SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended March 31, 1998.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. 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 Incorporation) (I.R.S. Employer Identification No.)
6710 North Scottsdale Road, Scottsdale, Arizona 85253
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 627-3000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate 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: As of May 12, 1998 - Common
Stock, $0.01 par value, 1,000 shares.
1
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
----
PART I - Financial Information
Item 1. Financial Statements - Unaudited
Consolidated Balance Sheets
At March 31, 1998 and September 30, 1997 ..................... 3
Consolidated Statements of Operations
For the three and six months ended March 31, 1998 and 1997 ... 4
Consolidated Statements of Cash Flows
For the three and six months ended March 31, 1998 and 1997.... 5
Condensed Notes to Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 10
PART II - Other Information
Item 1. Legal Proceedings................................................ 19
Item 6. Exhibits and Reports on Form 8-K................................. 20
Signatures ................................................................. 21
2
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
------------- -------------
(in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,890 $ 8,871
Receivables 1,889 1,930
Housing and land inventories 321,182 290,792
Property and equipment, net 3,887 4,214
Goodwill 3,276 3,366
Other assets 6,612 2,841
--------- ---------
$ 340,736 $ 312,014
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 18,251 $ 22,228
Accrued liabilities and expenses 47,303 49,635
Notes payable, senior and subordinated debt
($97,831 and $90,921, respectively, due to related parties) 266,961 229,098
--------- ---------
Total liabilities 332,515 300,961
--------- ---------
MINORITY INTEREST 4,317 3,681
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY :
Common stock, $.01 par value - 1,000 shares authorized,
issued and outstanding -- --
Additional paid-in capital 88,000 88,000
Accumulated deficit (84,096) (80,628)
--------- ---------
Total stockholders' equity 3,904 7,372
--------- ---------
$ 340,736 $ 312,014
========= =========
</TABLE>
See condensed notes to consolidated financial statements.
3
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
----------------------- -----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
REVENUES:
Housing sales $ 97,188 $ 84,926 $ 195,786 $ 165,631
Mortgage operations, net 190 365 572 562
Land sales, net 914 (445) 914 449
--------- --------- --------- ---------
Total revenues 98,292 84,846 197,272 166,642
--------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of housing sales 80,500 71,858 162,430 140,788
Selling and administrative expenses 15,800 14,340 29,487 27,005
Interest on subordinated notes payable 3,487 1,984 6,895 3,578
Interest, net 659 1,336 1,327 3,512
Other, net 308 71 601 62
--------- --------- --------- ---------
Total costs and expenses 100,754 89,589 200,740 174,945
--------- --------- --------- ---------
LOSS BEFORE INCOME TAXES (2,462) (4,743) (3,468) (8,303)
INCOME TAXES -- -- -- --
--------- --------- --------- ---------
NET LOSS $ (2,462) $ (4,743) $ (3,468) $ (8,303)
========= ========= ========= =========
</TABLE>
See condensed notes to consolidated financial statements.
4
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
March 31,
----------------------
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (3,468) $ (8,303)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,993 2,496
Minority interest 636 (64)
Equity in operations of joint ventures (330) --
Interest paid in-kind in additional subordinated notes payable 6,720 3,631
Changes in assets and liabilities:
Receivables 41 (6,129)
Housing and land inventories (32,853) (10,143)
Other assets (1,649) 4,577
Accounts payable (3,977) (3,935)
Accrued liabilities and expenses (2,332) (11,116)
-------- --------
Net cash used in operating activities (34,219) (28,986)
-------- --------
INVESTING ACTIVITIES:
Investment in joint venture (1,792) --
Net additions to property and equipment (113) (1,457)
-------- --------
Net cash used in investing activities (1,905) (1,457)
-------- --------
FINANCING ACTIVITIES:
Increase in notes payable 31,143 10,007
Distribution of minority interest -- (1,200)
Proceeds from issuance of subordinated notes payable -- 10,000
Capital contributions -- 10,000
-------- --------
Net cash provided by financing activities 31,143 28,807
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,981) (1,636)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,871 3,556
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,890 $ 1,920
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid for interest, net of amounts
capitalized $ 1,354 $ 5,944
======== ========
</TABLE>
See condensed notes to consolidated financial statements.
5
<PAGE>
UDC HOMES, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of UDC
Homes, Inc. (the "Company") and all of its majority-owned subsidiaries and
joint ventures. All material intercompany balances and transactions have
been eliminated in consolidation. Investments in unconsolidated joint
ventures are recorded using the equity method of accounting.
The consolidated financial statements and related notes thereto
contained in the Annual Report on Form 10-K for the fiscal year ended
September 30, 1997, filed by the Company with the Securities and Exchange
Commission, should be read 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 the interim
period.
Through May 31, 1997, the Company's mortgage banking operations were
exclusively conducted through its indirect, wholly-owned subsidiary, UDC
Mortgage Corporation ("UDC Mortgage Corp."). Effective June 1, 1997, the
Company entered into a joint venture agreement with Norwest Ventures, Inc.
(entitled UDC Mortgage) through which all future mortgage banking
operations of the Company will be conducted. The joint venture agreement
provides that all capital contributions and distributions, as well as all
profits and losses, will be split 50/50. The Company's investment in this
joint venture is being accounted for using the equity method of accounting.
The Company's investment was approximately $50,000 at March 31, 1998 and
September 30, 1997, and is included in "Other assets" in the accompanying
consolidated balance sheets. For the three and six months ended March 31,
1998, income from all mortgage operations was $190,000 and $572,000,
respectively, of which $190,000 and $471,000, respectively, was from the
Company's equity in the operations of UDC Mortgage and $0 and $101,000,
respectively, was from UDC Mortgage Corp. Income from UDC Mortgage Corp.
for the three and six months ended March 31, 1997, was $365,000 and
$562,000, respectively. Effective December 31, 1997, UDC Mortgage Corp.
ceased all operations.
In December 1997, the Company entered into a joint venture agreement
with SunPower Properties L.L.C. (of which an affiliate of DMB, a holder of
50% of the Company's common stock, is a member) for the development of a
master-planned retirement community in Arizona. This new community is
expected to consist of approximately 2,000 homesites upon completion. The
joint venture agreement provides that all capital or land contributions as
well as all capital distributions and profits and losses be allocated
50/50. The joint venture is being accounted for using the equity method of
accounting. At March 31, 1998, the Company's investment was approximately
$1,651,000 and is included in "Other assets" in the accompanying
consolidated balance sheet.
6
<PAGE>
2. HOUSING AND LAND INVENTORIES
The components of housing and land inventories are as follows:
March 31, September 30,
1998 1997
------------ -------------
(in thousands)
Housing inventory
(including related land) $189,832 $133,798
Land under development and
finished lots 127,530 150,164
Land held for sale 3,820 6,830
-------- --------
$321,182 $290,792
======== ========
3. INTEREST
Interest incurred is capitalized and expensed through cost of housing
sales, as they relate to housing and land inventories. The components of
interest, excluding interest on the Company's subordinated notes payable,
are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ------------------
1998 1997 1998 1997
------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C>
Interest costs incurred $4,790 $4,944 $9,281 $9,507
Less: interest capitalized 4,038 3,582 7,835 5,895
------ ------ ------ ------
Interest expense $ 752 $1,362 $1,446 $3,612
====== ====== ====== ======
Amortization of capitalized interest
included in cost of sales $2,828 $2,358 $5,461 $4,285
====== ====== ====== ======
Interest income $ 93 $ 26 $ 119 $ 100
====== ====== ====== ======
</TABLE>
7
<PAGE>
4. NOTES PAYABLE, SENIOR AND SUBORDINATED DEBT
Notes payable, senior and subordinated debt consists of the following:
March 31, September 30,
1998 1997
------------ -------------
(in thousands)
12.5% Series A and B senior notes due 2000 $ 69,825 $ 70,000
14.5% Series C and D subordinated notes due
2000 ($97,831 and $90,921 due to related
parties, respectively) 102,003 95,108
Notes payable to banks under revolving credit
facility 88,508 53,229
Notes payable to bank under construction and
acquisition and development loans 4,019 5,845
Other 2,606 4,916
-------- --------
$266,961 $229,098
======== ========
The borrowings listed above contain numerous financial and other
covenants which may, among other things, limit the Company's ability to
obtain additional financing when needed and on terms acceptable to the
Company. The Series B senior notes further require the Company to make an
offer to repurchase the Series B senior notes with the proceeds from
qualifying asset sales in excess of certain thresholds, as defined in the
indenture. In December 1997, the proceeds from such asset sales exceeded
the defined threshold. Accordingly, on January 21, 1998, the Company made
an offer to purchase the outstanding $10 million principal amount of the
Series B senior notes at par, plus accrued and unpaid interest. The offer
to purchase expired on March 5, 1998. Holders of approximately $175,000 in
principal amount accepted the offer to purchase, all of which were
purchased by the Company on March 6, 1998. Effective March 31, 1998, the
Company made a second offer to purchase as a result of subsequent
qualifying asset sales. The second offer to purchase will expire on May 14,
1998, unless extended by the Company.
The payment of interest in cash on the Series C and D subordinated
notes is restricted by certain covenants in the Company's credit
facilities. The November 1, 1997 and May 1, 1998 payments of interest were
paid in-kind in additional Series C and D subordinated notes.
