
taxes, depreciation and amortization, and the term "actual interest paid" means
interest incurred minus interest deferred on the C Subordinated Notes and the D
Subordinated Notes. A "rolling four-quarter EBITDA Interest Coverage Ratio"
shall mean the sum of EBITDA for such four quarters divided by the sum of actual
interest paid for such four quarters."
Section 11.24.7 of the Loan Agreement is hereby amended to read as
follows:
<PAGE>
"11.24.7 Financial Covenant Assumptions/ Additional Covenants
----------------------------------------------------
All financial covenants assume, and UDC covenants that (a) the C
Subordinated Notes described in the Plan (the "C Subordinated Notes") are fully
subordinated to the BofA Loans, (b) the D Subordinated Notes are fully
subordinated to the BofA Loans, (c) the A & B Senior Notes described in the Plan
(the "A & B Senior Notes") acknowledge the validity and priority of all BofA
Loans, (d) no principal payments on either the C Subordinated Notes or the D
Subordinated Notes will be made for the earlier of five (5) years or the
complete payoff of the BofA Loans, (e) no interest payments on the C
Subordinated Notes or the D Subordinated Notes (other than payment in kind) will
be made for at least two (2) years from the Closing Date and thereafter will
only be paid if: (i) BAI/NT&SA Loans are paid in full, (ii) there are no
defaults under any remaining BofA Loans, and (iii) the EBITDA Interest Coverage
Ratio (inclusive of the C Subordinated Notes and D Subordinated Notes interest
payments) exceeds 2:1, (f) neither the holders of the C Subordinated Notes nor
the holders of the D Subordinated Notes can declare a default or execute any
remedies for default against UDC as long as any of the BofA Loans are
outstanding and committed, and (g) there will be no voluntary or optional
redemption or principal payments on the A & B Senior Notes as long as BAI/NT&SA
Loans are outstanding and committed. UDC shall notify Bank in advance if UDC
proposes to pay interest or principal on either the C Subordinated Notes or D
Subordinated Notes. UDC shall notify Bank in advance if UDC proposes to make any
voluntary, optional or mandatory redemption or principal payment on the A & B
Senior Notes. UDC also covenants and represents that this Loan is "Existing
Indebtedness" and "Exit Financing" and may become "Refinancing Indebtedness"
under the A & B Senior Notes and that all liens securing this Loan are
"Permitted Liens" under the A & B Senior Notes. UDC also covenants and
represents that this Loan is "Exit Financing" under the C Subordinated Notes.
All capitalized terms in this paragraph not defined shall have the meaning set
forth in the Plan. In the event any of such assumptions are incorrect, Bank
shall have the right, in Bank's sole and absolute discretion, to declare an
Event of Default under this Agreement or modify the financial covenants, in
Bank's sole and absolute discretion, to adjust such financial covenants to a
reasonably comparable financial covenant based upon the correct assumptions,
whereupon the failure of Borrowers to acknowledge and accept the revised
financial covenants shall be an Event of Default hereunder."
Except as otherwise specifically set forth in this Agreement or in any
restated loan document, no other terms, conditions or provisions of the Existing
Loan Documents are amended or modified in any manner. All of the other terms,
conditions and provisions of the Existing Loan Documents and Borrowers'
obligations thereunder are hereby acknowledged,
<PAGE>
reaffirmed and ratified by Borrowers and Borrowers acknowledge that they have no
claims, offsets or defenses with respect thereto.
Borrowers further acknowledge and agree that Bank has made no
commitment nor obligated the Bank to further extend, modify or renew the Loan
and that there are no oral or written agreements, representations or
understandings between Borrowers and Bank to the contrary. This Agreement shall
not be construed as a waiver of any of the rights or remedies of Bank nor shall
it obligate Bank in any manner except to modify the Loan Documents as specified
above.
