AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1996.
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
LUNDGREN BROS. CONSTRUCTION, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 1521 41-0970679
(State of (Primary Standard Industrial ) I.R.S. Employer
Incorporation) Classification Code Number Identification No.)
935 E. WAYZATA BLVD.
WAYZATA, MINNESOTA 55391
(612) 473-1231
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
PETER PFLAUM, PRESIDENT
935 E. WAYZATA BLVD.
WAYZATA, MINNESOTA 55391
(612) 473-1231
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Copies to:
Wendy C. Skjerven D. William Kaufman
Leonard, Street and Deinard Oppenheimer Wolff & Donnelly
Professional Association Plaza VII
Suite 2300 Suite 3400
150 South Fifth Street 45 South Seventh Street
Minneapolis, Minnesota 55402 Minneapolis, Minnesota 55402
(612) 335-1778 (612) 344-9485
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of the Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER UNIT AGGREGATE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Senior Subordinated Debentures 3,000,000 100% $3,000,000 $1,035
</TABLE>
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
LUNDGREN BROS. CONSTRUCTION, INC.
CROSS-REFERENCE SHEET
SHOWING LOCATION IN THE PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS 1 THROUGH 12,
PART I, OF FORM S-1
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus ............................................. Forepart of the Registration Statement;
Outside Front Cover Page of Prospectus.
2. Inside Front and Outside Back Cover Pages of Prospectus .............. Inside Front and Outside Back Cover Pages of
Prospectus.
3. Summary Information, Risk Factors and Ratio of Earnings
to Fixed Charges ..................................................... Prospectus Summary; Risk Factors; Selected
Consolidated Financial Data.
4. Use of Proceeds ...................................................... Use of Proceeds.
5. Determination of Offering Price ...................................... Outside Front Cover Page of
Prospectus; Underwriting.
6. Dilution ............................................................. Not Applicable.
7. Selling Security Holders ............................................. Not Applicable.
8. Plan of Distribution. ................................................ Underwriting.
9. Description of Securities to be Registered ........................... Description of Debentures.
10. Interests of Named Experts and Counsel ............................... Legal Matters; Experts.
11. Information with Respect to the Registrant ........................... Prospectus Summary; Capitalization; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Management;
Principal Shareholders; Description of Debentures;
Consolidated Financial Statements.
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities ........................................... Not Applicable.
</TABLE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER , 1996
PROSPECTUS [LOGO]
$3,000,000
LUNDGREN BROS. CONSTRUCTION, INC.
SENIOR SUBORDINATED DEBENTURES, SERIES %
DUE , 2004
MINIMUM PURCHASE: $2,000
Lundgren Bros. Construction, Inc. ("Lundgren" or the "Company") is offering
$3,000,000 aggregate principal amount of its Senior Subordinated Debentures,
Series %, due , 2004 (the "Debentures"). The Debentures will bear interest at
the rate of % per annum and will mature on , 2004.
Interest on each Debenture will be payable quarterly on January 1, April 1, July
1 and October 1 of each year, commencing as to each Debenture on the first of
such dates to occur after issuance of the Debentures. A minimum purchase of
$2,000 is required. The Debentures initially will be issued in minimum principal
amounts of $2,000 and integral multiples of $1,000. The Debentures will be sold
at par plus accrued interest. Interest on each Debenture will accrue from , 1996
or, with respect to Debentures sold after a quarterly interest payment date, the
most recent quarterly interest payment date.
Lundgren may redeem the Debentures, in whole or in part, upon at least 30 days'
notice, at any time beginning October 31, 1998 at a price equal to the principal
amount thereof plus a premium equal to 5%, such premium decreasing 1% each year
thereafter. In addition, the Debentures are subject to mandatory redemption in
certain circumstances, including a Change of Control, as defined in the
Indenture. See "Description of Debentures."
THE DEBENTURES ARE SUBORDINATED TO ALL OF LUNDGREN'S SENIOR INDEBTEDNESS, AS
DEFINED HEREIN (APPROXIMATELY $32.2 MILLION AS OF JUNE 30, 1996). SUBJECT TO A
MAXIMUM DEBT-TO-EQUITY RATIO COVENANT, LUNDGREN IS NOT PROHIBITED FROM
INCURRING, AND LIKELY WILL INCUR, ADDITIONAL SENIOR INDEBTEDNESS DURING THE TERM
OF THE DEBENTURES. THE DEBENTURES WILL BE SUBORDINATED TO ANY ADDITIONAL SENIOR
INDEBTEDNESS, EQUAL IN RIGHT OF PAYMENT TO ANY PARITY INDEBTEDNESS, AS DEFINED
HEREIN, AND SENIOR TO ANY SUBORDINATED INDEBTEDNESS, AS DEFINED HEREIN. SEE
"PROSPECTUS SUMMARY" AND "DESCRIPTION OF DEBENTURES."
AN INVESTMENT IN THE DEBENTURES INVOLVES A HIGH DEGREE OF RISK. THERE IS NO
EXISTING PUBLIC MARKET FOR THE DEBENTURES AND IT IS NOT ANTICIPATED
THAT A PUBLIC MARKET WILL DEVELOP.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNT PROCEEDS TO
PUBLIC(1) AND COMMISSIONS(2) COMPANY(3)
<S> <C> <C> <C>
Per Debenture 100% 6% 94%
Total $3,000,000 $180,000 $2,820,000
</TABLE>
(1) Each Debenture will be offered at par with payment for interest accruing
from , 1996 or, with respect to Debentures sold after a quarterly
interest payment date, the most recent quarterly interest payment date.
Lundgren is not required to sell any minimum aggregate principal amount
of Debentures. See "Underwriting."
(2) Lundgren has granted the Underwriters the exclusive right to sell the
Debentures on a "best efforts" basis for a period of six months, subject to
termination or extension in certain circumstances. In addition to the
Underwriting Discount and Commissions of 6%, the Underwriters will receive
an underwriting management fee equal to 3% of all Debentures sold. Lundgren
has also agreed to pay certain costs, fees and accountable expenses of the
Underwriters, estimated at $53,000, and has agreed to indemnify the
Underwriters against certain civil liabilities, including liabilities under
the Securities Act of 1933. See "Underwriting."
(3) The amount of the proceeds to Lundgren is determined by assuming all of the
Debentures offered hereby are sold and by deducting the Underwriting
Discount and Commissions ($180,000). After deduction of expenses of this
offering payable by Lundgren, estimated at $299,000, which includes (i) the
3% management fee ($90,000), and (ii) the expenses of the Underwriters,
estimated at $53,000 (as referred to in Note 2 above), the net proceeds to
Lundgren will be approximately $2,521,000.
MILLER & SCHROEDER FINANCIAL, INC. OFFERMAN & COMPANY
The date of this Prospectus is ______________, 1996.
INSIDE FRONT COVER:
[PHOTO]
Stone accents this two-story at Bay Pointe
[PHOTO]
Traditionally-styled two-story at Churchill Farms
[PHOTO]
The charm of arched windows at Trappers Pass
[PHOTO]
A classic-two-story design in Sweetwater at Near Mountain
[PHOTO]
Prairie-influenced two-story at The Summit
[PHOTO]
Award-winning model home at Foxberry Farms
[PHOTO]
A mid-priced home at Dufferin Park
AVAILABLE INFORMATION
Lundgren intends to furnish recordholders of its Debentures with a copy of
the Company's annual report on Form 10-K. In addition, any of the Company's
filings on Form 10-Q and Form 8-K with the Securities and Exchange Commission
will be available upon written request.
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS PROSPECTUS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION
AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
Lundgren Bros. Construction, Inc. ("Lundgren" or the "Company") is engaged in
the interrelated activities of land development and the design, construction and
sale of detached single family homes in the Minneapolis and St. Paul, Minnesota
(the "Twin Cities") metropolitan area. The Company maintains an inventory of
potential home lots by controlling undeveloped land through options, contingent
purchase agreements, joint ventures, partnerships and other contractual
relationships with the landowners (referred to herein collectively as "Land
Acquisition Agreements"). Upon obtaining the appropriate regulatory approvals
and zoning changes, and dependent on market conditions, the Company develops the
undeveloped land into finished lots for residential subdivisions, primarily for
its own use in the sale of single family homes. The Company also periodically
options or purchases finished lots from other developers.
Since its incorporation in 1970, the Company and its affiliates have developed
2,549 lots. On August 1, 1996, the Company controlled 16 parcels of land under
Land Acquisition Agreements for future development of an estimated 1,848 lots.
The Company's land development strategy is to control prime property for
residential development two to five years in advance of actual development,
using Land Acquisition Agreements structured to require limited initial
investment by the Company. Management believes that this strategy minimizes the
risk of the Company owning too much land at any one time, but allows the Company
to control key sites for future development. See "Business -- Land Acquisition."
Since inception, the Company has built and sold over 2,330 single family homes.
The Company sells its homes primarily through its own staff of sales personnel,
although it also utilizes local realtors. In 1995, the Company was the fourth
largest builder in the Twin Cities metropolitan area, based on total dollar
volume of building permits issued, and is the only one of the top five builders
in the Twin Cities metropolitan area whose stock is privately held.
The Company builds custom homes and homes from standard plans at prices
typically ranging from $190,000 to $700,000 for both the house and lot, with an
average selling price of approximately $336,000 for the first six months of
1996. The Company also designs and builds residential remodeling projects
through its remodeling division. Additionally, Lundgren's wholly-owned
subsidiary, Brush Masters, Inc. ("Brush Masters"), provides painting and
staining services to the Company, as well as to other residential building
contractors in the Twin Cities metropolitan area.
The Company closed the sales of 80 homes in the first six months of 1996 and as
of June 30, 1996, had purchase agreements for the sale of 86 homes, representing
approximately $29.8 million in sales. In the first six months of 1995, the
Company had closed the sales of 77 homes and as of June 30, 1995, had contracts
for the sale of 86 homes, representing approximately $26.4 million in sales. The
Company markets its homes to middle and upper income professionals and
executives. The Company's marketing efforts emphasize the community atmosphere
of its residential subdivisions and those characteristics it believes are
distinctive to Lundgren-built homes: desirable designs, quality construction,
competitive prices and special customer service, before, during and after the
sale of a home.
The Company was incorporated in Minnesota in October 1970. Its principal offices
are located at 935 East Wayzata Boulevard, Wayzata, Minnesota 55391, and its
telephone number is (612) 473-1231.
THE OFFERING
Debentures $3,000,000 aggregate principal amount
of Senior Subordinated Debentures,
Series %, due , 2004. The
Debentures will be issued pursuant to
an Indenture (the "Indenture")
between the Company and National City
Bank (the "Trustee"). The Debentures
will be issuable only in fully
registered form in denominations of
$1,000 each or any integral multiple
thereof. A minimum purchase of $2,000
is required. See "Description of
Debentures."
Interest Rate The Debentures will bear interest at
the rate of % per annum.
Interest Payment Dates Interest will be payable quarterly on
January 1, April 1, July 1 and
October 1 of each year, commencing as
to each Debenture on the first of
such dates to occur after issuance of
such Debenture. Interest on the
Debentures will accrue from ,
1996 or, with respect to Debentures
sold after a quarterly interest
payment date, the most recent
quarterly interest payment date.
Redemption of Lundgren, at its option, may redeem
Debentures all or a portion of the Debentures at
any time beginning October 31, 1998 upon at
least 30 days' written notice at the
redemption prices set forth herein. There is
no sinking fund requiring payments of
principal prior to maturity. In addition,
the Debentures are subject to mandatory
redemption in certain circumstances,
including a Change of Control, as defined in
the Indenture.
Repayment Upon Death Under certain circumstances, Lundgren
will repay up to $25,000 in aggregate
principal amount of Debentures at par
upon the death of a Debentureholder.
The Company's obligation to make such
repayment will be limited to an
aggregate maximum of $200,000 per
calendar year. See "Description of
Debentures."
Subordination and Seniority The Debentures are subordinated to
all of Lundgren's existing and future
Senior Indebtedness. Lundgren's
Senior Indebtedness aggregated
approximately $32.2 million at June
30, 1996. The Debentures will rank
PARI PASSU with all Parity
Indebtedness of the Company,
including its Senior Subordinated
Debentures, Series 10%, due 2003 (the
"1993 Subordinated Debentures"), and
will be senior in right of payment to
any Subordinated Indebtedness.
Subject to a maximum debt-to-equity
ratio covenant, Lundgren is not
prohibited from incurring, and will
likely incur, additional Senior
Indebtedness during the term of the
Debentures. Capitalized terms used in
this paragraph are defined in the
Indenture pursuant to which the
Debentures will be issued. See
"Description of Debentures."
Use of Proceeds The Company intends to use the net
proceeds from the sale of the
Debentures, estimated to be
approximately $2,521,000 assuming all
of the Debentures are sold, for
general corporate purposes, including
land acquisition, land development,
construction of homes and working
capital. See "Use of Proceeds."
RISK FACTORS
An investment in the Debentures involves certain risks. See "Risk Factors" for a
discussion of factors that investors should carefully consider before purchasing
any of the Debentures offered hereby.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(Dollars in thousands)
The following summary of the Company's consolidated financial information should
be read in conjunction with the Consolidated Financial Statements, including the
Notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA; RATIO OF
EARNINGS TO FIXED CHARGES:
Revenues $61,884 $78,992 $69,660 $27,209 $29,932
Gross profit 9,399 12,068 10,556 3,842 4,367
Operating income 2,834 3,306 2,358 438 1,045
Other income (expense), net (728) (716) (1,618) (864) (862)
Loss from discontinued operations -- (349) -- -- --
Net income 1,246 1,198 1,185 (1) 509 (1) 110
Ratio of earnings to fixed
charges(2) 2.3 1.9 1.2 .7 (3) 1.1
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
1995 ACTUAL AS ADJUSTED(4)
<S> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Inventories $34,166 $38,798 $38,798
Total assets 47,763 52,307 55,307
Total liabilities (excluding
Debentures)(5) 41,378 45,812 45,812
Debentures -- -- 3,000
Stockholders' equity 6,385 6,495 6,495
</TABLE>
(1) Includes a $763,000 increase due to the cumulative effect on prior years
of a change in accounting method, net of income taxes. See Note 3 to the
Consolidated Financial Statements.
(2) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes and fixed charges, less capitalized interest,
plus the interest component included in cost of sales. Fixed charges consist
of interest expensed and capitalized and amortization of debt service costs.
The interest factor implicit in rent expense is not significant.
(3) The deficiency of earnings to fixed charges amounted to $496,000.
(4) Adjusted to give effect to the sale of all of the Debentures offered
hereby, and the application of the net proceeds as of June 30, 1996. See
"Use of Proceeds" and "Underwriting."
(5) Includes 1993 Subordinated Debentures.
RISK FACTORS
THE DEBENTURES INVOLVE A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CONSIDER
CAREFULLY THE FOLLOWING RISK FACTORS BEFORE PURCHASING THE DEBENTURES. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934. ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT, IN PART, OF THE RISK FACTORS SET FORTH
BELOW. IN CONNECTION WITH THE FORWARD-LOOKING STATEMENTS WHICH APPEAR HEREIN,
PROSPECTIVE INVESTORS SHOULD BE AWARE OF THE FOLLOWING RISK FACTORS AND SHOULD
REVIEW CAREFULLY THE INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
CYCLICAL ECONOMIC CONDITIONS AND FLUCTUATIONS IN OPERATING RESULTS
The Company's operations have experienced substantial fluctuations from period
to period as a consequence of various factors not under the Company's control.
The Company expects that such factors will cause operating results to fluctuate
from period to period in the future. These factors include, among others,
general economic conditions, consumer confidence, housing demand, interest rates
and the availability of credit. The home building industry is cyclical in nature
and there is no guarantee that such factors will be favorable to the Company in
the future. Moreover, all of the Company's residential developments are within
the Twin Cities metropolitan area. Consequently, events such as adverse changes
in the local/regional residential real estate market or in regional economic
conditions, or acts of nature, could have an adverse affect on the Company's
business.
Fluctuations from period to period also result from the mix of lots and homes
sold. Profits on the sale of a home and lot will vary depending on the terms of
the lot acquisition, the location, the type of lot, the design of the home built
and market conditions at the time of the sale. In addition, home builders are
subject to various risks which may cause fluctuations in operating results such
as competitive over-building, shortage of desirable land with municipal
services, availability and cost of materials and labor, construction delays,
cost overruns, weather conditions, government regulation, availability of
adequate financing, increases in long-term mortgage interest rates and increases
in real estate taxes and other governmental fees. The Company anticipates that
such fluctuations will continue in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
CONTINUING NEED TO ACQUIRE LAND FOR FUTURE DEVELOPMENT
The Company believes that to be competitive it must control undeveloped land a
number of years before it actually intends to develop and market finished lots.
In pursuing this strategy, the Company may acquire excessive amounts of land.
Therefore, to reduce the risks associated with acquiring undeveloped land for
future development, the Company attempts to acquire land through Land
Acquisition Agreements structured to allow the Company to control undeveloped
land with a minimum investment while providing it time both to pursue
governmental approvals for land development and to complete marketing and
economic feasibility studies on the site prior to actual purchase. However,
competition for land continues to increase, and there can be no assurance that
the Company will be able to continue acquiring land through such favorable
arrangements in the future. If such favorable arrangements are not available,
the Company may be required to expend more cash and bear more risk in order to
gain and maintain control of undeveloped land. See "Business -- Land
Acquisition."
In pursuing its land development activities, the Company may expend significant
funds to acquire and maintain control of undeveloped land and to apply for
regulatory approvals prior to determining whether it will actually develop the
land. See "Business -- Operating Strategy" and "Business -- Land Development."
SUBSTANTIAL LEVERAGE, RELIANCE ON FINANCING AND NO ASSURANCE OF AVAILABILITY
OF CREDIT
The land development and home building industry is highly leveraged. The Company
incurs substantial indebtedness to finance its land development and home
building activities. The ratio of Funded Debt (defined in the Indenture to
include generally all indebtedness of the Company except certain unsecured
subordinated borrowings from the Company's shareholders) to Tangible Net Worth
at June 30, 1996 was 5.5 to 1 and would have been 6.5 to 1, at June 30, 1996 on
a pro forma basis, giving effect to the sale of all of the Debentures. The
Indenture contains a covenant limiting the Company's ratio of Funded Debt to
Tangible Net Worth to 7 to 1. See "Description of Debentures." At June 30, 1996,
the Company had approximately $35.1 million of aggregate Funded Debt, including
approximately $32.2 million in Senior Indebtedness. The Company is, and expects
to remain, dependent upon its continued ability to fund operations through
borrowings from institutional and specialized industry lenders and banks.
Although Lundgren has been able to obtain financing for its activities in the
past, there can be no assurance that continued financing for land acquisition
and development will be available to the Company or, if available, will be on
acceptable terms. Historically, the Company's principal shareholders have
personally guaranteed most of the Company's borrowings; they are not, however,
guaranteeing the Debentures. Additionally, the shareholders are not obligated to
guarantee any of the Company's future borrowings and there is no assurance that
they will do so. The absence of personal guarantees could adversely affect the
willingness of lenders to finance the operations of the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SUBORDINATION
The Debentures are subordinated and junior in right of payment to Lundgren's
borrowings under its Demand Discretionary Revolving Credit Agreement with
Norwest Bank Minnesota, National Association (the "Norwest Credit Agreement"),
its Revolving Credit Line Agreement with Builders Development & Finance, Inc.
(the "BDF Credit Agreement") and its Letter Agreement with First Bank National
Association (the "First Bank Credit Agreement"), as well as to any other Senior
Indebtedness, as defined in the Indenture. The Norwest Credit Agreement, the BDF
Credit Agreement and the First Bank Credit Agreement are referred to
collectively herein as the "Credit Agreements." In addition, Lundgren incurs
other Senior Indebtedness, such as loans to finance the development of its
properties and loans to finance construction of its homes. Development loans are
generally collateralized by a particular development project only and are
generally personally guaranteed by the Company's shareholders. At June 30, 1996,
Lundgren had 14 such development loans outstanding in an aggregate principal
amount of approximately $6.5 million. Construction loans generally are secured
by a mortgage on the home and lot they are financing and generally are
personally guaranteed by the shareholders. Historically, the Company has had
approximately 60 to 100 construction loans outstanding at a given time. At June
30, 1996, the Company had 90 construction loans outstanding in an aggregate
principal amount of approximately $12.6 million. Lundgren's obligations under
its Senior Indebtedness are secured by substantially all of the Company's
assets. As of June 30, 1996, Lundgren and its subsidiaries, on a consolidated
basis, had Senior Indebtedness outstanding equal to approximately $32.2 million,
including the present value of capitalized lease obligations on Lundgren's
office lease. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
In the event of the dissolution, winding up, liquidation or reorganization of
Lundgren, the holders of the Debentures will not be entitled to receive any
payment until the holders of Senior Indebtedness are paid in full and will
thereafter share equally with holders of Parity Indebtedness. Upon the
occurrence of any payment default on Senior Indebtedness, no payment may be made
on the Debentures until such default has been cured or waived. Upon the
occurrence of any other default on Senior Indebtedness permitting the
acceleration of the maturity thereof, and after notice of such default to the
Trustee and Lundgren, no payment may be made on the Debentures until after the
time such Senior Indebtedness default is cured or waived. See "Description of
Debentures."
LACK OF COLLATERAL FOR THE DEBENTURES
Substantially all of the assets of the Company are pledged as collateral for the
Company's obligations under its Senior Indebtedness. Because the obligations of
the Company under the Debentures are not secured by any collateral, the holders
of the Debentures are dependent upon the successful operations of the Company to
service the interest and principal with respect to the Debentures. There can be
no assurance that the Company will continue to operate profitably or otherwise
continue to generate cash at a level which permits the Debentures to be serviced
and repaid as scheduled. See "Description of Debentures."
LACK OF SINKING FUND; SUBSTANTIAL PRINCIPAL PAYMENTS FOR THE DEBENTURES
The Debentures are not subject to any sinking fund payments and are redeemable
prior to stated maturity only at Lundgren's option, except for the holders'
limited right of repayment upon death and on other circumstances, such as a
Change of Control, pursuant to the terms of the Indenture. If Lundgren does not
have sufficient funds to pay the Debentures at maturity, it would have to
refinance the Debentures at that time. There can be no assurance that Lundgren
would be able to obtain such financing. See "Description of Debentures."
EXTENSIVE REGULATIONS AND ENVIRONMENTAL FACTORS
The home building industry is subject to extensive and complex regulations. The
Company and its unaffiliated subcontractors must comply with a variety of
federal, state and local laws and regulations which address zoning and density
requirements, design and building permits, building materials, environmental and
health issues, advertising and consumer credit, as well as other regulations in
connection with its development, home building and sales activities. Expansion
of regulations has increased the time required to obtain approvals necessary to
begin home construction and has prolonged the time between the initial control
of land, commencement of development and completion of construction.
Environmental laws, such as laws regulating the development of Minnesota
wetlands, may result in additional delays, may cause the Company to incur
substantial compliance and other costs, and may prohibit or severely restrict
home building activity in certain environmentally sensitive areas. See "Business
- -- Governmental Regulation."
In addition to regulatory matters, the Company is subject to potential
liabilities in connection with its construction activities and the materials
used in construction, including personal injury and worker's compensation
claims. While the Company currently insures against such risks and believes that
its insurance is currently adequate to protect against such risks, there can be
no assurance that such insurance will continue to be adequate in the future or
that the Company will be able to obtain such insurance in the future.
RELIANCE ON KEY PERSONNEL AND CLOSELY-HELD BUSINESS
The Company relies upon certain key management employees, including its
President, Peter Pflaum, the loss of whom could adversely affect the Company.
The Company has agreed to provide, for the benefit of the Debentureholders
during the term of the Debentures, a key person life insurance policy on the
life of Peter Pflaum in an amount equal to the lesser of $1,000,000 or the
maximum coverage available for an annual premium of $7,500. In addition, the
Company maintains a separate key person term life insurance policy on Mr. Pflaum
which has been assigned to a senior lender as collateral for the Company's
working capital line of credit under the Norwest Credit Agreement. The Company
believes that its future success will depend on its ability to retain key
members of management and to attract experienced management in the future. There
can be no assurance that it will be able to do so. See "Management."
Purchasers of the Debentures will not have a voice in the selection of
management of Lundgren nor in decisions affecting Lundgren's operations. By
investing in a closely-held business such as Lundgren, purchasers of the
Debentures will be relying on management to maintain a balance between the
interests of the shareholders and the interests of the Debentureholders.
Although management believes it has balanced these interests in the past, there
can be no assurance that management will be able to continue to balance these
competing interests to the Debentureholders' satisfaction.
COMPETITION
Lundgren operates in a highly competitive environment. Lundgren's competition in
land development principally consists of larger home builders, which develop
land for their own account, and land developers, which specialize in developing
for small builders. The home building business is highly fragmented and includes
numerous national, regional and local home builders. In recent years, several
national builders have entered the Twin Cities metropolitan area, thereby
increasing competition. Additionally, some of the Company's competitors have
substantially greater financial resources than the Company. See "Business --
Operating Strategy" and "Business -- Home Building and Home Sales."
NO PUBLIC MARKET FOR THE DEBENTURES
There is no existing public market for the Debentures. There are no market
makers for the Debentures. There can be no assurance that any market will
develop or, if a market does develop, that it will continue until maturity of
the Debentures. Any market that may develop is expected to be limited. There can
be no assurance as to the liquidity of any market that may develop for the
Debentures, the ability of the holders of the Debentures to sell their
Debentures or the prices at which holders of the Debentures would be able to
sell their Debentures. To the extent there is any market for the Debentures,
whether the Debentures will trade at prices that are higher or lower than their
initial market value depends on many factors, including, among other things,
prevailing interest rates in the market for similar securities. Assuming there
is a market for the Debentures, the holders of the Debentures would bear the
risk that a general increase in the level of interest rates could adversely
affect the level at which the Debentures would trade. Lundgren does not intend
to apply for listing of the Debentures on any securities exchange or to seek to
have the Debentures authorized for trading on Nasdaq.
USE OF PROCEEDS
Assuming that all $3,000,000 principal amount of Debentures offered hereby
are sold, the net cash proceeds available to Lundgren will be approximately
$2,521,000 after deducting all estimated offering expenses. The Company intends
to use the proceeds for general corporate purposes, including land acquisition
and land development, construction of houses and working capital.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company at
June 30, 1996, and as adjusted to reflect the issuance of $3,000,000 principal
amount of Debentures offered hereby.
<TABLE>
<CAPTION>
JUNE 30, 1996
(DOLLARS IN THOUSANDS)
ACTUAL AS ADJUSTED(1)
<S> <C> <C>
Debt due within one year(2) $22,657 $22,657
Debt due after one year (excluding
debentures)(2) $ 9,522 $ 9,522
1993 Subordinated Debentures 2,951 2,951
Debentures -- 3,000
Stockholders' equity:
Common stock, no par value;
authorized, 12,000 shares;
issued and outstanding, 594 shares
voting and 10,031 shares non-voting 99 99
Retained earnings 6,396 6,396
Total stockholders' equity 6,495 6,495
Total capitalization $18,968 $21,968
</TABLE>
(1) Assumes the sale of all $3.0 million principal amount of Debentures offered
hereby and reflects estimated offering expenses of $479,000 (including
underwriting commissions and underwriting management fees) which the Company
intends to capitalize and amortize over the term of the Debentures.
(2) See Notes 8 and 9 to the Consolidated Financial Statements for additional
information relating to the Company's debt obligations.
DIVIDEND POLICY
Historically, the Company has not paid dividends on its common stock. In
addition, the terms of the Indenture restrict the payment of dividends. See
"Description of Debentures."
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company as of and for
the years ended December 31, 1991, 1992, 1993, 1994 and 1995 are derived from
the audited consolidated financial statements of the Company, which have been
audited by Coopers & Lybrand L.L.P., independent accountants, whose report on
such financial statements as of December 31, 1994 and 1995 and for the years
1993, 1994 and 1995 is included herein. The selected consolidated financial data
for the six months ended June 30, 1995 and 1996 are unaudited but, in the
opinion of management, all adjustments necessary for a fair presentation have
been included and are of a normal recurring nature. The consolidated statement
of income data, as they relate to the three years ended December 31, 1995, and
the selected consolidated balance sheet data, as of December 31, 1994 and 1995,
should be read in conjunction with the Consolidated Financial Statements,
including the Notes thereto, set forth elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which follows. The results of operations for the six months ended
June 30, 1996 may not be indicative of the results to be expected for the year
ending December 31, 1996.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
1991 1992 1993 1994 1995 1995 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND RATIO AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF INCOME DATA:
Revenues(1) $23,117 $42,282 $61,884 $78,992 $69,660 $27,209 $29,932
Cost of revenues 19,116 35,069 52,485 66,924 59,104 23,367 25,565
Gross profit 4,001 7,213 9,399 12,068 10,556 3,842 4,367
Operating expenses 2,972 5,402 6,565 8,762 8,198 3,404 3,322
Operating income 1,029 1,811 2,834 3,306 2,358 438 1,045
Other income (expense), net (630) (401) (728) (716) (1,618) (864) (862)
Income (loss) from continuing
operations before income taxes 399 1,410 2,106 2,590 740 (426) 183
Income tax provision (benefit) for
continuing operations 142 555 860 1,043 318 (172) 73
Income (loss) from continuing
operations 257 855 1,246 1,547 422 (254) 110
Cumulative effect on prior years of
change in accounting method(2) -- -- -- -- 763 763 --
Loss from discontinued operations -- -- -- (349) -- -- --
Net income $ 257 $ 855 $ 1,246 $ 1,198 $ 1,185 $ 509 $ 110
Income (loss) per share:
Continuing operations $ 24 $ 80 $ 117 $ 146 $ 40 $ (24) $ 10
Cumulative effect of change in
accounting method -- -- -- -- 72 72 --
Discontinued operations -- -- -- (33) -- -- --
Net income per Share $ 24 $ 80 $ 117 $ 113 $ 112 $ 48 $ 10
Ratio of earnings to fixed charges(3) 1.1 2.0 2.3 1.9 1.2 .7(4) 1.1
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, JUNE 30,
1991 1992 1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Inventories $11,512 $14,126 $23,903 $30,246 $34,166 $31,598 $38,798
Total assets 15,647 20,712 35,825 42,619 47,763 47,259 52,307
Debt due after one year 1,849 1,356 7,219 10,664 10,766 11,578 12,473
Total liabilities 13,746 17,956 31,823 37,419 41,378 41,550 45,812
Stockholders' equity 1,901 2,756 4,002 5,200 6,385 5,709 6,495
</TABLE>
(1) Revenues from lot and home sales are recognized on the closing date of
the property sale. See Note 1 of Notes to Consolidated Financial
Statements.
(2) Net of income taxes of $527,000.
(3) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes and fixed charges, less capitalized interest,
plus the interest component included in cost of sales. Fixed charges consist
of interest expensed and capitalized and amortization of debt service costs.
The interest factor implicit in rent expense is not significant.
(4) The deficiency of earnings to fixed charges amounted to $496,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following analysis of the Company's consolidated financial condition and
results of operations as of December 31, 1994 and 1995 and June 30, 1996 and for
the years ended December 31, 1993, 1994, and 1995 and for the six months ended
June 30, 1995 and 1996 should be read in conjunction with the Company's
Consolidated Financial Statements, including the Notes thereto, and other
information presented elsewhere in this Prospectus.
GENERAL
During 1993 and 1995, the Company operated in two business segments: new homes
and remodeling. During 1994, the Company operated in three business segments:
new homes, remodeling and patio enclosures. The patio enclosure segment was
started and discontinued in 1994. The new homes segment includes land
acquisition and development, home building and home sales, inventory management
and painting and staining services. The remodeling segment consists of home
remodeling design and construction services.
The Company's revenues are derived from its interrelated activities of land
development and home building, providing painting and staining services and home
remodeling. When a home sale is closed, the revenues are allocated both to the
home (home construction revenues) and to the lot on which the home is
constructed (lot revenues). In the first six months of 1996, home construction
and lot revenues were $26.9 million or 90% of total revenues. Revenues from
painting and staining (excluding those to the Company's new home construction
operations) were $1.3 million or 4% of total revenues and revenues from
remodeling were $1.8 million or 6% of total revenues for the first six months of
1996. The 1996 percentages are consistent with the percentages for 1995. The
Company sells finished lots to other builders when the Company has excess
finished lot inventory and when a subdivision is nearly sold out. In the first
six months of 1996, sales of lots to other builders accounted for less than 1%
of total revenues. The Company does not anticipate that sales of lots to other
builders will be a significant portion of the Company's business in the future.
The Company's gross profit on home construction revenues and lot revenues for
the first six months of 1996 was $3.8 million or 87% of the total gross profit.
Of the $3.8 million gross profit, $2.5 million was derived from the sale of
homes and $1.3 million from the sale of lots on which such homes were built. The
gross profit margins experienced by the Company are historically higher on lot
revenues than on home construction revenues when the lot and house are sold
together. In the first six months of 1996, the gross profit margin on home
construction revenues was 12%, while the gross profit margin on lot revenues was
22%. The gross profit margin on homes varies significantly from development to
development. The Company's painting and staining business had gross profit
margins (excluding those to the Company's new home construction operations) of
22% in the first six months of 1996. The Company's remodeling division had gross
profit margins of 16% in the first six months of 1996.
The Company generally enters into a purchase agreement with a potential home
buyer prior to commencing construction of a home, except where the Company is
building a house to be held in inventory or to be used as a model home. The
Company does not recognize a sale for accounting purposes until construction is
completed and the sale is actually closed. The time period from execution of a
purchase agreement with a home buyer to the closing of the home sale generally
ranges from three to six months. This time period varies due to many factors,
including the purchaser's mortgage approval process, the status of the home's
construction when the purchase agreement is executed and the removal of the
contingencies, if any, contained in the purchase agreement. At June 30, 1996,
the Company had signed purchase agreements for the sale of 86 homes. The Company
considers these 86 homes to constitute its backlog. The Company's business is
significantly affected by local and national general economic conditions, in
particular by mortgage interest rates and the availability of mortgage
financing. The Company believes that trends in general economic conditions,
mortgage interest rates and consumer confidence levels in the Twin Cities
metropolitan area are comparable to the first six months of 1995. Any
substantial increase in mortgage interest rates or decrease in consumer
confidence levels could cause a decrease in future home sales. Such a decrease
in sales would be offset in part by decreased development and construction costs
and overhead.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The following is a summary of the financial information relating to the
Company's two continuing business segments:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
1993 1994 1995 1995 1996
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales
New homes $58,955 $75,814 $65,217 $25,094 $28,177
Remodeling 2,929 3,178 4,443 2,115 1,755
$61,884 $78,992 $69,660 $27,209 $29,932
Gross Profit
New Homes $ 8,722 $11,810 $ 9,626 $ 3,483 $ 4,091
Remodeling 677 258 930 359 276
$ 9,399 $12,068 $10,556 $ 3,842 $ 4,367
Operating Income (loss)
New homes $ 2,729 $ 4,013 $ 2,381 $ 577 $ 1,280
Remodeling 105 (707) (23) (139) (235)
$ 2,834 $ 3,306 $ 2,358 $ 438 $ 1,045
Gross Margin
New Homes 14.8% 15.6% 14.8% 13.9% 14.5%
Remodeling 23.1% 8.1% 20.9% 17.0% 15.7%
Operating Margin
New Homes 4.6% 5.3% 3.7% 2.3% 4.5%
Remodeling 3.6% (22.2)% .5% (6.6)% (13.4)%
</TABLE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
NEW HOMES
Revenues increased $3.1 million or 12.3% for the six months ended June 30, 1996,
compared to the same period in 1995. The Company closed on sales of 80 homes in
the six months ended June 30, 1996, compared to 77 closings in the same period
in 1995. The average selling price of homes closed increased by 8.0% for the six
months ended June 30, 1996, from the average selling price of homes closed for
the same period in 1995. The Company believes that the increase in homes closed
was due to the timing of the removal of customer purchase contingencies and
subsequent house starts in 1996 compared to 1995. The increase in average
selling price is due to general price increases as a result of inflation and
changes in the mix of homes closed in 1996 compared to 1995.