5. ACCRUED LIABILITIES AND EXPENSES
Accrued liabilities and expenses consist of the following:
March 31, September 30,
1998 1997
------------- -------------
(in thousands)
Accrued construction costs $19,887 $21,748
Accrued warranty costs 3,151 2,874
Accrued interest 4,331 4,239
Accrued compensation 2,776 3,833
Other 17,158 16,941
------- -------
$47,303 $49,635
======= =======
8
<PAGE>
6. RELATED PARTY TRANSACTIONS
The Company has entered into option agreements with DC Ranch L.L.C., an
affiliate of DMB, and DMB/AEW Land Holdings Two, L.L.C. and DMB/AEW Land
Holdings Three, L.L.C., affiliates of DMB and AEW, a holder of 50% of the
Company's common stock, for the purchase of up to 2,280 lots in southern
California and Arizona. During the three and six months ended March 31, 1998,
the Company paid these entities $18,849,000 and $20,376,000, respectively, for
the purchase of 177 and 200 lots, respectively, under these option agreements.
As of March 31, 1998, the number of lots remaining to be acquired under these
option agreements was 1,834.
The Company's Los Angeles regional office is located in a building owned by
an affiliate of AEW. During the three and six months ended March 31, 1998, the
Company paid this affiliate $45,000 and $90,000, respectively, in office rent.
The Company believes that the monetary and other provisions under the above
agreements are no less favorable than could be obtained through third party
arrangements.
7. CONTINGENCIES
On February 5, 1998, the Arizona Court of Appeals affirmed the trial
court's Februrary 14, 1997 approval of a final settlement of three class action
lawsuits between former shareholders of the Company and certain former officers
and directors of the Company (the "Director/Officer Defendants"). The lawsuits,
filed in 1995, alleged violations of Arizona securities law, fraud, negligent
misrepresentation, breach of fiduciary duty, negligence and gross negligence.
The settlement calls for, among other things, a $12.75 million payment to the
plaintiffs, $1.75 million of which was paid into an escrow account in December
1995 by the Company. Certain issuers of the Company's directors' and officers'
insurance policies have agreed to fund the balance of the settlement. The
Company is not a named defendant in these lawsuits, and the Company's
reorganization plan provided for the discharge of claims asserted in class
action lawsuits against the Company. Further, the approved settlement bars any
claims for contribution by non-settling defendants against the settling
Director/Officer Defendants or the Company. However, the Company's former
independent public accountants remain as non-settling defendants in the
lawsuits. The Company could be required to indemnify certain of the
Director/Officer Defendants if they incur additional expenses in the lawsuits
and seek indemnification. The Company does not believe that its remaining
obligations to former directors and officers will exceed its insurance coverage.
The Company is a defendant in lawsuits that arise from or are related to the
conduct of the Company's business. The Company does not believe that the
ultimate resolution of these cases will materially affect the financial
position, results of operations or cash flows of the Company.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations
-------------
Introduction
The following discussion of the results of operations and financial
condition should be read in conjunction with the accompanying consolidated
financial statements and notes thereto and the Company's annual report on Form
10-K for the year ended September 30, 1997, filed with the Securities and
Exchange Commission.
Revenues
The following table presents comparative housing revenues, deliveries and
average sales prices by market and region:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
Family:
Arizona:
Housing revenue ................... $ 53,648 $ 47,193 $ 101,474 $ 91,117
Units delivered ................... 251 235 475 464
Average sales price ............... $ 214 $ 201 $ 214 $ 196
California:
Housing revenue ................... 22,232 $ 14,337 $ 49,991 $ 26,032
Units delivered ................... 105 64 219 112
Average sales price ............... $ 212 $ 224 $ 228 $ 232
Retirement:
Arizona:
Housing revenue ................... $ 16,092 $ 12,316 $ 32,494 $ 23,452
Units delivered ................... 102 80 200 151
Average sales price ............... $ 158 $ 154 $ 162 $ 155
California:
Housing revenue ................... $ 5,216 $ 11,080 $ 11,827 $ 25,030
Units delivered ................... 13 33 30 72
Average sales price ............... $ 401 336 394 348
Company Total:
Housing revenue ................... $ 97,188 $ 84,926 $ 195,786 $ 165,631
Units delivered ................... 471 412 924 799
Average sales price ............... $ 206 206 212 207
Change from prior year: 14.4% 3.8% 18.2% 5.7%
Change due to volume ............ 14.3% (1.4%) 15.6% 6.8%
Change due to average sales price 0.1% 5.2% 2.6% (1.1%)
</TABLE>
10
<PAGE>
The increase in volume in the three and six months ended March 31, 1998
compared to the three and six months ended March 31, 1997 resulted from
increases in deliveries in all of the Company's regions and markets, except for
the California region of the Retirement Division. This decrease in volume
resulted from a decrease in sales activity caused by the closeout of six
communities in California in the six month period ended September 30, 1997 and
delays in the commencement of land development activities on new parcels (see
"Net Orders").
Net Orders
The following table presents comparative net orders by market and region:
Three Months Ended Six Months Ended
March 31, March 31,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
(dollars in thousands)
Family:
Arizona:
Dollars .................... $120,740 $ 64,986 $168,265 $114,466
Units ordered .............. 667 316 890 556
Average sales price ........ $ 181 $ 206 $ 189 $ 206
California:
Dollars .................... $ 45,409 $ 19,699 $ 74,958 $ 30,425
Units ordered .............. 206 87 334 133
Average sales price ........ $ 220 $ 226 $ 224 $ 229
Retirement:
Arizona:
Dollars .................... $ 28,934 $ 27,458 $ 43,100 $ 42,210
Units ordered .............. 176 176 258 263
Average sales price ........ $ 164 $ 156 $ 167 $ 160
California:
Dollars .................... $ 2,991 $ 10,628 $ 3,394 $ 19,711
Units ordered .............. 7 33 9 62
Average sales price ........ $ 427 $ 322 $ 377 $ 318
Company total:
Dollars .................... $198,074 $122,771 $289,717 $206,812
Units ordered .............. 1,056 612 1,491 1,014
Average sales price ........ $ 188 $ 201 $ 194 $ 204
11
<PAGE>
Net orders represent 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. Net orders increased in the three and
six months ended March 31, 1998 compared to the three and six months ended March
31, 1997 as a result of increased orders in the Arizona and California regions
of the Family Division caused by an increase in the number of homesites
available for sale. This increase was offset by decreased orders in the
California region of the Retirement Division. This decrease resulted from delays
in the commencement of land development activities in five subdivisions
consisting of 506 homesites caused by the decision to redesign certain product
offerings and delays in obtaining certain required approvals. The approvals were
obtained in the fourth quarter of fiscal 1997.
Net Sales Backlog
Net sales backlog represents the aggregate dollar value and number of homes
ordered, net of cancellations, pending delivery at March 31, for which the
Company had received purchase deposits and signed sales contracts. The following
table presents comparative net sales backlog by market and region as of March
31:
1998 1997
-------- --------
Family: (dollars in thousands)
Arizona:
Dollars ...................... $196,301 $118,341
Units in backlog ............. 1,002 559
Average sales price .......... $ 196 $ 212
California:
Dollars ...................... $ 54,804 $ 19,125
Units in backlog ............. 241 84
Average sales price .......... $ 227 $ 228
Retirement:
Arizona:
Dollars ...................... $ 44,484 $ 44,649
Units in backlog ............. 268 275
Average sales price .......... $ 166 $ 162
California:
Dollars ...................... $ 2,735 $ 20,176
Units in backlog ............. 7 60
Average sales price .......... $ 391 $ 336
Company Total:
Dollars ...................... $298,324 $202,291
Units in backlog ............. 1,518 978
Average sales price .......... $ 197 $ 207
12
<PAGE>
The increase in the aggregate dollar value and the number of homes in
backlog at March 31, 1998, compared to March 31, 1997, resulted primarily from
increased net orders in the Arizona and California regions of the Family
Division. The decrease in the units and dollars in backlog at March 31, 1998,
compared to March 31, 1997, in the California region of the Retirement Division
resulted from decreased product availability caused by product redesign and by
the delays in obtaining certain approvals as previously discussed. The decrease
in the average sales price in backlog at March 31, 1998 compared to March 31,
1997, in the Arizona region of the Family Division resulted from the opening of
new communities targeting the first-time home buyer, which have lower average
sales prices. The Company expects to continue to pursue opportunities in this
market.