In consideration of the modifications granted by the Bank in this
Agreement, Borrowers and all of their predecessors, successors and assigns
(collectively, the "Releasors"), hereby fully release, remise and forever
discharge the Bank, the Bank's predecessors in interest, parent, subsidiaries,
and affiliates and all of the Bank's past and present officers, directors,
agents, employees, servants, partners, shareholders, attorneys, managers and
agents, for, from and against any and all claims, liens, demands, causes of
action, controversies, offsets, obligations, losses, damages, expenses, and
liabilities of every kind, nature and character whatsoever which the Releasors,
or any one or more of them had, or now has, whether known or unknown, actual or
potential, liquidated or unliquidated, asserted or unasserted, by reason of any
matter, including but not limited to those relating to, arising out of, or
resulting from the Loan or any of the Loan Documents.
This Agreement shall not become effective or operative until a copy has
been signed by Borrowers and Bank. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
agreement, and any party hereto may execute this Agreement by signing any such
counterpart.
If this Agreement accurately sets forth the understanding of Borrowers
with respect to this matter, please sign where indicated below, with the
signature acknowledged before a notary public, and return the original Agreement
to the Bank.
"BANK"
<PAGE>
BANK OF AMERICA ARIZONA, an Arizona corporation
Dated:______________________, 1996 By:________________________
Name: Kurt A. Huisman
Title: Vice President
<PAGE>
The provisions of the foregoing Agreement are acknowledged and agreed to
by the undersigned.
"BORROWERS"
Dated:______________________, 1996 WESTBROOK VILLAGE VENTURE, an Arizona
joint venture partnership
By:____________________________________
Name:__________________________________
Its:___________________________________
Dated:______________________, 1996 UDC HOMES, INC., an Arizona corporation
By:____________________________________
Name:__________________________________
Its:___________________________________
<PAGE>
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
- - ------------------
The foregoing instrument was acknowledged before me this ________ day of
___________________, 1996, by ________________________________________, as the
____________________________ of Westbrook Village Venture, an Arizona joint
venture partnership, on behalf of the partnership.
___________________________
NOTARY PUBLIC
My commission expires:
_____________________________
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
- - ------------------
The foregoing instrument was acknowledged before me this ________ day of
___________________, 1996, by ________________________________________, as the
____________________________ of UDC Homes, Inc., a Delaware corporation, on
behalf of the corporation.
___________________________
NOTARY PUBLIC
My commission expires:
_____________________________
<PAGE>
Exhibit "A"
"Identified Defaults"
1. Violation of the Minimum Daily Liquidity covenant of $10,000,000.00 for
the period from February 21, 1996, to March 14, 1996.
2.(a) Violation of the Minimum Consolidated Adjusted Tangible Net Worth
covenant of $108,000,000.00 for the period ending December 31, 1995.
June 14, 1996
UDC Homes, Inc.
4812 South Mill Avenue
Tempe, Arizona 85282
Re: Modification of Financial Covenants
Ladies and Gentlemen:
On November 6, 1995, Bank of America Illinois, an Illinois banking
corporation ("BAI"), Bank of America National Trust & Savings Association
("NT&SA") (BAI and NT&SA are collectively referred to as "Bank") and UDC Homes,
Inc., a Delaware corporation ("Borrower") entered into that certain Master Term
Loan Agreement (the "Loan Agreement") which, among other things, provided for a
loan (the "Loan") in the maximum principal amount of Twelve Million Two Hundred
Thousand and No/100 Dollars ($12,200,000.00) from Bank to Borrower.
All of the documents executed in connection with the Loan, including,
without limitation those documents more specifically detailed on Exhibit "A"
attached hereto, as any or all of them may have been amended or modified, shall
hereinafter be collectively referred to as the "Existing Loan Documents", which
together with this letter agreement (this "Agreement"), and all of the documents
executed in connection herewith, are herein collectively referred to as the
"Loan Documents". All capitalized terms not defined herein shall have the same
meanings as set forth in the Loan Agreement.
The Borrower has breached certain financial covenants contained within
the Loan Agreement (the "Identified Defaults"), as more specifically described
in Exhibit "A" attached
<PAGE>
hereto. Since the dates of the Identified Defaults the Bank has been forbearing
on a day to day basis. Now Borrower has requested that Bank waive the covenant
breaches in connection with the Identified Defaults, and the Bank, although
under no obligation to do so, is willing to do so upon the terms and conditions
set forth herein.