Gross profit margin for the new homes segment increased to 14.5% for the six
months ended June 30, 1996, compared to 13.9% for the same period in 1995. The
Company believes that this increase in gross profit margin is due to changes in
the location of the home developments, improvements to the Company's cost
controls, and an increase in the mix of homes sold on land developed by the
Company versus lots purchased from other developers.
Operating expenses for the new homes segment (which include selling, general and
administrative expenses) decreased by $95,000 for the six months endedJune 30,
1996, compared to the same period in 1995. As a percentage of total new home
revenues, these expenses decreased to 10.0% for the six months ended June 30,
1996, compared to 11.6% for the same period in 1995. The decrease is mainly due
to the write-off, in 1995, of costs incurred on abandoned land acquisition
projects. These reduced costs were partially offset with an increase in
personnel in 1996.
REMODELING
Operating loss for the remodeling segment increased to $235,000 in the six
months ended June 30, 1996, from $139,000 for the same period in 1995. This
increase is due to a smaller number of closings in 1996 compared to 1995 as a
result of an increased backlog in production.
OTHER INCOME (EXPENSE), NET
Interest expense for the six months ended June 30, 1996 increased $99,000 or
11.1% from the same period in 1995. This increase is mainly due to increased
borrowings for additional inventories in 1996. Other income (expense), net
increased $101,000 in the six months ended June 30, 1996 from the same period in
1995. The increase is mainly due to a gain on the sale of an investment in a
land development partnership.
NET INCOME (LOSS)
Net income for the six months ended June 30, 1996 was $110,000, a decrease of
$399,000 from $509,000 of net income for the same period in 1995. This decrease
is mainly due to the 1995 change in accounting for land acquisition and
development costs of $763,000, which is partially offset by a gain on the sale
of an investment in a land development partnership and improved operating income
from new home sales.
1995 COMPARED TO 1994
NEW HOMES
Revenues for 1995 decreased $10.6 million or 14.0% from 1994. The Company closed
on sales of 202 homes in 1995 as compared to 247 home closings in 1994. The
Company believes that the decrease in homes closed was due to decreased consumer
demand for new residential housing resulting from higher long-term mortgage
interest rates which increased throughout 1994 and early 1995. Although these
interest rates decreased slightly in the third and fourth quarters of 1995, the
Company had not yet realized the impact of the decrease because revenues are
generally the result of home sale purchase agreements written three to six
months earlier in the year. The average selling price of homes closed in 1995
increased by 4.7% compared to the average selling price of homes closed in the
same period in 1994. This increase is due to changes in the mix of homes closed
in 1995 as compared to the same period in 1994.
Gross profit decreased by $2.2 million or 18.5% from 1994. The Company's gross
profit margin in its New Homes segment in 1995 was 14.8% as compared to 15.6% in
1994. The decrease in gross profit is due to decreased sales volume and
increases in house construction costs that could not be passed on to the buyer.
Operating expenses for the new homes segment include selling, general and
administrative expenses. These expenses decreased $552,000 or 7.1% as compared
to 1994. As a percentage of total revenues, these expenses increased to 11.1% in
1995 compared to 10.3% in 1994. The dollar decrease in operating expenses in
1995 is mainly due to a decrease in land option fees and abandoned projects
expensed, a decrease in discretionary employee bonuses, and decreases in general
advertising costs. These expenses were partially offset by an increase in design
expenses as a result of the Company's efforts to further refine home plans, and
an increase in professional and consulting fees incurred in restructuring the
Company's divisions and management.
REMODELING
The remodeling segment recognized an operating loss of $23,000 in 1995 compared
to an operating loss of $707,000 in 1994. This improvement is attributed to an
aggressive effort by the Company to increase sales volume and improve cost
controls in 1995. The Company has focused its efforts to obtain higher profit
margin jobs, keep personnel levels at a minimum, and has reduced sales and
marketing costs as the Company gains experience in its local remodeling markets.
OTHER INCOME (EXPENSE), NET
Interest expense increased to $1.7 million or 80.5% compared to $942,000 in
1994. This increase is primarily due to an increase in borrowings for an
increase in developed land inventories and other operating activities combined
with an increase in the Company's average interest rates in 1995.
Other income (expense), net decreased $110,000 or 48.7% compared with $226,000
in 1994 due primarily to a gain on the sale in March 1994 of forward commitments
for mortgage funds which the Company had purchased in January 1994. The Company
purchases mortgage commitments in times of anticipated rising interest rates to
ensure affordable loans are available to its home buyers. The Company sometimes
sells excess portions of the commitments. Fees paid for these commitments are
charged to operations over the term of the commitments.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations decreased to $422,000 or 72.7% in 1995 from
$1.5 million in 1994. This decrease is primarily due to a decline in new home
sales volume and an increase in interest expense.
NET INCOME
Net income remained constant at $1.2 million in 1995 and 1994. However, included
in net income is the cumulative effect of a change in accounting for land
acquisition and development costs in 1995 and a $349,000 loss in 1994 from
discontinued operations of the Company's patio enclosure business.
1994 COMPARED TO 1993
NEW HOMES
Revenues for 1994 increased $16.9 million or 28.6% from 1993. The Company closed
on sales of 247 homes in 1994 as compared to 216 closings in 1993. The Company
believes that the increase in homes closed was due to a combination of increased
consumer demand for new residential housing resulting from favorable long-term
mortgage interest rates in 1993 and early 1994 and expansion of the Company's
available land developments in new subdivisions. The average selling price of
homes closed in 1994 increased by 12.1% compared to the average selling price of
homes closed in the same period in 1993. This increase is due to favorable
changes in the mix of homes closed in 1994 as compared to the same period in
1993.
Gross profit increased by $3.1 million or 35.4% from 1993. The Company's gross
profit margin in 1994 was 15.6% as compared to 14.8% in 1993. The increase in
gross profit is due to increased sales volume and favorable changes in the mix
of homes closed in 1994 as compared to the same period in 1993.
Operating expenses increased by $1.8 million or 30.1% from 1993. As a percentage
of total revenues, these expenses remained constant at 10.3% in 1994 as compared
to 10.2% in 1993. The dollar increase is due to model homes and advertising
costs associated with new subdivisions, increased personnel costs through the
hiring of additional personnel during 1994 and an increase in land option fees
and abandoned projects expensed in 1994, offset by a $418,000 decrease in
discretionary officer bonuses.
REMODELING
The remodeling segment recognized an operating loss of $707,000 in 1994 compared
with operating income of $105,000 in 1993. This decrease is due to a decrease is
gross profit margins as a result of the Company's change in mix of remodeling
jobs and an increase in production personnel. In addition, during 1994 the
Company incurred additional advertising and administrative costs relating to the
introduction of a new remodeling design center in Wayzata, Minnesota and a
marketing office in St. Paul, Minnesota.
OTHER INCOME (EXPENSE), NET
Interest expense increased $275,000 or 41.2% from 1993. This increase is
primarily due to interest incurred on the Company's 1993 Subordinated Debentures
sold in June and July of 1993, the increase in interest rates in 1994 and
overall increases in the Company's general borrowings during 1994.
Other income (expense), net increased $287,000 from 1993. The increase is mainly
due to a gain on the sale of forward commitments for mortgage funds which the
Company had purchased in 1994.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations increased to $1.5 million or 24.2% in 1994
from $1.2 million in 1993. This increase in income from continuing operations is
mainly due to increased sales volume in 1994.
NET INCOME
Net income remained constant at $1.2 million in 1994 and 1993. Increases in net
income due to increased sales volume in 1994 were offset by the $349,000 loss
from discontinued operations of the Company's patio enclosure business.
LIQUIDITY AND CAPITAL RESOURCES
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1995
Cash flows used in operating activities were $6.3 million for the six months
ended June 30, 1996, a decrease of approximately $1.2 million from the $7.5
million used in the same period in 1995. During the six months ended June 30,
1996, cash was used for the seasonal and general increase in inventories of $3.4
million, the related increases in restricted cash of $861,000 and in receivables
of $738,000, reduction of accounts payable of $1.9 million and the decrease in
accrued expenses, principally payment of accrued bonuses of $552,000. These uses
of cash were partially offset in 1996 by an increase in customer deposits of
$1.2 million, with the balance of cash used in operations financed through
increased borrowings on the Company's lines of credit and other debt obligations
of $4.5 million and the reduction of cash and cash equivalents of $1.9 million.
Cash flows used in investing activities were $121,000 for the six months ended
June 30, 1996, a decrease of approximately $221,000 from $342,000 cash used for
the same period in 1995. The decrease was primarily due to proceeds from the
sale of an investment in a land development partnership and a reduction of
expenditures for property and equipment, which were partially offset by an
increase in the cash surrender value of life insurance.
Cash flows provided by financing activities were $4.5 million for the six months
ended June 30, 1996, a decrease of approximately $2.5 million from the $7.0
million for the same period in 1995. The decrease was primarily due to a
reduction in net borrowings on the Company's bank lines of credit as a result of
a decrease in cash used in operating activities and a reduction in cash and cash
equivalents as of June 30, 1996 compared to June 30, 1995.
1995 COMPARED TO 1994
Cash flows used by operating activities were $3.0 million in 1995, a decrease of
$2.4 million from 1994, during which operating activities used $612,000 of cash
flow. This decrease is due to the combination of a $1.0 million reduction of
cash provided by income from continuing operations, an increase of $1.1 million,
relative to 1994, in the amount of cash used to reduce accounts payable, a
$855,000 increase in restricted cash and a $919,000 increase in cash used for
land option and earnest money deposits. These increased cash uses are partially
offset by a reduction of $1.0 million, relative to 1994, of cash used for
prepaid expenses and a $838,000 increase in accrued costs to complete sold
homes.
Cash flows used in investing activities decreased $1.1 million to $551,000 in
1995 from $1.7 million in 1994. The decrease was primarily due to construction
costs incurred in 1994 of a new design center and showroom for the Company's
remodeling division.
Cash flows provided by financing activities increased $1.4 million to $3.2
million in 1995 from $1.8 million in 1994. The increase is primarily due to
increased borrowings on the Company's bank lines of credit to fund operations.
1994 COMPARED TO 1993
Cash flows used by operating activities were $612,000 in 1994, a decrease of
$832,000 from 1993, during which operating activities provided $220,000 of cash
flow. This decrease was primarily due to an increase of $5.2 million, relative
to 1993, in the amount of cash used to reduce accounts payable and cash used by
discontinued operations of $249,000 in 1994. These increased cash uses were
partially offset by a reduction of $4.4 million, relative to 1993, of cash used
for inventory, land options and earnest money deposits and prepaid expenses.
Cash flows used in investing activities increased $829,000 to $1.7 million in
1994 from $856,000 in 1993. The increase was primarily due to construction costs
of a new design center and showroom for the Company's remodeling division,
purchases of new vehicles, and an increase in cash surrender value of life
insurance in 1994.
Cash flows provided by financing activities decreased $1.5 million to $1.8
million in 1994 from $3.2 million in 1993. The decrease is primarily due to
proceeds from the sale of the Company's 1993 Subordinated Debentures, net of
debt issuance costs, of $2.5 million received in June and July 1993, partially
offset by increases in payments on the Company's construction and development
notes.
FINANCING
The Company believes that internally generated funds, amounts available under
its three lines of credit and borrowing arrangements, including the Debentures,
will continue to be the primary sources of capital for liquidity. However, the
Company may seek additional long-term financing.
The Company's financing needs depend primarily upon sales volume, asset
turnover, land acquisition and inventory balances. The Company presently
finances substantially all of its land acquisition and development and home
construction activities through borrowing arrangements for individual projects
or homes under construction. The borrowing arrangements evolve with each stage
of the process from land acquisition, to development, to construction of a home,
and to the sale of the home and lot.
The Company also utilizes secured lines of credit to finance its operations. The
Company has approved aggregate credit of $9.1 million, subject to a borrowing
base. At June 30, 1996, the aggregate maximum credit available under the lines
of credit was $8.9 million, of which $5.4 million was utilized and $3.5 million
was available.
The Company's outstanding indebtedness as of June 30, 1996 included $22.7
million due within one year. The Company has historically operated with a
substantial amount of its outstanding indebtedness due within one year and has
historically paid such debt out of earnings or through refinancing, where
applicable. The Company believes that the amounts available under its lines of
credit, borrowing arrangements, and amounts generated from operations will be
sufficient to satisfy its debt obligations due in the next year. However, there
can be no assurance that the Company will be able to continue to obtain adequate
short-term financing, including bank financing, in the future.
INFLATION AND THE EFFECTS OF CHANGING PRICES
Real estate and residential housing prices are affected by inflation, which can
cause increases in the price of land, raw materials and subcontracted labor.
Historically, the Company has been able to pass most increased costs due to
inflation on to its customers and expects to be able to do so in the future.
Unless such costs are recovered through higher sales prices, gross profit
margins will decrease. Interest rate fluctuations also affect gross profit
margins by increasing or decreasing financing costs for land, construction and
operations. The Company believes that product demand and sales are impacted by
mortgage interest rates. The Company benefited from low mortgage interest rates
from 1993 through early 1994, and then again from mid-year 1995 through early
1996. When mortgage rates begin to increase, customers can respond by locking in
a mortgage rate. If rates continue to rise, customers may be discouraged from
purchasing a home, due to the increased cost, decrease in buying power and
possible difficulty in qualifying for a mortgage. Seasonality is generally not a
significant factor in the Company's operations, in part because homes can be
constructed year-round.
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Certain
important factors, including the risk factors set forth in this Prospectus,
could cause actual results to differ materially from those anticipated by some
of the forward-looking statements. Prospective investors are cautioned that all
forward-looking statements involve risks and uncertainties, including, without
limitation, the risk factors set forth herein.
BUSINESS
GENERAL
Lundgren is engaged in the interrelated activities of land development and the
design, construction and sale of detached single family homes in the Twin Cities
metropolitan area. The Company maintains an inventory of potential home lots by
controlling undeveloped land through Land Acquisition Agreements. Upon obtaining
the appropriate regulatory approvals and zoning changes, and dependent on market
conditions, the Company develops the undeveloped land into finished lots for
residential subdivisions, primarily for its own use. The Company also
periodically options or purchases finished lots from other developers.
Since its incorporation in 1970, the Company and its affiliates have developed
2,549 lots. On August 1, 1996, the Company controlled 16 parcels of land under
Land Acquisition Agreements for future development of an estimated 1,848 lots.
The Company's land development strategy is to control prime property for
residential development two to five years in advance of actual development,
using Land Acquisition Agreements structured to require limited initial
investment by the Company. Management believes that this strategy minimizes the
risk of the Company owning too much land at any one time but allows the Company
to control key sites for future development. See "Business -- Land Acquisition."
Since inception, the Company has built and sold over 2,330 single family homes.
The Company sells its homes primarily through its own staff of sales personnel,
although it also utilizes local realtors. In 1995, the Company was the fourth
largest builder in the Twin Cities metropolitan area, based on total dollar
volume of building permits issued and is the only one of the top five builders
in the Twin Cities metropolitan area whose stock is privately held.
The Company builds custom homes and homes from standard plans at prices
typically ranging from $190,000 to $700,000 for both the home and lot, with an
average selling price of approximately $336,000 for the first six months of
1996. The Company also designs and builds residential remodeling projects
through its remodeling division. Lundgren's wholly-owned subsidiary, Brush
Masters, Inc. ("Brush Masters"), provides painting and staining services to the
Company, as well as to other residential building contractors in the Twin Cities
metropolitan area.
The Company closed the sales of 80 homes in the first six months of 1996 and as
of June 30, 1996, had purchase agreements for the sale of 86 homes, representing
approximately $29.8 million in sales. In the first six months of 1995, the
Company had closed the sales of 77 homes and as of June 30, 1995, had contracts
for the sale of 86 homes, representing approximately $26.4 million in sales. The
Company markets its homes to middle and upper income professionals and
executives. The Company's marketing efforts emphasize the community atmosphere
of its residential subdivisions and those characteristics it believes are
distinctive to the Lundgren-built homes: desirable designs, quality
construction, competitive prices and customer service, before, during and after
the sale of a home.
The Company was incorporated as a Minnesota corporation on October 29, 1970 when
the three Lundgren brothers, Edmund, Gerald and Allan, started the business of
building custom homes. In 1971, Patrick Wells joined the Company and has worked
with the Company in various capacities since that time. Peter Pflaum joined the
Company in 1972 as its President and at that time, assumed responsibility for
the Company's land acquisition and development activities. He currently also
serves as chief executive officer of the Company.
MARKET
The Company operates in the Twin Cities metropolitan area. The U.S. Census
Bureau currently defines the Twin Cities Metropolitan Statistical Area (the
"Twin Cities MSA") to include 11 counties in Minnesota and two counties in
Wisconsin. To date, the Company has built homes in Hennepin, Dakota, Carver,
Scott and Washington counties which, according to 1995 estimates, represented
61.6% of the total population of the Twin Cities MSA. Many local reporting
agencies, however, define the Twin Cities MSA to include only 7 counties (the
"7-County MSA"), of which Hennepin, Dakota, Carver, Scott and Washington
counties accounted for 68.6% of the population in 1995.
Minneapolis/St. Paul is the largest metropolitan area in Minnesota and is the
fifteenth largest metropolitan area in the U.S., with a 7-County MSA population
in 1995 of slightly over 2.4 million. Since 1990, the 7-County MSA population
has grown at an annual rate of 1.2%, with Washington, Scott, Carver and Dakota
Counties experiencing significant population growth in the 1990s. By the year
2,000, it is estimated that the 7-County MSA will have a population of
approximately 2.6 million.
Thirty-four of the companies listed on the 1995 Fortune 1000 and 14 companies
listed on the Fortune 500 are headquartered in the Twin Cities MSA. The area has
a significant number of companies involved in manufacturing, super-computers,
electronics, medical devices, milling, food processing and graphic arts. The
median household income in the 7-County MSA for 1995 was estimated to be
$40,711, representing a compound annual growth of 4.6% since 1980. In addition,
nonagricultural employment in the Twin Cities MSA has grown at a rate of 2.1%
annually since 1990; meanwhile, in late 1995, the unemployment rate in the Twin
Cities MSA was 2.8%, compared to a rate of 5.6% for the entire U.S.
The total number of building permits in the 7-County MSA for 1995 was 13,956
(10,805 single-family and 3,151 multi-family). Additionally, in the last two
years, single-family housing has represented approximately 80% of the new
housing market in the 7-County MSA.
In 1995, the median sale price of a detached single family home in the 7-County
MSA was $145,000. In addition, through August 1995, the average price of closed
sales on single-family units in the 7-County MSA was 4% higher than in 1994,
while the median price was 2.8% higher.
The Company currently targets move-up and custom home buyers, including many
transferees to the Twin Cities MSA. The lower end of the Company's product line
targets dual income couples in their 30s and 40s, with young children and annual
household incomes of $70,000 to $90,000. The Company's standard product line is
targeted towards mature families, in their 30s to 50s, with older children and
combined annual incomes of $80,000 and up. The Company is currently designing a
new product line which would target first-time move-up buyers, including singles
and young couples in the mid 20s to 30s age bracket, with annual household
incomes of $50,000 to $80,000.
OPERATING STRATEGY
The Company's operating strategy is to attempt to achieve the following
inter-related goals:
* LAND ACQUISITION -- locate and control the best residential property in a
specific geographic area in its price range of homes, with minimum up-front
expenditure and financial exposure.
* LAND DEVELOPMENT -- enhance the existing features of the acquired land that
make it unique, as well as develop subdivisions in a manner that creates a
community feeling with superior attributes to those developed by competitors.
* HOME BUILDING AND HOME SALES --
(a) Product Design -- design and periodically update home plans in order
to provide the best value in the Company's price range of homes.
(b) Customer Service -- provide outstanding customer service.
(c) Quality and Customization -- build homes of the highest possible
quality in a particular price range and offer home buyers an
opportunity to customize their homes to a degree superior to the
competition's products.
(d) Cost Control -- closely monitor the design of home plans and the
construction process, from the bidding of the homes through
construction in the field, to ensure that the Company is producing
its homes in a manner that best balances cost-effectiveness and
quality.
(e) Design Center -- provide home buyers with ease and convenience in
making selections to personalize their homes.
* INVENTORY MANAGEMENT -- monitor its finished lot inventory and the number of
unsold homes in order to react to changing market conditions.
* PAINTING AND STAINING -- provide cost-effective and superior painting and
staining services.
* REMODELING -- leverage the Lundgren name to provide superior remodeling
design and construction services.
LAND ACQUISITION
The Company believes that its future success depends upon its continued ability
to acquire superior home sites at competitive prices. The Company has developed
procedures for, and employs management specialized in, site acquisition and
development. Before the Company enters into any acquisition arrangement, it
generally employs an independent marketing consultant to perform a market
analysis of the geographic area to assess the future desirability of that area
for single family homes, the current and future development competition, and the
history of demand for housing in the area. The Company's objective is to locate
areas where there will be great demand for homes in the future but with limited
competition. The Company has concentrated its efforts on the western and
southwestern suburbs of Minneapolis, in the communities of Eden Prairie,
Chanhassen, Chaska, Minnetonka, Medina, Minnetrista, Plymouth, Shorewood and
Maple Grove. The Company believes that these communities are and will be some of
the most desirable areas for housing in the Twin Cities MSA. See Table 1 --
"Future Lot Inventory."
Generally, land acquired by the Company for development in the next one to three
years is located within the Minneapolis-St. Paul Municipal Urban Service Area
("MUSA"). Land located within the MUSA is permitted to be serviced with
metropolitan sewer service and municipal water. A limited portion of the
Company's resources are used to control parcels of land outside the MUSA in
municipalities which the Company believes are willing to attempt to obtain
approval for the extension of the MUSA. Although the Company has been successful
in assisting municipalities in which it controls land to obtain extensions of
the MUSA, there can be no assurance that the Company will be able to
successfully assist municipalities to further extend the MUSA in the future.
The Company attempts to control parcels of undeveloped land with minimum capital
expenditure. The Company acquires control of undeveloped land in several ways.
Generally, the Company has been able to obtain long-term options to purchase
land for future development. The Company uses the option period to obtain
necessary development approvals from government units and to evaluate the
feasibility of development, including whether the development costs are within
cost parameters per lot for a particular type of standard home plan. The Company
also purchases land through contingent purchase agreements. Under such
agreements, the Company agrees to purchase the land, contingent upon the
Company's obtaining necessary zoning and government approvals, on terms
satisfactory to the Company, within a predetermined period. These arrangements
allow the Company to reduce the risk of purchasing a site it will not be able to
develop profitably. Under these arrangements, the Company attempts to acquire
the land with minimum cash investment and maximum amount of seller financing.
The Company attempts to obtain such purchase money financing on a nonrecourse
basis, thereby limiting both its exposure to the amount invested in the property
and its predevelopment costs on such site. While this policy may somewhat raise
the cost of the land the Company acquires, it significantly reduces the
Company's financial exposure. As competition for land increases, the Company may
not be able to acquire land through such favorable arrangements in the future
and may be required to expend more cash and bear more risk in order to gain and
maintain control of undeveloped land. See "Risk Factors -- Continuing Need to
Acquire Land for Future Development." During the due diligence periods provided
for in the Company's Land Acquisition Agreements, the Company employs a detailed
checklist to assist in its investigation of factors affecting the feasibility of
the project, including:
<TABLE>
<CAPTION>
<S> <C>
* topography * archeological site status
* geology, soils and grading * regulatory processing and approval schedule
* traffic, transportation and access * financing alternatives
* hazards, including noise and pollution * market research
* environmental issues * economic feasibility
</TABLE>
Occasionally, the Company acquires control of land through joint ventures and
other contractual relationships with third party landowners ("Joint Ventures").
Under these Joint Ventures, the Company generally is employed as an agent of the
Joint Venture to zone and develop the property and build and sell homes on it.
The Company must meet certain criteria as to cost control and absorption rates
for the sale of the finished lots. The landowner subordinates his or her
interest in the land to a mortgage securing the development financing. As lots
are sold, the landowner shares in the profits on the finished lots. This
approach allows the landowner to maximize the profit to be made on the sale of
the land. It also enables the Company to control a site which it might not have
been able to purchase through an option or contingent purchase agreement. The
Joint Venture also enables the Company to participate in the lot profit, while
retaining the profit from the construction of the homes on the site.
Periodically, the Company acquires lots through optioning and/or purchasing
finished lots from unaffiliated developers. This approach allows the Company to
control a large number of finished lots, including an entire subdivision, while
also enabling the Company to market a new subdivision with minimal capital
expenditure and limited development risk. Generally, under these agreements, the
Company can continue to control these finished lots as long as the Company
purchases a specified number of such lots within a predetermined time period.
This arrangement, however, provides the Company less profit on the sale of the
lot.
Historically, the Company has located its subdivisions in the western and
southwestern suburbs of Minneapolis. See Table 2 -- "Subdivisions Developed
by the Company."
TABLE 1
FUTURE LOT INVENTORY
The following is a summary of the land which the Company controls under Land
Acquisition Agreements with third parties as of August 1, 1996:
ESTIMATED
MAP NUMBER
KEY CITY AND SUBDIVISION OF LOTS(1)
BUFFALO
a Mills Woods 150
CARVER
b Kensington Knolls 2-4(2)
(aka Carver Bluffs) 131
CHANHASSEN
c Longacres 80
d Springfield 134
e Gilbert 12
f Dolejsi South(3) 57
subtotal 283
ELKO
g Sienna(3)(4) 256
INVER GROVE HEIGHTS
h Southern Lakes 282
MEDINA
i Foxberry Farms 79
MAPLE GROVE
j Elm Creek Properties 270
k Rosemary Woods(4) 45
subtotal 315
PLYMOUTH
l LCMS(3) 44
l Plum Tree East(5) 172
l Plum Tree West 80
subtotal 296(5)
SHOREWOOD
m Marsh Pointe 31
VICTORIA
n Highlands Phase 3 25
TOTAL 1,848(5)
(1) These lots may vary in size depending upon the housing products developed
for the neighborhood.
(2) Phases 3 and 4 will need to be annexed into the city.
(3) These parcels of land are currently located outside the Metropolitan Urban
Service Area (MUSA).
(4) The Company controls these lots under contract with an unaffiliated
developer. All other lots in this table are lots the Company plans to
develop.
(5) Includes 40 lots to be developed for multi-family housing.
The map below indicates the location of the parcels of land which the Company
controls under Land Acquisition Agreements as of August 1, 1996 and is keyed to
Table 1 -"Future Lot Inventory" above.
[MAP]
KEY CITY DEVELOPMENTS # SITES
A BUFFALO MILLS WOODS 150
B CARVER KENSINGTON KNOLLS 2-4 131
C CHANHASSEN LONGACRES 80
D CHANHASSEN SPRINGFIELD 134
E CHANHASSEN GILBERT 12
F CHANHASSEN DOLEJSI SOUTH 57
G ELKO SIENNA 256
H INVER GROVE HTS. SOUTHERN LAKES 282
I MEDINA FOXBERRY FARMS 79
J MAPLE GROVE ELM CREEK PROPERTIES 270
K MAPLE GROVE ROSEMARY WOODS 45
L PLYMOUTH LCMS 44
L PLYMOUTH PLUM TREE EAST 172
L PLYMOUTH PLUM TREE WEST 80
M SHOREWOOD MARSH POINTE 31
N VICTORIA HIGHLANDS PHASE 3 25
TOTAL 1848
The Company continuously searches for new sites to control which meet its
development criteria. The Company also attempts, whenever possible, to upgrade
the property it controls. If a better site becomes available, the Company will
try to acquire control of the new site and to determine whether it should hold,
sell or terminate its agreement for the less desirable parcel. Additionally, the
Company will also abandon attempts to zone and develop a parcel if significant
development problems arise. Accordingly, the land controlled by the Company for
future lot inventory is constantly changing. The Company has Land Acquisition
Agreements and finished lot inventory sufficient to satisfy its land
requirements for the next three to four years, and attempts to control land
sufficient for its needs approximately three to five years in advance.
LAND DEVELOPMENT
The Company's operations differ from the majority of home builders in the Twin
Cities MSA in that it is involved in both land development and home building.
Land development is historically the most profitable portion of the Company's
business and an essential element to the success of the Company's home building
business.
During 1995, approximately 77.2% of the homes delivered by Lundgren were built
on lots developed by Lundgren compared to 53.8% in 1994 and approximately 56.5%
in 1993. In the future, the Company's goal is to maintain this percentage in the
range of 70% to 85%. Since inception, the Company has developed 107 residential
subdivisions in the Twin Cities MSA, ranging in size from 3 to 94 lots. In 1995,
the Company commenced the development of eight new residential subdivisions and
in the first six months of 1996 commenced the development of 11 new
subdivisions. See Table 2 --"Subdivisions Developed by the Company."
Once the Company acquires control of undeveloped land, it commences the process
of obtaining zoning and other government approvals necessary for the proposed
development. This process is generally completed in one to three years. The
Company estimates the cost of development of the entire parcel to determine
whether finished lots can be brought to market at a competitive, yet profitable,
price. Periodically during the approval process, the Company normally updates
its market studies to determine both the level of competition by other land
developers and builders which are, or will be, developing subdivisions in the
area, and projected lot absorption rates for that area. If at any time during
the zoning and approval process it appears that the cost of the lots will be too
great for the market, or that the approval process is not progressing
satisfactorily, the Company will cease the zoning and approval process and sell
or abandon its interest in the land. Therefore, because the Company's land
acquisition strategy is to acquire control of the land through Land Acquisition
Agreements structured to require limited initial investment by the Company and
to obtain the necessary zoning and governmental approvals prior to purchasing
the land, the Company minimizes the risk of substantial capital expenditures on
land which it ultimately cannot successfully develop. However, the Company may
spend between approximately $50,000 to $300,000 during the approval process
prior to determining whether it can, or will, develop the land. Nonetheless, the
Company believes that the outlay and potential loss of these pre-development
costs substantially reduces the risks of greater costs and capital expenditures
associated with owning undevelopable land. The Company generally has been
successful in obtaining the necessary zoning and governmental approvals for the
development of its land.
During the zoning and approval process, the Company determines the availability
of utilities, surveys and tests soil conditions on the site, and performs the
required environmental reviews. Upon receipt of final governmental approvals,
the Company will usually complete its purchase of the land and begin site
development.
Site development is the process whereby the undeveloped land is developed into
finished lots ready for home construction. During the initial development stage,
the land is graded and sanitary sewer, watermain, stormsewer, curbs, gutters and
streets are installed. Upon completion of the initial development stage, the
Company landscapes the subdivision and constructs various amenities. The Company
believes that to create a successful subdivision distinguishable from that of
its competitors, it is important to create a neighborhood and a sense of
community. A number of factors are involved in the creation of this sense of
community: a street and lot configuration that arrives at the best balance of
installation and construction costs and the esthetics of the subdivision; the
location, design, landscaping and creation of the entrance; and the creation of
common amenities in the subdivision, such as children's play areas, tennis
courts, swimming pools, basketball courts, gazebos and community open spaces
with trails for neighbors to enjoy the natural beauty of the land.
TABLE 2
SUBDIVISIONS DEVELOPED BY THE COMPANY AND ITS AFFILIATES
The following table summarizes the single family subdivisions in which
development has been completed or substantially completed as of August 1, 1996:
PROJECT # OF LOTS
Amberleaf 18
Autumn Hills 26
Autumn Hill 2nd Addition 24
Bay Pointe on Mooney Lake 36
Bent Tree 41
Bent Tree 2nd Addition 16
Burl Oaks 21
Burl Oaks 2nd Addition 29
Burl Oaks 3rd Addition 25
Chestnut Ridge 4
Chestnut Ridge 2nd Addition 19
Chestnut Ridge 3rd Addition 18
Chestnut Ridge 4th Addition 16
Chestnut Ridge 5th Addition 21
Chestnut Ridge 6th Addition 4
Chestnut Ridge 7th Addition 13
Chestnut Ridge 8th Addition 8
Chestnut Ridge 9th Addition 29
Chippewa Trails 17
Chippewa Trails 2nd Addition 28
Churchill Farms 30
Churchill Farms 2nd Addition 30
Churchill Farms 3rd Addition 10
Churchill Farms 4th Addition 18
Churchill Farms 5th Addition 15
Fairfield Estates 12
Ferndale North 72
Ferndale North 2nd Addition 24
Ferndale North 3rd Addition 55
Ferndale North 4th Addition 26
Fox Run 31
Fox Run 2nd Addition 18
Fox Run 3rd Addition 13
Fox Run 4th Addition 24
Fox Run 5th Addition 10
Foxberry Farms 38
Foxberry Farms 2nd Addition 21
Foxberry Farms 3rd Addition 2
Hadley Place 21
Harbor Woods 28
Heather Run 36
Heather Run 2nd Addition 40
Heather Run 3rd Addition 30
Heather Run 4th Addition 28
Highlands at Lake St. Joe 26
Highlands 2nd Addition 9
McKinley Place 2nd Addition 16
McKinley Place 3rd Addition 28
McKinley Place 4th Addition 10
McKinley Place 5th Addition 35
Meadows at Long Acres 38
Meadows at Long Acres 2nd Addition 26
Meadows at Long Acres 3rd Addition 5
Mill Run 9
Mission Ridge 50
Mission Ridge 2nd Addition 26
Mission Ridge 3rd Addition 23
Mission Trails 26
Near Mountain 44
Plum Tree 36
Quail Ridge 17
Savannah 30
Savannah 2nd Addition 16
Schmidt Lake Estates 39
Seven Ponds East 29
Shiloh 94
Shiloh 2nd 70
Shiloh 3rd 17
Steeplechase 40
Steeplechase 2nd Addition 20
Steeplechase 3rd Addition 31
Steeplechase 4th Addition 15
Steeplechase 5th Addition 12
Steeplechase 6th Addition 12
Steeplechase 7th Addition 12
Steeplechase 8th Addition 18
Summit at Near Mountain 23
Summit at Near Mountain 2nd Addition 19
Sweetwater 28
Sweetwater 2nd Addition 17
Sweetwater 3rd Addition 29
Sweetwater 4th Addition 12
Tamarack 25
Tamarack 2nd Addition 16
Tealwood 12
Trappers Pass 17
Trappers Pass 2nd Addition 18
Trappers Pass 3rd Addition 9
Trappers Pass 4th Addition 20
Willow Bend 15
Willow Ponds 22
Willowbrook 8
WillowRidge 23
WillowRidge 2nd Addition 12
Wind Ridge at Bass Lake 17
Wind Ridge at Bass Lake 2nd 3
Wind Ridge at Bass Lake 3rd 16
Wind Ridge at Bass Lake 4th 3
Wood Creek 59
Woods at Long Acres 30
Woods at Long Acres 2nd 22
Woods at Long Acres 3rd 20
Woodwinds 41
Woodwinds 2nd Addition 30
Woodwinds 3rd Addition 20
Woodwinds 4th Addition 14
Woodwinds 5th Addition 25
TOTAL 2,549
Of the 2,549 lots listed on Table 2, the sales of 2,149, or 84%, had been closed
as of June 30, 1996. The remaining lots are subject to purchase agreements or
are available for sale. The development of all but approximately 358 lots is
complete. The subdivisions in which such 358 lots are located require minor
finishing work, such as laying the final coat of blacktop on the subdivision
streets. The Company expects to complete such finishing work in 1996 and 1997.