Gross Margins, Selling and Administrative Expenses and Interest, Net
The following table presents information related to gross margins, selling
and administrative expenses and interest, net for home building:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
----------------------------------- -----------------------------------
1998 1997 1998 1997
--------------- ----------------- ----------------- ----------------
Dollars % Dollars % Dollars % Dollars %
-------- ----- --------- ----- -------- ----- -------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from housing sales $ 97,188 100.0% $ 84,926 100.0% $195,786 100.0% $165,631 100.0%
Cost of housing sales 80,500 82.8% 71,858 84.6% 162,430 82.9% 140,788 85.0%
-------- ----- -------- ----- -------- ----- -------- -----
Gross margin 16,688 17.2% 13,068 15.4% 33,356 17.1% 24,843 15.0%
Selling and administrative
expenses 15,800 16.2% 14,340 16.9% 29,487 15.1% 27,005 16.3%
-------- ----- -------- ----- -------- ----- -------- -----
Operating income (loss)
from home building 888 1.0% (1,272) (1.5%) 3,869 2.0% (2,162) (1.3%)
Interest on subordinated notes
payable (3,487) (3.6%) (1,984) (2.3%) (6,895) (3.5%) (3,578) (2.2%)
Interest, net (659) (0.7%) (1,336) (1.6%) (1,327) (0.7%) (3,512) (2.1%)
-------- ----- -------- ----- -------- ----- -------- -----
Pre-tax loss from $ (3,258) (3.3%) $ (4,592) (5.4%) $ (4,353) (2.2%) $ (9,252) (5.6%)
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
Gross margins increased during the three and six months ended March 31,
1998, compared to the three and six months ended March 31, 1997, primarily due
to reduced direct construction costs incurred as a result of more competitive
bids on construction contracts and lower levels of change orders. Additionally,
margins were lower in the three and six months ended March 31, 1997, due to the
amortization of approximately $0.4 million and $0.8 million, respectively, of
purchased profit which was recorded as a result of the acquisition of the
Company by DMB. The purchased profit was fully amortized as of September 30,
1997.
13
<PAGE>
The following table presents the components of selling and administrative
expenses in dollars and as a percentage of revenues from housing sales:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
Selling and administrative expenses:
Variable components ......................... $ 6,387 $ 5,175 $ 11,896 $ 9,573
Fixed components ............................ 9,413 9,165 17,591 17,432
--------- --------- --------- ---------
Total selling and administrative expenses: .... $ 15,800 $ 14,340 $ 29,487 $ 27,005
========= ========= ========= =========
As a percentage of revenues from housing sales:
Variable components ......................... 6.5% 6.1% 6.1% 5.8%
Fixed components ............................ 9.7% 10.8% 9.0% 10.5%
--------- --------- --------- ---------
Total selling and administrative expenses: .... 16.2% 16.9% 15.1% 16.3%
========= ========= ========= =========
</TABLE>
The variable component of selling and administrative expenses includes
sales commissions, advertising, model maintenance and model furniture
amortization. Variable selling and administrative expenses as a percentage of
revenues from housing sales increased in the three and six months ended March
31, 1998 compared to the three and six months ended March 31, 1997, primarily
due to increased advertising expenditures.
The fixed component of selling and administrative expenses includes all
other selling and administrative expenses which generally do not vary with
housing sales volume. Fixed selling and administrative expenses increased in the
three and six months ended March 31, 1998, compared to the three and six months
ended March 31, 1997, due to increases in compensation related expenses, as well
as increases in professional fees, including fees paid to architects,
professional search firms and attorneys, offset by decreases in warranty costs
and office related expenditures. Fixed selling and administrative expenses as a
percentage of revenues from housing sales decreased in the three and six months
ended March 31, 1998 compared to the three and six months ended March 31, 1997
due to increases in revenues from housing sales.
The Company capitalizes certain interest costs for its home building
operations and includes such capitalized interest in cost of housing sales when
the related units are delivered. Total interest incurred by the Company's home
building operations, excluding interest expense on the Company's subordinated
notes payable, for the three and six months ended March 31, 1998 and 1997 was
$4,790,000 and $9,281,000 and $4,944,000 and $9,507,000, respectively. Interest,
net for the three and six months ended March 31, 1998 and 1997 was $659,000 and
$1,327,000 and $1,336,000 and $3,512,000, respectively. Interest incurred,
excluding interest expense on the Company's subordinated notes payable,
decreased in the three and six months ended March 31, 1998 compared to the three
and six months ended March 31, 1997 as a result of lower average debt levels.
Interest, net decreased in the three and six months ended March 31, 1998
compared to the three and six months ended March 31, 1997 due to a decrease in
interest incurred and due
14
<PAGE>
to an increase in development activities which resulted in higher levels of
interest capitalization. Interest expense on the Company's subordinated notes
payable for the three and six months ended March 31, 1998 and 1997, was
$3,487,000 and $6,895,000, and $1,984,000 and $3,578,000, respectively. Interest
expense on the Company's subordinated notes payable increased in the three and
six months ended March 31, 1998 compared to the three and six months ended March
31, 1997 due to higher levels of subordinated indebtedness.
Mortgage Operations
Through May 31, 1997, the Company's mortgage banking operations were
exclusively conducted through its indirect, wholly-owned subsidiary, UDC
Mortgage Corporation ("UDC Mortgage Corp."). Effective June 1, 1997, the Company
entered into a joint venture agreement with Norwest Ventures, Inc. (entitled UDC
Mortgage) through which all future mortgage banking operations of the Company
will be conducted. The joint venture agreement provides that all capital
contributions and distributions, as well as all profits and losses, will be
split 50/50. The Company's investment in this joint venture is being accounted
for using the equity method of accounting. At March 31, 1998 and September 30,
1997, the Company's investment was approximately $50,000. For the three and six
months ended March 31, 1998, income from all mortgage operations was $190,000
and $572,000, respectively, of which $190,000 and $471,000, respectively, was
from the Company's equity in the operations of UDC Mortgage and $0 and $101,000,
respectively, was from UDC Mortgage Corp. Income from UDC Mortgage Corp. for the
three and six months ended March 31, 1997 was $365,000 and $562,000,
respectively. Effective December 31, 1997, UDC Mortgage Corp. ceased all
operations.
Land Inventory
The following table describes the number of homesites available for future
development and sale (excludes units in backlog, speculative units and model
homes) at March 31, 1998 by division and region:
UDC Land Joint
Owned Options Ventures Total
-----------------------------------------
Family:
Arizona .................. 1,205 1,050 -- 2,255
California ............... 862 867 -- 1,729
----- ----- ----- -----
Family Total ................. 2,067 1,917 -- 3,984
----- ----- ----- -----
Retirement:
Arizona .................. 549 -- 2,001 2,550
California ............... 337 -- -- 337
----- ----- ----- -----
Retirement Total ............. 886 -- 2,001 2,887
----- ----- ----- -----
Family and Retirement Total .. 2,953 1,917 2,001 6,871
===== ===== ===== =====
The Company has entered into land option agreements with certain entities
(including affiliates of DMB and AEW) which have available sources of capital.
These entities acquire land and grant purchase options to the Company. At March
31, 1998, the Company had land option
15
<PAGE>
agreements with affiliated entities which enable the Company to purchase up to
1,834 lots in Arizona and California. The Company also had an option agreement
with an unrelated party which enables the Company to purchase up to 83 lots in
Arizona. The Company believes that the monetary and other provisions under the
agreements with affiliated entities are no less favorable than could be obtained
through third party arrangements. The Company is actively pursuing the
acquisition of land to maintain or increase its lot inventory levels in each of
its operating divisions. There can be no assurance that the Company will be
successful in acquiring land on acceptable terms or in a timely manner.
Since May 6, 1996, the Company's Westbrook Village operations have been
conducted under a joint venture agreement in which UDC and affiliates of DMB and
AEW currently own approximately 77.0%, 11.5% and 11.5% equity interests,
respectively.
In December 1997, the Company entered into a joint venture agreement with
SunPower Properties L.L.C. (of which an affiliate of DMB is a member) for the
development of a master-planned retirement community in Arizona. This new
community is expected to consist of approximately 2,000 homesites upon
completion. The joint venture agreement provides that all capital or land
contributions, as well as all capital distributions and profits and losses, be
allocated 50/50. The joint venture is being accounted for using the equity
method of accounting.
Liquidity and Capital Resources
The Company's financing needs depend primarily upon sales volume, asset
turnover, land acquisitions and inventory balances. The Company has financed,
and expects to continue to finance, its working capital needs as well as its
land acquisition and construction costs through funds provided primarily by cash
flow from operations, current and future borrowings as permitted under the
Company's loan agreements and capital contributions by AEW and DMB. The Company
believes that amounts generated from operations, additional borrowings and
capital contributions will provide funds adequate to finance its homebuilding
activities and meet its debt service requirements. The Company continually
monitors its current and long-term cash flow requirements to evaluate the
optimal use of its available financing sources.
The Company's net cash used in operating activities increased from $29.0
million for the six months ended March 31, 1997 to $34.2 million for the six
months ended March 31, 1998. This increase was primarily due to an increase in
housing and land inventories, partially offset by decreases in receivables and
accrued liabilities and an increase in other assets. Net cash used in investing
activities increased from $1.5 million for the six months ended March 31, 1997
to $1.9 million for the six months ended March 31, 1998. This increase was due
to the Company's investment in a joint venture for a master-planned retirement
community, offset by lower levels of computer and equipment purchases in the
current year. The Company's net cash provided by financing activities increased
from $28.8 million for the six months ended March 31, 1997 to $31.1 million for
the six months ended March 31, 1998. This increase was due to an increase in the
amount outstanding on the Company's revolving credit facility.
At March 31, 1998, the Company had cash and cash equivalents of $3.9
million and availability of $18.9 million which could be drawn under its
revolving credit facility. At March 31, 1998, the Company had total indebtedness
of $266.9 million, including $69.8 million of
16
<PAGE>
senior unsecured notes payable, $102.0 million of subordinated notes payable,
$88.5 million due under the Company's $170 million revolving credit facility,
$4.0 million due under construction and acquisition and development lines of
credit and $2.6 million due under other notes payable.