Section 3.16 (c) of the Loan Agreement is hereby amended to read as
follows:
"3.16 (c) Minimum Consolidated Adjusted Tangible Net Worth of UDC
-------------------------------------------------------
UDC shall have at the Closing date and at the end of the following
calendar quarters a minimum Consolidated Adjusted Tangible Net Worth as follows:
Consolidated Adjusted
Date Tangible Net Worth
---- ------------------
3/31/96 $108,000,000
6/30/96 $107,000,000
9/30/96 $110,000,000
12/31/96 $110,000,000
3/31/97 $111,000,000
6/30/97 $113,500,000
9/30/97 $122,500,000
12/31/97 $130,000,000
3/31/98 $130,000,000
6/30/98 $130,000,000
9/30/98 $130,000,000
For purposes of the Agreement, "Consolidated Adjusted Tangible Net Worth" shall
mean the gross book value of all assets appearing on the balance sheets of UDC,
and each subsidiary of UDC determined on a consolidated basis in accordance with
generally accepted accounting practices ("GAAP"), consistently applied (and
excluding all goodwill except goodwill permitted to be recorded under GAAP on
the purchase by DMB of the capital stock of UDC less any subsequent amortization
of goodwill properly recorded under GAAP), trademarks, tradenames, patents,
organization expense, treasury stock, unamortized debt discount expense,
deferred research and development costs, deferred marketing expenses and other
like intangibles and monies due from affiliates (excluding investments in or
receivables from affiliated land banks),
<PAGE>
officers, directors or shareholders of UDC, less Consolidated Liabilities (other
than debt subordinated to Bank in a manner acceptable to Bank in its sole and
absolute discretion). For purposes of calculating Consolidated Adjusted Tangible
Net Worth, both the $35,000,000 principal amount, and the deferred interest of
the C Subordinated Notes, and the $10,000,000 principal amount and the deferred
interest of the D Subordinated Notes shall be considered equity. "Consolidated
Liabilities" shall mean all indebtedness of UDC and/or any subsidiary of UDC
determined on a consolidated basis in accordance with GAAP including accrued and
deferred income taxes, and any reserves against assets, but excluding debt
subordinated to Bank in a manner acceptable to Bank in its sole and absolute
discretion."
Section 3.16 (e) of the Loan Agreement is hereby amended to read as
follows:
"3.16 (e) EBITDA Interest Coverage Ratio of UDC
-------------------------------------
UDC shall have, on a consolidated, rolling four-quarter basis, an
EBITDA Interest Coverage Ratio at the end of the following calendar quarters, as
follows:
Date Ratio
---- -----
9/30/96 1.08:1
12/31/96 1.12:1
3/31/97 1.25:1
6/30/97 1.25:1
9/30/97 1.50:1
12/31/97 and thereafter 2.00:1
For purposes of this Agreement, "EBITDA Interest Coverage Ratio" shall mean the
ratio of EBITDA to the actual interest paid on all indebtedness. For purposes of
this Agreement, "EBITDA" shall mean earnings (net income) before interest,
taxes, depreciation and amortization, and the term "actual interest paid" means
interest incurred minus interest deferred on the C Subordinated Notes and the D
Subordinated Notes. A "rolling four-quarter EBITDA Interest Coverage Ratio"
shall mean the sum of EBITDA for such four quarters divided by the sum of actual
interest paid for such four quarters."