HOME BUILDING AND HOME SALES
The Company closed on 80 home sales in the first six months of 1996. The
Company's homes are sold primarily through its own sales staff. The Company also
sells its homes through local realtors. The Company recognizes a sale for
accounting purposes on the closing date of the sale.
TABLE 3
HOME CLOSINGS
Below is a summary of the Company's closings for the periods specified.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
1991 1992 1993 1994 1995 1995 1996
(DOLLARS IN THOUSANDS, EXCEPT NUMBER OF HOMES CLOSED)
<S> <C> <C> <C> <C> <C> <C> <C>
Homes Closed 89 147 216 247 202 77 80
Average Selling Price
of Homes(1) $ 239 $ 268 $ 265 $ 297 $ 311 $ 311 $ 336
Total Volume of
Closed Homes $21,312 $39,388 $57,136 $73,471 $62,796 $23,942 $26,852
</TABLE>
(1) The average selling price per home is affected by the mix of the type of
lots developed, the product line of homes sold and mortgage interest rates.
The Company estimates that the average selling price for its homes in the
year ended December 31, 1996 will be $334,000.
The Company markets its homes primarily to middle and upper income buyers in the
Twin Cities MSA. The Company's promotional efforts include advertisements in
newspapers and other printed media, radio and television, illustrated brochures,
billboards, on-site displays, realtor programs and furnished model homes. Based
upon its experience in the home building business and the comments it receives
from its customers, the Company believes that, in addition to the location and
design of its subdivisions, it has the competitive advantages in the areas of
(a) product design; (b) customer service; (c) quality and customization; (d)
cost control; and (e) its design center.
(a) PRODUCT DESIGN.
The Company designs, and builds from, a variety of standard home plans that can
be customized to some extent by the customer. The Company also designs and
builds true custom homes. The Company employs its own in-house designers, which
it supplements from time to time with national and local architectural firms.
The Company reviews its home designs on a regular basis in order to ensure that
the homes incorporate marketable floor plans that are both desirable and
practical. The Company also monitors local competition to determine whether its
product lines and home designs continue to maintain a competitive design
advantage. Additionally, the Company gets input on new home designs it is
developing from focus groups, which consist of individuals who have purchased
homes in the last six months in approximately the same price range as that of
the new designs. Frequently, this review by the focus groups results in changes
to the Company's new home designs. The Company also periodically examines the
single family home market to determine if certain housing needs within its
market range are not being satisfied and, if so, attempts to design and build
homes to meet such needs.
In addition to implementing its current product lines and having its new home
designs reviewed, the Company utilizes a number of marketing consultants in
cities across the United States having similar climate and housing construction
techniques. During the year, the Company periodically consults with these
marketing consultants to determine what type of houses within the price and
square footage ranges of the product lines offered by the Company are selling
well in other markets. Usually two or three times a year, the Company sends a
team of its employees to study these homes for new ideas that the Company can
use. In recent years, Company employees have traveled to Seattle, Denver,
Chicago, St. Louis, Kansas City, Indianapolis and Washington, D.C. This housing
market review allows the Company's design team to keep the Company's designs
current and to incorporate innovations from around the country.
(b) CUSTOMER SERVICE.
Providing a high level of customer service has always been a priority for the
Company and a part of its competitive strategy. The Company attempts to maintain
personal contact with its customers from their first meeting with the sales
representative, through the construction process and after the closing. This
relationship begins with the Company's sales representatives when the customer
first visits one of the Company's model homes and selects a home plan and lot.
These sales representatives are trained to provide customers with exceptional
service. The Company emphasizes customer service by making it a topic at every
weekly sales meeting with the Vice President --Sales and Marketing, as well as
by making it an important part of the annual sales training program that all the
sales representatives are required to take. The Company's sales representatives
service the customers' needs until the customers' final plans have been approved
for construction. Once approval for construction has been obtained, a
construction coordinator is assigned to the customers. The construction
coordinators have offices at the Company's headquarters and report directly to
the Vice President -- Construction. The construction coordinators handle any of
the customers' concerns, changes, service and warranty work and are available to
talk with customers at any time during the Company's normal business hours.
Additionally, these construction coordinators are specially trained to
understand customers' needs and the importance of solving their problems quickly
and pleasantly.
Building a home is a very complicated process and one in which customers
probably have limited or no experience. Accordingly, the Company has developed a
system to educate its customers as to the Company's procedures and schedule for
everything that will happen from the time a customer signs a purchase agreement,
through the entire construction process and through any service and warranty
work. This system establishes, prior to a customer's signing a purchase
contract, the correct customer expectations and the sequences and timing of
events during the process of building and servicing their home. The system also
explains when customer input is required in order for construction to proceed as
scheduled. The system is summarized for the customer in a comprehensive book
entitled "Building a New Home with Lundgren Bros.," which is given to them after
they have executed a purchase agreement with the Company. Additionally, the
Company monitors on a weekly basis its own procedures and the time it takes to
accomplish the sequence of events outlined in the book to make certain it keeps
its schedule at all times. Moreover, at strategic points in the construction
process, customers are automatically sent letters informing them of the progress
and indicating what is required of them in order to keep on schedule. This
entire process is supplemented by the construction coordinators who are
available to assist customers with anything necessary to make the experience as
smooth as possible.
The Company also employs a system by which to evaluate the quality of its
service and the satisfaction level of its home buyers. The Company telephones
its home buyers at four different times during the term of its relationship with
the home buyers. These telephone calls are designed to get the home buyers'
feedback on how the Company is doing and how the Company is addressing their
problems, if any. The responses the Company receives from these telephone calls,
which are delivered weekly to the President of the Company and the Company's
department heads, are used to give management a qualitative measure as to how
the Company is doing at various critical points during the home building
process. In addition, the Company employs an outside firm to survey Company
customers who have recently closed on a home to determine both how such
customers feel about the treatment that they have received from the Company at
various stages during the home building process and whether they would recommend
the Company to another home buyer.
(c) QUALITY AND CUSTOMIZATION.
Since its inception, the Company has designed and built both custom homes and a
number of standard plan homes that can be customized to a customer's personal
taste. Through a series of meetings with the Company's sales consultants and, if
necessary, its designer, a customer's home plans evolve to a compromise that
balances the customer's wish list and budget. The design process ends in a
detailed final plan review with the customer.
In order to provide home customers the price advantage of a standardized product
line while still providing them with flexibility to customize their home before
and after the final plan review, the Company has integrated its construction
process with a schedule for the customer's required decision-making, contained
in the book "Building a New Home with Lundgren Bros." This book is presented as
soon as a customer has executed a purchase agreement with the Company. The book
coordinates the customer's required input (final plan review, change orders and
selections) with the separate stages of construction. To ensure proper
communication between the customer and the field superintendent, as well as to
provide an inspection process to assure the customer that the construction will
meet the Company's performance standards, four orientation meetings are
scheduled for the customer before the closing: an on-site preconstruction
meeting; a pre-drywall orientation; a preclosing orientation; and a new home
orientation (walk-through). The book also alerts the customer to construction
deadlines for needed customer selections. Additionally, the Company's customer
coordinator helps the customer schedule and complete all the necessary
paperwork, meetings, change orders and selections. Because the Company believes
that its home buyers will increasingly demand more customizing opportunities, it
has positioned itself to take advantage of such a trend.
The purchase price for standard house plans ranges from approximately $190,000
to $550,000 for house and lot. These houses provide between 1,300 and 3,600
square feet of finished space. The purchasers of the Company's standard houses
can select from various base floor plan and elevation combinations, as well as
customize their homes with a selection of changes, features and upgrades. Some
typical features of the Company's floor plans, depending on the subdivision,
are:
* vaulted or higher-than-average ceilings and large decorative windows to
admit natural light
* two story entries which offer a sight line through the house
* incorporation of columns, arches, bridges, niches and wall cutouts, formal
and informal stairways and other design features
* basements, most with windows or outside entries
* two and three car garages.
In addition, purchasers can choose, at additional cost, optional amenities such
as different front elevations for the house, bay windows, decks, cabinets,
upgraded carpets and floor coverings, fireplaces, lighting fixtures, appliances
and hardware.
Custom homes designed and built by the Company have ranged from approximately
$250,000 to $700,000 for house and lot, and have ranged from approximately 2,500
to 5,000 square feet.
(d) COST CONTROL.
In order for the Company to control construction costs, without sacrificing
quality, it must start with the efficient design of its homes. After completion
of the schematic plan of a home for the Company's standard product line, the
construction department, purchasing department and the estimating department
review the plan to ensure the home is designed to minimize the costs of labor
and materials. The sales department also reviews the plan at the same time to
ensure that amenities designed into the home will create value for the home
buyer. The plan is then sent to an outside structural engineer who reviews the
structural integrity of the plan and makes recommendations where necessary.
Additionally, the plan is sent to a truss manufacturer, electrical consultant
and a cabinet maker for additional input and recommendations. The Company then
reviews these recommendations and, if appropriate, incorporates them into the
final plans. Along with the design department, the construction and purchasing
departments also review the final plan and officially approve it for use by the
Company. The purchasing and construction department may seek the advice of
suppliers and subcontractors with respect to better or more cost efficient ways
to design and build the home so as to create more value for the home buyer.
Thereafter, the plan is revised based on all of the above reviews and input into
the Company's Auto Cad system. The Auto Cad computerized architectural design
program creates very detailed drawings of the home and allows the Company to
make changes to the plan rapidly. Once the plan is completed, the purchasing and
estimating departments seek to obtain competitive pricing from local
subcontractors and suppliers. The Company believes it is generally able to
negotiate satisfactory pricing due to both the high volume of work it offers to
its unaffiliated subcontractors and its ability to pay its bills promptly. The
Company has also arranged and is continually attempting to establish direct
purchase relationships with national vendors in order to provide certain items
at a lower price. The Company believes its design center is appealing to these
national vendors because it offers them a professional place to show their
products, while also giving the Company an opportunity to negotiate special
relationships with the national vendors.
The Company utilizes its management information system to monitor all
subcontractor expenditures for each home it builds. Once the home plans are
completed, they are sent to the estimating department, which, using a
computerized estimating system, determines the exact quantities of materials
needed to build the home and the estimated cost associated with using such
materials. This estimated cost is then verified with individual cost quotes or
bids from each subcontractor or supplier. A detailed budget for the home is then
input into the computerized purchase order system which enables the Company to
monitor all of its costs and variances from the original budget for the home.
The Company has one person who is responsible for recording and inputting into
the system variances from the original budget for the home as they occur. This
allows the Company to view on a daily basis any variance on every home under
construction. Management normally has weekly meetings to review all variances so
as to determine the cause and to establish procedures to eliminate such
variances in the future.
The Company also uses its management information system to pay its suppliers and
subcontractors for their completed work on the home. Unless there is an approved
variance purchase order or approved change order that has been entered into the
system, the only amount paid to the suppliers and subcontractors is the amount
which was originally budgeted on the system. With this system, the Company knows
at all times the current cost of each home. If there is a variance from the
original budget, the Company can study the variance when it occurs to determine
what went wrong and how to correct its plans and procedures so the variance will
not occur in the future. By using this system over a period of time, the Company
can determine the most cost efficient way for it to produce its homes. The
Company also monitors its gross margin on each home at four different points in
order to make certain how the actual margin compares to the budgeted one, i.e.,
when the purchase agreement is signed by the Company, after the budget is placed
in the computerized purchase order system, when the home closes and
approximately 45 days after the home closes and all outstanding invoices have
been reviewed and entered into the purchase order system.
(e) DESIGN CENTER.
All of the Company's home buyers can choose from the Company's various base
floor plans and elevation combinations or design a custom plan for themselves.
Home buyers can further customize their home by making a number of selections
and upgrades from the Company's newly completed, state-of-the-art Design Center.
The Design Center is located in a separate building and allows the buyers to
view a wide selection of items. The Design Center currently has seven complete
kitchens, six bathrooms and a screened porch on one level. The lower level of
the Design Center displays numerous items including selections of roofing,
siding, plumbing fixtures, cabinets, interior and exterior doors, carpeting,
floor coverings, counter tops and window treatments. The Company's home buyers
can visit this center as many times as they like. The Company employs interior
decorators who work full time for the Company and staff the Design Center to
assist customers. In addition, the Company's interior design staff will meet
with home buyers on an appointment basis when it is convenient for the home
buyer to make selections, or home buyers can visit the design center, which is
open during weekdays as well as during convenient evening and weekend hours. The
Company is not aware of any other housing company in the Twin Cities that has a
comparable facility. Normally, a home buyer purchasing a home from one of the
Company's competitors will be forced to travel to many different locations
scattered around the city to make their selections from several different
suppliers. This is not only time-consuming, but there is no way of controlling
the quality of service the home buyer will receive at each of these different
suppliers. The Company's home buyers will be able to make the vast majority of
all their selections at the Company's Design Center where they will be assisted
by the Company's trained staff.
INVENTORY MANAGEMENT
Much of the risk in the home building industry is related to excessive
inventory, including undeveloped land, finished lots and completed homes. The
Company attempts to reduce its exposure to excess capital committed to land by
continuously monitoring its undeveloped and finished lot inventory. The Company
tries to purchase land through options and non-recourse contingent purchase
agreements, which reduce the amount of committed capital and permit the Company
to terminate or postpone the ultimate purchase of land that it does not need.
The Company controls its finished lot inventory by developing finished lots in
increments of approximately 20 to 40 lots, which it believes can be sold and
closed in a normal market within one and one-half years from the completion of
lot development. The Company reviews its lot inventory on a weekly basis.
The Company attempts to limit its exposure to an excess inventory of completed
houses by (i) generally not starting construction of a home until execution of a
purchase agreement, receipt of satisfactory earnest money, receipt by the home
buyer of a preliminary mortgage commitment and removal of all contingencies, and
(ii) controlling the number of finished homes held in inventory on a
project-by-project basis and monitoring weekly the sales progress of each
subdivision.
TABLE 4
CURRENT INVENTORY
The following is a summary of the Company's current inventory as of August 1,
1996.
<TABLE>
<CAPTION>
MODEL HOUSE LOT LOTS
SUBDIVISION HOMES INVENTORY HOLDS AVAILABLE
<S> <C> <C> <C> <C>
Amberleaf -- -- -- 2
Bay Pointe -- -- -- 1
Foxberry Farms 1 2 -- 39
Heather Run 1 5 1 10
Highlands at Lake St. Joe 1 3 3 19
Kensington Knolls -- 1 1 36
Meadows at Long Acres 2 4 -- 13
Plum Tree -- 2 -- 34
Rosemary Woods 1 2 -- 31
Savannah 1 3 4 18
Summit 2nd -- -- -- 1
Tamarack 1 3 2 13
Tuckeweye -- -- -- 8
Woods at Long Acres 1 2 1 53
Woodwinds 1 3 5 56
Wynnfield Lake 1 1 -- 1
Wynnfield Meadows -- 1 -- 2
GRAND TOTALS 11 32 17 337
</TABLE>
MODEL HOMES. For sales and marketing purposes, the Company generally will build
one to three model homes in each of its subdivisions. These homes differ from
those in the House Inventory category in that the Company intends to complete
them, including interior furnishings and decorations, in order to market a
particular home plan to potential home buyers. These model homes are not
generally marketed for sale for at least a year or, if earlier, until the
subdivision in which they are located is nearly sold out.
HOUSE INVENTORY. As of August 1, 1996, the Company had 32 houses built or under
construction to be held as inventory. A house is put in this category as soon as
application is made for a building permit. Therefore, these 32 houses could be
at any stage in the construction process. In the Company's experience, these
houses often sell prior to completion. The Company rarely holds many houses in
inventory after completion of construction.
The 32 houses in inventory as of August 1, 1996 were located in 13 different
subdivisions. Houses in inventory are generally marketed to transferee home
buyers. Transferee home buyers have traditionally represented a significant
portion of the Company's sales. A transferee home buyer typically is relocating
for employment, needs a new house within 30 to 60 days and cannot buy a new home
which is not currently under construction because it would take too long to
complete. The Company has actively marketed to this type of buyer for most of
its history. The Company believes that these home buyers are primarily concerned
about the reputation of the builder, location and quality of the subdivision,
the competitive price of the home and the resale potential of the home. The
number of homes held in inventory will vary seasonally and with changes in the
local and national economy.
LOT HOLDS. The Lot Holds category in Table 4 above refers to a lot on which a
home buyer has placed a deposit to reserve the lot while finalizing the purchase
agreement. Lot holds are short-term, usually 30 days or less.
The total of "Model Homes," "Houses in Inventory," "Lot Holds" and "Lots
Available for Future Construction" represents the maximum number of homes the
Company could sell in the next year unless additional lots are developed or
purchased from another developer. As of August 1, 1996, there were 11 "Model
Homes," 32 "Houses in Inventory," 17 "Lot Holds" and 337 "Lots Available for
Future Construction," for a total of 397.
PAINTING AND STAINING SERVICES
Brush Masters provides painting and staining services to the Company and to
unaffiliated residential building contractors. Brush Masters offers value added
services to its contractors and their customers. Such services include blueprint
estimating, advising contractors on recent innovations in paint and stain
products and their application, daily visits from a superintendent to
construction sites, and providing professional stain and paint color selection
service.
Brush Masters currently services approximately 14 residential building
contractors, including three of the largest builders in the Twin Cities MSA.
Brush Masters also provides all of the Company's painting and staining services.
The Company's transactions with Brush Masters are conducted on terms of price,
quality and service that are comparable to terms available in arm's length
transactions. The Company represented 39% of Brush Masters' sales in the first
six months of 1996.
Brush Masters competes with numerous small painting and staining contractors,
generally on the basis of quality and service.
REMODELING
The Company designs and builds residential remodeling projects through its
remodeling division. These projects include complete house renovations, kitchen
remodeling, bathroom remodeling, second story additions, room additions,
finished basements, enclosed porches, decks, and patios. The remodeling division
provides a turn-key operation including design services, architectural plans,
general contracting and final clean-up. The Company maintains a design support
staff with computer aided drafting equipment to prepare the remodeling plans,
and a decorator and interior design center to help with product selection and
client decorating needs. Remodeling projects usually range from approximately
$15,000 to $150,000, with an average remodeling project price of $40,000.
The Company believes that remodeling is a fast growing sector of the home
construction industry. Future growth in remodeling is supported by high new
construction costs that have priced many families out of the new home market, by
families preferring remodeling rather than having to move out of their current
neighborhood, and by a housing stock which is aging, thereby increasing the need
for remodeling and repair. The Company competes with many smaller remodeling
companies and, at least with respect to its design services, with architects and
interior designers.
COMPETITION
The Company faces competition in its land acquisition, land development and home
building activities. While the Company's objective is to purchase and develop
land located in areas where there will be great demand for homes in the future
with limited competition, it, nonetheless, competes with many national builders,
including The Rottlund Companies, U.S. Homes (doing business as Orrin Thompson
Homes), Pulte Homes, Centex Homes, Ryland Homes, Town & Country and D.R. Horton
(doing business as Joe Miller Homes), as well as a number of large local
builders, who also seek to acquire land in the same types of areas. In addition,
the Company faces competition in its land development activities. This
competition principally consists of the larger home builders, mentioned above,
which develop land for their own account, as well as land developers who
specialize in developing for small builders. The Company's home building
activities are also subject to competition from national builders and large and
small local builders. The building and sale of residential properties is highly
competitive and fragmented, and it involves a number of interrelated factors,
including location, product design, perceived value, price and reputation in the
marketplace. With the entrance of the above-referenced national builders into
the Twin Cities market, the home building competition in the Twin Cities has
increased. Additionally, the Company competes with a large number of relatively
small local builders who generally purchase finished lots from unaffiliated
developers, build homes on these lots and then sell them to the public. These
small builders, however, are generally restricted to making a profit only on the
actual sale of the house, while the lot developer realizes the profit on the
sale of the lot. The Company also faces competition with respect to the sale of
the houses it builds with the resale of existing houses and rental homes. See
"Risk Factors -- Competition."
EMPLOYEES
At June 30, 1996, the Company employed 228 full-time employees, including
executive and office personnel, construction superintendents, painters and
general laborers. The Company's employees are not covered by a collective
bargaining agreement and the Company believes its relations with its employees
are good.
GOVERNMENTAL REGULATION
The Company's business is subject to regulation by a variety of state and
federal laws and regulations relating to, among other things, advertising,
collection of state sales and use taxes and product safety. The Company's
development activities are also affected by local zoning ordinances, building
codes and other municipal laws as well as federal, state and municipal
environmental and conservation laws, including, for example, a Minnesota law
regulating development of wetland areas. While the Company believes it is
presently in material compliance with such regulations, in the event that it
should be determined that the Company is not in compliance with all such laws
and regulations, the Company could become subject to cease and desist orders,
injunctive proceedings, civil fines and other penalties.
The Company generally acquires undeveloped land located within the MUSA. The
location and size of the MUSA is regulated by the Metropolitan Council. The MUSA
is the area within the metropolitan area where public services, including roads,
water and sanitary service are permitted by the Metropolitan Council to be made
available. The Metropolitan Waste Control Commission, a regional agency,
regulates the extension of sewer services within the MUSA. Access to public
water and sanitary sewer is necessary to enable the Company, as well as other
developers, to develop undeveloped land economically. There is a limited amount
of land within the MUSA available for development. Accordingly, competition for
prime land within the MUSA will likely increase. The Company has attempted to
acquire what it believes are some of the best undeveloped parcels of land within
the MUSA in the western suburbs of the Twin Cities metropolitan area.
Occasionally, the Company has acquired land outside the MUSA and successfully
assisted the municipalities in which such land was located in obtaining
extension of the MUSA line to include such land. The process of seeking an
extension can be costly and time-consuming, thus adding to the cost of such
land, and there can be no assurance that the extensions sought will be granted.
ENVIRONMENTAL AND LEGAL PROCEEDINGS
The Company currently is not subject to any environmental litigation or
administrative proceedings. The Company is not currently involved in any legal
proceedings other than those arising in the ordinary course of business.
The Company believes that its potential liability for environmental concerns can
arise in one of two contexts: (a) liability could arise with respect to
substances that are in, under or on land which the Company intends to acquire;
or (b) liability could arise in connection with how the Company intends to
develop the land. With respect to a substance in, under or on land for which the
Company could face environmental liability, the Company performs a Phase I
environmental audit prior to exercising an option. If the audit uncovers any
environmental hazards on the land, the Company would not exercise the option
unless the hazard could be corrected at a reasonable cost. With respect to
liabilities in connection with a planned development, the Company obtains the
federal and state permits necessary for building and development before it
exercises the options. If a planned development is not permissible under
environmental laws, the Company will not exercise the option. The Company's
operations are generally small enough (subdivisions typically are less than 100
acres in size) that no environmental impact statement is required prior to
development.
FACILITIES
The Company's corporate offices are located at 935 East Wayzata Boulevard,
Wayzata, Minnesota 55391 and consist of approximately 11,000 square feet. The
Company leases these offices from a related partnership. The lease expires March
31, 2009 and calls for monthly rental and tax escrow payments of approximately
$11,500, subject to annual adjustments. See "Certain Transactions." The Company
also owns property in Wayzata, Minnesota which it utilizes as its Design Center.
In addition, the Company leases the following properties in Minnesota:
<TABLE>
<CAPTION>
INDUSTRY SQUARE LEASE MONTHLY EXPIRATION
TYPE SEGMENT FEET LOCATION PAYMENT DATE
<S> <C> <C> <C> <C> <C>
Warehouse New homes 1,120 Loretto $ 650 month to month
Office/Warehouse New homes 8,450 Medina $3,000(1) 4/30/98
Office Remodeling 4,500 Oakdale $2,062 2/28/97
</TABLE>
(1) Does not include required additional payments for operating expenses.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The current executive officers, directors and managers of Lundgren are as
follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
<S> <C> <C>
Peter Pflaum 53 President and Director, Executive Committee Member
Terrance M. Forbord 45 President -- Land Development Division, Executive Committee
Member
James L. Weaver 42 Vice President -- Construction, Executive Committee Member
Allan D. Lundgren 54 Vice President -- Purchasing, Secretary/Treasurer and
Director, Executive Committee Member
Brian E. Gilgosch 48 Vice President -- Sales and Marketing, Executive Committee
Member
Peter T. Beucke 37 Director of Design, Executive Committee Member
Laurie A. Vercnocke 46 Controller, Executive Committee Member
Michael A. Pflaum 52 Vice President -- Land Development
Patrick C. Wells 53 Director and President -- Remodeling Division
Edmund M. Lundgren 58 Vice President and Director
Gerald T. Lundgren 56 Vice President
</TABLE>
PETER PFLAUM has been President and a Director of the Company since October 1972
and serves as the chief executive officer. In addition to his executive duties,
Mr. Pflaum supervises the land acquisition and land development activities,
negotiates the Company's credit facilities, manages the Company's lot inventory,
and supervises sales, marketing and product development. He is the brother of
Michael A. Pflaum, a vice president of the Company.
TERRANCE M. FORBORD has served as President - Land Development Division since
August 1996 and Vice President - Land Development of the Company since April
1988. In this position, he supervises the land acquisition and land zoning
activities of the Company. Prior to joining the Company, he was Vice President
of Residential Development for the Scotland Company and a sales manager/broker
for Scott Realty and Coldwell Banker's Scott Real Estate.
JAMES L. WEAVER has been Vice President - Construction since August 1995 and was
a production manager from February 1994 to August 1995. In the position of Vice
President - Construction, he is responsible for daily construction activities,
coordination with project managers assigned to each community, training and
development of construction staff, and oversight of the service and estimating
departments. From October 1983 until March 1993 Mr. Weaver served in various
positions with Pulte Homes, most recently as a production manager. From March
1993 until February 1994, Mr. Weaver worked as an independent contractor and
consultant doing building, remodeling and consulting on building projects.
ALLAN D. LUNDGREN has been Vice President - Purchasing and
Secretary/Treasurer since February 1994 and October 1972, respectively, and
was previously Vice President - Construction. He has been a Director of the
Company since October 1972. He is the brother of Edmund M. Lundgren and
Gerald T. Lundgren.
BRIAN E. GILGOSCH joined the Company as Vice President - Sales and Marketing
in March 1994. In this position, he supervises all sales and marketing
activities of the Company. From April 1988 to March 1994, Mr. Gilgosch was
Vice President of Sales and Marketing for Henderson Homes, Inc. in Seattle,
Washington where his responsibilities were similar to his current
responsibilities.
PETER T. BEUCKE has been a Director of Design since July 1995. In this
position, he is responsible for product design and coordination of product
implementation. From 1989 until 1995, Mr. Beucke was Regional Architectural
Manager for Kaufman & Broad in California.
LAURIE A. VERCNOCKE has been Controller since May 1996. In this capacity, she
is responsible for supervising the financial management, accounting,
information systems and office management. From 1987 until 1996, Ms.
Vercnocke was Controller for Cambridge Homes, Inc. in Chicago, Illinois,
where she supervised the accounting and finance areas. From 1982 until 1987,
she was Controller-Treasurer of Westfield Development Co., another Chicago
area homebuilder.
MICHAEL A. PFLAUM has been Vice President - Land Development of the Company
since January 1988. In this position, he supervises all of the construction
activities related to land development and also aids in the approval process for
such development. He is the brother of Peter Pflaum.
PATRICK C. WELLS has served as President - Remodeling Division since May 1991
and has been a Director of the Company since October 1972. From 1971 to 1980, he
was employed by the Company as General Manager and from 1980 until May 1991, he
remained a Director of the Company and was employed as President of Patrick C.
Wells Associates Inc., a company specializing in film making. Mr. Wells also
served as Vice President - Finance and Administration from June 1992 until
September 1994.
EDMUND M. LUNDGREN has been Vice President and a Director of the Company
since October 1972. In this capacity, he currently is involved with the
Company's quality control process. He is the brother of Gerald T. Lundgren
and Allan D. Lundgren.
GERALD T. LUNDGREN has been Vice President of the Company since October 1972.
In this capacity, he currently is a construction project manager. He also
served as a Director of the Company from October 1972 to December 1989. He is
the brother of Allan D. Lundgren and Edmund M. Lundgren.
The Executive Committee is a group of the senior management of the Company that
meets weekly to solve problems, make major decisions, formulate goals and act on
plans for the Company. Each member of the group is responsible for a functional
area of the Company.
The officers of the Company are elected annually and serve at the discretion of
the Board of Directors. None of the Company's officers is employed pursuant to a
written employment contract.
COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid by the Company to its five
most highly compensated executive officers for the last three fiscal years.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) COMPENSATION ($)(1)
<S> <C> <C> <C> <C> <C>
Peter Pflaum 1995 191,848 380,000 0 1,875
President 1994 175,000 338,000 0 2,310
1993 177,174 494,000 0 2,249
Patrick C. Wells 1995 90,080 148,000 0 1,875
President Remodeling 1994 85,000 107,000 0 2,310
Division 1993 87,540 228,000 0 2,249
Allan D. Lundgren 1995 85,000 104,000 0 1,875
Vice President - 1994 85,000 105,000 0 2,310
Purchasing 1993 87,400 151,000 0 2,249
Terrance M. Forbord 1995 140,962 100,000 4,800 1,875
President - Land 1994 128,320 150,000 4,500 2,249
Development Division 1993 123,545 100,000 3,600 2,162
Gerald T. Lundgren 1995 60,000 92,000 0 1,875
Vice President 1994 59,420 92,000 0 2,310
1993 55,084 135,000 5,400 2,249
</TABLE>
(1) Consists of a matching contribution by the Company to the Company's
401(k) plan.
The Company traditionally pays bonuses to certain executive officers, as
specified in the Summary Compensation Table above. The amount of bonus paid an
officer is related to (a) the Company's performance and (b) that individual
officer's performance, for the fiscal year just ending. Therefore, the amount of
bonus paid to an individual officer, and the aggregate amount of bonuses paid,
will vary from year to year. The terms of the Indenture restrict aggregate
annual bonuses paid to executive officers who are also shareholders to 50
percent of the Company's income before provision for income taxes and such
bonuses for that year.
The Company does not have a Compensation or Audit Committee of the Board of
Directors. Peter Pflaum and Patrick C. Wells perform the functions equivalent to
a Compensation Committee in that they make decisions and recommendations
regarding compensation.
Directors of the Company are not compensated for their services as directors.
CERTAIN TRANSACTIONS
The Company leases its corporate office building from Glenbrook Office Building
Partnership ("Glenbrook") under a lease which expires March 31, 2009. The annual
rental payments made by the Company under this lease are approximately $138,000,
including property tax escrow payments. Peter Pflaum and Patrick C. Wells are
each general partners of Glenbrook, with partnership interests of 3.75% and
1.5%, respectively. The limited partners in Glenbrook are as follows: the
Company owns 15.23%; Allan D. Lundgren, a director and officer of the Company,
owns 3.75%; Edmund M. Lundgren, a director and officer of the Company, owns
3.75%; Gerald T. Lundgren, an officer of the Company, owns 3.75%; Rosalynd C.
Pflaum, the mother of Peter Pflaum, owns 47.26%; and Stuart Wells, the brother
of Patrick C. Wells, owns 21.01%.
The Company owns, as a limited partner, a 52.17% interest in Tealwood Limited
Partnership, a partnership of which Peter Pflaum and Patrick C. Wells are
general partners holding 10.16% and 6.78% interests, respectively. Gerald T.
Lundgren and Michael A. Pflaum, officers of the Company, each own 3.52%. The
balance is owned by unrelated third parties. This partnership currently holds
approximately $100,000 in cash and two parcels of land available for the
construction of four to six townhomes. This partnership has not been active
since 1987.
The shareholders of the Company have loaned money to the Company from time to
time. The Company has used the proceeds of such loans for working capital. Such
loans bear interest equal to the highest rate the Company is then paying under
its credit facilities with banks, institutional and specialized industry
lenders. The loans are generally repaid by the Company before the end of the
following fiscal year. In 1995, the shareholders loaned an aggregate of
$357,000, $329,000 of which was outstanding as of June 30, 1996, to the Company.
In 1994, the shareholders loaned an aggregate of $248,000 to the Company. The
shareholders are not obligated to make any such loans to the Company in the
future. The Company currently has sufficient capacity under its Credit
Agreements to fund its operations without utilizing these loans.
The Company and its shareholders have entered into a Contribution Agreement
whereby each shareholder has agreed to contribute funds to the Company in the
event of the Company's default under certain of its unsecured indebtedness,
including the 1993 Subordinated Debentures and any Parity Indebtedness (as
defined in the Indenture under which the 1993 Subordinated Debentures were
issued). The obligations of the shareholders under the Contribution Agreement
terminated when the audited consolidated tangible net worth, as defined, of the
Company exceeded $4.5 million. This occurred as of December 31, 1994 when the
audited consolidated tangible net worth of the Company was $4.7 million.
Thereafter, under the terms of the Contribution Agreement, during any period in
which the audited consolidated tangible net worth of the Company falls below
$4.5 million, the Company will defer payment of bonuses to executive officers
who are also shareholders of the Company.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the ownership of
Lundgren's common stock as of June 30, 1996 by each person who is known by
Lundgren to beneficially own more than 5% of Lundgren's common stock, by each of
Lundgren's Directors, and by all Directors and executive officers as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS TITLE OF NUMBER OF SHARES PERCENT OF CLASS
OF BENEFICIAL OWNER CLASS BENEFICIALLY OWNED(1) OUTSTANDING(1)(2)
<S> <C> <C> <C>
Peter Pflaum Voting Common 297 50.0%
935 East Wayzata Boulevard Non-voting Common 4,166 41.5%
Wayzata, MN 55391
Patrick C. Wells Non-voting Common 1,845 18.4%
935 East Wayzata Boulevard
Wayzata, MN 55391
Edmund M. Lundgren Voting Common 99 16.7%
935 East Wayzata Boulevard Non-voting Common 1,340 13.3%
Wayzata, MN 55391
Allan D. Lundgren Voting Common 99 16.7%
935 East Wayzata Boulevard Non-voting Common 1,340 13.4%
Wayzata, MN 55391
Gerald T. Lundgren Voting Common 99 16.6%
935 East Wayzata Boulevard Non-voting Common 1,340 13.4%
Wayzata, MN 55391
All officers and directors as a Voting Common 594 100.0%
group (8 persons) Non-voting Common 10,031 100.0%
</TABLE>
(1) Each person named has sole voting and investment power with respect to all
of his outstanding shares.
(2) The percentage calculation is based upon 594 shares of voting common stock
and 10,031 shares of non-voting common stock outstanding on June 30, 1996.