The credit facilities listed above contain numerous financial and other
covenants which may, among other things, limit the Company's ability to obtain
additional financing when needed and on terms acceptable to the Company. The
Company's Series B senior notes further require the Company to make an offer to
repurchase the Series B senior notes with the proceeds from qualifying asset
sales in excess of certain thresholds, as defined in the indenture. In December
1997, the proceeds from such asset sales exceeded the defined threshold.
Accordingly, on January 21, 1998, the Company made an offer to purchase the
outstanding $10 million principal amount of Series B senior notes at par, plus
accrued and unpaid interest. The offer to purchase expired on March 6, 1998.
Holders of approximately $175,000 in principal amount accepted the offer to
purchase, all of which were purchased by the Company on March 6, 1998. Effective
March 31, 1998, the Company made a second offer to purchase as a result of
subsequent qualifying asset sales. Funds required to repurchase the tendered
Series B senior notes, if any, will be obtained through cash flow from
operations and or borrowings as permitted under the Company's loan agreements.
The offer to purchase will expire on May 14, 1998, unless extended by the
Company.
The payment of interest in cash on the subordinated notes is restricted by
certain covenants in the Company's credit facilities. The November 1, 1997 and
May 1, 1998 payments of interest were paid in-kind in additional subordinated
notes.
The Company finances its home building and land development operations with
a $170 million (the "commitment amount") revolving credit facility with a group
of banks (the "credit facility"). The credit facility is available for both
construction and acquisition and development ("A&D") activities in Arizona and
California. The amount available for A&D activities was limited to the lesser of
(a) 37.5% of the commitment amount or (b) $63,750,000, as adjusted for various
sublimits, as defined. This limitation has been increased to $80,000,000 for the
period from March 31, 1998 through September 30, 1998. The credit facility
accrues interest at prime plus 1% or, at the Company's option, LIBOR plus 3.25%,
payable monthly, and requires a commitment fee of 1% per annum of the commitment
amount, an unused commitment fee of .25% per annum of the average unused
commitment amount, and syndication and agency fees. The interest rate and
commitment fee may be reduced if the Company meets certain financial ratios. The
credit facility is secured by portions of the Company's housing and land
inventory and matures on March 31, 2000. At March 31, 1998, $88.5 million was
outstanding and an additional $18.9 million was available under the credit
facility.
The Company has entered into option agreements with DC Ranch L.L.C., an
affiliate of DMB, and DMB/AEW Land Holdings Two, L.L.C. and DMB/AEW Land
Holdings Three L.L.C., affiliates of DMB and AEW, for the purchase of up to
2,280 lots in southern California and Arizona. During the three and six months
ended March 31, 1998, the Company paid these entities $18,849,000 and
$20,376,000, respectively, for the purchase of 177 and 200 lots, respectively,
under these option agreements. As of March 31, 1998, the number of lots
remaining to be acquired under these option agreements was 1,834.
17
<PAGE>
The board of directors of the Company has stated that it is considering
alternatives to increase growth, including, but not limited to, the possible
sale of the Company. However, there can be no assurance that any offer for the
Company will be made, or, if made, that any such offer will be acceptable to the
board of directors and shareholders of the Company.
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 impact that the Company's limited sources of capital might
have on its ability to compete with better capitalized companies for the
acquisition of land, the effect of interest rates on demand for the Company's
homes and the cost of its operations, 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.
18
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
The Arizona Actions-On February 5, 1998, the Arizona Court of Appeals
affirmed the trial court's February 14, 1997 approval of a final settlement of
three class action lawsuits between former shareholders of the Company and
certain former officers and directors of the Company (the "Director/Officer
Defendants"). The lawsuits, entitled Michael A. Isco v. Richard C. Kraemer, et
al. (Case No. CV 95-08941), Larry Alexander, et al. v. Arthur Andersen, LLP, et
al. (Case No. CV 95-09509), and Crandon Capital Partners v. Kraemer, et al.
(Case No. CV 95-17785), were filed in 1995 in Superior Court in Maricopa County,
Arizona. The plaintiffs alleged violations of Arizona securities law, fraud,
negligent misrepresentation, breach of fiduciary duty, negligence and gross
negligence and sought unspecified money damages. The settlement calls for, among
other things, a $12.75 million payment to the plaintiffs, $1.75 million of which
was paid into an escrow account in December 1995 by the Company. Certain issuers
of the Company's directors' and officers' insurance policies have agreed to fund
the balance of the settlement. The Company is not a named defendant in these
lawsuits, and the Company's reorganization plan provided for the discharge of
claims asserted in class action lawsuits against the Company. Further, the
approved settlement bars any claims for contribution by non-settling defendants
against the settling Director/Officer Defendants or the Company. However, the
Company's former independent public accountants remain as non-settling
defendants in the lawsuits. The Company could be required to indemnify certain
of the Director/Officer Defendants if they incur additional expenses in the
lawsuits and seek indemnification. The Company does not believe that its
remaining obligations to former directors and officers will exceed its insurance
coverage.
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. In the Company's opinion,
none of the pending litigation matters will have a material adverse effect upon
the Company's financial position, results of operations or cash flow.
19
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
Exhibit
Number Description of Document
- ------ -----------------------
10.1 First Modification Agreement dated February 27, 1998 to the Amended
and Restated UDC Master Revolving Line of Credit Loan Agreement
(borrowing base) dated April 30, 1997, among Bank One, Arizona, NA
("BOAZ"), Guaranty Federal Bank, F.S.B. ("Guaranty"), Wells Fargo
Bank, National Association ("WFB"), Bank of America National Trust and
Savings Association ("BofA"), Norwest Bank Arizona, National
Association ("Norwest") and the Company.
10.2 Letter Agreement dated April 28, 1998 among BOAZ, Guaranty, WFB, BofA,
Norwest and the Company.
27 Financial Data Schedule
(b) There were no reports on Form 8-K filed during the three months ended
March 31, 1998.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: May 12, 1998 UDC HOMES, INC.
By: /s/ Garth R. Wieger
-----------------------------------------
Garth R. Wieger, Chief Executive Officer,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Garth R. Wieger President, Chief Executive May 12, 1998
- ------------------------ Officer and Director
Garth R. Wieger (Principal Executive Officer)
/s/ Kenda B. Gonzales Senior Executive Vice President May 12, 1998
- ------------------------ and Chief Financial Officer
Kenda B. Gonzales (Principal Financial and Accounting Officer)
/s/ Andrew S. Beams Vice President and May 12, 1998
- ------------------------ Corporate Controller
Andrew S. Beams
21
FIRST MODIFICATION AGREEMENT
----------------------------
THIS FIRST MODIFICATION AGREEMENT ("Agreement") is entered into as of
February 27, 1998, among UDC HOMES, INC., a Delaware corporation ("Borrower"),
the Banks listed on the signature pages of this Agreement, and BANK ONE,
ARIZONA, NA, a national banking association ("Agent"). The parties hereto agree
as follows:
RECITALS:
- ---------
A. Agent, Banks and Borrower entered into an Amended and Restated UDC
Master Revolving Line of Credit Loan Agreement (Borrowing Base) dated as of
April 30, 1997 (the "Loan Agreement") pursuant to which the banks named therein
(the "Banks"), among other things, established a credit facility ("Credit
Facility") for Borrower, which is evidenced by the Notes. Capitalized terms not
otherwise defined herein shall have the same meanings ascribed to such terms in
the Loan Agreement.
B. Borrower has requested that Banks extend the Maturity Date and the
Conversion Date of the Credit Facility, and to make certain other modifications
to the Loan Agreement. Banks have agreed to so modify the Credit Facility and to
amend the Loan Agreement and other Loan Documents on the terms and subject to
the conditions set forth in this Agreement.
AGREEMENTS:
- -----------
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Borrower, Banks and Agent agree as follows:
I. SECTION ACCURACY OF RECITALS.
--------------------
The parties acknowledge the accuracy of the Recitals.
I. SECTION MODIFICATION OF LOAN DOCUMENTS; OTHER AGREEMENTS.
------------------------------------------------
A. Clause (b) in the definition of "Available Liquidity"
in Section 1.1 of the Loan Agreement is hereby modified in its entirety to read
as follows:
(b) The Available Commitment less the Outstanding Borrowings,
as of the time of determination.
A. The date of March 31, 1998, as set forth in the
definition of "Conversion Date" in Section 1.1 of the Loan Agreement, is hereby
modified to be March 31, 1999.
<PAGE>
A. The word "less" is hereby added to the end of clause
(f) in the definition of "EBITDA" in Section 1.1 of the Loan Agreement, and the
following clause (g) is added:
(g) any income from any joint venture, partnership or similar
arrangement in excess of the cash distributions received by Borrower
from such joint venture, partnership or similar arrangement.
A. The definition of "Maturity Date" in Section 1.1 of
the Loan Agreement is hereby modified in its entirety to read as follows:
"Maturity Date" means March 31, 2000; provided, however, that
if Borrower extends the maturity date of the Senior Notes to a date
that is later than September 30, 2000, then so long as (i) no Event of
Default or Unmatured Event of Default has occurred and is continuing,
(ii) Borrower is in compliance with the Financial Covenants at the time
of such extension, and (iii) the Term Out Period has not yet commenced,
then the Maturity Date shall automatically be extended to September 30,
2000.