Section 3.16 (f) of the Loan Agreement is hereby amended to read as
follows:
<PAGE>
"3.16 (f) All financial covenants assume, and UDC covenants that (a)
the C Subordinated Notes described in the Plan (the "C Subordinated Notes") are
fully subordinated to the BofA Loans, (b) the D Subordinated Notes are fully
subordinated to the BofA Loans, (c) the A & B Senior Notes described in the Plan
(the "A & B Senior Notes") acknowledge the validity and priority of all BofA
Loans, (d) no principal payments on either the C Subordinated Notes or the D
Subordinated Notes will be made for the earlier of five (5) years or the
complete payoff of the BofA Loans, (e) no interest payments on the C
Subordinated Notes or the D Subordinated Notes (other than payment in kind) will
be made for at least two (2) years from the Closing Date and thereafter will
only be paid if: (i) all BofA Term Loans are paid in full, (ii) there are no
defaults under any remaining BofA Loans, and (iii) the EBITDA Interest Coverage
Ratio (inclusive of the C Subordinated Notes and D Subordinated Notes interest
payments) exceeds 2:1, (f) neither the holders of the C Subordinated Notes nor
the holders of the D Subordinated Notes can declare a default or execute any
remedies for default against UDC as long as any of the BofA Loans are
outstanding and committed, and (g) there will be no voluntary or optional
redemption or principal payments on the A & B Senior Notes as long as BAI/NT&SA
Loans are outstanding and committed. UDC shall notify Bank in advance if UDC
proposes to pay interest or principal on either the C Subordinated Notes or D
Subordinated Notes. UDC shall notify Bank in advance if UDC proposes to make any
voluntary, optional or mandatory redemption or principal payment on the A & B
Senior Notes. UDC also covenants and represents that this Loan is "Existing
Indebtedness" and "Exit Financing" and may become "Refinancing Indebtedness"
under the A & B Senior Notes and that all liens securing this Loan are
"Permitted Liens" under the A & B Senior Notes. UDC also covenants and
represents that this Loan is "Exit Financing" under the C Subordinated Notes.
All capitalized terms in this paragraph not defined shall have the meaning set
forth in the Plan. In the event any of such assumptions are incorrect, Bank
shall have the right, in Bank's sole and absolute discretion, to declare an
Event of Default under this Agreement or modify the financial covenants, in
Bank's sole and absolute discretion, to adjust such financial covenants to a
reasonably comparable financial covenant based upon the correct assumptions,
whereupon the failure of Borrower to acknowledge and accept the revised
financial covenants shall be an Event of Default hereunder."
Except as otherwise specifically set forth in this Agreement or in any
restated loan document, no other terms, conditions or provisions of the Existing
Loan Documents are amended or modified in any manner. All of the other terms,
conditions and provisions of the Existing Loan Documents and Borrower's
obligations thereunder are hereby acknowledged, reaffirmed and ratified by
Borrower and Borrower acknowledges that it has no claims, offsets or defenses
with respect thereto.
<PAGE>
Borrower further acknowledges and agrees that Bank has made no
commitment nor obligated the Bank to further extend, modify or renew the Loan
and that there are no oral or written agreements, representations or
understandings between Borrower and Bank to the contrary. This Agreement shall
not be construed as a waiver of any of the rights or remedies of Bank nor shall
it obligate Bank in any manner except to modify the Loan Documents as specified
above.
In consideration of the modifications granted by the Bank in this
Agreement, Borrower and all of its predecessors, successors and assigns
(collectively, the "Releasors"), hereby fully release, remise and forever
discharge the Bank, the Bank's predecessors in interest, parent, subsidiaries,
and affiliates and all of the Bank's past and present officers, directors,
agents, employees, servants, partners, shareholders, attorneys, managers and
agents, for, from and against any and all claims, liens, demands, causes of
action, controversies, offsets, obligations, losses, damages, expenses, and
liabilities of every kind, nature and character whatsoever which the Releasors,
or any one or more of them had, or now has, whether known or unknown, actual or
potential, liquidated or unliquidated, asserted or unasserted, by reason of any
matter, including but not limited to those relating to, arising out of, or
resulting from the Loan or any of the Loan Documents.
This Agreement shall not become effective or operative until a copy has
been signed by Borrower and Bank. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
agreement, and any party hereto may execute this Agreement by signing any such
counterpart.
If this Agreement accurately sets forth the understanding of Borrower
with respect to this matter, please sign where indicated below, with the
signature acknowledged before a notary public, and return the original Agreement
to the Bank.
"BANK"
<PAGE>
BANK OF AMERICA ILLINOIS, an Illinois
banking corporation
Dated:______________________, 1996 By:_________________________________
Name:_______________________________
Title:______________________________
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
Dated:______________________, 1996 By:_________________________________
Name:_______________________________
Title:______________________________
<PAGE>
The provisions of the foregoing Agreement are acknowledged and agreed to
by the undersigned.
"BORROWER"
Dated:______________________, 1996 UDC HOMES, INC., an Arizona
corporation
By:_________________________________
Name:_______________________________
Its:________________________________
<PAGE>
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
- - ------------------
The foregoing instrument was acknowledged before me this ________ day of
___________________, 1996, by ________________________________________, as the
____________________________ of UDC Homes, Inc., a Delaware corporation, on
behalf of the corporation.