STOCK PURCHASE AGREEMENT
The outstanding shares of common stock of the Company are subject to the terms
of the Amended and Restated Stock Purchase Agreement, dated February 1, 1993
(the "Agreement"), as amended on April 1, 1993 and January 1, 1994. The
Agreement provides that members of the "Lundgren Block" (Edmund M. Lundgren,
Gerald T. Lundgren and Allan D. Lundgren) have the first option to purchase
shares of other Lundgren Block members in the event of a voluntary sale,
involuntary transfer or termination of employment of other members of the
Lundgren Block, with the "Pflaum-Wells Block" and the Company having successive
options to purchase the shares if the previous option holders fail to do so.
Members of the "Pflaum-Wells Block" (Peter Pflaum and Patrick Wells) have a
similar first option to purchase shares of the other Pflaum-Wells Block member.
The Company must purchase the non-voting shares of any shareholder in the event
of a shareholder's disability or death. Members of that Block have the right to
purchase a disabled or deceased Block member's voting shares and, if the right
is not exercised, the Company must do so.
The purchase price for shares of stock under the Agreement is the lesser of
twice the book value per share or $282.35 per share, but shall not exceed
$658.82 per share in the event of death or $470.58 per share in the event of
disability. A purchase by the Company in the event of disability or death is
fully funded by disability or life insurance, respectively, payable entirely at
closing or, in the event of Peter Pflaum's disability, a portion being payable
at closing with the balance of insurance payments being payable in 60 equal
monthly installments. The price per share payable by the Company in the event of
a shareholder's disability or death may never exceed the amount of insurance
proceeds the Company is to receive divided by the number of shares that it is
required to purchase. In the event of a voluntary sale, involuntary transfer or
termination of employment, twenty-five percent of the purchase price shall be
paid at closing with the balance payable in 60 equal monthly installments.
An option held by any shareholder upon an occurrence giving rise to an option is
assignable with the consent of all shareholders.
DESCRIPTION OF DEBENTURES
GENERAL
The Debentures are to be issued under an Indenture (the "Indenture"), dated as
of September , 1996, between Lundgren and National City Bank of Minneapolis,
National Association, as trustee (the "Trustee"). The form of the Indenture was
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. The following statements are summaries of certain provisions of the
Debentures and the Indenture and do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all of the provisions
of the Indenture, including the definitions therein of certain terms (generally
capitalized when used herein), which provisions and definitions are incorporated
herein by reference. The article and section numbers in parenthesis refer to
articles and sections of the Indenture, which are intended to be incorporated
herein by reference.
The Debentures to be issued under the Indenture will be limited to $3,000,000
aggregate principal amount. They will be unsecured obligations of Lundgren, will
not have the benefit of a sinking fund for the retirement of principal and will
be subordinate in right of payment to all existing and future Senior
Indebtedness as defined in the Indenture. The Debentures will mature on
, 2004.
Interest on each Debenture will accrue from , 1996 or, with respect to
Debentures sold after a subsequent quarterly interest payment date, the most
recent quarterly interest payment date, at the rate per annum stated on the
front cover of this Prospectus (or the Prospectus Supplement, if applicable).
Interest is payable quarterly on the first day of each calendar quarter
("Interest Payment Dates") commencing on January 1, 1997, to the person in whose
name the Debenture is registered, at the close of business on the Regular Record
Date which is the 15th day of the calendar month next preceding such Interest
Payment Date. Principal and interest will be payable at the office or agency to
be maintained by Lundgren in Wayzata or Minneapolis, Minnesota (initially in
Minneapolis, the principal office of the Trustee), except that, at its option,
Lundgren may pay interest by check mailed directly to the address of the person
entitled thereto as it appears on the Debenture Register. (Section 3.1.)
Lundgren will issue the Debentures only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000.
(Section 3.2.) Lundgren will not assess a service charge for any transfer or
exchange of the Debentures, but it may require payment of a sum sufficient to
cover the tax or governmental charge payable in connection therewith. Holders
may transfer the Debentures by surrendering them for transfer at the office of
the Trustee. (Section 3.5.)
REDEMPTION AT THE OPTION OF LUNDGREN
The Debentures will be subject to redemption at the option of Lundgren, in whole
or in part, from time to time, commencing on October 31, 1998, upon not less
than 30 days' nor more than 60 days' notice mailed to the Holders thereof, at
the Redemption Prices established for the Debentures, together, in each case,
with interest accrued to the date fixed for redemption (subject to the right of
a Holder on the Regular Record Date for an interest payment to receive such
interest). (Section 11.1.) The Redemption Prices for the Debentures (expressed
as a percentage of the principal amount) shall be as follows for Debentures
redeemed in the 12-month periods beginning October 31 of each of the following
years:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
1998 105%
1999 104%
2000 103%
2001 102%
2002 101%
2003 100%
</TABLE>
Lundgren may elect to redeem less than all of the Debentures. If Lundgren elects
to redeem less than all of the Debentures, the Trustee will select which
Debentures to redeem, using such method as it shall deem fair and appropriate,
which may include the selection for redemption of a portion of the principal
amount of any Debenture of any authorized denomination. (Section 11.4.)
MANDATORY REDEMPTION
Upon the occurrence of a Change of Control, the Company shall immediately redeem
the Debentures in whole, at the principal amount thereof, premium, if any, and
accrued interest unless the Company obtains the consent of the holders of
two-thirds of the aggregate principal amount of Debentures outstanding. There is
no assurance that the Company will be able to fund this mandatory redemption
obligation if a Change of Control occurs. Under the Indenture a Change of
Control is defined as (i) any sale, transfer or other disposition of more than
twenty-five percent (25%) of the voting Equity Securities of the Company
outstanding in one transaction or in a series of transactions occurring within a
twelve-month period (except for the redemption or repurchase by the Company of
shares of voting Equity Securities owned by Allan D. Lundgren, Edmund M.
Lundgren, Gerald T. Lundgren or Patrick C. Wells, or a transfer of ownership as
a result of the death of a shareholder of the Company; or (ii) the issuance of
additional voting Equity Securities of the Company in one transaction or in a
series of transactions occurring within a twelve-month period which results in a
Person acquiring, directly or indirectly, more than forty percent (40%) of the
voting power of the Company.
LIMITED RIGHT OF REPAYMENT UPON DEATH
Lundgren, upon the death of any Holder* will repay the Debentures beneficially
owned by such Debentureholder, up to $25,000 principal amount, on request if (a)
the Debentures have been registered in the Debentureholder's name since the Date
of Issue or for a period of at least six months prior to the date of the
Debentureholder's death, whichever is less, (b) either Lundgren or the Trustee
has been notified in writing of the request for repayment within 180 days after
death, (c) Lundgren has not redeemed more than $200,000 principal amount of
Debentures within the preceding twelve-month period and (d) Lundgren is not in
default under the Debentures or under the Senior Indebtedness. The Debentures
for which repayment is made will be repaid at the principal amount thereof,
together with interest accrued to the repayment date, within 30 days following
receipt by Lundgren or the Trustee of the following: (i) a written request for
repayment signed by a duly authorized representative of the Debentureholder,
which shall indicate the name of the deceased Debentureholder, the date of his
death, and the principal amount of the Debentures to be repaid, (ii) the
certificates representing the Debentures to be repaid, and (iii) evidence
satisfactory to the Trustee and Lundgren of the death of such deceased Holder
and of the authority of the representative to the extent required by the
Trustee. The request for repayment may be withdrawn by the deceased
Debentureholder's authorized representative at any time prior to issuance of the
repayment check by Lundgren. Authorized representatives of a Debentureholder
shall include executors, administrators, or other legal representatives of an
estate, trustee of a trust, joint owners of the Debentures owned in joint
tenancy or in tenancy by the entirety, custodians, conservators, guardians,
attorneys-in-fact and other persons generally recognized as having legal
authority to act on behalf of another. (Section 13.1.)
* For this purpose, the death of a tenant by the entirety, joint tenant,
or tenant in common (but only to the extent of such Holder's interest)
will be deemed the death of the Debentureholder. The death of a person
who, during his lifetime, was entitled to substantially all of the
beneficial interest or ownership of a Debenture, will be deemed the
death of the Debentureholder, regardless of the registered holder, if
such beneficial interest can be established to the satisfaction of the
Trustee. Such beneficial interest will be deemed to exist in typical
cases of street name or nominee ownership (including ownership of an
individual retirement account or other similar account), ownership
under the Uniform Gifts to Minors Act, community property or other
joint ownership arrangements between a husband and wife, and trust
interest in a Debenture during his or her lifetime. Beneficial
interests shall include the power to sell, transfer, or otherwise
dispose of a Debenture and the right to receive the proceeds therefrom,
as well as interest and principal payments with respect thereto.
SUBORDINATED, PARITY AND SENIOR INDEBTEDNESS
Upon liquidation or reorganization of Lundgren, the Debentures will be senior in
right of payment to any Subordinated Indebtedness that may be issued in the
future by Lundgren or payments with respect to common stock of Lundgren and any
preferred stock or other class of capital stock that Lundgren may authorize and
issue. The rights of Lundgren and its creditors to participate in the assets of
any Subsidiary upon liquidation or reorganization of a Subsidiary (as a result
of Lundgren's ownership of such Subsidiary) are subject to the prior claims of
the Subsidiary's creditors except to the extent Lundgren may itself be a
creditor with recognized claims against the Subsidiary.
The Debentures will be subordinated and junior in right of payment to Senior
Indebtedness of Lundgren to the extent set forth in the Indenture. (Section
12.1.) During the continuance of any default in payment of Senior Indebtedness,
no payment may be made by Lundgren on or in respect of the Debentures. (Section
12.3.) In the event of any dissolution, winding-up, liquidation, or
reorganization of Lundgren (whether in bankruptcy, insolvency, or receivership
proceedings or upon an assignment for the benefit of creditors or otherwise),
the holders of Senior Indebtedness then outstanding will be entitled to receive
payment in full of all such Senior Indebtedness before the holders of the
Debentures are entitled to receive any payment on account of the principal of,
premium, if any, or interest on the Debentures. Such subordination will not
prevent the occurrence of an Event of Default. (Section 12.2.)
"Senior Indebtedness" is defined in the Indenture as the principal of, premium
(if any) and interest on any and all Indebtedness of Lundgren (other than the
Debentures, Parity Indebtedness and Subordinated Indebtedness) incurred in
connection with (a) the borrowing of money (whether secured or unsecured) from
or guaranteed to banks, trust companies, insurance companies and other financial
institutions; (b) all Indebtedness to specialized industry lenders to the extent
it is secured by real estate and/or assets of Lundgren (including the cash value
of life insurance), evidenced by bonds, debentures, mortgages, notes or other
securities or other instruments; (c) obligations under capitalized leases as
determined by GAAP; and (d) other non-recourse obligations to third parties
(which are not options or contingent purchase agreements which Lundgren has the
right to terminate unilaterally) in connection with the acquisition of land;
created, incurred, assumed or guaranteed by Lundgren before, at or after the
date of execution of the Indenture, and all renewals, extensions and refundings
thereof, unless in the instrument creating or evidencing any such Indebtedness
or pursuant to which such Indebtedness is outstanding, it is provided that such
Indebtedness, or such renewal, extension or refunding thereof, is junior or is
not superior in right of payment to the Debentures. As of June 30, 1996, there
was approximately $32.2 million of Senior Indebtedness of Lundgren outstanding.
Subject to a maximum debt-to-equity ratio covenant, the Indenture contains no
other limitations on the amount of Senior Indebtedness.
"Parity Indebtedness" is defined in the Indenture as any and all Indebtedness of
Lundgren created, incurred, assumed, or guaranteed by Lundgren before, at, or
after the date of execution of the Indenture which (a) matures by its terms, or
is renewable at the option of Lundgren to a date, more than one year after the
date of the original creation, incurrence, assumption, or guaranty of such
Indebtedness by Lundgren and (b) contains covenants, conditions and restrictions
on the Company which are consistent with and do not violate any of the
covenants, conditions and restrictions contained in the Indenture, and (c) is
neither Senior Indebtedness nor Subordinated Indebtedness, including, without
limitation, the 1993 Subordinated Debentures. (Section 10.10.)
"Subordinated Indebtedness" is defined in the Indenture as any and all
Consolidated Indebtedness of Lundgren created, incurred, assumed, or guaranteed
by Lundgren before, at, or after the date of execution of the Indenture which,
by the terms of the instrument (or any supplemental instrument) creating or
evidencing such Consolidated Indebtedness or pursuant to which such Indebtedness
is outstanding, (a) it is provided that such Indebtedness, or any renewal,
extension, or refunding thereof, is expressly subordinate and junior in right of
payment to the Debentures (whether or not subordinated to any other Indebtedness
of Lundgren) or (b) it is not, by its terms, Senior Indebtedness or Parity
Indebtedness. The Indenture contains no limitation on the amount of Subordinated
Indebtedness.
"Consolidated Indebtedness" is defined in the Indenture as all Indebtedness
of the Company and its Consolidated Subsidiaries (excluding intercompany
items and all Shareholders Subordinated Debt), after making appropriate
deductions for any minority interests.
"Funded Debt" is defined in the Indenture as the sum of Senior Indebtedness, the
Debentures Outstanding, Parity Indebtedness and Subordinated Indebtedness
(except Shareholders Subordinated Debt) less Debt Restricted Cash.
"Shareholders Subordinated Debt" is defined in the Indenture as any borrowing by
the Company from its shareholders which is evidenced by a note or other
instrument and expressly made Subordinated Indebtedness as required by Section
10.11 of the Indenture and which has a stated maturity which is later than the
Stated Maturity of the Debentures.
"Stated Maturity" is defined in the Indenture to mean, when used with respect to
any Debenture or any installment of interest thereon, the date specified in such
Debenture as the fixed date on which the principal of such Debenture or such
installment of interest is due and payable.
"Consolidated Tangible Net Worth" means the dollar amount of: (a) the tangible
assets of the Company and its Consolidated Subsidiaries (excluding intercompany
items), as defined in the Indenture, after deducting for minority interests and
adequate reserves in each case where, in accordance with generally accepted
accounting principles, a reserve is proper, in excess of (b) the aggregate
amount of Consolidated Indebtedness and Shareholders Subordinated Debt;
provided, however, that (i) inventory shall be taken into account on the basis
of the cost or current market value, whichever is lower, (ii) in no event shall
there be included as such tangible assets (a) any assets typically classified as
intangible assets, including but not limited to patents, trademarks, trade
names, copyrights, licenses, goodwill and debt issuance costs, or (b) treasury
stock or any securities or Indebtedness of the Company or a Consolidated
Subsidiary, or any other equity, convertible or unsecured debt securities unless
the same are readily marketable in the United States of America or entitled to
be used as a credit against Federal income tax liabilities, and (iii) securities
included as such tangible assets shall be taken into account at their current
market price or cost, whichever is lower, and (iv) any write-up in the book
value of any assets subsequent to December 31, 1995, shall not be taken into
account. The Consolidated Tangible Net Worth as of December 31, 1995 was
$5,968,000.
"Debt Restricted Cash" means the unborrowed portion of any land development
loans to the Company held in restricted bank accounts under financing
arrangements substantially similar to such loans made to the Company in the
past.
There are no restrictions upon Lundgren regarding the creation of additional
Senior or Subordinated Indebtedness, except that Lundgren may not incur
additional Funded Debt which would exceed seven times the Consolidated Net Worth
of Lundgren, nor may it publicly offer to sell any of its long-term Indebtedness
in connection with the borrowing of money, if such Indebtedness would have a
stated maturity, (exclusive of sinking fund payments) earlier than the Stated
Maturity of Debentures unless such Indebtedness otherwise complies with the
covenants and restrictions otherwise imposed by the Indenture. See "Certain
Covenants" below. Lundgren has agreed to cause all Indebtedness to Affiliates of
Lundgren, except for an existing office lease with an affiliated partnership, to
be expressly subordinate and junior in right of payment to the Debentures.
(Section 10.11.)
The Indenture permits the Trustee to become a creditor of Lundgren and does not
preclude the Trustee from enforcing its rights as a creditor, including rights
as a holder of Senior Indebtedness.
CERTAIN COVENANTS
LIMITATION ON ADDITIONAL FUNDED DEBT; MINIMUM NET WORTH
Pursuant to the terms of the Indenture, Lundgren may not, nor may it permit its
Subsidiary to, create, incur, assume or issue other Indebtedness (i) of the
ratio of Funded Debt to Consolidated Tangible Net Worth plus Shareholder
Subordinated Debt of the Company would exceed 7 to 1 (Section 10.15). Compliance
with this covenant shall be measured on the last day of each calendar quarter.
Furthermore, the Indenture requires Lundgren to maintain at all times until
Maturity of all Debentures, a Consolidated Tangible Net Worth (as defined in
Section 10.16) determined as of December 31 of each year, with compliance
measured quarterly, of at least Five Million Dollars ($5,000,000) plus 50% of
the Consolidated Net Income earned after December 31, 1995, assuming solely for
purposes of this covenant that the maximum Management Bonuses which may be paid
pursuant to the covenant in Section 10.12 are paid and income taxes are paid on
such assumed net income level.
RESTRICTION ON DIVIDENDS AND OTHER MATTERS
Under the terms of the Indenture, Lundgren is prohibited from declaring or
paying any dividend, making any redemption (except as provided pursuant to an
insurance funded buy-sell agreement covering the disability or death of a
shareholder (the "Buy-Sell") or pursuant to a Buy-Sell during the lifetime of a
shareholder if purchased under a debt obligation which is Subordinated
Indebtedness with a minimum term of five years with equal annual payments), or
making any other distribution on any Equity Securities of Lundgren (except
dividends or distributions payable in Equity Securities of Lundgren), and
neither Lundgren nor any Subsidiary may acquire any such Equity Securities
except pursuant to the Buy-Sell if, after giving effect thereto, the aggregate
payments for all such purposes subsequent to December 31, 1995 would exceed the
sum of (a) 50% of the Consolidated Net Income accumulated subsequent to December
31, 1995, (b) the aggregate of the net proceeds received by Lundgren or a
Wholly-Owned Subsidiary from the issuance or sale after December 31, 1995 (other
than to a Subsidiary or upon conversion of Equity Securities or Indebtedness of
Lundgren or a Wholly-Owned Subsidiary) of Equity Securities of Lundgren for cash
or other property, (c) the aggregate of the net proceeds received by Lundgren or
a Wholly-Owned Subsidiary from the issuance or sale (other than to Lundgren or a
Subsidiary) for cash or other property, of any Indebtedness of Lundgren which is
converted into Equity Securities of Lundgren. (Section 10.9(a).) Lundgren will
not pay any dividend or make any other distribution (other than dividends paid
or distributions made in Equity Securities of Lundgren) on any Equity Securities
of Lundgren, and neither Lundgren nor any Subsidiary may acquire such Equity
Securities, if, after giving effect thereto, the Consolidated Tangible Net Worth
of the Company would be reduced to less than an amount equal to one hundred
fifty percent (150%) of the aggregate principal amount of the Debentures and
other Parity Indebtedness then outstanding. (Section 10.9(b).)
The foregoing restrictions would not prevent (a) the acquisition of Equity
Securities of Lundgren solely in exchange for, or upon conversion of, other
Equity Securities of Lundgren, or the acquisition of Equity Securities of
Lundgren due to the application of the net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary) of other Equity Securities
of Lundgren, (b) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date such declaration complies with the
provisions of the Indenture, or (c) the payment by Lundgren of a bonus each year
to key employees, executive officers and shareholder employees of Lundgren in an
aggregate amount up to, but not exceeding, 50% of the income, before provision
for income taxes and such bonuses, of Lundgren for the year then ending
("Management Bonuses"). (Section 10.9(c).) Such Management Bonuses are expressly
subordinate and junior in right of payment to the Debentures and Parity
Indebtedness (Section 10.14). Lundgren will not sell any Equity Securities of a
Subsidiary, or permit a Subsidiary to issue its own Equity Securities, other
than to Lundgren or a Subsidiary, except in certain limited circumstances.
(Section 10.14.)
RESTRICTIONS ON MERGER AND SALES OR ACQUISITION OF ASSETS
Under the terms of the Indenture, Lundgren may not consolidate with, merge into,
transfer or lease assets as, or substantially as, an entirety to, another
corporation unless such other corporation assumes Lundgren's obligations under
the Debentures and the Indenture and unless the resulting consolidated entity
meets a specified minimum Consolidated Tangible Net Worth test.
Lundgren may not consolidate with, merge with, transfer or lease assets as, or
substantially as, an entirety to another corporation or acquire another business
unless, after giving effect thereto, the resulting corporation shall have a
Consolidated Tangible Net Worth of not less than Five Million Dollars
($5,000,000) plus 50% of the Consolidated Net Income earned after December 31,
1995, or unless such transaction otherwise shall have been approved by the
Holders of 66-2/3% of the Debentures Outstanding. (Section 8.1.)
If the Consolidated Tangible Net Worth of the entity resulting from any merger,
reorganization or other acquisition will meet the standards listed above (as
evidenced by an officer's certificate and opinion of counsel), Lundgren will
have no obligation to seek the consent of the Debentureholders prior to
consummating the transaction, regardless of the size of the transaction or the
debt incurred by the Company in connection with the transaction.
With the exception of the net worth covenant described above, the Indenture does
not contain any provisions which afford the Debentureholders protection from a
highly leveraged transaction by the Company.
TRANSACTIONS WITH AFFILIATES
Under the terms of the Indenture, and subsequent to the date thereof, Lundgren
may not, and may not permit any Subsidiary to, engage in certain types of
transactions with any Affiliate of Lundgren (other than a Subsidiary) unless
such transaction, or, in the case of a course of related or similar
transactions, is or are upon terms which are fair to Lundgren or such
Subsidiary, as the case may be, and which are reasonably similar to, or more
beneficial to Lundgren or such Subsidiary than the terms deemed likely to occur
in similar transactions with unrelated persons under the same circumstances, as
determined by a resolution of the Board of Directors of Lundgren. Lundgren is
specifically permitted to continue leasing its corporate office space under the
terms of the existing lease with Glenbrook Office Building Partnership which
expires March 31, 2009. The Indenture limits the payment of Management Bonuses
to an amount which does not exceed 50% of the income of the Company, before
provision for income taxes and such bonuses, for the year then ending, and these
Management Bonuses are expressly subordinate and junior in right of payment to
the Debentures and Parity Indebtedness.
The Indenture also restricts percentage increases in the annual base salary of
those persons who are shareholders of Lundgren, and are eligible to receive
Management Bonuses from year to year, by the greater of (i) the percentage
increase from the previous calendar year in the Consumer Price Index for all
items for all United States urban areas as of January 1 of such year, or (ii)
the percentage increase in the Consolidated Tangible Net Worth of Lundgren for
the fiscal year just completed compared to the previous fiscal year. In
addition, advances or loans from Lundgren to executive officers who are also
shareholders are limited to $25,000 per individual per fiscal year. (Section
10.12.)
EVENTS OF DEFAULT
The Indenture defines the following as "Events of Default": (1) default in the
payment of interest and the continuance of such default for 30 days after
becoming due; (2) failure to pay principal (or premium, if any) when due at
Maturity, upon redemption, upon request for repayment under certain
circumstances and the continuance of such default for 30 days after becoming due
(see "Description of Debentures -- Limited Right of Repayment upon Death"), or
by declaration, as provided in the Indenture; (3) failure to perform any other
covenants for 60 days after written notice specifying the default and requiring
Lundgren to remedy such default; (4) the breach of certain financial covenants
concerning Additional Funded Debt and Minimum Net Worth after a 30-day cure
period; (5) certain events of bankruptcy, insolvency, or reorganization; (6) if
any Event of Default, as defined, shall result in an Indebtedness in excess of
the lesser of (i) $250,000 or (ii) the amount set forth in the Company's
principal credit facility for such default in other Indebtedness, becoming due
prior to the date on which it would otherwise become due and such acceleration
shall not be rescinded or annulled or discharged within a period of 60 days
after such indebtedness has been accelerated; and(7) the rendering of a final
judgment, decree or order in excess of the lesser of (i) $250,000 or (ii) the
amount set forth in the Company's principal credit facility for such default in
other Indebtedness and the continuance thereof unsatisfied for any period of 30
consecutive days. (Section 5.1.)
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of a default, give the Holders written notice of all uncured defaults
known to it. The term "default" means the above specified events without grace
periods; provided that except in the case of default in the payment of principal
of (or premium, if any) or interest on any of the Debentures, the Trustee shall
be protected in withholding such notice if and so long as it in good faith
determines that the withholding of such notice is in the interest of the
Debentureholder. (Section 6.2.)
If an Event of Default shall occur and be continuing, the Trustee in its
discretion may, and at the written request of the Holders of 25% in aggregate
principal amount of Outstanding Debentures and upon being offered reasonable
indemnity from the Holders, shall proceed and enforce its rights and the rights
of Debentureholder. (Section 5.7.) If an Event of Default shall happen and be
continuing, either the Trustee or the Holders of at least 25% in aggregate
principal amount of Outstanding Debentures may accelerate the maturity of all
such Outstanding Debentures. After declaration of acceleration, Holders of 25%
or more in principal amount of Outstanding Debentures may institute judicial
proceedings with respect to such Event of Default. (Section 5.3.) The Holders of
at least a majority in aggregate principal amount of Outstanding Debentures may
waive an Event of Default resulting in acceleration, and annul the acceleration,
of such Debentures, but only if all the Events of Default have been remedied and
all payments (other than those due as a result of acceleration) have been made.
(Section 5.2.) The Holders of at least a 66-2/3% in aggregate principal amount
of Outstanding Debentures may waive any past defaults under the Indenture,
except for default in the payment of principal (or premium, if any) or interest
or certain covenants as provided in the Indenture. (Section 5.13.)
Lundgren must furnish the Trustee annually a statement of certain officers of
Lundgren as to their knowledge of defaults. (Section 10.6.)
MODIFICATION, WAIVER AND SATISFACTION OF INDENTURE
With certain exceptions that permit modifications of the Indenture by Lundgren
and the Trustee only, the Indenture, the rights and obligations of Lundgren and
the rights of Debentureholder may be modified by Lundgren with the consent of
Holders of not less than 66-2/3% in aggregate principal amount of Outstanding
Debentures affected thereby; provided that Lundgren may make no such
modification without the consent of the Holder of each Debenture affected
thereby if such modification would(1) change the Stated Maturity Date of the
principal of (or premium, if any) any such Debenture, (2) reduce the principal
of (or premium, if any) or interest on any such Debenture, (3) change the
occurrence in which, or place of payment where, principal of (or premium, if
any) or interest on any such Debenture is payable, (4) impair the right to
institute suit for the enforcement of any such payment on or with respect to any
such Debenture, (5) reduce the above-stated percentage of Holders of Outstanding
Debentures necessary to modify the Indenture, (6) modify the foregoing
requirements or reduce the percentage of any Debentures necessary to waive any
past default, (7) impair the right to request payment of any much Debenture upon
events described under "Description of Debentures -- Limited Right of Repayment
upon Death" above, or (8) subordinate the repayment of the Debentures to the
repayment of Lundgren Indebtedness other than Senior Indebtedness. (Section
9.2.) The Holders of not less than 80% in aggregate principal amount of
Outstanding Debentures may consent to a postponement of any interest payment for
a period not exceeding two years from its due date. (Section 5.13.) No
supplemental indenture shall affect adversely the rights of the holders of
Senior Indebtedness without the consent of such holders. (Section 9.6.) The
Holders of not less than 50% in aggregate principal amount of Outstanding
Debentures may consent to the Company's election to be taxed as an "S"
Corporation under the Internal Revenue Code of 1986, as amended from time to
time, and to make the necessary and appropriate changes to the restrictions on
dividends and distributions to provide sufficient funds to the Company's
shareholders to pay the state and federal income tax liabilities on the income
of the Company passed through to such shareholders as a result of the Company's
election to be treated as an "S" corporation.
The Holders of at least 66-2/3% in aggregate principal amount of Outstanding
Debentures may waive Lundgren's compliance with certain restrictive
provisions of the Indenture. (Section 5.13.)
Upon cancellation of all of the Debentures or, with certain limitations, upon
the Company's deposit with the Trustee of funds sufficient therefor, Lundgren
may satisfy and discharge the Indenture. (Section 4.1.)
KEY PERSON INSURANCE
The Indenture requires that, provided that the annual premium does not exceed
$7,500 per year, the Company will obtain and maintain a life insurance policy,
in the amount of the lesser of $1 million or the maximum amount of insurance
that a $7,500 per year premium can purchase, insuring the life of Peter Pflaum
on which the Debentureholders are beneficiaries and payees, and the Company is a
secondary beneficiary and payee. In the event of the death of Mr. Pflaum, the
proceeds of the policy will be held in a segregated, interest-bearing escrow
account. In the event payment of the Debentures is accelerated, the insurance
proceeds shall be paid by the Trustee to the Debentureholders on a pro rata
basis. Upon payment in full of the Debentures upon maturity or otherwise, the
Trustee will distribute the insurance proceeds, plus interest, to the Company.
UNDERWRITING
Miller & Schroeder Financial, Inc. and Offerman & Company (the "Underwriters")
have entered into an Underwriting Agreement with Lundgren pursuant to which the
Underwriters, subject to certain terms and conditions, have been appointed and
will act as the exclusive underwriter for the Debentures for a period of six
months from the commencement of this offering. The running of the six-month
exclusive period may be tolled in certain circumstances, including a
determination by the Underwriters that additional financial statements are
necessary under applicable securities laws. In the event of such determination,
the running of the exclusive period will resume when an amended Registration
Statement is declared effective by the Securities and Exchange Commission and
sufficient Prospectuses containing the amended financial statements are
available to the Underwriters or a Prospectus supplement containing the amended
financial statements is available to the Underwriters.
The Underwriting Agreement provides that the Underwriters will offer the
Debentures on a "best efforts" basis. The offering is not subject to the sale by
Lundgren of any minimum aggregate principal amount of Debentures. The
Underwriters initially propose to offer the Debentures to the public at The
Price to Public set forth on the cover page of this Prospectus, plus accrued
interest, and to certain selected dealers at such price less a concession on the
principal amount of the Debentures. The Price to Public, concession, and other
sales terms of the issue may change during the offering period.
In addition to the underwriting commissions equal to 6% of the Price to Public;
Lundgren has agreed to pay the Underwriters an underwriting management fee equal
to 3% of the principal amount of the Debentures. Lundgren has also agreed to pay
certain costs, fees and accountable expenses of the Underwriters, estimated at
$53,000. In connection with the key-man life insurance policy purchased by the
Company, Offerman & Company will receive a sales commission of approximately
$2,500 in 1996.
Lundgren has agreed to indemnify the Underwriters against, and to provide
contribution with respect to, certain civil liabilities, including liabilities
under the Securities Act of 1933, as amended.
Lundgren will pay interest on each Debenture accruing from , 1996 or, with
respect to Debentures sold after a subsequent quarterly interest payment date,
the most recent quarterly interest payment date. For purposes of computing
interest, a Debenture will be deemed to have been sold on, and will be dated as
of, the date upon which confirmation of the purchase thereof is sent to Lundgren
by the Underwriters after payment in full of the purchase price is timely made.
The Underwriters expect to confirm to Lundgren purchases of Debentures upon
concurrent confirmation of the sale thereof to the public or to selected
dealers, or for its own account for the purpose of subsequent resale if
consented to by Lundgren, and will transmit to Lundgren, from time to time on a
regular basis, registration and delivery instructions and proceeds from the sale
of such Debentures, net of underwriting commissions and management fees, subject
to closing and delivery of the certificates.
The Debentures will be offered by the Underwriters on a "best efforts" basis,
when, as, and if issued by Lundgren, subject to the Underwriters' right to
reject orders in whole or in part, the approval by counsel of certain legal
matters and certain other conditions. Proceeds of the sale of Debentures by the
Underwriters pending delivery to Lundgren at each closing will be held in a
segregated account by each of Miller & Schroeder Financial, Inc. and Offerman &
Company. Sales of Debentures by selected dealers will be settled in the same
manner as sales by the Underwriters with proceeds held in a segregated account
by the clearing agent for each of the respective selected dealers. Closings will
be held on or about the fifteenth of each month with respect to securities sold
during the preceding month. If any closing should not occur on or about the time
agreed upon by Lundgren, the sales transactions shall be cancelled and the
proceeds held in the segregated accounts will be promptly remitted to the
purchasers with interest, if any, paid thereon.
The offering is not subject to the sale of any minimum aggregate principal
amount of Debentures. However, the obligations of the Underwriters to act as
underwriters in connection with the purchase and sale of the Debentures
contemplated by this Prospectus and to accept delivery of the Debentures against
payment therefor, are subject to certain typical conditions precedent within the
control of Lundgren contained in Underwriting Agreement, as of the date of this
Prospectus and as of each monthly closing, such as (i) the performance by
Lundgren of its obligations thereunder; (ii) the delivery by Lundgren of certain
certificates; (iii) the delivery to the Underwriters of an opinion of counsel to
Lundgren and related bring-down certificates; and (iv) the delivery to the
Underwriters of a letter of the independent accountants for Lundgren, and
related bring-down certificates. The form of the Underwriting Agreement was
filed as an exhibit to the Registration Statement of which this Prospectus is a
part.
LEGAL MATTERS
Certain legal matters in connection with the issuance and sale of the Debentures
will be passed upon for Lundgren by Leonard, Street and Deinard Professional
Association, 150 South Fifth Street, Minneapolis, Minnesota, 55402. Oppenheimer
Wolff & Donnelly, Plaza VII, Suite 3400, 45 South Seventh Street, Minneapolis,
Minnesota 55402, is acting as counsel for the Underwriters in connection with
certain legal matters relating to the securities offered hereby.
Stephen R. Pflaum, the brother of both Peter Pflaum, President and a Director of
the Company, and Michael Pflaum, Vice President of the Company, is an attorney
with, and shareholder of, Leonard, Street and Deinard Professional Association.
Leonard, Street and Deinard has provided, and expects to continue to provide,
legal services to the Company.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1994 and
1995, and for each of the three years in the period ended December 31, 1995,
included herein and elsewhere in the Registration Statement, have been included
herein and elsewhere in the Registration Statement in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
Lundgren is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and, in accordance therewith, files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information may be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549; and at the regional offices located
at Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can also be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Company is an electronic filer, and as a result, reports
and other information regarding the Company are also available at the
Commission's Web site (http://www.sec.gov).