A. The year "1990", as it appears in the definition of
"Title Policy" in Section 1.1 of the Loan Agreement, is hereby modified to be
"1992."
A. The following sentence is hereby added to the end of
Section 2.1(c), after clause (iii), of the Loan Agreement:
Notwithstanding the foregoing, if a Bank's Pro Rata Interest will be
zero during the proposed extension period, then the consent of such
Bank to the extension of the Conversion Date shall not be required.
A. Section 2.1(d) of the Loan Agreement is hereby
modified in its entirety to read as follows:
(d) Term Out. From and after the Conversion Date, the
Commitment Amount will be automatically reduced on the last day of the
3rd Calendar Month in the Term Out Period and on the last day of each
third Calendar Month thereafter (each, a "Reduction Date"), with the
amount of each such reduction to be equal to (i) one-fourth of the
Commitment Amount in effect as of the day prior to commencement of the
Term Out Period, if the Maturity Date is March 31, 2000, or (ii)
one-sixth of the Commitment Amount in effect as of the day prior to
commencement of the Term Out Period, if the Maturity Date is extended
to September 30, 2000 in accordance with the definition of "Maturity
Date."
-2-
---
<PAGE>
A. Section 5.2(d) of the Loan Agreement is hereby
modified in its entirety to read as follows:
(d) Size of Subdivisions. With respect to any one Subdivision,
the maximum number of Lots may not exceed 175 unless otherwise approved
(i) by a Bank Supermajority, or (ii) solely for purposes of determining
compliance with Section 5.6(a) as to Unit-only qualification requests,
by the Agent and the Co-Agent.
A. Section 5.2(h) of the Loan Agreement is hereby
modified in its entirety to read as follows:
(h) Plat. Borrower shall have delivered to the Agent a
preliminary parcel map, recorded parcel map, preliminary plat, recorded
plat, or survey of the Subdivision.
A. The clause "If required by the Agent," is hereby
added at the beginning of Section 5.2(l) of the Loan Agreement.
A. The first sentence of Section 5.6 of the Loan
Agreement is hereby modified in its entirety to read as follows:
Borrower may, from time to time, request the Agent to approve
a Unit as Eligible Collateral; provided, however, that (i) if the
Maturity Date is March 31, 2000, following the end of the 6th Calendar
Month of the Term Out Period, no Unit will be included in Eligible
Collateral for the first time; and (ii) if the Maturity Date is
extended to September 30, 2000 in accordance with the definition of
"Maturity Date," following the end of the 12th Calendar Month of the
Term Out Period, no Unit will be included in Eligible Collateral for
the first time.
A. The following Section 8.10 is hereby added to the
Loan Agreement:
8.10 Minimum Net Worth Covenant. As of each Test Date,
commencing March 31, 1998, Borrower will have a minimum Net Worth, as
determined in accordance with this Section, equal to or greater than
$5,000,000.00. For purposes of the foregoing calculation, "Net Worth"
means, as to Borrower, the sum of all capital accounts determined in
conformity with GAAP.
A. Section 9.11 of the Loan Agreement is hereby modified
in its entirety to read as follows:
Except as expressly permitted by the Loan Documents and except for the
Norwest Mortgage joint venture and the investments in Affiliates listed
-3-
---
<PAGE>
on Exhibit E, Borrower will not make any Investment in any Person
(including, without limitation, entering into any joint venture,
partnership, or similar arrangement, or increasing its capital
obligation for any previously approved joint venture, partnership, or
similar arrangement) without prior written approval of all Banks in
their sole and absolute discretion.
A. The following proviso is hereby added to the end of
Section 10.1(b) of the Loan Agreement:
; and provided further, that with respect to the failure of Borrower to
comply with the Financial Covenant set forth in Section 8.10, an Event
of Default will not occur pursuant to this Section 10.1(b) if within
thirty (30) days after the end of the fiscal quarter to which such
failure relates, Borrower's Net Worth is increased to an amount that is
not less than $5,000,000 (including any increase resulting from a
conversion of Qualified Subordinated Debt into capital accounts, as
determined in accordance with GAAP), without violating any other
Financial Covenant or causing any other Event of Default or Unmatured
Event of Default to occur.
A. The Pro Rata Interest of Guaranty Federal Bank,
F.S.B. ("Guaranty Federal"), Bank of America National Trust and Savings
Association ("Bank of America") and Wells Fargo Bank, National Association
("Wells Fargo"), as set forth on the signature pages of the Loan Agreement, are
each hereby amended to be the Pro Rata Interest set forth on the signature pages
of this Agreement. As a result of the foregoing amendment, the Pro Rata Interest
of Guaranty Federal and the Pro Rata Interest of Bank of America increased and
the Pro Rata Interest of Wells Fargo decreased by a corresponding amount. As of
the date of this Agreement, Wells Fargo hereby sells and assigns to Guaranty
Federal and to Bank of America (each, an "Assuming Bank"), and each Assuming
Bank hereby purchases and assumes, without recourse, from Wells Fargo, all of
Wells Fargo's rights and obligations in respect of the portion of its Pro Rata
Interest and the portion of all Advances owing to Wells Fargo that are
outstanding on the date hereof, to the extent required in order to appropriately
adjust the Pro Rata Interests and the Advances. In connection with the foregoing
assignment, on or before 11:00 a.m., Phoenix time, on the date of this
Agreement, each Assuming Bank shall wire transfer to the Agent the applicable
amount necessary to make the foregoing adjustment, and Agent shall wire transfer
the respective amount to Wells Fargo on the date of this Agreement.
A. Each of the Loan Documents is modified to provide
that it shall be a default or an event of default thereunder if Borrower shall
fail to comply with any of the covenants of Borrower herein or if any
representation or warranty by Borrower herein or by any guarantor in any related
Consent and Agreement of Guarantor is materially incomplete, incorrect, or
misleading as of the date hereof.
-4-
---
<PAGE>
A. Each reference in the Loan Documents to any of the
Loan Documents is hereby amended to be a reference to such document as modified
herein.
I. SECTION RATIFICATION OF LOAN DOCUMENTS AND COLLATERAL.
---------------------------------------------
The Loan Documents are ratified and affirmed by Borrower and shall
remain in full force and effect as modified herein. Any property or rights to or
interests in property granted as security in the Loan Documents shall remain as
security for the Credit Facility and the obligations of Borrower in the Loan
Documents.
I. SECTION BORROWER REPRESENTATIONS AND WARRANTIES.
---------------------------------------
Borrower represents and warrants to Agent and Banks:
A. As of February 26, 1998, the outstanding principal
balance of the Notes is $86,777,040.47 and interest has been paid current.
A. No default or event of default under any of the Loan
Documents as modified herein, nor any event, that, with the giving of notice or
the passage of time or both, would be a default or an event of default under the
Loan Documents as modified herein has occurred and is continuing.
A. There has been no material adverse change in the
financial condition of Borrower or any other person whose financial statement
has been delivered to Agent or any Bank in connection with the Credit Facility
from the most recent financial statement received by Agent or any Bank.
A. Each and all representations and warranties of
Borrower in the Loan Documents are accurate on the date hereof.
A. Borrower has no claims, counterclaims, defenses, or
set-offs with respect to the Credit Facility or the Loan Documents as modified
herein.
A. The Loan Documents as modified herein are the legal,
valid, and binding obligations of Borrower, enforceable against Borrower in
accordance with their terms.
A. Borrower is validly existing under the laws of the
State of its formation or organization and has the requisite power and authority
to execute and deliver this Agreement and to perform the Loan Documents as
modified herein. The execution and delivery of this Agreement and the
performance of the Loan Documents as modified herein have been duly authorized
by all requisite action by or on behalf of Borrower. This Agreement has been
duly executed and delivered on behalf of Borrower.
-5-
---
<PAGE>
I. SECTION BORROWER COVENANTS.
------------------
Borrower covenants with Agent and Banks:
A. Borrower shall execute, deliver, and provide to Agent
such additional agreements, documents, and instruments as reasonably required by
Agent to effectuate the intent of this Agreement.
A. Borrower fully, finally, and absolutely and forever
releases and discharges Agent and Banks and their present and former directors,
shareholders, officers, employees, agents, representatives, successors and
assigns, and their separate and respective heirs, personal representatives,
successors and assigns, from any and all actions, causes of action, claims,
debts, damages, demands, liabilities, obligations, and suits, of whatever kind
or nature, in law or equity of Borrower, now known to Borrower, and whether
contingent or matured, (i) in respect of the Credit Facility, the Loan
Documents, or the actions or omissions of Agent or any of the Banks in respect
of the Credit Facility or the Loan Documents and (ii) arising from events
occurring prior to the date of this Agreement.