___________________________
NOTARY PUBLIC
My commission expires:
_______________________________
<PAGE>
Exhibit "A"
"Existing Loan Documents"
1. Master Term Loan Agreement, dated November 6, 1995, between UDC Homes,
Inc. ("Borrower") and Bank of America Illinois ("BAI") and Bank of
America National Trust and Savings Association ("NT&SA") (collectively
"Bank").
2.(a) Master Restated and Amended Promissory Note (Variable Rate) (UDC),
dated November 6, 1995, between Borrower and Bank.
3.(a) Deed of Trust with Assignment of Rents, Security Agreement and Fixture
Filing (California) (Waterford and N-9), dated November 6, 1995,
between Borrower and Bank and Bank of America Arizona ("BAAZ").
4.(a) Unsecured Indemnity Agreement (Waterford and Neighborhood 9), dated
November 6, 1995, between Borrower and Bank and BAAZ.
5.(a) Term Loan Agreement, dated November 6, 1995, between Terra California
Limited Partnership ("Terra") and UDC and BAI.
6.(a) Restated and Amended Promissory Note (Variable Rate) (Terra), dated
November 6, 1995, between Terra, UDC and BAI.
7.(a) Deed of Trust with Assignment of Rents, Security Agreement and Fixture
Filing (California) (Pinnacle Ridge/Del Lago), dated November 6, 1995,
between Terra, UDC and BAI - filed in Contra Costa County, California.
8.(a) Deed of Trust with Assignment of Rents, Security Agreement and Fixture
Filing (California) (Pinnacle Ridge/Del Lago), dated November 6, 1995,
between Terra, UDC and BAI - filed in Santa Clara County, California.
9.(a) Unsecured Indemnity Agreement (Pinnacle Ridge and Del Lago), dated
November 6, 1995, between Terra, UDC and BAI..
10.(a) Restated and Amended Security Agreement (Pledge) (UDC Corp. Note),
dated November 6, 1995, between UDC and BAI, NT&SA and BAAZ.
11.(a) Endorsement to UDC Corp. Promissory Note, dated November 6, 1995, by
UDC Homes, Inc.
12.(a) Restated and Amended Security Agreement (UDC-Terra Note), dated
November 6, 1995, between UDC and BAI, NT&SA and BAAZ.
<PAGE>
(a)
(b)
(c)
(d)
Exhibit "A" - Continued
"Existing Loan Documents"
13.(e) Restatement of, and Replacement for June 30, 1992, Promissory Note,
dated November 6, 1995, by Terra California Limited Partnership to UDC.
14.(e) Endorsement of Terra to Promissory Note, dated November 6, 1995, by UDC
Homes, Inc.
15.(a) Deed of Trust with Assignment of Rents, dated November 6, 1995 (Del
Lago), between Terra and UDC.
16.(a) Collateral Assignment Deed of Trust (Del Lago), dated November 6, 1995,
by UDC Homes, Inc.
17.(a) Deed of Trust with Assignment of Rents, dated November 6, 1995
(Pinnacle Ridge Second), between Terra and UDC.
18.(a) Collateral Assignment Deed of Trust (UDC-Pinnacle Ridge Second), dated
November 6, 1995, by UDC Homes, Inc.
19.(a) California UCC-1 for UDC Homes, Inc.
20.(a) Arizona UCC-1 for UDC Homes, Inc.
21.(a) California UCC-1 for Terra California Limited Partnership.
22.(a) Arizona UCC-1 for Terra California Limited Partnership.
23.(a) Restated and Amended Pledge and Assignment of Partnership Proceeds and
Distributions (Westbrook), dated November 6, 1995, between UDC and
BAAZ, BAI and NT&SA.
24.(a) Cash Collateral Agreement (UDC), dated November 6, 1995, between UDC
and BAAZ, BAI and NT&SA.
<PAGE>
Exhibit "B"
"Identified Defaults"
1. Violation of the Minimum Daily Liquidity covenant of $10,000,000.00 for
the period from February 21, 1996, to March 14, 1996.