The Company has filed with the Commission a Registration Statement on Form S-1
with respect to the Debentures offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus does not contain all of the
information set forth in the Registration Statement. For further information
pertaining to the Company and the Debentures offered hereby, reference is made
to the Registration Statement and the exhibits thereto, copies of which may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies thereof
may be obtained from the Commission upon payment of the prescribed fees.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Interim Consolidated Balance Sheets as of December 31, 1995 and June 30, 1996 F-2
Interim Consolidated Statements of Income and Retained Earnings for the
Six Months Ended June 30, 1995 and 1996 F-3
Interim Consolidated Statements of Cash Flows for the Six Months Ended June 30,
1995 and 1996 F-4
Condensed Notes to Interim Consolidated Financial Statements for the
Six Months Ended June 30, 1995 and 1996 F-5
Report of Independent Accountants F-8
Consolidated Balance Sheets as of December 31, 1994 and 1995 F-9
Consolidated Statements of Income and Retained Earnings for the Years Ended
December 31, 1993, 1994 and 1995 F-10
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1994, and 1995 F-11
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1993, 1994 and 1995 F-12
</TABLE>
<TABLE>
<CAPTION>
LUNDGREN BROS. CONSTRUCTION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31, JUNE 30,
1995 1996
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,984 $ 1,071
Restricted cash 816 1,677
Receivables 1,078 1,811
Deposits and prepaid expenses 2,861 3,235
Inventories 34,166 38,798
Land option and earnest money deposits 921 758
Property and equipment, net 1,682 1,528
Other assets 3,255 3,429
Total assets $47,763 $52,307
LIABILITIES AND STOCKHOLDERS' EQUITY
Obligations under bank lines of credit 3,650 5,446
Debt obligations 25,260 29,182
Obligations under capital leases 505 502
Accounts payable 7,303 5,425
Cost to complete sold homes 1,245 1,214
Customer deposits 1,846 3,053
Accrued expenses 1,484 932
Income taxes payable 85 58
Total liabilities 41,378 45,812
Commitments
Stockholders' equity:
Common stock, no par value; authorized, 12,000 shares; 594 shares voting and
10,031 shares nonvoting
issued and outstanding 99 99
Retained earnings 6,286 6,396
6,385 6,495
Total liabilities and stockholders' equity $47,763 $52,307
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
LUNDGREN BROS. CONSTRUCTION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1995 1996
<S> <C> <C>
Revenues $27,209 $29,932
Cost of revenues 23,367 25,565
Gross profit 3,842 4,367
Operating expenses:
Selling 1,372 1,310
General and administrative 2,032 2,012
438 1,045
Other income (expense):
Interest expense (894) (993)
Other, net 30 131
(Loss) income from operations before income taxes (426) 183
Income tax (benefit) provision (172) 73
(Loss) income from operations before cumulative effect of
change in accounting method (254) 110
Cumulative effect on prior years of change in accounting
method,
net of income taxes of $527 763 --
Net income 509 110
Retained earnings, beginning of period 5,101 6,286
Retained earnings, end of period $ 5,610 $ 6,396
Net income (loss) per share:
(Loss) income from operations $ (24) $ 10
Cumulative effect of change in accounting method 72 --
$ 48 $ 10
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
LUNDGREN BROS. CONSTRUCTION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1995 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 509 $ 110
Adjustments to reconcile net income to net cash
used in operating activities:
Cumulative effect of change in accounting method (763) --
Depreciation and amortization 263 224
Deferred income taxes 75 --
Gain on disposal of property and equipment (34) --
Gain on sale of investment -- (123)
Changes in operating assets and liabilities (7,520) (6,480)
Net cash used in operating activities (7,470) (6,269)
Cash flows from investing activities:
Expenditures for property and equipment (122) (34)
Proceeds from disposal of property and equipment 73 --
Proceeds from sale of investment -- 159
Increase in cash surrender value of life insurance (226) (260)
Other (67) 14
Net cash used in investing activities (342) (121)
Cash flows from financing activities:
Proceeds from bank lines of credit 10,022 18,115
Payment of principal on bank lines of credit (5,710) (16,319)
Proceeds from debt obligations 19,356 22,135
Payment of principal on debt obligations (16,644) (19,451)
Payment of principal on capital lease obligations (14) (3)
Net cash provided by financing activities 7,010 4,477
Decrease in cash and cash equivalents (802) (1,913)
Cash and cash equivalents, at the beginning of the
period 3,318 2,984
Cash and cash equivalents, at the end of the period $ 2,516 $ 1,071
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
LUNDGREN BROS. CONSTRUCTION, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 1. GENERAL
SIGNIFICANT ACCOUNTING POLICIES
The audited 1995 annual report of Lundgren Bros. Construction, Inc. and
Subsidiaries (the Company), filed in its 1995 Form 10-K, contains a summary of
significant accounting policies in the Notes to the Consolidated Financial
Statements. The same accounting policies are followed in the preparation of the
interim financial statements.
PER SHARE AMOUNTS
Per share amounts are computed by dividing by the weighted average number of
shares of voting and nonvoting common stock outstanding during each period. The
number of outstanding shares of common stock for the three and six months ended
June 30, 1995 and 1996 was 10,625.
BASIS OF PRESENTATION AND INTERIM PERIODS
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting only of normal recurring
accruals) considered necessary for fair presentation have been included. The
interim results are not necessarily indicative of the results for a fiscal year
as a whole.
NOTE 2. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
(UNAUDITED)
<S> <C> <C>
RECEIVABLES
Trade $ 768 $ 1,091
Escrows 319 708
Contracts and notes 26 23
Employees and officers 17 20
Other 3 24
1,133 1,866
Less allowance for doubtful
accounts 55 55
$ 1,078 $ 1,811
INVENTORIES
Homes under construction $10,822 $15,870
Model homes 3,539 2,516
Lots held for sale 14,464 10,839
Land under development -- 4,322
Land held for future development 5,341 5,251
$34,166 $38,798
ACCRUED EXPENSES
Payroll, bonuses and payroll taxes $ 926 $ 299
Other, principally interest 558 633
$ 1,484 $ 932
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
(UNAUDITED)
<S> <C> <C>
DEBT OBLIGATIONS
Construction loans on single family homes $ 9,317 $12,606
Promissory notes 3,860 4,791
Development loans 6,415 6,500
Subordinate debenture series 2,962 2,951
Street, sewer and water assessments on land under
development and lots held for sale 1,598 1,150
Installment loans 736 840
Unsecured demand notes payable, stockholders 357 329
Noncompete obligation, officer 15 15
$25,260 $29,182
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1995 1996
<S> <C> <C>
INTEREST EXPENSE
Interest $ 1,506 $ 1,750
Less Capitalized interest (587) (732)
Amortization of debt issuance costs (25) (25)
$ 894 $ 993
CHANGES IN OPERATING ASSETS AND
LIABILITIES
Restricted cash $(1,557) $ (861)
Receivables (76) (733)
Deposits and prepaid expenses (1,301) (374)
Inventories (143) (3,394)
Land option and earnest money deposits (112) 163
Other assets 3 --
Accounts payable (3,275) (1,878)
Costs to complete sold (160) (31)
Customer deposits 613 1,207
Accrued expenses (765) (552)
Income taxes payable (747) (27)
$(7,520) $(6,480)
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
The Company acquired developed lots and land for future development under
promissory notes with the sellers aggregating $928 and $1,238 during the six
months ended June 30, 1995 and 1996, respectively.
NOTE 3. SEGMENT REPORTING
The Company operates principally in two business segments as follows:
* The new homes division, engaged in the interrelated activities of land
acquisition and development and the design, construction, painting, staining
and sale of detached single family homes.
* The remodeling division, engaged in the activities of designing and
constructing residential remodeling projects. These projects include complete
house renovations, kitchen remodelings, bathroom remodelings, second story
additions, finished basements, enclosed porches and patios and other
miscellaneous projects.
The following is a summary of the financial information relating to the
Company's two business segments. A substantial amount of cost allocations are
necessary to determine the operating income (loss) by segment. For this reason,
and because the Company is an integrated enterprise, management does not
represent that these segments, if operated as independent businesses, would
result in the operating income (loss) amounts shown. Intersegment sales are not
significant.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1995 1996
<S> <C> <C>
Revenues:
New homes $25,094 $28,177
Remodeling 2,115 1,755
Operating income (loss):
New homes 577 1,280
Remodeling (139) (235)
</TABLE>
NOTE 4. LAND OPTION AND EARNEST MONEY DEPOSITS
The Company has entered into option and purchase agreements to acquire lots in
residential housing developments and land for future development. On exercise of
an option, option payments are generally applied to the purchase price of land
acquired in accordance with the terms of the agreement. Earnest money deposits
are to be credited against future purchases. The Company had land purchase
commitments totaling approximately $3,069 and $5,054 at December 31, 1995 and
June 30, 1996, respectively, related to the earnest money deposits.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Lundgren Bros. Construction, Inc.:
We have audited the accompanying consolidated balance sheets of Lundgren Bros.
Construction, Inc. and Subsidiaries as of December 31, 1994 and 1995, and the
related consolidated statements of income and retained earnings and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Lundgren Bros.
Construction, Inc. and Subsidiaries as of December 31, 1994 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
January 27, 1996
LUNDGREN BROS. CONSTRUCTION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
1994 1995
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,318 $ 2,984
Restricted cash 137 816
Receivables 948 1,078
Deposits and prepaid expenses 2,120 2,861
Inventories 30,246 34,166
Land option and earnest money deposits 723 921
Property and equipment, net 1,948 1,682
Deferred income taxes 318 50
Other assets 2,861 3,205
Total assets $42,619 $47,763
LIABILITIES AND STOCKHOLDERS' EQUITY
Obligations under bank lines of credit $ 766 $ 3,650
Debt obligations 23,410 25,260
Obligations under capital leases 522 505
Accounts payable 8,860 7,303
Cost to complete sold homes 597 1,245
Customer deposits 1,435 1,846
Accrued expenses 1,531 1,484
Income taxes payable 298 85
37,419 41,378
Commitments
Stockholders' equity:
Common stock, no par value; authorized, 12,000 shares; issued
and outstanding, 594 voting shares and 10,031 nonvoting shares
(all stock is redeemable) 99 99
Retained earnings 5,101 6,286
5,200 6,385
Total liabilities and stockholders' equity $42,619 $47,763
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
LUNDGREN BROS. CONSTRUCTION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1993 1994 1995
<S> <C> <C> <C>
Revenues $61,884 $78,992 $69,660
Cost of revenues 52,485 66,924 59,104
Gross profit 9,399 12,068 10,556
Operating expenses:
Selling 1,980 3,165 2,965
General and administrative 4,585 5,597 5,233
2,834 3,306 2,358
Other income (expense):
Interest (667) (942) (1,734)
Other, net (61) 226 116
Income from continuing operations before
income taxes 2,106 2,590 740
Income taxes 860 1,043 318
Income from continuing operations 1,246 1,547 422
Cumulative effect on prior years of change in
accounting method, net of income taxes of $527 -- -- 763
Discontinued operations, net of income
tax benefits of $241:
Loss from operations -- (251) --
Estimated loss on disposal -- (98) --
Loss from discontinued operations -- (349) --
Net income 1,246 1,198 1,185
Retained earnings, beginning of period 2,657 3,903 5,101
Retained earnings, end of period $ 3,903 $ 5,101 $ 6,286
Income (loss) per share:
Continuing operations $ 117 $ 146 $ 40
Cumulative effect of change in
accounting method -- -- 72
Discontinued operations -- (33) --
Net income $ 117 $ 113 $ 112
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
LUNDGREN BROS. CONSTRUCTION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1993 1994 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,246 $ 1,198 $ 1,185
Cumulative effect of change in accounting method -- -- (763)
Loss from discontinued operations -- 349 --
Income from continuing operations 1,246 1,547 422
Adjustments to reconcile income from continuing
operations to net cash provided by (used in)
continuing operating activities:
Depreciation and amortization 260 593 457
Amortization of debt issuance costs 30 51 51
Deferred income taxes (10) (168) 268
Gain on disposal of property and equipment -- -- (35)
Provision for losses on receivables -- 24 --
Changes in operating assets and liabilities (1,301) (2,400) (4,125)
Other (5) (10) --
Net cash provided by (used in) continuing
operating activities 220 (363) (2,962)
Net cash used by discontinued operations -- (249) --
Net cash provided by (used in)
operating activities 220 (612) (2,962)
Cash flows from investing activities:
Expenditures for property and equipment (577) (1,331) (243)
Proceeds on disposal of property and equipment -- -- 104
Increase in cash surrender value of life
insurance (285) (402) (368)
Other 6 48 (44)
Net cash used in investing activities (856) (1,685) (551)
Cash flows from financing activities:
Proceeds from bank lines of credit 4,033 10,918 24,528
Payment of principal on bank lines of credit (4,333) (10,155) (21,644)
Proceeds from debt obligations 39,228 44,936 40,494
Payment of principal on debt obligations (35,188) (43,905) (40,182)
Payment of principal on capital lease obligations (10) (12) (17)
Payment of debt issuance costs (513) (26) --
Net cash provided by financing activities 3,217 1,756 3,179
Increase (decrease) in cash and cash equivalents 2,581 (541) (334)
Cash and cash equivalents, beginning of period 1,278 3,859 3,318
Cash and cash equivalents, end of period $ 3,859 $ 3,318 $ 2,984
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
LUNDGREN BROS. CONSTRUCTION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS DESCRIPTION:
Lundgren Bros. Construction, Inc. and its wholly-owned subsidiaries (the
Company) are in the business of land acquisition and development, single
family home construction and residential remodeling in the Minneapolis,
Minnesota metropolitan area.
BASIS OF PRESENTATION:
The accounting and reporting policies of the Company conform to generally
accepted accounting principles and general practices within the land development
and single family home construction industry.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Lundgren Bros.
Construction, Inc. and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions are eliminated in consolidation.
CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
RESTRICTED CASH:
Restricted cash includes customer deposits maintained in a restricted trust
account and certain debt proceeds obtained for specific development purposes.
Customer deposits are held in a restricted trust account until all purchase
agreement contingencies are cleared, at which time the customer deposit is
transferred to the Company's unrestricted cash account. The debt proceeds are
maintained in a restricted cash account and disbursed as certain development
costs are incurred and project approvals are obtained.
CONCENTRATION OF ASSETS AND CREDIT RISK:
The Company holds substantially all of its cash, cash equivalents and restricted
cash in two financial institutions with approximately 76% and 93% of these funds
being held in the Company's principal banking institution at December 31, 1994
and 1995, respectively. At times, these balances may be in excess of the FDIC
insurance limit. In addition, substantially all of the cash surrender value of
life insurance policies is with one insurance company.
Credit risk related to the Company's primary business of constructing
residential homes and sale of lots is not significant because the Company
generally requires earnest money deposits and payment is received upon closing
the sale of the property. For other business activities, including remodeling
and painting, the Company retains a collateral interest in the property until
the receivable is collected in full.
The Company's business is impacted by local and national general economic
conditions and, in particular, by mortgage interest rates and the availability
of mortgage financing. Any substantial increase in mortgage interest rates or
decrease in consumer confidence levels could cause a decrease in future home
sales. Historically, the Company has been able to pass increased development and
construction costs onto its customers and expects to be able to do so in the
future; however, if costs increase substantially, and at an accelerated rate,
the Company may be unable to recover all of the increased costs through higher
sales prices.
INVENTORIES:
Inventories consist principally of homes under construction, lots held for sale
and land, including land acquisition and improvement costs, and are valued at
lower of cost or market, with cost determined on a specific identification
basis.
DEBT ISSUANCE COSTS:
Debt issuance costs associated with obtaining of subordinated debenture
financing are deferred and amortized to interest expense over the terms of the
related debt using the straight-line method, which approximates the effective
interest rate method.
FORWARD COMMITMENT COSTS:
Costs incurred in obtaining customer financing to facilitate more favorable
interest rates for home buyers have been capitalized and are being amortized on
the straight-line method, which approximates the effective interest rate method,
over the shorter of the term of the forward commitment or the commitment of the
available mortgage funds.
Upon the sale of the related forward commitments, the unamortized cost is
removed from the accounts and any gain or loss thereon is included in other
income (expense) in the year of the sale.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation and amortization are
provided by charges to operations, over the estimated useful lives of the assets
of three to ten years for equipment, and fifteen to thirty years for leasehold
improvements, using straight-line and accelerated methods.
The cost and related accumulated depreciation or amortization on asset disposals
are removed from the accounts and any gain or loss thereon is included in
operations in the year of disposal. Maintenance and repairs are charged to
expense as incurred.
REVENUES AND RELATED COSTS:
Revenues and related costs of lot and home sales are recognized on the closing
date of the property sale. Costs to complete sold homes, including costs of
estimated warranty work, are accrued and included in the cost of revenues at the
same time. Historically, warranty costs have not been significant. Revenues and
related costs of residential remodeling projects are recognized upon the
completion of the project. Remodeling projects are generally three to six months
in duration. Customer deposits received on home sales and remodeling projects
are reflected as liabilities until the closing or completion of the project.
CAPITALIZED ACQUISITION, DEVELOPMENT AND CONSTRUCTION COSTS:
Option, land acquisition and development costs, which include direct land
acquisition and development employee payroll, are capitalized as land project
costs. Interest and real estate taxes are also capitalized as inventory during
the development period for land under development and during the construction
period of homes under construction. These capitalized costs are included as cost
of revenues when the lots and homes are sold.
INCOME TAXES:
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of differences between the financial statement and tax
bases of assets and liabilities using currently enacted tax rates in effect for
the years in which the differences are expected to reverse. Income tax expense
is the tax payable for the year and the change during the year in deferred tax
assets and liabilities.
INCOME PER SHARE:
Income per share is computed by dividing net income by the weighted average
number of shares of voting and nonvoting common stock outstanding during each
period. Total outstanding shares of common stock for 1993, 1994 and 1995 are
10,625 shares.
USE OF ESTIMATES:
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. The most significant areas which require the use of
management estimates relate to the determination of the cost to complete sold
homes, land development projects, warranty reserve, accrued unbilled
construction costs, the allowance for uncollectible accounts receivable, and the
assessment of the need for a valuation allowance for deferred tax assets.
2. SELECTED FINANCIAL DATA:
<TABLE>
<CAPTION>
DECEMBER 31
1994 1995
<S> <C> <C>
Receivables:
Trade $ 690 $ 768
Escrows 177 319
Contracts and notes 88 26
Employees and officers 21 17
Other 27 3
1,003 1,133
Less allowance for doubtful accounts 55 55
$ 948 $ 1,078
Approximate amount of receivables due within one year $ 873 $ 1,116
Inventories:
Homes under construction 10,396 10,822
Model homes 2,515 3,539
Developed lots 11,281 14,464
Land held for future development 6,054 5,341
$30,246 $34,166
Property and equipment:
Land 193 193
Building and leasehold improvements 1,559 1,557
Furniture and fixtures 572 659
Equipment 767 776
3,091 3,185
Less accumulated depreciation and amortization 1,143 1,503
$1,948 $1,682
Other assets:
Cash surrender value of life insurance 2,251 2,619
Debt issuance costs, net of accumulated amortization of $81
and $132 at December 31, 1994 and 1995, respectively 458 407
Other 152 179
$2,861 $3,205
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
1994 1995
<S> <C> <C>
Accrued expenses:
Payroll, bonuses and payroll
taxes $1,074 $ 926
Other 457 558
$1,531 $1,484
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1993 1994 1995
<S> <C> <C> <C>
Interest expense:
Interest $ 1,474 $ 2,207 $ 3,188
Less capitalized interest (837) (1,316) (1,505)
Amortization of debt issuance costs 30 51 51
$ 667 $ 942 $ 1,734
Other income (expense):
Net gain on sale of forward commitments -- 186 --
Other, net (61) 40 116
$ (61) $ 226 $ 116
Changes in operating assets and liabilities:
Restricted cash (9) 176 (679)
Receivables (324) (36) (130)
Deposits and prepaid expenses (920) (730) 268
Inventories (5,022) (2,628) (2,101)
Land option and earnest money deposits (409) 721 (198)
Other assets (1) -- --
Accounts payable 4,721 (430) (1,557)
Cost to complete sold homes 57 (190) 648
Customer deposits 349 268 411
Accrued expenses 361 480 (47)
Income taxes payable (104) (31) (740)
$(1,301) $(2,400) $ 4,125
Cash paid for:
Interest, net of amount capitalized $ 513 $ 854 $ 1,619
Income taxes 974 1,001 790
</TABLE>
The Company acquired land for development under promissory notes with the
sellers aggregating $4,754, $3,715 and $1,538 for the years ended December 31,
1993, 1994 and 1995, respectively.
3. CHANGE IN ACCOUNTING METHOD:
Effective January 1, 1995, the Company changed its method of accounting for
capitalized land acquisition and development costs to begin the capitalization
of interest and real estate taxes on land development projects when initial
activities to prepare the property for its intended use commence, and to
capitalize all option costs and land acquisition and development employee
payroll costs as land project costs. The Company previously capitalized interest
and real estate taxes on land development projects when physical land
development commenced, and option costs (that do not apply to the purchase price
of the land) and land acquisition and development employee payroll costs were
accounted for as general and administrative expenses. The Company believes that
the new method better matches these costs with related revenues. The adjustment
for the cumulative effect of this change as of January 1, 1995 of $763, net of
income taxes of $527, is included in 1995 income. The effect of applying the new
accounting method for the year ended December 31, 1995, was to increase net
income approximately $210, net of income taxes of $144.
The following unaudited 1993 and 1994 pro forma amounts reflect the effect of
the retroactive application of applying the new method, and related tax effects:
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C>
Gross profit $9,206 $11,811
Income from continuing operations 1,343 2,120
Net income 1,343 1,770
Per share:
Income from continuing operations 126 200
Net income 126 167
</TABLE>
4. SEGMENT REPORTING:
The Company operated in two business segments in 1995 and 1993 and three
business segments in 1994 as follows:
* The new homes division, engaged in the interrelated activities of land
development and the design, construction, painting, staining, mortgage
financing and sale of detached single family homes.
* The remodeling division, engaged in the activities of designing and
constructing residential remodeling projects. These projects include complete
house renovations, kitchen remodelings, bathroom remodelings, second story
additions, finished basements, enclosed porches and patios, and other
miscellaneous projects.
* The patio enclosure division, which began and ceased operations in 1994 (see
Note 5), engaged in the activities of selling and installing three-season
aluminum patio rooms and porch enclosures that were built on existing or new
decks and cement patios.
A substantial amount of cost allocations are necessary to determine the
operating income (loss) by segment. For this reason, and because the Company is
an integrated enterprise, management does not represent that these segments, if
operated as independent businesses, would result in the operating income (loss)
amounts shown below. Intersegment sales are not significant. The following is a
summary of financial information relating to the Company's two continuing
business segments:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1993 1994 1995
<S> <C> <C> <C>
Net sales:
New homes $58,955 $75,814 $65,217
Remodeling 2,929 3,178 4,443
$61,884 $78,992 $69,660
Operating income (loss):
New homes $ 2,729 $ 4,013 $ 2,381
Remodeling 105 (707) (23)
$ 2,834 $ 3,306 $ 2,358
Assets:
New homes $35,419 $41,205 $46,346
Remodeling 408 1,414 1,417
$35,827 $42,619 $47,763
Depreciation and amortization:
New homes $ 278 $ 547 $ 366
Remodeling 12 97 142
$ 290 $ 644 $ 508
Expenditures for property and equipment:
New homes $ 512 $ 248 $ 217
Remodeling 65 1,083 26
$ 577 $ 1,331 $ 243
</TABLE>
5. DISCONTINUED OPERATIONS:
Effective September 30, 1994, the Company adopted a plan to discontinue
operations of its patio enclosure division (Betterliving). Accordingly, the
consolidated financial statements were reclassified to report separately the
operating results of the business.
In 1994, the Company recognized a loss on the disposal of $98, net of income
taxes of $67, consisting of an estimated loss on disposal of the business of
$93 and a provision of $5 for anticipated future operating losses until
disposal. The disposal of the discontinued operation was completed in early 1995
without incurring additional losses. The following is a summary of operating
results of the discontinued operation for the year ended December 31, 1994:
Sales $545
Loss before income taxes 425
Net loss 251
6. LUNDGREN BROS. MORTGAGE COMPANY:
In July 1994, the Company's wholly-owned subsidiary Lundgren Bros. Mortgage
Company (the Mortgage Company) entered into an agreement with a mortgage lending
industry consultant to set up a mortgage lending program that provides mortgage
financing services to the Company's home buyers. Under the agreement, the
Mortgage Company completed and processed loan applications for home buyers,
which were submitted to a wholesale mortgage lender. The Mortgage Company
received an origination fee and servicing release premium for each mortgage
closed. In February 1995, the Mortgage Company terminated the agreement with the
mortgage lending industry consultant.
7. EQUITY INVESTMENTS:
The Company has minority ownership interests in two land investment partnerships
and a partnership which owns the office building the Company leases (Note 9).
These investments are recorded on the equity method of accounting. The Company's
aggregate investment in these partnerships was approximately $125 and $167 at
December 31, 1994 and 1995, respectively. The Company's share of the
partnerships' operating results was approximately $5, $4 and $21 for the years
ended December 31, 1993, 1994 and 1995, respectively.
8. DEBT OBLIGATIONS AND LINES OF CREDIT:
The Company has an approved working capital line of credit of $3,500 expiring
May 31, 1996, with interest at .5% over the prime rate on borrowings up to the
aggregate net cash surrender value of life insurance policies pledged and 1.25%
over the prime rate on additional borrowings. At December 31, 1995, borrowings
under the line of credit are limited to $3,119, which is the sum of the current
amount of cash surrender value of assigned life insurance plus $500. The line is
due on demand, term life insurance on the major stockholder and the cash
surrender value of other life insurance are pledged as collateral, and the line
is personally guaranteed by the stockholders. The Company had an outstanding
balance on the line of credit of $766 and $2,775 at December 31, 1994 and 1995,
respectively. The agreement prohibits the payment of dividends and requires at
least 90% of the Company's cash and cash equivalents to be held in accounts of
the lending financial institution.
The Company also has an approved working capital line of credit, based on a
borrowing base formula of finished lots held in inventory not to exceed $3,000,
expiring March 31, 1996, with interest at 3% over the prime rate, due on demand.
At December 31, 1995, borrowings under the line of credit are limited to $2,676
based on the borrowing base formula. Lots held in inventory are pledged as
collateral and this line also is personally guaranteed by the stockholders. The
line of credit is subordinated to other debt on the lots held in inventory. The
Company had an outstanding balance on the line of credit of $800 at December 31,
1995. There were no outstanding borrowings on the line of credit at December 31,
1994.
In 1995, a subsidiary of the Company obtained an approved working capital line
of credit of $100 expiring February 28, 1996 with interest at 4.5% over the
three-month U.S. treasury bill interest rate (5.5% at December 31, 1995), due on
demand. The Company had an outstanding balance on the line of credit of $75 at
December 31, 1995.
Other debt obligations at December 31, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1994 1995
<S> <C> <C>
Construction loans on single family homes, with interest at 2% to 3%
above
the prime rate $ 8,642 $ 9,317
Promissory notes, with interest at 6% to 10% 4,562 3,860
Development loans, with interest at 2% to 5% above the prime rate, but
not
to be less than 8% or more than 18% 4,450 6,415
Subordinate debenture series, with interest at 10% 3,000 2,962
Street, sewer and water assessments on land under development and lots
held for sale, with interest at 7% to 11% 1,422 1,598
Installment loans, with interest from 5.9% to 12.75% 854 736
Unsecured demand notes payable, stockholders, with interest at 11.5% 450 357
Noncompete obligation, officer 30 15
$23,410 $25,260
</TABLE>
The construction loans, promissory notes and development loans are
collateralized by substantially all of the Company's inventories, in addition to
the personal guarantees of all stockholders on the development loans. The
installment loans are collateralized by transportation and computer equipment.
The subordinated debenture series is due in 2003 and includes terms for early
redemption by the Company after 1995. The indenture is subordinated to all of
the Company's senior indebtedness, as defined in the agreement. Under terms of
the indenture, the Company is prohibited from declaring or paying any dividend
on its stock or making any other distribution on any equity securities of the
Company. In addition, the indenture includes certain restrictions on business
mergers, sale or acquisition of assets and compensation of executive officers.
The prime rate was 8.5% at December 31, 1994 and 1995.
The weighted average interest rate on short-term borrowings was 10.32% and
10.60% at December 31, 1994 and 1995, respectively.
The approximate principal payments on obligations, based on the scheduled
maturity dates at December 31, 1995, are set forth by year below.
1996 $14,999
1997 2,183
1998 2,822
1999 644
2000 222
Thereafter 4,390
$25,260
9. LEASING ARRANGEMENTS:
The Company is obligated for the rental of its primary office building from an
affiliated partnership (Note 7), other office and warehouse buildings and
certain equipment and software under noncancellable capital and operating leases
which expire at various dates to 2009. The rent on the primary office building
is escalated based on changes in the local consumer price index.
CAPITAL LEASES:
Minimum future lease obligations under capital leases for the office building
and equipment as of December 31, 1995, are as follows:
Year Ending December 31:
1996 $ 120
1997 111
1998 111
1999 111
2000 111
2001 to 2009 980
Total minimum lease payments 1,544
Less amount representing interest and
consumer price index adjustment 1,039
Present value of minimum lease payments $ 505
Capital lease and real estate tax payments to the affiliated partnership were
$138, $135 and $135 for the years ended December 31, 1993, 1994 and 1995,
respectively.
The cost and accumulated amortization of a building and equipment under capital
leases were $633 and $330 for 1994 and $607 and $329 for 1995, respectively.
OPERATING LEASES:
The Company leases an office and warehouse building with annual base rentals of
approximately $36 through April 1998 and office space with annual base rentals
of $25 through February 1997. In addition, certain equipment and software are
leased under operating leases with terms of one year or less. Rental expense was
approximately $189, $419 and $291 for the years ended December 31, 1993, 1994
and 1995, respectively.
10. LAND OPTION AND EARNEST MONEY DEPOSITS:
The Company has entered into option and purchase agreements to acquire lots in
residential housing developments and land for future development. Payments and
deposits made under these agreements are as follows:
DECEMBER 31
1994 1995
Option payments $567 $651
Earnest money deposits 156 270
$723 $921
On exercise of the option, option payments are generally applied to the purchase
price of land acquired in accordance with the terms of the agreement.
Earnest money deposits are to be credited against future purchases. The Company
has contingent land purchase commitments totaling approximately $2,408 and
$3,069 at December 31, 1994 and 1995, respectively, related to the earnest money
deposits.
11. BENEFIT PLANS:
DISCRETIONARY BONUS PLAN:
The Company has discretionary bonus programs for certain officers and key
management employees. The executive committee of the Board annually determines
the amounts of the bonuses to be paid. Bonuses paid under these programs were
$1,118, $700 and $800 for the years ended December 31, 1993, 1994 and 1995,
respectively.
RETIREMENT PLAN:
The Company has a qualified contributory retirement plan (the Plan) under
Section 401(k) of the Internal Revenue Code which covers all full-time employees
who meet certain eligibility requirements. Voluntary contributions are made to
the Plan by the employees and Company matching contributions are made at the
discretion of the Board of Directors. Company matching contributions of
approximately $49, $63 and $62 were made for the years ended December 31, 1993,
1994 and 1995, respectively.
In addition, the Plan allows the Company to make discretionary profit-sharing
contributions to the Plan up to the maximum amount deductible for income tax
purposes. No profit-sharing contributions were made for the years ended December
31, 1993, 1994 or 1995.
12. INCOME TAXES:
The components of the provision for income taxes for the years ended December
31, 1993, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1993 1994 1995
<S> <C> <C> <C>
Currently payable:
Federal $660 $ 918 $ 37
State 210 293 13
Deferred (10) (168) 268
Income tax provision for continuing
operations 860 1,043 318
Income tax provision for:
Change in accounting method -- -- 527
Discontinued operations -- (241) --
$860 $ 802 $845
</TABLE>
Deferred income tax assets include the following:
<TABLE>
<CAPTION>
DECEMBER 31
1993 1994 1995
<S> <C> <C> <C>
Capitalization of option costs related to land
projects $ 21 $170 $ --
Depreciation 32 52 106
Interest expensed on land mortgages -- -- (204)
Estimated costs to complete lots sold 16 4 54
Accrued vacation pay 14 32 26
Inventory capitalization 24 23 19
Allowance for doubtful accounts receivable 16 22 22
Other 27 15 27
$150 $318 $ 50
</TABLE>
The reconciliation of the statutory federal income tax rate with the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1993 1994 1995
<S> <C> <C> <C>
Statutory income tax rate 34.0% 34.0% 34.0%
Increase (reduction) in tax resulting from:
State taxes, net of federal benefits 6.5 6.0 6.9
Increase in cash surrender value of life
insurance policies in excess of policy premiums
paid (.1) (1.4) (2.7)
Other .4 1.7 4.8
40.8% 40.3% 43.0%
</TABLE>
13. STOCK PURCHASE AGREEMENT:
Under the terms of a stock purchase agreement, in the event of the death or
total disability of any stockholder, the Company is obligated to purchase and
the stockholder is obligated to sell all nonvoting stock held by that
stockholder for an amount that, subject to the limitations described below, is
the lessor of twice the book value per share or $658.82 per share. Certain other
stockholders have the first option to purchase not less than all of the voting
stock held by a stockholder at the time of death or total disability, and the
Company is obligated to purchase such voting shares only if those other
stockholders fail to exercise their option. Under the agreement, the amount
payable by the Company for voting and nonvoting stock is limited to the amount
of insurance proceeds received (after reductions, if necessary, because the cash
surrender value is pledged as collateral on a bank line of credit) under
policies owned by the Company covering the lives and possible disability of each
stockholder.
At any other time, the stockholder may offer his stock for sale to the other
stockholders or the Company at a formula price in accordance with certain
provisions of the agreement.
LUNDGREN BROS. CONSTRUCTION, INC.
PAST &PRESENT SUBDIVISIONS
[MAP]
PAST SUBDIVISIONS
1...FAIRFIELD ESTATES 18..WILLOW BEND
2...WOOD CREEK 19..QUAIL RIDGE
3...WILLOW PONDS 20..MISSION TRAILS
4...SHILOH 21..CHURCHILL FARMS
5...MISSION RIDGE 22..BAY POINTE ON MOONEY LAKE
6...WILLOWBROOK 23..HARBOR WOODS
7...SCHMIDT LAKE ESTATES 24..FOX RUN
8...SEVEN PONDS EAST 25..MILL RUN
9...CHIPPEWA TRAILS 26..SHOEWOOD OAKS
10..FERNDALE NORTH 27..BOULDER POINTE
11..HADLEY PLACE 28..WOODLANDS AT DUFFERIN PARK
12..WIND RIDGE AT BASS LAKE 29..PARK PLACE AT WEDGEWOOD
13..BENT TREE 30..WILLOWRIDGE
14..NEARMOUNTAIN* 31..THE SUMMIT AT NEAR MOUNTAIN
15..BURL OAKS 32..AUTUMN HILLS
16..TEALWOOD
17..CHESTNUT RIDGE
CURRENT SUBDIVISIONS
A...FOXBERRY FARMS G...WOODWINDS
B...PLUM TREE H...LONGACRES (MEADOWS AND WOODS)
C...WYNNFIELD** I...TAMARACK
D...ROSEMARY WOODS J...AMBER LEAF
E...HEATHER RUN K...SAVANNAH
F...KENSINGTON KNOLLS L...HIGHLANDS ON LAKE ST. JOE
* THE NEAR MOUNTAIN (#14) PLANNED UNIT DEVELOPMENT INCLUDES THESE
SUBDIVISIONS: CHESTNUT RIDGE, MCKINLEY PLACE, SWEETWATER, TRAPPERS PASS,
AND THE SUMMIT
** WYNNFIELD INCLUDES THESE SUBDIVISIONS: WYNNFIELD NORTH, WYNNFIELD
MEADOWS, AND WYNNFIELD ON THE LAKE 1
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN AS CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
TABLE OF CONTENTS
Page
Prospectus Summary 3
Risk Factors 6
Use of Proceeds 9
Capitalization 9
Dividend Policy 9
Selected Consolidated Financial Data 10
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
Business 17
Management 33
Certain Transactions 36
Principal Shareholders 37
Description of Debentures 38
Underwriting 45
Legal Matters 46
Experts 46
Available Information 46
Index to Consolidated Financial
Statements F-1
UNTIL AT LEAST , 1996 (OR 90 DAYS AFTER THE EFFECTIVE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[LOGO]
$3,000,000
SENIOR SUBORDINATED DEBENTURES
MINIMUM PURCHASE: $2,000
PROSPECTUS
MILLER & SCHROEDER FINANCIAL, INC.