I. SECTION CONDITIONS PRECEDENT.
--------------------
The agreements of Agent and Banks and the modifications contained
herein shall not be binding upon Agent and Banks until Agent and Banks have
executed and delivered this Agreement and Agent has received, at Borrower's
expense, all of the following, all of which shall be in form and content
satisfactory to Agent and Banks and shall be subject to approval by Agent and
Banks:
A. An original of this Agreement fully executed by
Borrower;
A. An original of the Consent and Agreement of Guarantor
attached hereto, fully executed by Guarantor (as defined therein);
A. A Replacement Note payable to the order of Guaranty
Federal in the amount of $40,000,000.00, in the form attached hereto as Exhibit
A, fully executed by Borrower;
A. A Replacement Note payable to the order of Bank of
America in the amount of $40,000,000.00, in the form attached hereto as Exhibit
B, fully executed by Borrower;
A. A Replacement Note payable to the order of Wells
Fargo in the amount of $20,000,000.00, in the form attached hereto as Exhibit C,
fully executed by Borrower;
A. If Borrower or any Guarantor is a corporation,
limited liability company, partnership or trust, such resolutions or
authorizations and such other
-6-
---
<PAGE>
documents as Agent may require relating to the existence and good standing of
that corporation, partnership or trust, and the authority of any person
executing this Agreement or other documents on behalf of that corporation,
limited liability company, partnership or trust; and
A. Payment of all the internal and external costs and
expenses incurred by Agent in connection with this Agreement (including, without
limitation, outside attorneys' expenses and fees).
I. SECTION INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE,
-------------------------------------------------------------
TERMINATION, OR WAIVER.
----------------------
The Loan Documents as modified herein contain the complete
understanding and agreement of Borrower, Agent and Banks in respect of the
Credit Facility and supersede all prior representations, warranties, agreements,
arrangements, understandings, and negotiations. No provision of the Loan
Documents as modified herein may be changed, discharged, supplemented,
terminated, or waived except in a writing signed by the applicable parties as
required in the Loan Agreement.
I. SECTION BINDING EFFECT.
--------------
The Loan Documents as modified herein shall be binding upon and shall
inure to the benefit of Borrower, Agent and Banks and their successors and
assigns and the executors, legal administrators, personal representatives,
heirs, devisees, and beneficiaries of Borrower; provided, however, Borrower may
not assign any of its right or delegate any of its obligation under the Loan
Documents and any purported assignment or delegation shall be void.
I. SECTION CHOICE OF LAW.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Arizona, without giving effect to conflicts of law
principles.
I. SECTION COUNTERPART EXECUTION.
---------------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same document. Signature pages may be detached from the counterparts and
attached to a single copy of this Agreement to physically form one document.
DATED as of the date first above stated.
UDC HOMES, INC., a Delaware corporation
By:
Name: Kenda B. Gonzales
Title: Senior Executive Vice President
BORROWER
-7-
---
<PAGE>
BANK ONE, ARIZONA, NA, a national banking
association, as the Agent and as one of
the Banks
By:
Name: Rhonda R. Williams
Title: Vice President
Pro Rata Interest: $60,000,000.00
35.2941177%
GUARANTY FEDERAL BANK, F.S.B., a
federal savings bank, as the Co-Agent and as
one of the Banks
By:
Name: Richard V. Thompson
Title: Vice President
Pro Rata Interest: $40,000,000.00
23.5294118%
-8-
---
<PAGE>
WELLS FARGO BANK, NATIONAL ASSOCIATION,
a national banking association, as one of
the Banks
By:
Name: John W. McKinny
Title: Vice President
Pro Rata Interest: $20,000,000.00
11.7647058%
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, a national banking association,
as one of the Banks
By:
Name: Diana N. Parris
Title: Vice President
Pro Rata Interest: $40,000,000.00
23.5294118%
NORWEST BANK ARIZONA, NATIONAL ASSOCIATION,
a national banking association, as one of
the Banks
Pro Rata Interest: $10,000,000.00
5.8823529%
By:
Name: E. Kevin Kosan
Title: Vice President
-9-
---
<PAGE>
CONSENT AND AGREEMENT OF GUARANTOR
----------------------------------
With respect to the First Modification Agreement, dated February 27,
1998 ("Agreement"), between UDC HOMES, INC., a Delaware corporation
("Borrower"), BANK ONE, ARIZONA, NA, a national banking association, as Agent
("Agent"), and the Banks named on the signature pages thereto, the undersigned
(severally and collectively, "Guarantor") agree for the benefit of Banks and
Agent as follows:
A. Guarantor acknowledges (i) receiving a copy of and
reading the Agreement, (ii) the accuracy of the Recitals in the Agreement, and
(iii) the effectiveness of (A) the Amended and Restated Continuing Guaranty
(Master Revolving Line of Credit) dated April 30, 1997, executed by Guarantor,
as modified herein ("Guaranty"), (B) the Amended and Restated Subordination and
Standby Agreement (Master Revolving Line of Credit) dated April 30, 1997,
executed by Guarantor, as modified herein ("Subordination"), and (C) any other
agreements, documents, or instruments securing or otherwise relating to the
Guaranty or the Subordination, as modified herein. The Guaranty, the
Subordination, and such other agreements, documents, and instruments, as
modified herein, are referred to individually and collectively as the "Guarantor
Documents."
A. Guarantor consents to the modification of the Loan
Documents and all other matters in the Agreement.
A. Guarantor fully, finally, and forever releases and
discharges Banks and Agent and their 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, that Guarantor has or in the future may have,
now known to Guarantor, (i) in respect of the Credit Facility, the Loan
Documents, the Guarantor Documents, or the actions or omissions of any of the
Banks or Agent in respect of the Credit Facility, the Loan Documents, or the
Guarantor Documents and (ii) arising from events occurring prior to the date
hereof.
A. Guarantor agrees that all references, if any, to the
Loan Agreement and the Loan Documents in the Guarantor Documents shall be deemed
to refer to such agreements, documents, and instruments as modified by the
Agreement.
A. Guarantor reaffirms the Guarantor Documents and
agrees that the Guarantor Documents continue in full force and effect and remain
unchanged, except as specifically modified by this Consent and Agreement of
Guarantors.
A. Guarantor agrees that the Loan Documents, as modified
by the Agreement, and the Guarantor Documents, as modified by this Consent and
Agreement of Guarantor, are the legal, valid, and binding obligations of
Borrower and the
<PAGE>
undersigned, respectively, enforceable in accordance with their terms against
Borrower and the undersigned, respectively.
B. Guarantor agrees that Guarantor has no claims,
counterclaims, defenses, or offsets with respect to the enforcement against
Guarantor of the Guarantor Documents.
A. Guarantor represents and warrants that there has been
no material adverse change in the financial condition of any Guarantor from the
most recent financial statement received by Banks or Agent.
9. Guarantor is validly existing under the laws of the State of its
formation or organization and has the requisite power and authority to execute
and deliver this Agreement and to perform the Guarantor Documents as modified
herein. The execution and delivery of this Agreement and the performance of the
Guarantor Documents as modified herein have been duly authorized by all
requisite action by or on behalf of Guarantor. This Agreement has been duly
executed and delivered on behalf of Guarantor.
A. Guarantor agrees that this Consent and Agreement of
Guarantor may be executed in one or more counterparts, each of which shall be
deemed an original and all of which together shall constitute one and the same
document. Signature and acknowledgment pages may be detached from the
counterparts and attached to a single copy of this Consent and Agreement of
Guarantor to physically form one document.
DATED as of the date of the Agreement.
UDC HOMES CONSTRUCTION, INC., an
Arizona corporation
By:
Name: Kenda B. Gonzales
Title: Senior Executive Vice President
UDC ADVISORY SERVICES, INC., an Illinois
corporation
By:
Name: Kenda B. Gonzales
Title: Senior Executive Vice President
-11-
----
<PAGE>
UDC CORPORATION, a Delaware corporation
By:
Name: Kenda B. Gonzales
Title: Senior Executive Vice President
ABERDEEN SERVICES, INC., a Florida
corporation
By:
Name: Kenda B. Gonzales
Title: Senior Executive Vice President
UDC HOMES OF GEORGIA, INC., a Georgia
corporation
By:
Name: Kenda B. Gonzales
Title: Senior Executive Vice President
MOUNTAINBROOK VILLAGE COMPANY, an
Arizona corporation
By:
Name: Kenda B. Gonzales
Title: Senior Executive Vice President
GUARANTOR
-12-
----
<PAGE>
EXHIBIT A
---------
AMENDED AND RESTATED
--------------------
PROMISSORY NOTE
---------------
(UDC Master Revolving Line of Credit)
-------------------------------------
$40,000,000 February 27, 1998
- --------------------------------------------------------------------
FOR VALUE RECEIVED, UDC HOMES, INC., a Delaware corporation
("Borrower"), promises to pay to GUARANTY FEDERAL BANK, F.S.B, a federal saving
bank ("Bank"), or order, the aggregate principal amount of U.S. $40,000,000 or,
if less, the aggregate principal amount of all Advances by Bank to Borrower
pursuant to the Loan Agreement referred to below, outstanding on the Maturity
Date and at such other times as are specified in the Loan Agreement. All
capitalized terms not otherwise defined herein are used herein as defined in the
Loan Agreement.
Borrower promises to pay interest on the unpaid principal amount
of each Advance from the date of such Advance until such principal amount is
paid in full, at such interest rates, and payable at such times, as are
specified in the Loan Agreement. Interest shall be calculated on a 360-day year
for all advances, but, in any case, shall be computed for the actual number of
days in the period for which interest is charged, which period shall consist of
a 365 or 366-day period on an annual basis.
Both principal and interest are payable in lawful money of the
United States of America to the Agent as provided in the Loan Agreement.