2.(a) Violation of the Minimum Consolidated Adjusted Tangible Net Worth
covenant of $108,000,000.00 for the period ending December 31, 1995.
June 14, 1996
Westbrook Village Venture and
UDC Homes, Inc.
c/o UDC Homes, Inc.
4812 South Mill Avenue
Tempe, Arizona 85282
Re: Modification of Financial Covenants
Ladies and Gentlemen:
On November 6,1995, Bank of America Arizona, an Arizona corporation
("Bank") and Westbrook Village Venture, an Arizona joint venture partnership,
and UDC Homes, Inc., a Delaware corporation (collectively, the "Borrowers")
entered into that certain Third Restated Acquisition and Development Loan
Agreement (the "Loan Agreement") which provided for, among other things, a loan
(the "Loan") in the maximum committed amount of Ten Million Eight Hundred
Thousand and No/100 Dollars ($10,800,000.00). The Loan was also evidenced by
that certain Third Restated Promissory Note Secured by Restated Deed of Trust
(Acquisition and Development Loan) (the "A & D Note") dated November 6, 1995.
The A & D Note is secured by, among other things that certain Restated Deed of
Trust with Assignment of Rents, Security Agreement and Fixture Filing dated
October 7, 1993, and recorded October 12, 1993, as instrument no. 93-0693875,
Official Records of Maricopa County, Arizona (the "Restated Deed of Trust").
All of the documents executed in connection with the Loan, including,
without limitation, the Loan Agreement, the A&D Note and the Restated Deed of
Trust, as any or all of them may have been amended or modified, shall
hereinafter be collectively referred to as the "Existing Loan Documents", which
together with this letter agreement (this "Agreement"), and all of the documents
executed in connection herewith, are herein collectively referred to as the
"Loan Documents". All capitalized terms not defined herein shall have the same
meanings as set forth in the Loan Agreement.
<PAGE>
The Borrowers have breached certain financial covenants contained
within the Loan Agreement (the "Identified Defaults"), as more specifically
described in Exhibit "A" attached hereto. Since the dates of the Identified
Defaults the Bank has been forbearing on a day to day basis. Now Borrowers have
requested that Bank waive the covenant breaches in connection with the
Identified Defaults, and the Bank, although under no obligation to do so, is
willing to do so upon the terms and conditions set forth herein.
Section 9.23.4 of the Loan Agreement is hereby amended to read as
follows:
"9.23.4 Minimum Consolidated Adjusted Tangible Net Worth of UDC
-------------------------------------------------------
UDC shall have at the Closing date and at the end of the following
calendar quarters a minimum Consolidated Adjusted Tangible Net Worth as follows:
Consolidated Adjusted
Date Tangible Net Worth
---- ------------------
3/31/96 $108,000,000
6/30/96 $107,000,000
9/30/96 $110,000,000
12/31/96 $110,000,000
3/31/97 $111,000,000
6/30/97 $113,500,000
9/30/97 $122,500,000
12/31/97 $130,000,000
3/31/98 $130,000,000
6/30/98 $130,000,000
9/30/98 $130,000,000
For purposes of the Agreement, "Consolidated Adjusted Tangible Net Worth" shall
mean the gross book value of all assets appearing on the balance sheets of UDC,
and each subsidiary of UDC determined on a consolidated basis in accordance with
generally accepted accounting practices ("GAAP"), consistently applied (and
excluding all goodwill except goodwill permitted to be recorded under GAAP on
the purchase by DMB of the capital stock of UDC less any subsequent amortization
of goodwill properly recorded under GAAP), trademarks, tradenames, patents,
organization expense, treasury stock, unamortized debt discount expense,
deferred
<PAGE>
research and development costs, deferred marketing expenses and other like
intangibles and monies due from affiliates (excluding investments in or
receivables from affiliated land banks), officers, directors or shareholders of
UDC, less Consolidated Liabilities (other than debt subordinated to Bank in a
manner acceptable to Bank in its sole and absolute discretion). For purposes of
calculating Consolidated Adjusted Tangible Net Worth, both the $35,000,000
principal amount, and the deferred interest of the C Subordinated Notes, and the
$10,000,000 principal amount and the deferred interest of the D Subordinated
Notes shall be considered equity. "Consolidated Liabilities" shall mean all
indebtedness of UDC and/or any subsidiary of UDC determined on a consolidated
basis in accordance with GAAP including accrued and deferred income taxes, and
any reserves against assets, but excluding debt subordinated to Bank in a manner
acceptable to Bank in its sole and absolute discretion."