OFFERMAN & COMPANY
_________________, 1996
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION(1)
SEC registration fee $ 1,035
NASD registration fee 800
Accounting fees and expenses 55,000
Legal fees and expenses 105,000
Printing expenses 25,000
Blue Sky fees and expenses 12,000
Trustee's fees 5,000
Miscellaneous 5,165
Total $209,000
(1) Except for the SEC registration fee and NASD registration fee, all of the
foregoing expenses have been estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Lundgren is required to indemnify certain persons to such extent as is set forth
in Minnesota Statutes, Section 302A.521, as now enacted or hereafter amended. A
copy of the most recent version of Minnesota Statutes, Section 302A.521, is
included in this Registration Statement as Exhibit 28.1 and is hereby
incorporated herein by reference. In addition, Article VII of Lundgren's
Articles of Incorporation provides that no director of Lundgren shall be
personally liable to Lundgren or its shareholders for monetary damages for
breach of fiduciary duty as a director, except (1) for any breach of the
director's duty of loyalty to Lundgren or its stockholders; (2) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law; (3) under Minnesota Statutes, Sections 302A.559 or 80A.23; (4)
for any transaction from which the director derives an improper personal
benefit; or (5) for any act or omission occurring prior to the date Article VII
of Lundgren's Articles of Incorporation became effective.
The form of Underwriting Agreement (Exhibit 1.1 hereto) contains provisions by
which the Underwriter has agreed to indemnify Lundgren, each person, if any, who
controls Lundgren within the meaning of Section 15 of the Act, each director of
Lundgren, and each officer of Lundgren who signs this Registration Statement,
with respect to information furnished in writing by or on behalf of the
Underwriter for use in this Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
(a) EXHIBITS
<S> <C>
1.1 Form of Underwriting Agreement.
1.2 Form of Selected Dealers Agreement.
*3.1 Articles of Incorporation of Lundgren in effect on the date hereof.
*3.2 Bylaws of Lundgren on the date hereof.
4.1 Form of Debenture (included as Sections 2.2(A) and (B) of Indenture filed as
Exhibit 4.2 hereto).
4.2 Form of Indenture by and between Lundgren and National City Bank
Minnesota, National Association, as Trustee, including a Form of Debenture.
5(1) Opinion of Leonard, Street and Deinard Professional Association.
*10.1 Lease by and between Lundgren, as lessor, Glenbrook Office Building
Partnership, and Peter Pflaum and Patrick C. Wells, general partners,
dated September 28, 1978.
*10.2 Amended and Restated Stock Purchase Agreement, dated February 1, 1993, by
and among Lundgren, Peter Pflaum, Patrick Wells, Edmund M. Lundgren,
Gerald T. Lundgren and Allan D. Lundgren.
***10.3 Revolving Credit Line Agreement between the Company and Builders
Development & Finance, Inc., dated March 18, 1994.
***10.4 Mortgage Note, dated March 18, 1994, of the Company payable to
Builders Development & Finance, Inc.
***10.5 Combination Mortgage, Security Agreement and Fixture Financing
Statement between the Company and Builders Development &
Finance, Inc., dated March 18, 1994, including all amendments
thereto.
*10.6 Guaranty by Peter Pflaum, Patrick C. Wells, Allan D. Lundgren, Edmund M. Lundgren and Gerald
T. Lundgren for the benefit of Builders Development & Finance, Inc., dated July 27, 1990.
*10.7 Demand Discretionary Revolving Credit Agreement between the Company and Norwest Bank Minnesota,
National Association, dated November 30, 1990.
*10.8 First Amended and Restated Revolving Note, dated May 1, 1992, of the Company payable to
Norwest Bank Minnesota, National Association.
*10.9 Assignment of Life Insurance Policy as Collateral by the Company in favor of Norwest Bank
Minnesota, National Association, dated November 30, 1990.
*10.10 Assignment of Life Insurance Policy as Collateral by the Company in favor of Norwest Bank
Minnesota, National Association, dated May 1, 1992.
*10.11 Guaranty by Peter Pflaum, Patrick C. Wells, Allan D. Lundgren, Edmund M. Lundgren and Gerald
T. Lundgren for the benefit of Norwest Bank Minnesota, National Association, dated November
5, 1990 and all extensions thereof.
*****10.12 Commercial Lease, dated June 1, 1995, by and between Koecheler & Olson Leasing and Lundgren
Bros. Plumbing.
*****10.13 Lease Agreement, dated April 10, 1995, by and between B.M. Acquisitions Corporation (Brush
Masters, Inc.) and John J. Day.
*10.14 Loan Agreement, dated as of May 8, 1992, by and between the
Company and Builders Development & Finance, Inc.
*10.15 First Mortgage Note, dated May 8, 1992, of the Company payable
to Builders Development & Finance, Inc.
*10.16 Second Mortgage Note, dated May 8, 1992, of the Company
payable to Builders Development & Finance, Inc.
*10.17 First Mortgage, dated May 8, 1992, by the Company in favor of
Builders Development & Finance, Inc.
*10.18 Second Mortgage, dated May 8, 1992, by the Company in favor of
Builders Development & Finance, Inc.
*10.19 Guaranty, dated as of May 8, 1992, by Peter Pflaum, Edmund M. Lundgren, Gerald T. Lundgren,
Allan D. Lundgren and Patrick C. Wells for the benefit of Builders Development & Finance,
Inc.
*10.20 Construction Loan Agreement, dated as of July 22, 1992, by and between the Company and
Scherer Bros. Financial Services Co.
*10.21 Mortgage and Security Agreement, dated July 22, 1992, between the Company and Scherer Bros.
Financial Services Co.
*10.22 Promissory Note, dated July 22, 1992, of the Company payable to Scherer Bros. Financial
Services Co.
*10.23 Guaranty, dated as of July 22, 1992, by Allan Lundgren for the benefit of Scherer Bros.
Financial Services Co.
*10.24 Guaranty, dated as of July 22, 1992, by Patrick Wells for the benefit of Scherer Bros.
Financial Services Co.
*10.25 Guaranty, dated as of July 22, 1992, by Peter Pflaum for the benefit of Scherer Bros. Financial
Services Co.
*10.26 Guaranty, dated as of July 22, 1992, by Edmund Lundgren for the benefit of Scherer Bros.
Financial Services Co.
*10.27 Guaranty, dated as of July 22, 1992, by Gerald Lundgren for the benefit of Scherer Bros.
Financial Services Co.
*10.28 Development Loan Agreement, dated May 15, 1992, by and between
the Company and Construction Mortgage Investors Co.
*10.29 First Mortgage Note, dated May 15, 1992, of the Company payable to Construction Mortgage
Investors Co.
*10.30 First Mortgage, dated May 15, 1992, by the Company in favor of
Construction Mortgage Investors Co.
*10.31 Guaranty, dated May 15, 1992, by Peter Pflaum, Patrick C. Wells, Allan D. Lundgren, Edmund
M. Lundgren and Gerald T. Lundgren for the benefit of Construction Mortgage Investors Co.
*10.32 Contribution Agreement, dated as of February 17, 1993, by and among the Company, Peter
Pflaum, Patrick C. Wells, Allan D. Lundgren, Edmund M. Lundgren and Gerald T. Lundgren.
*****10.33 Shopping Center Lease, dated February 9, 1994, by and between Oakdale Mall Associates and
Lundgren Bros. Construction, Inc. d/b/a Lundgren Bros. Remodeling.
*10.34 Form of Option to Purchase Land.
*10.35 Form of Contingent Purchase Agreement.
*****10.36 Amendment No. 1 to Amended and Restated Stock Purchase Agreement, dated April 1, 1993.
**10.37 Amended and Restated Demand Discretionary Revolving Credit Agreement, dated March 18, 1994,
by and between Norwest Bank Minnesota, National Association and Lundgren Bros. Construction,
Inc.
****10.38 Fourth Amended and Restated Revolving Note (Demand), dated March 14, 1995, of the Company
payable to Norwest Bank Minnesota, National Association.
****10.39 Consent and Reaffirmation of Guaranty, dated March 14, 1995, by Peter Pflaum, Patrick C.
Wells, Edmund M. Lundgren, Allan D. Lundgren and Gerald T. Lundgren in favor of Norwest
Bank Minnesota, National Association.
***10.40 Satisfaction of Combination Mortgage, Security Agreement and Fixture Financing Statement
executed by Builders Development & Finance, Inc. on March 29, 1994.
***10.41 Letter Agreement, dated February 17, 1994, between Builders Funding Corporation and Lundgren
Bros. Construction, Inc.
****10.42 Amendment, Extension and Reaffirmation Agreement, dated March 14, 1995, by and among Lundgren
Bros. Construction, Inc., Patrick C. Wells, Peter Pflaum, Edmund M. Lundgren, Allan D.
Lundgren and Gerald T. Lundgren and Norwest Bank Minnesota, National Association.
****10.43 Supplemental Assignment of Life Insurance Policies as Collateral, dated March 14, 1995,
by Lundgren Bros. Construction, Inc. in favor of Norwest Bank Minnesota, National Association.
****10.44 Second Supplemental Assignment of Life Insurance Policies as Collateral, dated March 16,
1995, by Lundgren Bros. Construction, Inc. in favor of Norwest Bank Minnesota, National
Association.
*****10.45 Third Amendment to Combination Mortgage, Security Agreement and Fixture Financing Statement
and Amendment to Revolving Credit Line Agreement, dated January 25, 1995, by Lundgren Bros.
Construction, Inc. and Builders Development & Finance, Inc.
******10.46 Second Amended and Restated Mortgage Note, dated May 20, 1996, of Lundgren Bros. Construction,
Inc. payable to Builders Development & Finance, Inc.
******10.47 Eighth Amendment to Combination Mortgage, Security Agreement and Fixture Financing Statement
and Second Amendment to Revolving Credit Line Agreement and Reaffirmation Agreement, dated
May 20, 1996, by Lundgren Bros. Construction, Inc. and Builders Development & Finance,
Inc.
******10.48 Promissory Note, dated March 21, 1996, of Lundgren Bros. Construction, Inc. payable to
First Bank National Association.
******10.49 Letter Agreement, dated March 21, 1996, by Lundgren Bros. Construction, Inc. and First
Bank National Association.
******10.50 Pledge Agreement, dated March 21, 1996, by Lundgren Bros. Construction, Inc. for the benefit
of First Bank National Association.
******10.51 Control Agreement (With Broker or other Securities Intermediary), dated March 21, 1996,
by Lundgren Bros. Construction, Inc., First Bank National Association and FBS Investment
Services, Inc.
******10.52 Guaranty, dated March 12, 1996, by Edmund M. Lundgren for the benefit of First Bank National
Association.
******10.53 Guaranty, dated March 12, 1996, by Allan Lundgren for the
benefit of First Bank National Association.
******10.54 Guaranty, dated March 12, 1996, by Peter Pflaum for the
benefit of First Bank National Association.
******10.55 Guaranty, dated March 12, 1996, by Patrick C. Wells for the benefit of First Bank National
Association.
******10.56 Guaranty, dated March 12, 1996, by Gerald Lundgren for the
benefit of First Bank National Association.
12 Computation of Fixed Charge Ratio.
****18.1 Letter on accounting change, Coopers & Lybrand, LLP, dated May 12, 1995.
21(1) Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Leonard, Street and Deinard Professional Association (included in 5 above).
24 Power of Attorney (included on signature page).
</TABLE>
(1)To be filed by amendment.
*Incorporated by reference to the Exhibit of the same number to the Company's
Registration Statement on Form S-1, Registration No. 33-58934.
**Incorporated by reference to the Exhibit of the same number to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
***Incorporated by reference to the Exhibit of the same number to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994.
****Incorporated by reference to the Exhibit of the same number to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995.
*****Incorporated by reference to the Exhibit of the same number to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
******Incorporated by reference to the Exhibit of the same number to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996.
(b) FINANCIAL STATEMENT SCHEDULES.
None are required.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this Registration Statement on Form S-1 to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Wayzata, State of
Minnesota, on the 16th day of September, 1996.
LUNDGREN BROS. CONSTRUCTION, INC.
By /S/ PETER PFLAUM
Peter Pflaum
Its President
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears below
hereby constitutes and appoints Peter Pflaum his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Registration Statement, and to file the same, with
the Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as full to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
/S/ PETER PFLAUM President and Director September 16, 1996
Peter Pflaum (Principal Executive
and Financial Officer)
/S/ PATRICK C. WELLS President -- Remodeling September 16, 1996
Patrick C. Wells Division and Director
/S/ EDMUND M. LUNDGREN Vice President and Director September 16, 1996
Edmund M. Lundgren
/S/ ALLAN D. LUNDGREN Vice President, Secretary/ September 16, 1996
Allan D. Lundgren Treasurer and Director
/S/ GERALD T. LUNDGREN Vice President September 16, 1996
Gerald T. Lundgren
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
EXHIBITS
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LUNDGREN BROS. CONSTRUCTION, INC.
EXHIBIT INDEX
EXHIBITS PAGE
1.1 Form of Underwriting Agreement.
1.2 Form of Selected Dealers Agreement.
*3.1 Articles of Incorporation of Lundgren in effect on the date
hereof.
*3.2 Bylaws of Lundgren on the date hereof.
4.1 Form of Debenture (included as Sections 2.2(A) and (B) of
Indenture filed as Exhibit 4.2 hereto).
4.2 Form of Indenture by and between Lundgren and National City
Bank Minnesota, National Association, as Trustee, including a
Form of Debenture.
5(1) Opinion of Leonard, Street and Deinard Professional
Association.
*10.1 Lease by and between Lundgren, as lessor, Glenbrook Office
Building Partnership, and Peter Pflaum and Patrick C. Wells,
general partners, dated September 28, 1978.
*10.2 Amended and Restated Stock Purchase Agreement, dated February
1, 1993, by and among Lundgren, Peter Pflaum, Patrick Wells,
Edmund M. Lundgren, Gerald T. Lundgren and Allan D. Lundgren.
***10.3 Revolving Credit Line Agreement between the Company and
Builders Development & Finance, Inc., dated March 18, 1994.
***10.4 Mortgage Note, dated March 18, 1994, of the Company payable
to Builders Development & Finance, Inc.
***10.5 Combination Mortgage, Security Agreement and Fixture Financing
Statement between the Company and Builders Development &
Finance, Inc., dated March 18, 1994, including all amendments
thereto.
*10.6 Guaranty by Peter Pflaum, Patrick C. Wells, Allan D. Lundgren,
Edmund M. Lundgren and Gerald T. Lundgren for the benefit of
Builders Development & Finance, Inc., dated July 27, 1990.
*10.7 Demand Discretionary Revolving Credit Agreement between the
Company and Norwest Bank Minnesota, National Association,
dated November 30, 1990.
*10.8 First Amended and Restated Revolving Note, dated May 1, 1992,
of the Company payable to Norwest Bank Minnesota, National
Association.
*10.9 Assignment of Life Insurance Policy as Collateral by the
Company in favor of Norwest Bank Minnesota, National
Association, dated November 30, 1990.
*10.10 Assignment of Life Insurance Policy as Collateral by the
Company in favor of Norwest Bank Minnesota, National
Association, dated May 1, 1992.
*10.11 Guaranty by Peter Pflaum, Patrick C. Wells, Allan D. Lundgren,
Edmund M. Lundgren and Gerald T. Lundgren for the benefit of
Norwest Bank Minnesota, National Association, dated November
5, 1990 and all extensions thereof.
*****10.12 Commercial Lease, dated June 1, 1995, by and between
Koecheler & Olson Leasing and Lundgren Bros. Plumbing.
*****10.13 Lease Agreement, dated April 10, 1995, by and between B.M.
Acquisitions Corporation (Brush Masters, Inc.) and John J.
Day.
*10.14 Loan Agreement, dated as of May 8, 1992, by and between the
Company and Builders Development & Finance, Inc.
*10.15 First Mortgage Note, dated May 8, 1992, of the Company payable
to Builders Development & Finance, Inc.
*10.16 Second Mortgage Note, dated May 8, 1992, of the Company
payable to Builders Development & Finance, Inc.
*10.17 First Mortgage, dated May 8, 1992, by the Company in favor of
Builders Development & Finance, Inc.
*10.18 Second Mortgage, dated May 8, 1992, by the Company in favor of
Builders Development & Finance, Inc.
*10.19 Guaranty, dated as of May 8, 1992, by Peter Pflaum, Edmund M.
Lundgren, Gerald T. Lundgren, Allan D. Lundgren and Patrick C.
Wells for the benefit of Builders Development & Finance, Inc.
*10.20 Construction Loan Agreement, dated as of July 22, 1992, by and
between the Company and Scherer Bros. Financial Services Co.
*10.21 Mortgage and Security Agreement, dated July 22, 1992, between
the Company and Scherer Bros. Financial Services Co.
*10.22 Promissory Note, dated July 22, 1992, of the Company payable
to Scherer Bros. Financial Services Co.
*10.23 Guaranty, dated as of July 22, 1992, by Allan Lundgren for the
benefit of Scherer Bros. Financial Services Co.
*10.24 Guaranty, dated as of July 22, 1992, by Patrick Wells for the
benefit of Scherer Bros. Financial Services Co.
*10.25 Guaranty, dated as of July 22, 1992, by Peter Pflaum for the
benefit of Scherer Bros. Financial Services Co.
*10.26 Guaranty, dated as of July 22, 1992, by Edmund Lundgren for
the benefit of Scherer Bros. Financial Services Co.
*10.27 Guaranty, dated as of July 22, 1992, by Gerald Lundgren for
the benefit of Scherer Bros. Financial Services Co.
*10.28 Development Loan Agreement, dated May 15, 1992, by and
between the Company and Construction Mortgage Investors Co.
*10.29 First Mortgage Note, dated May 15, 1992, of the Company
payable to Construction Mortgage Investors Co.
*10.30 First Mortgage, dated May 15, 1992, by the Company in favor of
Construction Mortgage Investors Co.
*10.31 Guaranty, dated May 15, 1992, by Peter Pflaum, Patrick C.
Wells, Allan D. Lundgren, Edmund M. Lundgren and Gerald T.
Lundgren for the benefit of Construction Mortgage Investors
Co.
*10.32 Contribution Agreement, dated as of February 17, 1993, by and
among the Company, Peter Pflaum, Patrick C. Wells, Allan D.
Lundgren, Edmund M. Lundgren and Gerald T. Lundgren.
*****10.33 Shopping Center Lease, dated February 9, 1994, by and
between Oakdale Mall Associates and Lundgren Bros.
Construction, Inc. d/b/a Lundgren Bros. Remodeling.
*10.34 Form of Option to Purchase Land.
*10.35 Form of Contingent Purchase Agreement.
*****10.36 Amendment No. 1 to Amended and Restated Stock Purchase
Agreement, dated April 1, 1993.
**10.37 Amended and Restated Demand Discretionary Revolving Credit
Agreement, dated March 18, 1994, by and between Norwest Bank
Minnesota, National Association and Lundgren Bros.
Construction, Inc.
****10.38 Fourth Amended and Restated Revolving Note (Demand), dated
March 14, 1995, of the Company payable to Norwest Bank
Minnesota, National Association.
****10.39 Consent and Reaffirmation of Guaranty, dated March 14, 1995,
by Peter Pflaum, Patrick C. Wells, Edmund M. Lundgren, Allan
D. Lundgren and Gerald T. Lundgren in favor of Norwest Bank
Minnesota, National Association.
***10.40 Satisfaction of Combination Mortgage, Security Agreement and
Fixture Financing Statement executed by Builders Development &
Finance, Inc. on March 29, 1994.
***10.41 Letter Agreement, dated February 17, 1994, between Builders
Funding Corporation and Lundgren Bros. Construction, Inc.
****10.42 Amendment, Extension and Reaffirmation Agreement, dated March
14, 1995, by and among Lundgren Bros. Construction, Inc.,
Patrick C. Wells, Peter Pflaum, Edmund M. Lundgren, Allan D.
Lundgren and Gerald T. Lundgren and Norwest Bank Minnesota,
National Association.
****10.43 Supplemental Assignment of Life Insurance Policies as
Collateral, dated March 14, 1995, by Lundgren Bros.
Construction, Inc. in favor of Norwest Bank Minnesota,
National Association.
****10.44 Second Supplemental Assignment of Life Insurance Policies as
Collateral, dated March 16, 1995, by Lundgren Bros.
Construction, Inc. in favor of Norwest Bank Minnesota,
National Association.
*****10.45 Third Amendment to Combination Mortgage, Security Agreement
and Fixture Financing Statement and Amendment to Revolving
Credit Line Agreement, dated January 25, 1995, by Lundgren
Bros. Construction, Inc. and Builders Development & Finance,
Inc.
******10.46 Second Amended and Restated Mortgage Note, dated May 20,
1996, of Lundgren Bros. Construction, Inc. payable to Builders
Development & Finance, Inc.
******10.47 Eighth Amendment to Combination Mortgage, Security
Agreement and Fixture Financing Statement and Second Amendment
to Revolving Credit Line Agreement and Reaffirmation
Agreement, dated May 20, 1996, by Lundgren Bros. Construction,
Inc. and Builders Development & Finance, Inc.
******10.48 Promissory Note, dated March 21, 1996, of Lundgren Bros.
Construction, Inc. payable to First Bank National Association.
******10.49 Letter Agreement, dated March 21, 1996, by Lundgren Bros.
Construction, Inc. and First Bank National Association.
******10.50 Pledge Agreement, dated March 21, 1996, by Lundgren Bros.
Construction, Inc. for the benefit of First Bank National
Association.
******10.51 Control Agreement (With Broker or other Securities
Intermediary), dated March 21, 1996, by Lundgren Bros.
Construction, Inc., First Bank National Association and FBS
Investment Services, Inc.
******10.52 Guaranty, dated March 12, 1996, by Edmund M. Lundgren for
the benefit of First Bank National Association.
******10.53 Guaranty, dated March 12, 1996, by Allan Lundgren for the
benefit of First Bank National Association.
******10.54 Guaranty, dated March 12, 1996, by Peter Pflaum for the
benefit of First Bank National Association.
******10.55 Guaranty, dated March 12, 1996, by Patrick C. Wells for the
benefit of First Bank National Association.
******10.56 Guaranty, dated March 12, 1996, by Gerald Lundgren for the
benefit of First Bank National Association.
12 Computation of Fixed Charge Ratio.
****18.1 Letter on accounting change, Coopers & Lybrand, LLP, dated May
12, 1995.
21(1) Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Leonard, Street and Deinard Professional
Association (included in 5 above).
24 Power of Attorney (included on signature page).
(1)To be filed by amendment.
*Incorporated by reference to the Exhibit of the same number to the Company's
Registration Statement on Form S-1, Registration No. 33-58934.
**Incorporated by reference to the Exhibit of the same number to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
***Incorporated by reference to the Exhibit of the same number to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994.
****Incorporated by reference to the Exhibit of the same number to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995.
*****Incorporated by reference to the Exhibit of the same number to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
******Incorporated by reference to the Exhibit of the same number to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996.
DRAFT 9/16/96
LUNDGREN BROS. CONSTRUCTION, INC.
$3,000,000 SENIOR SUBORDINATED DEBENTURES
UNDERWRITING AGREEMENT
Minneapolis, Minnesota
_______________, 1996
Miller & Schroeder Financial, Inc.
Offerman & Company
c/o Miller & Schroeder Financial, Inc.
220 South Sixth Street, Suite 300
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
1. Introductory. Lundgren Bros. Construction, Inc., a Minnesota
corporation (the "Company"), proposes to issue and sell up to $3,000,000
aggregate principal amount of its Senior Subordinated Debentures as described in
the Registration Statement referred to below. Said $3,000,000 principal amount
is referred to herein as the "Debentures." The Debentures will be issued
pursuant to an Indenture (the "Indenture") dated as of ______________, 1996
between the Company and National City Bank of Minneapolis, National Association,
as Trustee (the "Trustee").
The Company hereby confirms its agreement with you, Miller & Schroeder
Financial, Inc. and Offerman & Company, as underwriters (the "Underwriters") to
offer and sell the Debentures on a "best efforts" basis without any minimum upon
the terms and conditions herein.
The Company hereby agrees with the Underwriters as follows:
2. Representations and Warranties of the Company.
(a) The Company represents and warrants to, and agrees with,
the Underwriters that:
(i) A registration statement on Form S-1 (File No.
333-____), including a form of prospectus, relating to the
Debentures has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended,
and the rules and regulations of the Securities and Exchange
Commission (the "Commission") promulgated thereunder
(collectively, the "Act"; all references herein to specific
rules are rules promulgated under the Act) has been filed with
the Commission and either (A) has been declared effective
under the Act and is not proposed to be amended or (B) is
proposed to be amended by amendment or post-effective
amendment. If the Company does not propose to amend such
registration statement and if any post-effective amendment to
such registration statement has been filed with the Commission
prior to the execution and delivery of this Agreement, the
most recent such amendment has been declared effective by the
Commission. For purposes of this Agreement, "Effective Time"
means (A) if the Company has advised you that it does not
propose to amend such registration statement, the date and
time as of which such registration statement, or the most
recent post-effective amendment thereto (if any) filed prior
to the execution and delivery of this Agreement, was declared
effective by the Commission, or (B) if the Company has advised
you that it proposes to file an amendment or post-effective
amendment to such registration statement, the date and time as
of which such registration statement, as amended by such
amendment or post-effective amendment, as the case may be, is
declared effective by the Commission. "Effective Date" means
the date of the Effective Time. Such Registration Statement,
as amended at the Effective Time, including all information
(if any) deemed to be a part of such registration statement as
of the Effective Time pursuant to Rule 430A(b), is hereinafter
referred to as the "Registration Statement," and the form of
prospectus relating to the Debentures, as first filed with the
Commission pursuant to and in accordance with Rule 424(b) or
(if no such filing is required) as included in the
Registration Statement, is hereinafter referred to as the
"Prospectus."
(ii) The Commission has not issued any order
preventing or suspending the use of the Prospectus. If the
Effective Time is prior to the execution and delivery of this
Agreement: (A) on the Effective Date, the Registration
Statement and the Prospectus conformed in all respects to the
requirements of the Act and did not include any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances under which they were made, and (B) on the date
of this Agreement, and at all times subsequent thereto up to
and including the Final Closing Date as defined below, the
Registration Statement conforms, and at the time of filing of
the Prospectus pursuant to Rule 424(b), the Registration
Statement and the Prospectus will conform, in all respects to
the requirements of the Act, and neither of such documents
includes, or will include, any untrue statement of a material
fact or omits, or will omit, to state any material fact
required to be stated therein or necessary to make the
statements therein not misleading and at all times subsequent
thereto up to and including the Final Closing Date as defined
below. If the Effective Time is subsequent to the execution
and delivery of this Agreement: on the Effective Date, and at
all times subsequent thereto up to and including the Final
Closing Date as defined below, the Registration Statement and
the Prospectus will conform in all respects to the
requirements of the Act, and neither of such documents will
include any untrue statement of a material fact or will omit
to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances under which they were made. The two
preceding sentences do not apply to statements in or omissions
from the Registration Statement or Prospectus in reliance upon
and in conformity with written information furnished to the
Company by or on behalf of the Underwriters specifically for
use therein.
(iii) The Company and its wholly-owned subsidiary,
Brush Masters, Inc., [list any others] which constitutes all
its subsidiaries (the "Subsidiary"), have been duly
incorporated and are validly existing as corporations in good
standing under the laws of their respective states of
incorporation, with full power and authority, corporate and
otherwise, to own their properties and conduct their business
as described in the Prospectus. The Company and the Subsidiary
are duly qualified as foreign corporations to transact
business and are in good standing in each jurisdiction in
which such qualification is required, whether by reason of the
ownership or leasing of property, the conduct of business or
otherwise, other than jurisdictions in which the failure to so
qualify, considering all such cases in the aggregate, would
not have a material adverse effect on the Company and the
Subsidiary, taken as a whole.
(iv) All of the shares of capital stock of the
Subsidiary have been duly and validly authorized and issued,
are fully paid and nonassessable and are owned by the Company,
free and clear of any security interest, lien or restriction.
Except for the Subsidiary, the Company owns no securities of
any other entity and nor does the Subsidiary have any
subsidiaries or own any securities of any other entity.
(v) The authorized and issued indebtedness of the
Company and of the Subsidiary is correctly set forth in the
Prospectus, as of the dates indicated. There are no
outstanding loans or advances or guarantees of indebtedness by
the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families
of any of them expect as are described in the Prospectus. The
capitalization of the Company as of the date indicated is as
set forth under the caption "Capitalization" in the
Prospectus. The issued and outstanding shares of capital stock
of the Company have been duly and validly authorized and
issued, are fully paid and nonassessable and were issued in
compliance with all federal and state securities laws. There
are no other classes of capital stock, authorized or
outstanding, except as described in the Prospectus. The
indebtedness of the Company and of the Subsidiary has been
duly authorized. None of the outstanding shares of capital
stock of the Company was issued in violation of preemptive
rights of any stockholder of the Company.
(vi) This Agreement has been duly authorized,
executed and delivered by the Company and constitutes the
legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except as
enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
or equitable principles affecting the enforcement of
creditors' rights generally and except as rights to indemnity
hereunder may be limited by applicable securities laws,
including the Act and the rules and regulations thereunder.
(vii) The Company has the power and authority to
execute and deliver the Indenture and to carry out the terms
thereof, and has the power to authorize, issue and sell the
Debentures on the terms and conditions set forth in this
Agreement and in the Indenture. The Indenture has been duly
and validly authorized, executed and delivered by the Company
and constitutes the valid and binding obligation of the
Company enforceable in accordance with its terms except as
enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
or equitable principles affecting enforcement of creditors'
rights generally. The Indenture is not required to be
qualified under the Trust Indenture Act of 1939, as amended.
The Debentures have been duly and validly authorized by the
Company and, when executed by the Company and authenticated by
the Trustee in accordance with the provisions of the Indenture
and delivered and paid for pursuant to this Agreement, the
Debentures will have been duly and validly executed, issued
and delivered by the Company and will constitute valid and
binding obligations of the Company entitled to the benefits of
the Indenture.
(viii) The Debentures and the Indenture conform in
all material respects to the descriptions thereof contained in
the Prospectus. The certificates for the Debentures to be
delivered hereunder are in due and proper form as provided for
by the Indenture.
(ix) There are no contracts or other documents
required to be described in the Prospectus or to be filed as
exhibits to the Registration Statement which have not been
described or filed as required. Contracts and documents so
described in the Prospectus are in full force and effect on
the date hereof and through the Final Closing Date. All
descriptions of such contracts and documents in the Prospectus
are correct in all material respects. Neither the Company nor
the Subsidiary nor, to the best knowledge of the Company, any
other party, is in breach of or default under any of such
contracts.
(x) Neither the issue and sale of the Debentures, the
performance of this Agreement or the Indenture, nor the
consummation of the transactions contemplated herein and
therein will conflict with or constitute a breach of, or
default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the
Company or any Subsidiary pursuant to any contract, indenture,
mortgage, loan agreement, note, lease or other instrument or
agreement to which the Company or any Subsidiary is a party or
by which any of them may be bound, or to which any of the
property or assets of any of them is subject; nor will such
action result in any violation of the provisions of the
Articles of Incorporation or bylaws of the Company or any
Subsidiary or any applicable law , order rule or regulation or
administrative or court decree, writ or injunction of any
governmental authority, court or arbitration having
jurisdiction over the Company or its property or assets except
those as to which the Company has obtained a waiver. No
consent, approval, authorization or other order of any court,
regulatory body, administrative agency, other governmental
body or any self-regulatory agency having jurisdiction over
the Company or its property or assets is required for the
execution and delivery and performance of this Agreement or
the Indenture or the consummation of the transactions and
performance contemplated herein or therein or in the
Prospectus, except such as will be or have been obtained under
the Act and except as may be required under applicable blue
sky laws or the rules and regulations of the National
Association of Securities Dealers, Inc. in connection with the
purchase and distribution of the Debentures by you.
(xi) The accountants who have expressed their
opinions with respect to certain financial statements and
schedules included or incorporated by reference in the
Registration Statement are independent accountants as required
by the Act.
(xii) The consolidated financial statements of the
Company, together with the notes thereto, included in the
Registration Statement present fairly the consolidated
financial position of the Company as of the respective dates
of such financial statements, and the consolidated results of
operations, stockholders' equity and cash flows of the Company
for the respective periods covered thereby. Such financial
statements and related notes have been prepared in conformity
with generally accepted accounting principles consistently
applied throughout the periods involved and comply in all
material respects with the requirements of the Act. The
selected financial data set forth in the Prospectus present
fairly the information set forth therein and have been
compiled on a basis consistent with that of the audited
consolidated financial statements included in the Registration
Statement. The supporting schedules included in the
Registration Statement present fairly the information required
to be stated therein. No other financial statements or
schedules are required to be included in the Registration
Statement or Prospectus.
(xiii) A copy of the Company's Articles of
Incorporation and bylaws, both amended to date, have been
provided to Underwriters' counsel, and neither has been
amended or restated as of the date of this Agreement. Neither
the Company nor any Subsidiary is in violation of its Articles
of Incorporation or bylaws or other governing instruments or
in default under any administrative or court decree, or in
default with respect to any material provision of any lease,
loan agreement, franchise, license, permit or other
contractual obligation to which it is a party or by which it
may be bound, or to which any of the property or assets of the
Company or any Subsidiary is subject. There does not exist any
state of facts which constitutes an event of default as
defined in such documents or which, with notice or lapse of
time or both, would constitute such an event of default.
(xiv) Except as set forth in the Prospectus, there
are no legal or governmental proceedings pending to which the
Company or any Subsidiary is a party or of which any property
of the Company or any Subsidiary is the subject which, if
determined adversely to the Company or to any Subsidiary,
would individually or in the aggregate result in a material
change in the condition (financial or otherwise), business,
prospects or results of operations of the Company and the
Subsidiary taken as a whole; and to the best of the Company's
knowledge, no such proceedings are threatened or contemplated
by governmental authorities or others.
(xv) There are no holders of securities of the
Company having rights to registration thereof or preemptive
rights with respect to the Debentures, except as disclosed in
the Prospectus. The Debentures will be issued free and clear
of all liens, encumbrances, claims, security interests,
restrictions on transfer and other defects of title.
(xvi) The Company and the Subsidiary have good and
marketable title to all the properties and assets reflected as
owned by the Company and the Subsidiary in the financial
statements hereinabove described (or elsewhere in the
Prospectus), subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except those, if any, reflected in
such financial statements (or elsewhere in the Prospectus).
Except as described in the Prospectus, the Company and the
Subsidiary hold their leased properties under valid and
binding leases which are in full force and effect. Neither the
Company nor any Subsidiary has any notice of any claim adverse
to the rights of the Company or any Subsidiary under any such
leases or affecting or questioning the rights of the Company
or any Subsidiary to the continued possession of the leased
premises.
(xvii) The Company has not taken and will not take,
directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or
result in stabilization or manipulation of the price of any of
the Debentures.