Each Advance made by or assigned to Bank, any repayment thereof,
the interest rate and the Interest Periods applicable to such Advance shall be
recorded on the books and records of the holder hereof. Borrower agrees that in
any action or proceeding instituted to collect or enforce collection of this
Note, the entry so recorded on the books and records of the holder hereof shall
be conclusive evidence (absent manifest error) of the unpaid balance of this
Note, the interest rate and the Interest Periods applicable thereto.
This Amended and Restated Promissory Note is one of the Notes
referred to in, and is entitled to the benefits of, the Amended and Restated UDC
Master Revolving Line of Credit Loan Agreement (Borrowing Base) dated April 30,
1997, as thereafter amended (the "Loan Agreement"), among Borrower, Bank One,
Arizona, NA, individually and as Agent, Bank, and the other banks parties
thereto. The Loan Agreement, among other things, (i) provides for the making of
Advances by Bank to Borrower in an aggregate amount not to exceed at any time
outstanding the U.S. dollar amount first above mentioned, the indebtedness of
Borrower resulting from each Advance being evidenced by this Note, and (ii)
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events and also for prepayments on account of principal hereof
prior to the maturity hereof upon the terms and conditions herein specified.
This Amended and Restated Promissory Note is secured, among
other security, by security instruments covering real property and personal
property of Borrower located in California and Arizona.
<PAGE>
Failure to exercise any remedy or right hereunder shall not
constitute a waiver of the right to exercise the same in the event of any
subsequent default.
Except as set forth in the Loan Agreement, Borrower and all
others now or hereafter serving as sureties, endorsers and guarantors of this
Note waive: demand; presentment for payment; notice of nonpayment; protest;
notice of protest; notice of dishonor; notice of default or delinquency; notice
of acceleration; notice of costs, expenses or losses and interest; notice of
interest on interest and late charges; and all other notices; any requirement at
law or in equity that Bank file suit and otherwise act diligently in collecting
this Note or in proceeding against any of the rights or interests to properties
securing the payment of this Note; and any claims arising out of the release of
any party primarily or secondarily liable hereon. Borrower and all others now or
hereafter serving as sureties, endorsers and guarantors of this Note further
agree that it will not be necessary for any holder hereof, in order to enforce
payment of this Note by any of them, to first institute suit or exhaust its
remedies against any maker or others liable herefor, and consent to any
extension or postponement of time or payment of this Note or any other
indulgence with respect hereto without notice thereof to any of them.
This Note is assignable and transferable only in accordance with
the Loan Agreement.
All terms and conditions of the Loan Agreement including,
without limitation, events of default, interest rate provisions, payments, and
maturity dates, are incorporated herein by reference.
This Note amends and restates and replaces that certain Amended
and Restated Promissory Note (UDC Master Revolving Line of Credit) dated April
30, 1997, in the principal amount of $30,000,000.00 executed by Borrower in
favor of Bank. All indebtedness of Borrower under such existing note shall
automatically and without further action become indebtedness under this Note.
IN WITNESS WHEREOF, Borrower has executed and delivered this
Note as of the day and year first above written.
BORROWER: UDC HOMES, INC., a Delaware corporation
By:
Name: Kenda B. Gonzales
Title: Senior Executive Vice President
WITNESSED BY:
- ------------------------------
-2-
<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this _____
day of February, 1998, by Kenda B. Gonzales, the Senior Executive Vice President
of UDC HOMES, INC., a Delaware corporation, on behalf of the corporation.
-------------------------------------------------
Notary Public
My Commission Expires:
- ----------------------
-3-
<PAGE>
EXHIBIT B
---------
AMENDED AND RESTATED
--------------------
PROMISSORY NOTE
---------------
(UDC Master Revolving Line of Credit)
-------------------------------------
$40,000,000 February 27, 1998
- --------------------------------------------------------------
FOR VALUE RECEIVED, UDC HOMES, INC., a Delaware corporation
("Borrower"), promises to pay to BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, a national banking association (Bank"), or order, the aggregate
principal amount of U.S. $40,000,000 or, if less, the aggregate principal amount
of all Advances by Bank to Borrower pursuant to the Loan Agreement referred to
below, outstanding on the Maturity Date and at such other times as are specified
in the Loan Agreement. All capitalized terms not otherwise defined herein are
used herein as defined in the Loan Agreement.
Borrower promises to pay interest on the unpaid principal amount
of each Advance from the date of such Advance until such principal amount is
paid in full, at such interest rates, and payable at such times, as are
specified in the Loan Agreement. Interest shall be calculated on a 360-day year
for all advances, but, in any case, shall be computed for the actual number of
days in the period for which interest is charged, which period shall consist of
a 365 or 366-day period on an annual basis.
Both principal and interest are payable in lawful money of the
United States of America to the Agent as provided in the Loan Agreement.
Each Advance made by or assigned to Bank, any repayment thereof,
the interest rate and the Interest Periods applicable to such Advance shall be
recorded on the books and records of the holder hereof. Borrower agrees that in
any action or proceeding instituted to collect or enforce collection of this
Note, the entry so recorded on the books and records of the holder hereof shall
be conclusive evidence (absent manifest error) of the unpaid balance of this
Note, the interest rate and the Interest Periods applicable thereto.
This Promissory Note is one of the Notes referred to in, and is
entitled to the benefits of, the Amended and Restated UDC Master Revolving Line
of Credit Loan Agreement (Borrowing Base) dated April 30, 1997, as thereafter
amended (the "Loan Agreement"), among Borrower, Bank One, Arizona, NA,
individually and as Agent, and the other banks parties thereto. The Loan
Agreement, among other things, (i) provides for the making of Advances by Bank
to Borrower in an aggregate amount not to exceed at any time outstanding the
U.S. dollar amount first above mentioned, the indebtedness of Borrower resulting
from each Advance being evidenced by this Note, and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions herein specified.
This Promissory Note is secured, among other security, by
security instruments covering real property and personal property of Borrower
located in California and Arizona.
<PAGE>
Failure to exercise any remedy or right hereunder shall not
constitute a waiver of the right to exercise the same in the event of any
subsequent default.
Except as set forth in the Loan Agreement, Borrower and all
others now or hereafter serving as sureties, endorsers and guarantors of this
Note waive: demand; presentment for payment; notice of nonpayment; protest;
notice of protest; notice of dishonor; notice of default or delinquency; notice
of acceleration; notice of costs, expenses or losses and interest; notice of
interest on interest and late charges; and all other notices; any requirement at
law or in equity that Bank file suit and otherwise act diligently in collecting
this Note or in proceeding against any of the rights or interests to properties
securing the payment of this Note; and any claims arising out of the release of
any party primarily or secondarily liable hereon. Borrower and all others now or
hereafter serving as sureties, endorsers and guarantors of this Note further
agree that it will not be necessary for any holder hereof, in order to enforce
payment of this Note by any of them, to first institute suit or exhaust its
remedies against any maker or others liable herefor, and consent to any
extension or postponement of time or payment of this Note or any other
indulgence with respect hereto without notice thereof to any of them.
All the terms and conditions of the Loan Agreement including,
without limitation, events of default, interest rate provisions, payments, and
maturity dates, are incorporated herein by reference.
This Note is assignable and transferable only in accordance with
the Loan Agreement.
This Note amends and restates and replaces that certain
Promissory Note (UDC Master Revolving Line of Credit) dated April 30, 1997, in
the principal amount of $30,000,000.00 executed by Borrower in favor of Bank.
All indebtedness of Borrower under such existing note shall automatically and
without further action become indebtedness under this Note. .
IN WITNESS WHEREOF, Borrower has executed and delivered this
Note as of the day and year first above written.
BORROWER: UDC HOMES, INC., a Delaware corporation
By:
Name: Kenda B. Gonzales
Title: Senior Executive Vice President
WITNESSED BY:
- -----------------------------
-2-
<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this _____
day of February, 1998, by Kenda B. Gonzales, the Senior Executive Vice President
of UDC HOMES, INC., a Delaware corporation, on behalf of the corporation.
-------------------------------------------------
Notary Public
My Commission Expires:
- ----------------------
-3-
<PAGE>
EXHIBIT C
---------
AMENDED AND RESTATED
--------------------
PROMISSORY NOTE
---------------
(UDC Master Revolving Line of Credit)
-------------------------------------
$20,000,000 February 27, 1998
- ------------------------------------------------------------------
FOR VALUE RECEIVED, UDC HOMES, INC., a Delaware corporation
("Borrower"), promises to pay to WELLS FARGO BANK, NATIONAL ASSOCIATION, a
national banking association ("Bank"), or order, the aggregate principal amount
of U.S. $20,000,000 or, if less, the aggregate principal amount of all Advances
by Bank to Borrower pursuant to the Loan Agreement referred to below,
outstanding on the Maturity Date and at such other times as are specified in the
Loan Agreement. All capitalized terms not otherwise defined herein are used
herein as defined in the Loan Agreement.
Borrower promises to pay interest on the unpaid principal amount
of each Advance from the date of such Advance until such principal amount is
paid in full, at such interest rates, and payable at such times, as are
specified in the Loan Agreement. Interest shall be calculated on a 360-day year
for all advances, but, in any case, shall be computed for the actual number of
days in the period for which interest is charged, which period shall consist of
a 365 or 366-day period on an annual basis.