Section 9.23.6 of the Loan Agreement is hereby amended to read as
follows:
"9.23.6 EBITDA Interest Coverage Ratio of UDC
-------------------------------------
UDC shall have, on a consolidated, rolling four-quarter basis, an
EBITDA Interest Coverage Ratio at the end of the following calendar quarters, as
follows:
Date Ratio
---- -----
9/30/96 1.08:1
12/31/96 1.12:1
3/31/97 1.25:1
6/30/97 1.25:1
9/30/97 1.50:1
12/31/97 and thereafter 2.00:1
For purposes of this Agreement, "EBITDA Interest Coverage Ratio" shall mean the
ratio of EBITDA to the actual interest paid on all indebtedness. For purposes of
this Agreement, "EBITDA" shall mean earnings (net income) before interest,
taxes, depreciation and amortization, and the term "actual interest paid" means
interest incurred minus interest deferred on the C Subordinated Notes and the D
Subordinated Notes. A "rolling four-quarter EBITDA Interest Coverage Ratio"
shall mean the sum of EBITDA for such four quarters divided by the sum of actual
interest paid for such four quarters."
Section 9.23.7 of the Loan Agreement is hereby amended to read as
follows:
<PAGE>
"9.23.7 Financial Covenant Assumptions/ Additional Covenants
----------------------------------------------------
All financial covenants assume, and UDC covenants that (a) the C
Subordinated Notes described in the Plan (the "C Subordinated Notes") are fully
subordinated to the BofA Loans, (b) the D Subordinated Notes are fully
subordinated to the BofA Loans, (c) the A & B Senior Notes described in the Plan
(the "A & B Senior Notes") acknowledge the validity and priority of all BofA
Loans, (d) no principal payments on either the C Subordinated Notes or the D
Subordinated Notes will be made for the earlier of five (5) years or the
complete payoff of the BofA Loans, (e) no interest payments on the C
Subordinated Notes or the D Subordinated Notes (other than payment in kind) will
be made for at least two (2) years from the Closing Date and thereafter will
only be paid if: (i) BAI/NT&SA Loans are paid in full, (ii) there are no
defaults under any remaining BofA Loans, and (iii) the EBITDA Interest Coverage
Ratio (inclusive of the C Subordinated Notes and D Subordinated Notes interest
payments) exceeds 2:1, (f) neither the holders of the C Subordinated Notes nor
the holders of the D Subordinated Notes can declare a default or execute any
remedies for default against UDC as long as any of the BofA Loans are
outstanding and committed, and (g) there will be no voluntary or optional
redemption or principal payments on the A & B Senior Notes as long as BAI/NT&SA
Loans are outstanding and committed. UDC shall notify Bank in advance if UDC
proposes to pay interest or principal on either the C Subordinated Notes or D
Subordinated Notes. UDC shall notify Bank in advance if UDC proposes to make any
voluntary, optional or mandatory redemption or principal payment on the A & B
Senior Notes. UDC also covenants and represents that this Loan is "Existing
Indebtedness" and "Exit Financing" and may become "Refinancing Indebtedness"
under the A & B Senior Notes and that all liens securing this Loan are
"Permitted Liens" under the A & B Senior Notes. UDC also covenants and
represents that this Loan is "Exit Financing" under the C Subordinated Notes.
All capitalized terms in this paragraph not defined shall have the meaning set
forth in the Plan. In the event any of such assumptions are incorrect, Bank
shall have the right, in Bank's sole and absolute discretion, to declare an
Event of Default under this Agreement or modify the financial covenants, in
Bank's sole and absolute discretion, to adjust such financial covenants to a
reasonably comparable financial covenant based upon the correct assumptions,
whereupon the failure of Borrowers to acknowledge and accept the revised
financial covenants shall be an Event of Default hereunder."