(xviii) Subsequent to the respective dates as of
which information is given in the Registration Statement and
the Prospectus, and except as otherwise stated in the
Prospectus, (A) neither the Company nor any Subsidiary has
incurred any material liabilities or obligations, direct or
contingent, nor entered into any material transactions not in
the ordinary course of business, (B) there has not been any
material adverse change in the condition, financial or
otherwise, results of operations, earnings, business affairs
or business prospects nor any material change in the capital
stock, short-term debt or long-term debt of the Company or any
Subsidiary, (C) there has not been any material transaction
entered into by the Company or any Subsidiary, (D) except as
described in the Prospectus, there has been no dividend or
distribution of any kind declared, paid or made by the Company
on any class of its capital stock, (E) there has not been any
material loss or damage, which is not adequately insured, to
the property of Company or any Subsidiary (considered as a
whole), or (F) there has not been any bonus payment made
inconsistent with the restrictions on the Bonus Plan described
in the Indenture, and (G) there has not been and will not have
been any event which constitutes a default under the
provisions of the Indenture without regard to any notice
requirements with respect thereto contained in the Indenture.
(xix) The Company and the Subsidiary maintain
insurance, which is in full force and effect, of the types and
in the amounts adequate for their businesses and similar in
type and amount to the insurance coverage maintained by
similar companies and businesses, and in accordance with the
provisions of the Indenture.
(xx) The Company and the Subsidiary own and possess
all right, title and interest in and to, or have duly licensed
from third parties, all trademarks, copyrights, inventions,
know-how (including trade secrets and other unpatented or
unpatentable proprietary or confidential information, systems
or procedures) and other proprietary rights ("Trade Rights")
presently employed by any of them in connection with the
business now operated by them. Neither the Company nor any
Subsidiary has received any notice of infringement,
misappropriation or conflict from any third party as to such
Trade Rights which has not been resolved or disposed of, and
neither the Company nor any Subsidiary has infringed,
misappropriated or otherwise conflicted with material Trade
Rights of any third parties.
(xxi) The Company and the Subsidiary own, possess or
have obtained all material governmental licenses, permits,
certificates, consents, orders, approvals, permits and other
authorizations from the state, federal, court or other
regulatory authorities necessary to own or lease, as the case
may be, and to operate their properties and to carry on their
respective business as presently conducted and as contemplated
by the Prospectus, and neither the Company nor any Subsidiary
has received any notice of proceedings which have been
instituted (or to the Company's Knowledge, threatened)
relating to the revocation, limitation or modification of any
such licenses, permits, certificates, consents, orders,
approvals or authorizations. The business of the Company and
the Subsidiary is being conducted in all material respects
with any applicable federal, state, local or foreign law,
ordinance, rule, regulation, judgment, decree, injunction or
order or requirement of any court or other governmental
entity. Neither the Company nor the Subsidiary and no officer,
director, shareholder or agent of such company has been
authorized to receive or make, and is not receiving or making,
any bribe, kickback, or other illegal payment with respect to
the business conducted by such company.
(xxii) No labor dispute with the employees of the
Company or any Subsidiary exists or, to the best knowledge of
the Company, is imminent which might reasonably be expected to
materially adversely affect the condition, financial or
otherwise, results of operations, earnings, business affairs
or business prospects of the Company and the Subsidiary, taken
as a whole. To the best knowledge of the Company, after due
inquiry, no members of senior management presently intend to
leave the Company or any Subsidiary.
(xxiii) All United States federal income tax returns
required by law to be filed by or on behalf of the Company and
the Subsidiary have been filed and all taxes shown by such
returns or otherwise assessed which are due and payable as of
or prior to the date hereof have been paid, except assessments
against which appeals have been or will be promptly taken and
as to which adequate reserves have been provided in order to
comply with GAAP. All other tax returns that are required to
have been filed by or on behalf of the Company and the
Subsidiary pursuant to applicable foreign, state, local or
other law have been filed, and the Company and the Subsidiary
have paid all taxes due as of or prior to the date hereof
pursuant to such returns or pursuant to any assessment
received by them, except for such taxes, if any, as are being
contested in good faith and as to which adequate reserves have
been provided. The charges, accruals and reserves on the books
of the Company and the Subsidiary in respect of any income and
corporation tax liability (or for any payments to be made in
respect of any tax sharing agreements or arrangements) for any
years not finally determined are adequate to meet any
assessments or reassessments for additional income tax for any
years not finally determined.
(xxiv) Neither the Company nor any Subsidiary is an
"investment company" within the meaning of such term as
defined in the Investment Company Act of 1940, as amended.
(xxv) No broker, finder, consultant or other person
or entity is entitled to any brokerage, finder's or other fee
or commission in connection with the issuance and sale of the
Debentures, except as may be provided to the Underwriters by
the express terms of this Agreement and there is no
outstanding or threatened claim for services in the nature of
a "finder's fee" with respect to such financing; and the
Company agrees to indemnify and hold the Underwriters harmless
from and against any claims, losses, judgments or expenses
resulting from any finder's fees payable in connection
herewith.
(xxvi) The Company has not sold any securities in
violation of Section 5(a) of the Act.
(xxvii) The conditions for use of a registration
statement on Form S-1 set forth in the General Instructions to
Form S-1 have been satisfied with respect to the Company and
the Registration Statement.
(xxviii) The statistical information in the
Prospectus which is derived from the Company's financial or
other records has been accurately derived therefrom and, as
set forth, is not in conflict with other information known to
the Company.
(xxix) All descriptions in the Registration Statement
or Prospectus of statutes, regulations, legal or governmental
proceedings, the Indenture, the Debentures, or other contracts
or other documents are accurate in all material respects and
fairly present the information shown.
(xxx) The Company has not distributed and will not
distribute any prospectus or any other offering material in
connection with the offering and sale of the Debentures other
than the Prospectus or other materials permitted by the act to
be distributed by the Company and consented to by the
Underwriters.
(xxxi) The Company maintains a system of internal
accounting controls sufficient to provide that:
(A) transactions are executed in accordance with
management's general or specific authorization;
(B) transactions are recorded as necessary to permit
preparation of financial statements in conformity
with generally accepted accounting principles and to
maintain accountability for assets;
(C) access to assets is permitted only in accordance
with management's general or specific authorization;
and
(D) the recorded accountability for assets is
compared with existing assets at reasonable intervals
and appropriate action is taken with respect to any
differences.
(xxxii) The Company has not taken and will not take,
directly or indirectly, any action designed to cause or result
in or which has constituted or which might reasonably be
expected to constitute the stabilization or manipulation of
the price of any outstanding securities of the Company
(including the Debentures) to facilitate the sale or resale of
the Debentures.
(xxxiii) On each Closing Date all transfer or other
taxes, if any (other than income taxes), which are required to
be paid in connection with the sale or transfer of the
Debentures will have been fully paid or provided for by the
Company and all laws imposing such taxes will have been fully
complied with.
(xxxiv) Each acceptance by the Company of an offer
for the purchase of Debentures and each issuance of Debentures
shall be deemed an affirmation of the Company that the
representations and warranties contained herein are true and
correct at the time of such acceptance or of such issuance, in
each case as though expressly made at that time.
(b) Any certificate signed by any officer of the Company and delivered
to the Underwriters or to counsel for the Underwriters pursuant to this
Agreement shall be deemed a representation and warranty by the Company
to the Underwriters as to the matters covered thereby.
3. Representations and Warranties of the Underwriters.
Each Underwriter hereby represents and warrants to the Company as
follows:
(a) It is a member in good standing of the National Association of
Securities Dealers, Inc. ("NASD").
(b) It is duly licensed and a registered broker-dealer in good standing
under the Securities Exchange Act of 1934 and under the appropriate
laws and regulations of Minnesota and each of the states in which
offers, offers for sale, or sales of the Debentures will be made by it,
and no proceedings have been initiated or to the best of its knowledge
threatened to suspend such license or membership.
(c) It has the power and authority to execute and deliver this
Agreement and to carry out its terms. This Agreement has been duly
authorized, executed and delivered by it and is a valid and binding
obligation of it, enforceable in accordance with its terms, except as
rights to indemnity hereunder may be limited by federal or state
securities laws and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws and
subject to general principles of equity, and shall not constitute or
result in any material breach or violation of any of the terms,
provisions or conditions of, or constitute a material default under any
federal, state or local statute, law or regulation applicable to it or
any material contract commitment, instrument or document to which it is
a party or by which it is bound, its articles of incorporation or
bylaws, or any order, arbitration award, judgment, decree, rule or
regulation of any court or governmental agency or body having
jurisdiction over it or its activities; and except for registration
under the Act and applicable state securities or blue sky laws for the
sale of Debentures, and compliance with the rules of the NASD, no
consent, approval, authorization or order of any court or governmental
agency or body is required for the consummation of the transactions
contemplated hereby.
4. Offer and Sale of Debentures.
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set
forth, the Company appoints you as the Underwriters to offer and sell
the Debentures, on a "best efforts," "no minimum" basis for the period
referred to in paragraph 4(c) hereof, and the Underwriters accept such
appointment and agree to use their best efforts to sell the Debentures
for the Company, without a firm commitment by the Underwriters to
purchase any Debentures, and that you and your "Selected Dealers" (as
hereinafter defined) shall be required to take and pay for only such
Debentures as are sold to the public or as you or your Selected Dealers
otherwise commit to purchase by written confirmation, subject in each
case to applicable closing conditions as herein set forth.
(b) The Underwriters shall offer and sell the Debentures for the
Company upon the terms and conditions set forth in the Prospectus, as
the same may be amended or supplemented from time to time. The purchase
price for the Debentures shall be par plus accrued interest in
accordance with the Indenture. Upon the closing of the sale of any of
the Debentures, you shall receive an amount equal to six percent (6%)
of the principal amount (not including accrued interest) as commission
for the sale, and an amount equal to three percent (3%) of the purchase
price as an underwriting management fee.
(c) Your appointment as Underwriters shall be exclusive and not subject
to termination by the Company for a period of six months after the
Effective Time. Upon the expiration of the foregoing period, this
Agreement shall remain in effect, unless the Company thereafter
terminates your appointment, which it may do at any time after such
expiration, upon written notice given to the Underwriters as provided
herein.
(d) You may appoint dealers ("Selected Dealers") which are members in
good standing of the National Association of Securities Dealers, Inc.
to offer and sell the Debentures and, in connection with such
appointment, may allow concessions to such Selected Dealers from the
public offering price of the Debentures in such amount as you may deem
appropriate.
(e) Debentures purchased from the Company in accordance with this
Agreement shall be confirmed by you, as principal, to the Company at
the purchase price set forth in paragraph 4(b) above. Resales of such
Debentures shall be confirmed by you, as principal, to the public at
the Price to Public set forth in the Prospectus, or any amendment
thereof or supplement thereto, or to Selected Dealers at such Price to
Public less the applicable Selected Dealer's concession, all subject to
the respective Closings hereinafter referred to.
5. Payment and Delivery. On the basis of the representations,
warranties and agreements, but subject to the terms and conditions, set forth in
this Agreement, payment of the purchase price for, and delivery of, the
Debentures sold as contemplated hereunder shall be made as follows:
(a) You shall promptly confirm to the Company the principal amount of
the Debentures which have been "sold" within the meaning of paragraph
5(d).
(b) Delivery of the Debentures against payment therefor shall be made
before 2:00 p.m., local Minneapolis, Minnesota time at a mutually
agreed upon location, (i) no later than the fifteenth (15th) day of
each month during the term of this Agreement [discuss], or (ii) on such
earlier date or dates as shall be agreed upon by you and the Company,
as to Debentures "sold" as defined in paragraph 5(d). Such events being
herein called "Closing(s)" and such times and dates being herein called
the "Closing Date(s)."
(c) The Debentures delivered on each Closing Date shall be registered
in such names and such denominations as you have instructed pursuant to
paragraph 5(d), and shall be made available to you in definitive form
for the purpose of inspection and packaging at least twenty-four (24)
hours before each respective Closing Date. Time is of the essence and
the availability of the Debentures for such inspection and packaging
and delivery at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriters. Delivery of
Debentures to the respective purchasers or Selected Dealers shall be
made by you. Pending delivery on each Closing Date, proceeds from the
sale of Debentures will be held by you in a separate account.
(d) On each Closing Date, you shall remit to the Company the purchase
price for the Debentures, as determined in accordance with paragraph
4(b) hereof, which you have confirmed to the Company and which have
been sold in accordance with the terms and provisions of this
Agreement. Such purchase price may be remitted to the Company net of
the commissions referred to in paragraph 4(b) and the expenses for
which the Company is responsible under this Agreement. Appropriate
instructions for the registration of the Debentures and authentication
and delivery thereof pursuant to the Indenture, which instructions
shall include the names, addresses and social security or tax
identification numbers of the registered holders, the principal amounts
of the Debentures and the dates the Debentures are deemed "sold" within
the terms of paragraph 5(d) hereof shall be provided to the Trustee
with respect to each remittance of funds. The Company shall have
instructed the Trustee to accept instructions for the registration of
the Debentures directly from you, and copies of such instructions shall
be given to the Company at the same time they are furnished to the
Trustee. The Company agrees that copies of the confirmation for each
sale will satisfy the requirement for instructions contained in this
paragraph.
(e) Debentures shall be deemed to have been sold on the date payment in
good funds is received by you for such Debentures. Funds received from
investors in payment for Debentures shall be transmitted by you to a
separate bank account no later than 12:00 noon on the next business day
after such funds are received and shall be held by you as agent for
such investors. Each Debenture will be dated as of ______________,
1996. As provided in the Indenture, interest will accrue on each
Debenture from the later of ______________, 1996 or the most recent
"Interest Payment Date" (as defined in the Indenture). In the event you
hold Debentures in your name on the record date for the payment of such
interest (resulting from the purchase of Debentures for your own
account or otherwise), which Debentures have not been resold, you shall
be entitled to receive such interest, subject to your right to direct
the Trustee to pay over such interest, in whole or in part, to a
subsequent purchaser.
6. Certain Agreements of the Company. The Company covenants and agrees
that:
(a) The Company will use its best efforts to cause the Registration
Statement, if the Effective Time is subsequent to the execution and
delivery of this Agreement, and any amendment thereof, to become
effective. If the Effective Time is prior to the execution and delivery
of this Agreement, the Company will file the Prospectus with the
Commission pursuant to and in accordance with subparagraph (1) (or, if
applicable and if consented to by you, subparagraph (4)) of Rule 424(b)
not later than the earlier of (A) the second business day following the
execution and delivery of this Agreement or (B) the fifth business day
after the Effective Date. The Company will advise you promptly of any
such filing pursuant to Rule 424(b).
(b) The Company will advise you promptly of: (i) any proposal to amend
or supplement the Registration Statement or the Prospectus and will not
affect such amendment or supplementation without your consent; (ii) the
effectiveness of the Registration Statement (if the Effective Time is
subsequent to the execution and delivery of this Agreement) and of any
amendment or supplementation of the Registration Statement or the
Prospectus; (iii) the institution by the Commission of any stop order
in respect of the Registration Statement or of any notification or
other communication relating to the institution of any stop order
proceedings in respect of the Registration Statement (and the Company
will use its best efforts to prevent the issuance of any such stop
order and to obtain as soon as possible its lifting: if issued); and
(iv) any notification of the suspension of qualification of the
Debentures for sale in any jurisdiction or the initiation or threat of
any proceedings for that purpose. The Company will also promptly comply
with any requests for additional information.
(c) If, at any time when a prospectus relating to the Debentures is
required to be delivered under the Act, any event occurs as a result of
which the Company believes, or in the professional judgment of counsel
to the Company in counsel as the Underwriters, the Prospectus as then
amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, or if it is necessary at any time to amend
the Prospectus to comply with the Act, the Company will advise you
promptly thereof and will prepare promptly and file with the Commission
an amendment or supplement which will correct such statement or
omission or an amendment which will effect such compliance.
(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
security holders an earnings statement covering a period of at least
twelve (12) months beginning after the Effective Date which will
satisfy the provisions of Section 11(a) of the Act and Rule 158
thereunder. For the purpose of the preceding sentence, "Availability
Date" means the 45th day after the end of the fourth fiscal quarter
following the fiscal quarter that includes the Effective Date: except
that if such fourth fiscal quarter is the last quarter of the Company's
fiscal year, "Availability Date" means the 90th day, after the end of
such fourth fiscal quarter.
(e) The Company will furnish to you copies of the Registration
Statement (two of which will be originally executed and will include
all exhibits), each related preliminary prospectus, the Prospectus and
all amendments and supplements to such documents, in each case as soon
as available and in such quantities as you shall reasonably request.
(f) The Company will use its best efforts to arrange for the
qualification of the Debentures for sale under the blue sky laws of
such jurisdictions as you reasonably designate, and to continue such
qualifications in effect so long as this offering continues. The
preparation and filing of the applications and other documents relating
to such qualifications have been conducted by counsel to the
Underwriters. After the termination of the offering and until all of
the Debentures have been paid in full by the Company at maturity, the
Company will file and make, and pay all fees applicable thereto, such
statements and reports and renewals of registration necessary in order
to continue to qualify the Debentures for secondary market transactions
in the various states in which the Debentures were originally
registered for sale.
(g) For period from the date hereof until the payment in full of all
Debentures outstanding at their maturity, the Company will, with out
the need of request:
(i) at close of each fiscal year cause its books and accounts
for such year to be audited by Coopers & Lybrand, L.L.P. or
another nationally recognized firm of independent public
accountants and furnish to you a copy of their report thereon;
(ii) furnish to you, within one hundred twenty (120) days
after the close of each fiscal year, appropriate annual
consolidated financial statements of the Company and its
consolidated subsidiaries, certified by the aforesaid
independent public accountants, in such form as to disclose
their financial condition at the end of and the results of
their operations for such fiscal year provided, that if the
Company furnishes you copies of its Annual Report on Form
10-K, including all exhibits thereto pursuant to paragraph
6(g)(iv), it shall have fulfilled its requirements under this
paragraph;
(iii) furnish to you within forty-five (45) days after the end
of each of the first three quarters of each fiscal year copies
of quarterly consolidated statements of profit and loss and
quarterly consolidated balance sheets of the Company and its
consolidated subsidiaries for such periods and for the
comparable period of the preceding year, which statements need
not be audited provided, that if the Company furnishes you
copies of its Quarterly Report on Form 10-Q, including all
exhibits thereto pursuant to paragraph 6(g)(iv), it shall have
fulfilled its requirements under this paragraph;
(iv) furnish to you copies of all reports (financial or
otherwise) filed with the Commission, copies of all proxy
solicitation materials, statements and notices to equity
holders of the Company (as a group), copies of each notice
published or mailed to holders of the Debentures pursuant to
the Indenture, and copies of each annual certificate or report
delivered to the Trustee pursuant to the Indenture; and
(v) furnish to you such reports, certificates and information
with respect to the Company and its consolidated subsidiaries
as required to be provided to the Underwriters by the
Indenture.
(vi) furnish to you such other information with respect to the
Company and its consolidated subsidiaries of their financial
condition as you may reasonably request, including, but not
limited to, information necessary or appropriate to the
maintenance of a secondary market in the Debentures.
(h) The Company will use the net proceeds received by it from the sale
of the Debentures substantially in the manner specified in the
Prospectus under the caption "Use of Proceeds."
(i) The Company will not claim the benefit of any usury laws against
any holders of the Debentures.
(j) The Company will file with the Commission in a timely manner all
reports on Form SR required by Rule 463 and will furnish to you copies
of any such reports as soon as practicable after the filing period.
(k) Whether or not the transactions contemplated hereunder are
consummated, the Company will pay (i) all costs, fees and expenses
incurred in connection with the performance of the Company's
obligations hereunder, including, without limiting the generality of
the foregoing, all fees and expenses of legal counsel for the Company
and of the Company's independent accountants and auditors, all costs
and expenses incurred in connection with the preparation, any printing,
filing and distribution of the Registration Statement, each preliminary
prospectus and the Prospectus (including all exhibits and financial
statements) and all amendments and supplements thereto, this Agreement
and the blue sky memoranda, (ii) all reasonable out-of-pocket expenses
of the Underwriters in connection with the sale of the Debentures,
including, without limitation, the legal fees and disbursements of
counsel to the Underwriters, advertising or sales literature expenses
incurred in connection with the sale of the Debentures, (iii) all
costs, fees and expenses (including legal fees and disbursements of
counsel for the Company or the Underwriters) incurred by the
Underwriters in connection with qualifying or registering all or any
part of the Debentures for offer and sale under blue sky laws,
including the preparation of blue sky memoranda relating to the
Debentures, (iv) the fees of the National Association of Securities
Dealers: Inc. ("NASD") in connection with the request for clearance of
such offering with the NASD (v) all fees and expenses of the Trustee
under the Indenture and any paying agent and debenture registrar, and
(vi) costs of printing the certificates for the Debentures and all
transfer taxes, if any, with respect to the sale and delivery of the
Debentures to the Underwriters.
(l) For a period commencing the date of this Agreement and ending
ninety (90) days after the completion of the offering contemplated
hereby, the Company will not offer or sell any Debentures except
pursuant to this offering, and will not publicly offer or sell any of
its other securities, without your prior written consent.
(m) The Company will furnish or cooperate with you in requesting that
the Trustee for the Debentures furnish the list of names and addresses
of Debenture holders as provided in Section 701 of the Indenture.
(n) The Company consents to the use, in accordance with the provisions
of the Securities Act and of the securities or Blue Sky laws of the
jurisdictions in which the Debentures are offered by the Underwriters
or by dealers, prior to the Effective Date, of each Preliminary
Prospectus furnished by the Company.
7. Conditions of the Obligations of the Underwriters. The obligations
of the Underwriters to act as Underwriters in connection with the offer and sale
of the Debentures, to make payment for the Debentures and to take delivery
thereof at each Closing Date shall be subject to the accuracy of the
representations and warranties on the part of the Company herein set forth, the
accuracy in all material respects of the statements of the Company officers made
pursuant to the provisions hereof, the performance by the Company of its
obligations hereunder and the satisfaction of the following additional
conditions precedent:
(a) You shall have received a letter, dated the date of delivery
thereof (which, if the Effective Time is prior to the execution and
delivery of this Agreement, shall be on or prior to the date of this
Agreement or, if the Effective Time is subsequent to the execution and
delivery of this Agreement, shall be prior to the filing of the
amendment or post-effective amendment to the Registration Statement to
be filed shortly prior to the Effective Time) of Coopers & Lybrand,
L.L.P. confirming that they are independent public accountants within
the meaning of the Act and the applicable rules and regulations
thereunder and stating in effect, with respect to the consolidated
financial statements of the Company, that:
(i) in their opinion, the consolidated financial statements
and related schedules of the Company examined by them and
included in the Registration Statement and Prospectus on their
authority as experts comply as to form in all material
respects with the applicable accounting requirements of the
Act, the applicable published rules and regulations of the
Commission thereunder, Staff Accounting Bulletins with respect
to registration statements on Form S-1, and the requirements
of Form S-1; and
(ii) on the basis of a limited review, not constituting an
audit, including a reading of the latest available interim
financial statements, a reading of the minutes of the
shareholders and of the Board of Directors of the Company, and
inquiries of officials of the Company responsible for
financial and accounting matters and such other inquiries and
procedures as they may specify, nothing has come to their
attention which, in their judgment, would indicate:
(A) that any unaudited consolidated financial
statements and related notes thereto of the Company
included in the Registration Statement and the
Prospectus do not comply as to form in all material
respects with the applicable accounting requirements
of the Act and of the published instructions, rules
and regulations of the Commission thereunder with
respect to registration statements on Form S-1, or
that such unaudited financial information contained
in the Prospectus was not prepared in conformity with
generally accepted accounting principles applied on a
basis consistent with those followed in the
preparation of the audited financial statements of
the Company included therein, or would require any
material adjustment for a fair presentation of the
information purported to be shown thereby;
(B) at a specified date not more than five days prior
to the date of this Agreement, the First Closing Date
or any Additional Closing Date, as applicable, there
was any change in the capital stock, long-term debt
or short-term debt of the Company, or any decrease in
total assets, net current assets, net assets or
stockholder's investment as compared with amounts
shown on the latest balance sheet included in the
Registration Statement and Prospectus, except as set
forth or contemplated in the Prospectus; and
(C) for the period from the closing date of the
latest income statement included in the Registration
Statement and Prospectus to the specified dates
referenced in clause (B) above, there were any
decreases, as compared with the corresponding period
of the previous year, in operating revenues, income
before income taxes or in the total or per share
amounts of net income, except as set forth or
contemplated in the Prospectus;
(iii) they have compared specific dollar amounts, number of
shares, percentages and other financial information pertaining
to the Company set forth in the Prospectus, which have been
specified by you, with the general accounting records of the
Company, with the results obtained from the application of
specified readings, inquiries and other appropriate procedures
(which procedures do not constitute an examination in
accordance with generally accepted auditing standards) set
forth in the letter, and found them to be in agreement; and
(iv) such other matters as you may reasonably request.
For purposes of this subsection, if the Effective Time is subsequent to
the execution and delivery of this Agreement, "Registration Statement"
shall mean the registration statement as proposed to be amended by the
amendment or post-effective amendment to be filed shortly prior to the
Effective Time, and "Prospectus" shall mean the prospectus included in
the Registration Statement.
(b) If the Effective Time is not prior to the execution and delivery of
this Agreement, the Effective Time shall have occurred not later than
10:00 P.M., Minneapolis time, on the date of this Agreement or such
later date as shall have been consented to by you. If the Effective
Time is prior to the execution and delivery of this Agreement, the
Prospectus shall have been filed with the Commission in accordance with
the Act and Section 5(a) of this Agreement. No stop order suspending
the effectiveness of the Registration Statement shall have been issued
and no proceedings for that purpose shall have been instituted or, to
the best knowledge of the Company or you, shall be contemplated by the
Commission.
(c) The Debentures shall have been qualified for sale under the blue
sky laws of such states and in such amounts as shall have been
specified by the Underwriters and agreed to by the Company.
(d) The legality and sufficiency of the authorization, issuance and
sale or transfer and sale of the Debentures hereunder, the validity and
form of the certificates representing the Debentures, the execution and
delivery of this Agreement and the Indenture and all corporate
proceedings and other legal matters incident thereto, and the form of
the Registration Statement and the Prospectus (except financial
statements) shall have been approved by counsel for the Underwriters
exercising reasonable judgment.
(e) You shall not have advised the Company that the Registration
Statement or the Prospectus or any amendment or supplement thereto
contains an untrue statement of fact which, in the opinion of counsel
for the Underwriters, is material or omits to state a fact which, in
the opinion of such counsel, is required to be stated therein or
necessary to make the statements therein not misleading.
(f) You shall have received an opinion, dated each Closing Date, of
Leonard, Street and Deinard, Professional Association, counsel for the
Company, to the effect that:
(i) The Company and the Subsidiary have been duly incorporated
and are validly existing as corporations in good standing
under the laws of their respective states of incorporation,
with full corporate power and authority to own their
properties and conduct their business as described in the
Prospectus. The Company and the Subsidiary are duly qualified
as foreign corporations to transact business and are in good
standing in each jurisdiction in which such qualification is
required, other than jurisdictions in which the failure to so
qualify would not have a material adverse effect on the
Company and the Subsidiary, taken as a whole. To the best of
counsel's knowledge, the Company and Subsidiary are conducting
their respective businesses so as to comply in all respect
with applicable federal, state and local statutes, ordinances,
rules and regulations. The Company and Subsidiary hold all
material licenses, certificates, and permits from state,
federal, and other regulatory authorities necessary for the
conduct of its business as described in the Registration
Statement, or has obtained waivers from any such applicable
requirements from the appropriate state, federal, or other
regulatory authority.
(ii) All of the shares of capital stock of the Subsidiary have
been duly and validly authorized and issued, are fully paid
and nonassessable and are owned by the Company, free and clear
of any security interest, lien or restriction. The Company has
no subsidiaries (other than the Subsidiary) or affiliates or
affiliated corporations except as explicitly stated in the
Registration Statement.
(iii) The authorized capital stock of the Company is as set
forth under the caption "Capitalization" in the Prospectus as
of the date(s) indicated, and the issued and outstanding
shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and
nonassessable. The long-term debt and short-term debt of the
Company and the Subsidiary have been duly authorized. No
holder of the Company's common stock has the right to cause
the Company to redeem such capital stock.
(iv) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and
binding obligation of the Company enforceable in accordance
with its terms except as enforceability thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or other
similar laws or equitable principles affecting the enforcement
of creditors' rights generally and except as rights to
indemnity hereunder may be limited by applicable securities
laws, including the Act and the rules and regulations
thereunder.
(v) The Indenture and the Debentures have been duly and
validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding obligations of the
Company enforceable in accordance with their respective terms
except as enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
or equitable principles affecting enforcement of creditors'
rights generally. The Debentures are entitled to the benefits
of the Indenture. The Debentures are not subject to the
preemptive rights of any security holder of the Company. All
action required to be taken for the due and proper
authorization, issuance and sale of the Debentures has been
validly and sufficiently taken. No security holder of the
Company has the right to require the Company to register any
securities held by such person for sale in connection with the
transactions contemplated by this Agreement.
(vi) The Debentures and the Indenture conform in all material
respects to the descriptions thereof contained in the
Prospectus. The certificates for the Debentures to be
delivered hereunder are in due and proper form.
(vii) Neither the issue and sale of the Debentures, the
performance of this Agreement, the Indenture, nor the
consummation of the transactions contemplated herein and
therein will conflict with or constitute a breach of, or
default under, result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the
Company or any Subsidiary pursuant to any contract, indenture,
mortgage, loan agreement, note, lease or other instrument or
agreement to which the Company or any Subsidiary is a party or
by which any of them may be bound, or to which any of the
property or assets of any of them is subject, nor will such
actions result in any violation of any administrative or court
decree known to such counsel after due inquiry or the
provisions of the Articles of Incorporation or bylaws of the
Company or any Subsidiary or, to the best of such counsel's
knowledge after due inquiry, any applicable law or
administrative regulation.
(viii) No consent, approval, authorization or other order of
any court, regulatory body, administrative agency, other
governmental body or any self-regulatory agency is required
for the execution and delivery of this Agreement, the
Indenture or the Debentures or the consummation of the
transactions contemplated herein or therein, except such as
have been obtained under the Act as may be required under
applicable blue sky laws and under the rules and regulations
of the National Association of Securities Dealers, Inc.
(ix) Neither the Company nor the Subsidiary is in violation of
its articles of incorporation or bylaws or, to the best of
such counsel's knowledge after due inquiry, in default under
any administrative or court decree or in default with respect
to any material provision or any lease, loan agreement,
franchise, license or permit to which it is a party or by
which it may be bound, or to which any of the property or
assets of the Company or any Subsidiary is subject. To the
best knowledge of such counsel, there does not exist any state
of facts which constitutes an event of default as defined in
such documents or which, with notice or lapse of time or both,
would constitute such an event of default.
(x) To the best of such counsel's knowledge after due inquiry,
there is no action, suit or proceeding before or by any court
or governmental agency or body, domestic or foreign, now
pending or threatened, against or affecting the Company or the
Subsidiary, which is required to be disclosed in the
Registration Statement.
(xi) There are no holders of securities of the Company having
preemptive rights with respect to the issuance and sale of the
Debentures and no rights to register outstanding shares of the
Company's capital stock or, except as described in the
Prospectus, shares issuable upon the exercise of outstanding
warrants, options, convertible securities or other rights to
acquire shares of such capital stock exist with respect to the
Registration Statement.
(xii) To the best knowledge of such counsel after due inquiry,
there are no contracts, indentures, mortgages, loan
agreements, notes, leases or other instruments, documents or
agreements ("Agreements") of a character required to be
described or referred to in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration
Statement which are not described or referred to or filed as
required. All descriptions or references to such Agreements in
the Registration Statement are correct in all material
respects.
(xiii) To the best knowledge of such counsel after due
inquiry, the Company and the Subsidiary own, license or
exclusively hold all rights to use all Trade Rights necessary
to engage in the business conducted by them. In operating
their businesses, the Company and the Subsidiary do not, to
the best knowledge of such counsel, infringe upon the right or
claimed right of any person under or with respect to any of
the above. Such counsel have no knowledge of any facts which
indicate that, in connection with the operation of their
businesses, they do not either own, license or have the
unrestricted right to the use of all Trade Rights necessary to
the development, operation and sale of all services sold by
them, free and clear of any rights, liens, and claims of
others.
(xiv) To the best knowledge of such counsel, the Company and
its subsidiaries have good and marketable title to all
property described in the Prospectus as being owned by them,
in each case free and clear of all liens, claims, security
interests or other encumbrances, except those arising in the
ordinary course of business and which do not interfere in any
material respect with the use of the property or the conduct
of the business of the Company or the Subsidiary; the property
held under lease by the Company and the Subsidiary is held by
them under valid, subsisting and enforceable leases with only
such exceptions with respect to any particular lease as do not
interfere in any material respect with the conduct of the
business of the Company or its subsidiaries.
(xv) The Company is not, and will not become upon the sale of
the Debentures, an "investment company," as such term is
defined in the Investment Company Act of 1940, as amended.
(xvi) To the best knowledge of such counsel, no labor
disturbance by the employees of the Company or Subsidiary
exists or is imminent which could reasonably be expected to
have a material adverse effect on the conduct of the business,
operations, financial condition, or income of the Company.
(xvii) The Indenture is not required to be qualified under the
Trust Indenture Act of 1939, as amended.
(xviii) The information in the Registration Statement, to the
extent that it constitutes summaries of matters of law,
descriptions of statutes, legal and government proceedings,
contracts and other legal conclusions, is accurate and fairly
presents the information required to be shown, and such
counsel does not know of any statutes or legal or governmental
proceedings required to be described in the Prospectus that
are not described as required.
(xix) The conditions for use of a registration statement on
Form S-1 set forth in the General Instructions to Form S-1
have been satisfied with respect to the Company and the
Registration Statement.
(xx) The Registration Statement was declared effective under
the Act as of the date and time specified in such opinion, the
Prospectus earlier was filed with the Commission pursuant to
the subparagraph of Rule 424(b) specified in such opinion on
the date specified therein or was included in the Registration
Statement (as the case may be), and, to the best knowledge of
such counsel, no stop order suspending the effectiveness of
the Registration Statement or any part thereof has been issued
and no proceedings for that purpose have been instituted or
are pending or contemplated under the Act, and the
Registration Statement and the Prospectus, and each amendment
or supplement thereto, as of their respective effective or
issue dates, complied as to form in all material respects with
the requirements of the Act and the rules and regulations
thereunder; and nothing has come to such counsel's attention
that would lead such counsel to believe that either the
Registration Statement or the Prospectus or any such amendment
or supplement, as of such respective dates, contained any
untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading, it being
understood that such counsel need express no opinion as to the
financial statements or other financial or statistical data or
compilations contained in any of the documents mentioned in
this clause, including the Registration Statement or the
Prospectus or as to any statements in or omissions from the
documents mentioned in this clause, including the Registration
Statement and the Prospectus, in reliance upon and in
conformity with written information furnished to the Company
by the Underwriters specifically for use therein.
(xxi) The Company has not sold any securities in violation of
Section 5(a) of the Act.
(xxii) To the best of such counsels knowledge, the Company and
the Subsidiary own, possess or have obtained all material
governmental licenses, permits, certificates, consents,
orders, approvals and other authorizations necessary to own or
leases as the case may be, and to operate their properties and
to carry on their respective business as presently conducted
and as contemplated by the Prospectus, and neither the Company
nor the Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such
licenses, permits, certificates, consents, orders, approvals
or authorizations. The business of the Company and the
Subsidiary is not being conducted in violation of any
applicable federal, state, local or foreign law, ordinance,
regulation, judgment, decree, injunction or order or
requirement of any court or other governmental entity known to
such counsel. To the best knowledge of such counsel after due
inquiry, no such company and no officer, director, shareholder
or agent of such company has been authorized to receive or
make, and is not receiving or making, any bribe, kickback, or
other illegal payment with respect to the business conducted
by such company.