Both principal and interest are payable in lawful money of the
United States of America to the Agent as provided in the Loan Agreement.
Each Advance made by or assigned to Bank, any repayment thereof,
the interest rate and the Interest Periods applicable to such Advance shall be
recorded on the books and records of the holder hereof. Borrower agrees that in
any action or proceeding instituted to collect or enforce collection of this
Note, the entry so recorded on the books and records of the holder hereof shall
be conclusive evidence (absent manifest error) of the unpaid balance of this
Note, the interest rate and the Interest Periods applicable thereto.
This Amended and Restated Promissory Note is one of the Notes
referred to in, and is entitled to the benefits of, the Amended and Restated UDC
Master Revolving Line of Credit Loan Agreement (Borrowing Base) dated April 30,
1997, as thereafter amended (the "Loan Agreement"), among Borrower, Bank One,
Arizona, NA, individually and as Agent, and the other banks parties thereto. The
Loan Agreement, among other things, (i) provides for the making of Advances by
Bank to Borrower in an aggregate amount not to exceed at any time outstanding
the U.S. dollar amount first above mentioned, the indebtedness of Borrower
resulting from each Advance being evidenced by this Note, and (ii) contains
provisions for acceleration of the maturity hereof upon the happening of certain
stated events and also for prepayments on account of principal hereof prior to
the maturity hereof upon the terms and conditions herein specified.
<PAGE>
This Amended and Restated Promissory Note is secured, among
other security, by security instruments covering real property and personal
property of Borrower located in California and Arizona.
Failure to exercise any remedy or right hereunder shall not
constitute a waiver of the right to exercise the same in the event of any
subsequent default.
Except as set forth in the Loan Agreement, Borrower and all
others now or hereafter serving as sureties, endorsers and guarantors of this
Note waive: demand; presentment for payment; notice of nonpayment; protest;
notice of protest; notice of dishonor; notice of default or delinquency; notice
of acceleration; notice of costs, expenses or losses and interest; notice of
interest on interest and late charges; and all other notices; any requirement at
law or in equity that Bank file suit and otherwise act diligently in collecting
this Note or in proceeding against any of the rights or interests to properties
securing the payment of this Note; and any claims arising out of the release of
any party primarily or secondarily liable hereon. Borrower and all others now or
hereafter serving as sureties, endorsers and guarantors of this Note further
agree that it will not be necessary for any holder hereof, in order to enforce
payment of this Note by any of them, to first institute suit or exhaust its
remedies against any maker or others liable herefor, and consent to any
extension or postponement of time or payment of this Note or any other
indulgence with respect hereto without notice thereof to any of them.
This Note is assignable and transferable only in accordance with
the Loan Agreement.
All terms and conditions of the Loan Agreement including,
without limitation, events of default, interest rate provisions, payments, and
maturity dates, are incorporated herein by reference.
This Note amends and restates and replaces that certain Amended
and Restated Promissory Note (UDC Master Revolving Line of Credit) dated April
30, 1997, in the principal amount of $40,000,000.00 executed by Borrower in
favor of Bank. All indebtedness of Borrower under such existing note shall
automatically and without further action become indebtedness under this Note.
.
IN WITNESS WHEREOF, Borrower has executed and delivered this
Note as of the day and year first above written.
BORROWER: UDC HOMES, INC., a Delaware corporation
By:
Name: Kenda B. Gonzales
Title: Senior Executive Vice President
WITNESSED BY:
- ------------------------------
-2-
<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this _____
day of February, 1998, by Kenda B. Gonzales, the Senior Executive Vice President
of UDC HOMES, INC., a Delaware corporation, on behalf of the corporation.
-------------------------------------------------
Notary Public
My Commission Expires:
- ----------------------
-3-
April 28, 1998
VIA HAND DELIVERY
- -----------------
UDC Homes, Inc.
6710 North Scottsdale Road
Scottsdale, Arizona 85253-4424
Attn: Kenda B. Gonzales
Re: Amended and Restated UDC Master
Revolving Line of Credit Loan Agreement (Borrowing
Base) dated as of April 30, 1997, as amended by that
First Modification Agreement dated as of February 27,
1998 (collectively, the "Loan Agreement")
Ladies and Gentlemen:
The purpose of this letter is to set forth the agreement of
Banks and Agent to grant consents to, and waivers of, temporary variances of
certain covenants of the Loan Agreement. Capitalized terms not otherwise defined
in this letter will have the meaning set forth in the Loan Agreement.
1. A&D Sublimit. The A&D Commitment Sublimit currently in
effect is $63,750,000.00. Banks hereby consent to an increase in the A&D
Commitment Sublimit to $80,000,000.00 for the period of April 28, 1998 through
and including September 30, 1998. The foregoing consent affects all covenants in
the Loan Agreement that relate to the A&D Commitment Sublimit, including,
without limitation:
(a) the covenant in Section 4.6(b)(v), which provides that the
aggregate Collateral Value with respect to all A&D Projects included in
Eligible Collateral shall not exceed the A&D Commitment Sublimit then
in effect; and
(b) the covenant in Section 4.6(b)(vi), which provides that
the aggregate of the Collateral Value for all Development Projects and
Finished Lot Projects shall not at any time exceed (A) the A&D
Commitment Sublimit then in effect, minus (B) the aggregate Collateral
Value of all Land Projects then included in Eligible Collateral.
2. Presold and Model Units. Pursuant to Section 4.6(b)(ii) of
the Loan Agreement, the aggregate Collateral Value with respect to Spec Units
and A&D Projects may not at any time exceed the aggregate Collateral Value of
all Presold Units and Model Units. Banks hereby waive any non-compliance by
Borrower with the
<PAGE>
UDC Homes, Inc.
April 28, 1998
Page 2
requirements of Section 4.6(b)(ii) for the period of April 28, 1998 through and
including September 30, 1998.
3. Net Worth. Pursuant to Section 8.10 of the Loan Agreement,
Borrower is obligated to maintain a minimum Net Worth, as of each Test Date,
equal to or greater than $5,000,000.00. With respect to the Test Dates of March
31, 1998 and June 30, 1998, Banks hereby consent to a decrease in the minimum
Net Worth required to be maintained by Borrower from $5,000,000.00 to
$1,000,000.00.
The consents and waivers granted in this letter are specific in time and intent
and are granted only with respect to the covenants specified above and for the
times specified above. These consents and waivers shall not be construed as a
consent to or waiver of any other provisions of the Loan Agreement. These
consents and waivers do not constitute an agreement or obligation of Agent or
Banks to waive or consent to any other existing or future event that would,
absent consent or waiver, constitute an Unmatured Event of Default or Event of
Default under the Loan Agreement. Except for the waivers and consents
specifically set forth herein, Agent and Banks do not in any way waive or
relinquish any rights they have or may have under the Loan Agreement or
otherwise, nor do the waivers herein in any way affect or impair the terms of or
the rights of Agent or Banks under the Loan Agreement.
Please execute this letter in the space provided
below to indicate your agreement with the terms of this letter. This
letter may be executed in counterparts.
BANK ONE, ARIZONA, NA, a national
banking association, as the Agent
and as one of the Banks
By:
Name: Carol R. Grumley
Title: Executive Vice President
GUARANTY FEDERAL BANK, F.S.B., a
federal savings bank, as the Co-Agent
and as one of the Banks
By:
Name: Jenny E. Ray
Title: Assistant Vice President
<PAGE>
UDC Homes, Inc.
April 28, 1998
Page 3
WELLS FARGO BANK, NATIONAL
ASSOCIATION, a national banking
association, as one of the Banks
By:
Name: John W. McKinny
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, a
national banking association,
as one of the Banks
By:
Name: Diana N. Parris
Title: Vice President
NORWEST BANK ARIZONA, NATIONAL
ASSOCIATION, a national banking
association, as one of the Banks
By:
Name: E. Kevin Kosan
Title: Vice President
AGENT AND BANKS
Accepted and agreed to this ____ day of April, 1998.
UDC HOMES, INC., a Delaware
corporation
By:
Name: Kenda B. Gonzales
Title: Senior Executive Vice President
BORROWER
UDC HOMES CONSTRUCTION, INC., an
Arizona corporation
By:
Name: Kenda B. Gonzales
Title: Senior Executive Vice President
<PAGE>
UDC Homes, Inc.
April 28, 1998
Page 4
UDC ADVISORY SERVICES, INC., an
Illinois corporation
By:
Name: Kenda B. Gonzales
Title: Senior Executive Vice President
UDC CORPORATION, a Delaware
corporation
By:
Name: Kenda B. Gonzales
Title: Senior Executive Vice President
MOUNTAINBROOK VILLAGE COMPANY, an
Arizona corporation
By:
Name: Kenda B. Gonzales
Title: Senior Executive Vice President
GUARANTORS
<PAGE>
UDC Homes, Inc.
April 28, 1998
Page 5
Borrower certifies to Banks and Agent that ABERDEEN SERVICES, INC., a Florida
corporation, and UDC HOMES OF GEORGIA, INC., a Georgia corporation, were
dissolved in accordance with Section 9.2 of the Loan Agreement.
UDC HOMES, INC., a Delaware corporation
By:
Name: Kenda B. Gonzales
Title: Senior Executive Vice President
BORROWER
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<PERIOD-START> OCT-01-1997
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