Except as otherwise specifically set forth in this Agreement or in any
restated loan document, no other terms, conditions or provisions of the Existing
Loan Documents are amended or modified in any manner. All of the other terms,
conditions and provisions of the Existing Loan Documents and Borrowers'
obligations thereunder are hereby acknowledged,
<PAGE>
reaffirmed and ratified by Borrowers and Borrowers acknowledge that they have no
claims, offsets or defenses with respect thereto.
Borrowers further acknowledge and agree that Bank has made no
commitment nor obligated the Bank to further extend, modify or renew the Loan
and that there are no oral or written agreements, representations or
understandings between Borrowers and Bank to the contrary. This Agreement shall
not be construed as a waiver of any of the rights or remedies of Bank nor shall
it obligate Bank in any manner except to modify the Loan Documents as specified
above.
In consideration of the modifications granted by the Bank in this
Agreement, Borrowers and all of their predecessors, successors and assigns
(collectively, the "Releasors"), hereby fully release, remise and forever
discharge the Bank, the Bank's predecessors in interest, parent, subsidiaries,
and affiliates and all of the Bank's past and present officers, directors,
agents, employees, servants, partners, shareholders, attorneys, managers and
agents, for, from and against any and all claims, liens, demands, causes of
action, controversies, offsets, obligations, losses, damages, expenses, and
liabilities of every kind, nature and character whatsoever which the Releasors,
or any one or more of them had, or now has, whether known or unknown, actual or
potential, liquidated or unliquidated, asserted or unasserted, by reason of any
matter, including but not limited to those relating to, arising out of, or
resulting from the Loan or any of the Loan Documents.
This Agreement shall not become effective or operative until a copy has
been signed by Borrowers and Bank. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
agreement, and any party hereto may execute this Agreement by signing any such
counterpart.
If this Agreement accurately sets forth the understanding of Borrowers
with respect to this matter, please sign where indicated below, with the
signature acknowledged before a notary public, and return the original Agreement
to the Bank.
"BANK"
<PAGE>
BANK OF AMERICA ARIZONA, an
Arizona corporation
Dated:______________________, 1996 By:________________________
Name: Kurt A. Huisman
Title: Vice President
<PAGE>
The provisions of the foregoing Agreement are acknowledged and agreed to
by the undersigned.
"BORROWERS"
Dated:______________________, 1996 WESTBROOK VILLAGE VENTURE, an Arizona
joint venture partnership
By:____________________________________
Name:__________________________________
Its:___________________________________
Dated:______________________, 1996 UDC HOMES, INC., an Arizona corporation
By:____________________________________
Name:__________________________________
Its:___________________________________
<PAGE>
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
- - ------------------
The foregoing instrument was acknowledged before me this ________ day of
___________________, 1996, by ________________________________________, as the
____________________________ of Westbrook Village Venture, an Arizona joint
venture partnership, on behalf of the partnership.
___________________________
NOTARY PUBLIC
My commission expires:
_______________________________
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
The foregoing instrument was acknowledged bef re me this ________ day of
___________________, 1996, by ________________________________________, as the
____________________________ of UDC Homes, Inc., a Delaware corporation, on
behalf of the corporation.
___________________________
NOTARY PUBLIC
My commission expires:
________________________________
<PAGE>
Exhibit "A"
"Identified Defaults"
1. Violation of the Minimum Daily Liquidity covenant of $10,000,000.00 for
the period from February 21, 1996, to March 14, 1996.
2.(a) Violation of the Minimum Consolidated Adjusted Tangible Net Worth
covenant of $108,000,000.00 for the period ending December 31, 1995.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-01-1995
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 4,619
<SECURITIES> 1,432
<RECEIVABLES> 0
<ALLOWANCES> 280,177
<INVENTORY> 0
<CURRENT-ASSETS> 2,834
<PP&E> 0
<DEPRECIATION> 351,580
<TOTAL-ASSETS> 20,907
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
63,840
<COMMON> 0
<OTHER-SE> 351,580
<TOTAL-LIABILITY-AND-EQUITY> 248,351
<SALES> 248,351
<TOTAL-REVENUES> 216,266
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 14,421
<INTEREST-EXPENSE> (14,160)
<INCOME-PRETAX> 0
<INCOME-TAX> (14,160)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (14,160)
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