(xxiii) Such other matters as you may reasonably request.
(g) You shall have received from Oppenheimer Wolff & Donnelly, counsel
for the Underwriters, such opinion or opinions, dated each Closing
Date, as you may require, and the Company shall have furnished to such
counsel such documents as they request for the purpose of preparing
such opinion. In rendering such opinion, such counsel may rely upon the
opinion of Leonard, Street and Deinard, Professional Association,
referred to above.
(h) You shall have received a certificate, dated each Closing Date, of
the President and the principal financial officer (or principal
accounting officer) of the Company on behalf of the Company to the
effect that the representations and warranties of the Company in this
Agreement are true and correct on and as of the applicable Closing Date
to the same effect as if made on such Closing Date, that the Company
has complied with all agreements and satisfied all conditions on its
part to be performed or satisfied hereunder at or prior to such Closing
Date, that no stop order suspending the effectiveness of the
Registration Statement has been issued and, to the best of their
knowledge, no proceedings for such purpose have been instituted or are
contemplated by the Commission, and that there has not been, since the
date hereof or since the respective dates as of which information is
given in the Registration Statement and the Prospectus, any material
adverse change in the condition, financial or other, or in the results
of operations, business affairs or business prospects of the Company or
any Subsidiary.
(i) You shall have received a letter, dated each Closing Date, of
Coopers & Lybrand, L.L.P. which meets the requirements of subsection
(a) of this Section, except that the specified date referred to in such
subsection will be a date not more than five days' prior to the
applicable Closing Date for the purposes of this subsection.
(j) The Company will furnish you with such manually signed or conformed
copies of such opinions, certificates, letters and documents as you
reasonably request and of such other certificates and documents as you
may reasonably request.
8. Indemnification and Contribution.
(a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities joint or severally
to which the Underwriters may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon a breach by
the Company of the representations, warranties or covenants contained
herein, or any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, the Prospectus,
or any amendment or supplement thereto, or any related preliminary
prospectus, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein in light of the
circumstances under which they were made not misleading, and will
reimburse the Underwriters for any legal or other expenses reasonably
incurred by the Underwriters in connection with investigating or
defending any such loss, claims, damage, liability or action as such
expenses are incurred provided that the Company will not be liable in
any such case to the extent that any such loss, claims, damage or
liability arises out of or is based upon an untrue statement or alleged
untrue statement in or omission or alleged omission from any of such
documents in reliance upon and in conformity with written information
furnished to the Company by the Underwriters, as described in the last
sentence of paragraph (b) below. The Company shall reimburse the
Underwriters for any legal or other reasonable expenses incurred by the
Underwriters in connection with investigating or defending against or
appearing as a third party witness in connection with any such loss,
claim, damage, liability or action notwithstanding the possibility that
the payments for such expenses might later be held to be improper in
which case the person receiving them shall promptly refund them,
provided further that the foregoing indemnity agreement with respect to
any Preliminary Prospectus or Prospectus shall not inure to the benefit
of the Underwriters on account of any loss, liability, claim, damage
and expense whatsoever arising from the sale of any Debentures by the
Underwriters to any person if (A) the untrue statement or alleged
untrue statement or omission or alleged omission of a material fact
contained in such Preliminary Prospectus or Prospectus from which such
loss, liability, claim, damage or expense arose was corrected in a
later Prospectus by amendment or supplement, and (B) a copy of the such
later Prospectus (if such amendments or supplements shall have been
furnished to the Underwriters prior to the confirmation of the sale
involved) shall not have been sent or given by or on behalf of the
Underwriters to such person, if required by law, with or prior to the
written confirmation of the sale involved.
(b) The Underwriters severally, but not jointly, will indemnify and
hold harmless the Company against any losses, claims, damages or
liabilities to which the Company may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement material fact contained in the
Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are
based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances under which they were
made not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by the
Underwriters, as described in the last sentence of this paragraph (b),
and will reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or
defending any such loss, claim, damage, liability or action as such
expenses are incurred. For all purposes of this Agreement, the
information set forth (i) on the last paragraph of the cover page of
the Prospectus, and (ii) in the section entitled "Underwriting" in the
Prospectus is the only information furnished to the Company by the
Underwriters for use in the Registration Statement or the Prospectus,
or any related preliminary prospectus.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against an
indemnifying party under subsection (a) or (b) above, notify the
indemnifying party of the commencement thereof, but the failure so to
notify the indemnifying party will not relieve it from any liability
which it may have to any indemnified party otherwise than under
subsection (a) or (b) above. In any case any such action is brought
against any party, and such party notifies the Indemnifying Party of
the commencement thereof, the Indemnifying Party will be entitled to
participate therein with the notifying party and any other Indemnifying
Party similarly notified, and, to the extent that it may wich, jointly
with any other Indemnifying Party similarly notified, to assume the
defense thereof, with counsel satisfactory tot he notifying party;
provided, however, if the defendants in any such action include both
the indemnified party and the Indemnifying Party and the indemnified
party shall have reasonably concluded that there may be legal
defense(s) available to it and/or other indemnified parties which are
different from or additional to those available to the Indemnifying
Party, the indemnified party or parties shall have the right to select
separate counsel to assume the indemnified party's (or parties')
defense and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice
from the Indemnifying Party to such indemnified party of its election
so to assume the defense of such action and approval by the indemnified
party of counsel, the Indemnifying Party will not be liable to such
indemnified party under this Section ____ for any legal or other
expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless; (i) the indemnified party shall have
employed such counsel in accordance with the provisions of the next
preceding sentence (it being understood, however, that the Indemnifying
Party shall not be liable for the expenses of more than one separate
counsel representing all the indemnified parties under this Section ___
who are parties to such action); (ii) the Indemnifying party shall not
have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice
of commencement of the action; or (iii) the Indemnifying party has
authorized the employment of counsel for the indemnified party at the
expense of the Indemnifying Party. No indemnifying party, without the
prior written consent of the indemnified party, shall effect any
settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party unless such
settlement includes an unconditional release of such indemnified party
from all liability on any claims that are the subject matter of such
action. An Indemnifying Party shall not be liable for settlement of any
such action effected without its written consent but if settled with
the written consent of the Indemnifying Party, or it there be a final
judgment for the plaintiff in any such action, the Indemnifying Party
agrees to indemnify and hold harmless each indemnified party from and
against any loss or liability by reason of such settlement or judgment.
The indemnity agreements contained in this Section ___ and the
representations, warranties, agreements, covenants, indemnities and the
statements of the Company and its officers set forth in or made
pursuant to this Agreement shall remain operative and in full force and
effect, regardless of: (i) any investigation made by or on behalf of
the Underwriters or any director or officer or person controlling the
Underwriters or by or on behalf of the Company or any director or
officer or person who controls the Company; (ii) acceptance of any
Debentures and payment therefor hereunder; and (iii) any termination of
this Agreement. A successor of an Underwriter or of the Company or any
person controlling an Underwriter or the Company, or any officer or
director of the Company, as the case may be, shall be entitled to the
benefits of the indemnity and reimbursement agreements contained in
this Section ___.
(d) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection
(a) or (b) above, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the
losses, claims, damages or liabilities referred to in subsection (a) or
(b) above (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Debentures or (ii)
the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above, but also
the relative fault of the Company on the one hand and the Underwriters
on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities as well as any
other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from
the offering (before deducting expenses) received by the Company bears
to the total underwriting discounts and commissions and underwriting
management fees received by the Underwriters. The relative fault shall
be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages or
liabilities referred to in the first sentence of this subsection (d)
shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any action or claim which is the subject of this subsection
(d). Notwithstanding the provisions of this subsection (d), the
Underwriters shall not be required to contribute any amount in excess
of the underwritten commissions and discounts and underwriting
management fees applicable to the Debentures underwritten by each
Underwriter. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) The obligations of the Company under this Section shall be in
addition to any liability which the Company may otherwise have and
shall extend, upon the same terms and conditions, jointly and
severally, to each officer and director of the Underwriters, and to
each person, if any, who controls any Underwriters within the meaning
of the Act. The obligations of the Underwriters under this Section
shall be in addition to any liability which the Underwriters may
otherwise have and shall extend, upon the same terms and conditions,
jointly and severally, to each director of the Company, to each officer
of the Company who has signed the Registration Statement and to each
person, if any, who controls the Company within the meaning of the Act.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers, and the Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation, or statement as to the results thereof, made by or on behalf of
the Underwriters, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Debentures. If for any reason the purchase of the Debentures
by the Underwriters is not consummated, the Company shall remain responsible for
the expenses to be paid or reimbursed by them pursuant to paragraph 6(k) and the
respective obligations of the Company and the Underwriters under Section 8 shall
remain in effect, and if any Debentures have been purchased hereunder the
representations and warranties in Section 2 and all obligations under Section 6
shall also remain in effect.
10. Termination. UNLESS EXTENDED IN WRITING BY THE UNDERWRITERS, this
Agreement shall terminate at the expiration of six months from the Effective
Date, or at the Company's Option at such earlier date as permitted under Section
3 hereof (the "Termination Date"), except that the provisions of Sections 5(t),
7, 8 and 10 hereof shall at all times be effective and binding. This Agreement
shall be subject to termination in your absolute discretion, by notice given to
the Company prior to delivery of and payment for the Debentures, if prior to
such time (i) any material adverse change or any development involving a
prospective material adverse change, in or affecting the business or properties
of the Company or any Subsidiary shall have occurred which, in the judgment of
the Underwriters, materially impairs the investment quality or the value of the
Debentures, (ii) trading in securities generally on the New York Stock Exchange
or the Nasdaq National Market shall have been suspended or limited or minimum
prices shall have been established on such exchange or market system, (iii) a
banking moratorium shall have been declared either by Federal, New York or
Minnesota banking authorities, (iv) there shall have occurred any outbreak or
escalation of hostilities, declaration by the United States of a national
emergency or war or other calamity or crisis, the effect of which on financial
markets is such as to make it, in your judgment, impracticable or inadvisable to
proceed with the offering or delivery of the Debentures as contemplated by the
Prospectus or (v). Any material adverse change in existing financial, political
or economic conditions in the United States or elsewhere which change, in your
opinion, has materially and adversely affected the market for the Debentures or
other securities of the Company or the prospects for the Company, its business
or its properties; or
Any substantial loss to the Company by strike, fire, flood, accident or other
calamity of such a character as to interfere materially with the conduct of the
business and operations of the Company.
11. Notices. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed, delivered or telegraphed and confirmed to
the Underwriters at Miller & Schroeder Financial, Inc., 220 South Sixth Street,
Suite 300, Minneapolis, Minnesota 55402, Attention: John M. Clarey, Corporate
Capital Group, with a copy to Offerman & Company, Interchange Tower, Suite 1100,
600 Highway 169 South, Minneapolis, MN 55426-1200, Attention: Scott Offerman;
or, if sent to the Company, will be mailed, delivered or telegraphed and
confirmed to it at Lundgren Bros. Construction, Inc., 935 East Wayzata
Boulevard, Wayzata, Minnesota 55391, Attention: Peter Pflaum, or to such other
address of which a party hereto shall notify the other party hereto pursuant to
this paragraph.
12. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 9, and no other person
will have any right or obligation hereunder and nothing in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
herein contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person, except that the representations and
warranties of the Company contained in this Agreement shall also be for the
benefit of any person or persons who control the Underwriters within the meaning
of Section 15 of the Act. No purchaser of Debentures from the Underwriters shall
be deemed to be a successor by reason merely of such purchase.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Minnesota, without regard to its
choice of laws provision.
15. Amendment. This Agreement may be amended upon written agreement
between the Underwriters and the Company.
16. Time. The Company and the Underwriters agree that time shall be of the
essence with respect to this Agreement and the performance and completion of the
terms, conditions and provisions set forth and contemplated herein.
17. Headings. The headings and captions used in this Agreement are for
convenience only and shall not affect the meaning of the provision thereof.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us one of the counterparts hereof,
whereupon it will become a binding agreement between the Company and the
Underwriters in accordance with its terms.
Very truly yours,
LUNDGREN BROS. CONSTRUCTION, INC.
By_____________________________________
Name: Peter Pflaum
Title: President
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the
date first above written.
MILLER & SCHROEDER FINANCIAL, INC.
OFFERMAN & COMPANY
By: MILLER & SCHROEDER FINANCIAL, INC.
By:
Name:
Title:
Lundgren Bros. Construction, Inc.
$3,000,000 principal amount of Senior Subordinated Debentures
SELECTED DEALER AGREEMENT
________________, 1996
Ladies and Gentlemen:
Miller & Schroeder Financial, Inc., and Offerman and Company have
agreed, as Underwriters, to sell on a best efforts basis up to $3,000,000
aggregate principal amount of Senior Subordinated Debentures, Series ________%,
Due ________________, 1996 (the "Debentures") of Lundgren Bros. Construction,
Inc. (the "Company"). The Debentures are described in the enclosed Prospectus,
the receipt of which you hereby acknowledge.
1. Offering to Selected Dealers. We are offering a portion of the
Debentures for sale to certain dealers ("Selected Dealers"), as principals,
subject to the terms and conditions stated herein and in the Prospectus, at par
plus interest accrued from _____________, 1996 or, with respect to Debentures
sold after an interest payment date, the most recent interest payment date (the
"Public Offering Price"), less the concession which we advise you of and as set
forth in Exhibit A (such concession is hereinafter referred to as the "Selected
Dealers' Concession"). Sales of Debentures to you pursuant to such offering will
be evidenced by written confirmation, in the form of Exhibit B, and will be on
such terms and conditions as are set forth herein and in the Prospectus. In
purchasing Debentures, you will rely upon no statements whatsoever, written or
oral, other than statements in the Prospectus.
2. Reoffering by Selected Dealers. We will advise you of the method and
terms of the offering. Acceptances of any reserved Debentures received at the
office of Miller & Schroeder Financial, Inc., 220 South Sixth Street, Suite 300,
Minneapolis, Minnesota 55402, Attention: Lee Simmons; fax (612) 376-1548;
telephone (612) 376-1500, after the time specified therefor in the advice
received by you, and any order for additional Debentures, will be subject to
rejection in whole or in part. Purchase books may be closed by us at any time in
our discretion without notice and the right is reserved to reject any purchase
in whole or in part, but notification of allotments against and rejections of
purchase will be made as promptly as practicable.
We will advise you of the release by us of Debentures being sold by us
in the public offering. Upon receipt of such advice, the Debentures thereafter
purchased by you hereunder are to be offered by you to the public at the Public
Offering Price. You agree that in selling Debentures purchased hereunder you
will comply with the applicable requirements of the Securities Act of 1933 and
the Securities Exchange Act of 1934. Except as herein otherwise provided,
Debentures shall not be offered or sold by you at a price below the Public
Offering Price before the termination of this Agreement, except that a
concession from such Public Offering Price that does not exceed the percentage
of the Public Offering Price of the Debentures as set forth under "Underwriting"
in the Prospectus may be allowed to dealers who are members in good standing of
the National Association of Securities Dealers, Inc. (the "NASD") or to foreign
dealers, not eligible for membership in the NASD, who agree, when making sales
of Debentures to purchasers outside the United States, to comply with the
Interpretation with Respect to Free-Riding and Withholding of the NASD. Please
refer to Exhibit B for specific Selected Dealers' Concession information.
It is assumed that Debentures sold by you will be effectively placed
for investment. If we contract for or purchase in the open market or otherwise
for our account any Debentures sold to you and not effectively placed for
investment, we may charge you the Selected Dealers' Concession originally
allowed you on Debentures so repurchased, and you agree to pay such amount to us
on demand. Debentures so delivered to us against any such repurchase need not be
the identical Debentures originally purchased by you.
You will advise us upon request of Debentures purchased by you that
remain unsold, and we shall have the right to repurchase such unsold Debentures
on demand at the Public Offering Price less all or part of the Selected Dealers'
Concession.
3. Payment and Delivery. Payment for Debentures purchased by you shall
be made by you on such dates and at such places as we advise you, by certified
or official bank check payable to the order of Miller & Schroeder Financial,
Inc. in such clearing house funds as we advise, against delivery of such
Debentures. Delivery instructions must be in our hands as specified in Section
2, at such time as we request. Notwithstanding such provisions, payment for and
delivery of Debentures purchased by you hereunder will be made through the
facilities of the Depository Trust Company, if you are a member, unless you have
otherwise notified us prior to the date specified in our advice to you or, if
you are not a member, settlement may be made through a correspondent who is a
member pursuant to instructions which you will send to us prior to such
specified date.
The above payment shall be made by you at the Public Offering Price or,
if we so advise you, at a net price equal to the Public Offering Price less the
Selected Dealer's Concession. If payment is made by you at the Public Offering
Price, the Selected Dealers' Concession payable to you hereunder shall be paid
promptly after the termination of this Agreement (or on such earlier date as we
may determine), except that such Concession may be withheld and canceled, at our
discretion, as to Debentures which we have repurchased as set forth in the third
paragraph of Section 2 hereof.
4. Position of Selected Dealers and Underwriters. You represent that
you are a member in good standing of the NASD or that you are a foreign dealer,
not eligible for membership in the NASD, which agrees not to offer or sell any
Debentures in, or to persons who are residents of, the United Sates of America.
In making sales of Debentures, if you are such a member, you agree to comply
with all applicable rules of the NASD, including, without limitation, the NASD's
Interpretation with Respect to Free-Riding and Withholding and Section 24 of
Article III of the NASD's Rules of Fair Practice, or if you are a foreign
dealer, you agree to comply with such Interpretation and Sections 8, 24 and 36
of such Article as though you were such a member, and with Section 25 as that
Section applies to a non-member foreign broker or dealer. You also confirm that
you have complied and will comply with the prospectus requirements of Rule
15c2-8 under the Securities Exchange Act of 1934.
You are not authorized to give any information or make any
representations other than as contained in the Prospectus, or to act as agent
for us. Nothing shall constitute the Selected Dealers as an association,
unincorporated business or other separate entity or partners with us, or with
each other, but you shall be liable for your proportionate share of any tax,
liability or expense based on any claim to the contrary. We shall not be under
any liability to you, except for obligations expressly assumed by us in this
Agreement, and no obligation on our part shall be implied or inferred herefrom.
5. Blue Sky Matters. We will not have any responsibility with respect
to the right of any dealer to sell the Debentures in any jurisdiction,
notwithstanding any information we may furnish in that connection. As of the
date hereof, the securities referenced herein were cleared for sale in the
states and aggregate amounts outlined in Exhibit C.
6. Notices. All communications from you to us shall be delivered,
mailed or sent by confirmed telefacsimile as specified in Section 2. Any notice
from us to you shall be delivered, mailed or sent by confirmed telefacsimile to
you at the address to which this Agreement is mailed.
7. Termination. This Agreement shall terminate 45 days after the date
hereof unless extended by us for a period or periods not exceeding an additional
15 days in the aggregate, and, whether extended or not, may be terminated by us
at any time. Such termination shall not affect your obligation to pay for any
Debentures purchased by you or any of the provisions of Section 4 hereof.
8. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Minnesota.
Please confirm your agreement hereof by signing the duplicate copy of
this Agreement enclosed herewith and returning it to us at the address set forth
in Section 2 above.
MILLER & SCHROEDER FINANCIAL INC.
OFFERMAN & COMPANY
BY MILLER & SCHROEDER FINANCIAL, INC.
By: ______________________________
Its: _______________________
We hereby confirm our agreement to all the terms and conditions stated
in the foregoing Selected Dealer Agreement. We acknowledge receipt of the
Prospectus and no other statement whatsoever, written or oral. We confirm that
we are in good standing with the NASD or that we are a foreign dealer, not
eligible for membership in the NASD, which agrees not to offer or sell any
Debentures in, or to persons who are residents of, the United States of America.
In addition, we agree that in making sales of Debentures, if we are such a
member, we will comply with all applicable rules of the NASD, including, without
limitation, the NASD's Interpretation with Respect to Free-Riding and
Withholding and Section 24 of Article III of the NASD's Rules of Fair Practice,
or, if we are a foreign dealer, we will comply with such Interpretation and
Sections 8, 24, and 36 of such Article as though we were such a member, and with
Section 25 as that Section applies to a non-member foreign broker or dealer.
Further, we confirm that we have complied and will comply with the prospectus
delivery requirements of Rule 15c2-8 under the Securities Exchange Act of 1934.
____________________________
(Please print or type name of firm)
By____________________________
(Authorized Representative)
Dated: ____________________, 1996
EXHIBIT A
For the duration of this Selected Dealer Agreement, the Selected Dealer
Concession payable to _____________________________________________________
shall be _____ percent (__%) of the Public Offering Price for all Debenturers
purchased.
The Selected Dealer Concession will be payable as a discount from par for the
Debenturers purchased on each closing dated. If the purchase is made after
closing has occurred from the Underwriters' inventory, the Selected Dealer
Concession will be paid when the trade is settled.
EXHIBIT B
Lee Simmons
Assistant Vice President
Miller & Schroeder Financial, Inc.
220 South Sixth Street, Suite 200
Minneapolis, Minnesota 55402,
We hereby confirm our order for principal amount of Senior Subordinated
Debentures, Series ______ %, Due ____________, 2004 of Lundgren Bros.
Construction, Inc. (the "Debentures") under the terms and conditions contained
in your written confirmation of our purchase and the foregoing Selected Dealer
Agreement.
We hereby confirm our agreement to all the terms and conditions stated
in the foregoing Selected Dealer Agreement. We acknowledge receipt of the
Prospectus and no other statement whatsoever, written or oral. We confirm that
we are in good standing with the NASD or that we are a foreign dealer, not
eligible for membership in the NASD, which agrees not to offer or sell any
Debentures in, or to persons who are residents of, the United States of America.
In addition, we agree that in making sales of Debentures, if we are such a
member, we will comply with all applicable rules of the NASD, including, without
limitation, the NASD's Interpretation with Respect to Free-Riding and
Withholding and Section 24 of Article III of the NASD's Rules of Fair Practice,
or, if we are a foreign dealer, we will comply with such Interpretation and
Sections 8, 24 and 36 of such Article as though we were such a member, and with
Section 25 as that Section applies to a non-member foreign broker or dealer.
Further, we confirm that we have complied and will comply with the prospectus
delivery requirements of Rule 15c2-8 under the Securities Exchange Act of 1934.
____________________________
(Please print or type name of firm)
By ____________________________
(Authorized Representative)
Dated: ______________________, 1996
EXHIBIT C
The Debenturers of Lundgren Bros. Construction, Inc. are clear for sale to the
public by dealers or brokers registered or licensed in the following states and
in the amounts listed below:
Jurisdiction Principal Amount
Registration is pending in the following states:
Jurisdiction
LUNDGREN BROS. CONSTRUCTION, INC.
and
NATIONAL CITY BANK OF MINNEAPOLIS,
NATIONAL ASSOCIATION
As Trustee
--------------
INDENTURE
Dated as of ________ ___, 1996
--------------
$3,000,000
Senior Subordinated Debentures, Series ___%
Due 2004
Minimum Purchase: $2,000
TABLE OF CONTENTS
ARTICLE/SECTION PAGE
1. DFINITIONS AND OTHER PROVISION OF GENERAL
APPLICATION 1
1.1. Definitions. 1
1.2. Compliance Certificates and Opinions. 10
1.3. Form of Documents Delivered to Trustee. 10
1.4. Acts of Debentureholders. 11
1.5. Notices, etc., to Trustee and Company. 12
1.6. Notices to Debentureholders; Waiver. 12
1.7. Effect of Headings and Table of Contents. 12
1.8. Successors and Assigns. 13
1.9. Separability Clause. 13
1.10. Benefits of Indenture. 13
1.11. Governing Law. 13
1.12. Legal Holidays. 13
2. DEBENTURE FORMS 13
2.1. Forms Generally. 13
2.2. A. Form of Face of Debenture. 14
2.3. B. Form of Reverse of Debenture. 16
2.4. Form of Trustee's Certificate of Authentication. 19
3. THE DEBENTURES 20
3.1. Title and Terms. 20
3.2. Denominations. 21
3.3. Execution, Authentication and Delivery and
Dating. 21
3.4. Temporary Debentures. 21
3.5. Registration, Transfer and Exchange. 22
3.6. Mutilated, Destroyed, Lost and Stolen
Debentures. 23
3.7. Payment of Interest; Interest Rights Preserved. 23
3.8. Persons Deemed Owners. 25
3.9. Cancellation. 25
3.10. Authentication and Delivery of Original Issue. 26
3.11. Computation of Interest. 26
4. SATISFACTION AND DISCHARGE 26
4.1. Satisfaction and Discharge of Indenture. 26
4.2. Application of Trust Money. 27
5. REMEDIES 27
5.1. Events of Default. 27
5.2. Acceleration of Maturity; Recision and
Annulment. 29
5.3. Collection of Indebtedness and Suits for
Enforcement by Trustee 30
5.4. Trustee May File Proofs of Claim. 31
5.5. Trustee May Enforce Claims Without Possession of
Debentures. 32
5.6. Application of Money Collected. 32
5.7. Limitation on Suits. 32
5.8. Unconditional Right of Debentureholder to
Receive Principal, Premium and Interest. 33
5.9. Restoration of Rights and Remedies. 33
5.10. Rights and Remedies Cumulative. 34
5.11. Delay or Omission Not Waiver. 34
5.12. Control by Debentureholders. 34
5.13. Waiver of Past Defaults. 34
5.14. Undertaking for Costs. 35
5.15. Waiver of Stay or Extension Laws. 35
6. THE TRUSTEE 36
6.1. Certain Duties and Responsibilities. 36
6.2. Notice of Defaults. 37
6.3. Certain Rights of Trustee. 37
6.4. Not Responsible for Recitals or Issuance of
Debentures. 38
6.5. May Hold Debentures. 38
6.6. Money Held in Trust. 38
6.7. Compensation and Reimbursement. 38
6.8. Disqualification; Conflicting Interests. 39
6.9. Trustee Required; Eligibility. 44
6.10. Resignation and Removal; Appointment of
Successor. 45
6.11. Acceptance of Appointment by Successor. 46
6.12. Merger, Conversion or Succession to Business. 46
6.13. Preferential Collection of Claims against
Company. 47
7. DEBENTUREHOLDERS' LISTS AND REPORTS
BY TRUSTEE AND COMPANY 51
7.1. Company to Furnish Trustee Names and Addresses
of Debentureholders. 51
7.2. Preservation of Information; Communications to
Debentureholders. 51
7.3. Reports by Company. 53
8. CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE 54
8.1. Company May Consolidate, Etc., on Certain Terms. 54
8.2. Successor Corporation Substituted. 55
8.3. Effect of Change in Control. 55
9. SUPPLEMENTAL INDENTURES 55
9.1. Supplemental Indentures without Consent of
Debentureholders. 55
9.2. Supplemental Indentures with Consent of
Debentureholders. 56
9.3. Execution of Supplemental Indentures. 57
9.4. Effect of Supplemental Indentures. 57
9.5. Reference in Debentures to Supplemental
Indentures. 57
9.6. Effect on Senior Indebtedness. 58
10. COVENANTS 58
10.1. Payment of Principal, Premium and Interest. 58
10.2. Maintenance of Office or Agency. 58
10.3. Money for Debenture Payments to be Held in
Trust. 58
10.4. Payment of Taxes and Other Claims. 60
10.5. Maintenance of Properties. 60
10.6. Statement as to Compliance. 60
10.7. Corporate Existence; Existing Business. 60
10.8. Insurance. 61
10.9. Restrictions on Dividends, Redemptions, etc. 62
10.10. Limitation on Issuance of Certain Securities. 63
10.11. Indebtedness to Affiliates. 63
10.12. Transactions with Affiliates. 64
10.13. Particular Covenants as to Certain of
Company's Affairs. 65
10.14. Certain Covenants as to Subsidiaries. 65
10.15. Limitations on Additional Funded Debt. 65
10.16. Minimum Net Worth. 66
10.17. Waiver of Certain Covenants. 67
11. REDEMPTION OF DEBENTURES 67
11.1. Right of Redemption. 67
11.2. Applicability of Article. 68
11.3. Election to Redeem; Notice to Trustee. 68
11.4. Selection by Trustee of Debentures to be
Redeemed. 68
11.5. Notice of Redemption. 68
11.6. Deposit of Redemption Price. 69
11.7. Debentures Payable on Redemption Date. 69
11.8. Debentures Redeemed in Part. 70
12. SUBORDINATION OF DEBENTURES 70
12.1. Agreement to Subordinate. 70
12.2. Distribution of Assets, Etc. 70
12.3. No Payment to Debentureholders if Senior
Indebtedness is in Default. 71
12.4. Subrogation. 71
12.5. Obligation of Company Unconditional. 71
12.6. Payments on Debentures Permitted. 72
12.7. Effectuation of Subordination by Trustee. 72
12.8. Knowledge of Trustee. 73
12.9. Rights of Holders of Senior Indebtedness Not
Impaired. 73
12.10. Trustee Not Fiduciary for Holders of Senior
Indebtedness. 73
12.11. Rights of Trustee as Holder of Senior
Indebtedness. 73
12.12. Article Applicable to Paying Agents. 73
12.13. Rights and Obligations Subject to Power of
Court. 73
13. REPAYMENT AT OPTION OF HOLDER IN CERTAIN
CIRCUMSTANCES 74
13.1. Repayment Option Upon Death of Holder. 74
13.2. Repayment of Debentures. 75
13.3. Debentures Repaid in Part. 76
14. IMMUNITY OF STOCKHOLDERS, OFFICERS AND DIRECTORS 76
14.1. Personal Immunity of Stockholders, Etc. 76
THIS INDENTURE, dated as of _________ [ ], 1996, between Lundgren Bros.
Construction, Inc., a Minnesota corporation, having its principal office at 925
East Wayzata Blvd., Wayzata, Minnesota 55391 (the "COMPANy"), and National City
Bank of Minneapolis, National Association, as Trustee (the "TRUSTEE") having its
corporate trust office and place of business at Minneapolis, Minnesota 55402.
RECITALS OF THE COMPANY
The Company is duly authorized to borrow money for its corporate purposes
and to issue debentures or other obligations therefor. For its corporate
purposes, the Company has duly authorized the creation of an issue of its
debentures, to be known as its Senior Subordinated Debentures, Series _____% Due
2004 (the "DEBENTURES"), of substantially the tenor and amount hereinafter set
forth, and to provide therefor the Company has duly authorized the execution and
delivery of this Indenture.
All things necessary to make the Debentures, when executed by the Company
and authenticated and delivered by the Trustee hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
The Debentures created by this Indenture are to consist of Debentures in
fully registered form only, in the maximum aggregate principal amount of
$3,000,000.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Debentures by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Debentures, as follows:
ARTICLE
1.
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
1.1. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the
singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act of 1939, either directly or by reference therein,
have the meanings assigned to them therein, although this
cross-reference shall not be construed to mean that this
Indenture is intended to comply with the Trust Indenture Act;
and
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles.
(4) "THIS INDENTURE" means this instrument as originally executed or
as it may from time to time be supplemented or amended by one or
more indentures supplemental hereto entered into pursuant to the
applicable provisions hereof.
(5) All references in this instrument to designated "ARTICLES",
"SECTIONS" and other subdivisions are to the designated
Articles, Sections and other subdivisions of this instrument as
originally executed. The words "herein," "hereof" and
"hereunder" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section
or other subdivision.
Certain terms, used principally in Article 6, are defined in that
Article.
"ACT" when used with respect to any Debentureholder has the meaning
specified in Section 1.4.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing. Without limiting the generality of the foregoing, Affiliates of the
Company shall include Lundgren Bros. of Stillwater, Inc. and Brushmasters, Inc.
and all officers, directors and shareholders of the Company and its
Subsidiaries, and all family members of such natural Persons.
"AUTHORIZED NEWSPAPER" means a newspaper of general circulation in the
relevant area, printed in the English language and customarily published on each
business day, whether or not published on Saturdays, Sundays or holidays.
Whenever successive weekly publications in an Authorized Newspaper are required
hereunder they may be made (unless otherwise expressly provided herein) on the
same or different days of the week and in the same or in different Authorized
Newspapers.
"BOARD OF DIRECTORS" means the Board of Directors of the Company.
"BOARD RESOLUTION" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day upon which banking institutions in the City of
Minneapolis or the City of Saint Paul, Minnesota, are authorized or required by
law to close.
"BUY-SELL DEBT OBLIGATION" has the meaning specified in Section 10.9.
"CHANGE OF CONTROL" means (i) any sale, transfer or other disposition of
more than twenty-five percent (25%) or more of the voting Equity Securities of
the Company Outstanding in one transaction or in a series of transactions
occurring within a twelve-month period (except for the redemption or repurchase
by the Company of shares of voting Equity Securities owned by Allan D. Lundgren,
Edmund M. Lundgren Gerald T. Lundgren or Patrick C. Wells, or a transfer of
ownership as a result of the death of a shareholder of the Company); and (ii)
the issuance of additional voting Equity Securities of the Company in one
transaction or in a series of transactions occurring within a twelve-month
period which results in a Person acquiring, directly or indirectly, more than
forty percent (40%) of the voting power of the Company.
"COMMISSION" means the Securities and Exchange Commission, as from time
to time constituted, created under the Securities Exchange Act of 1934, or if at
any time after the execution of this instrument such Commission is not existing
and performing the duties now assigned to it, then the body performing such
duties on such date at such time.
"COMMON STOCK" means the Company's Common Stock, no par value,
authorized at the date this Indenture is executed, whether voting or non-voting,
and shares of any class or classes resulting from any reclassification or
reclassifications thereof which have no preference in respect of dividends or of
amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, and which are not subject to
redemption by the Company, and also shall include stock of the Company of any
other class, whether now or hereafter authorized, which ranks, or is entitled to
a participation, as to assets or dividends, substantially on a parity with such
Common Stock or other class of stock into which such Common Stock may have been
changed; provided however, that warrants or other rights to purchase Common
Stock will not be deemed to be Common Stock.
"COMPANY" means the Person named as the "Company" in the first paragraph
of this instrument until a successor corporation shall have become such pursuant
to the applicable provisions of this Indenture, and thereafter "Company" shall
mean such successor corporation.
"COMPANY REQUEST", "COMPANY ORDER" and "COMPANY CONSENT" mean,
respectively, a written request, order or consent signed in the name of the
Company by its President and delivered to the Trustee.
"CONSOLIDATED" when used with reference to Indebtedness or Net Income
means the sum of the Indebtedness or Net Income, as the case may be, of the
Company and its Consolidated Subsidiaries, as consolidated in accordance with
generally accepted accounting principles, after the elimination of intercompany
items.
"CONSOLIDATED INDEBTEDNESS" means all Indebtedness of the Company and
its Consolidated Subsidiaries (excluding intercompany items and all Shareholders
Subordinated Debt), after making appropriate deductions for any minority
interests.
"CONSOLIDATED NET INCOME" for any period shall mean the amount of
consolidated net income (or loss) of the Company and its Consolidated
Subsidiaries for such period determined on a consolidated basis in accordance
with generally accepted accounting principles, after eliminating all
intercompany items and portions of earnings properly attributable to minority
interests, if any, in the Consolidated Subsidiaries; provided, however, that
there shall not be included in Consolidated Net Income any net income (or net
loss) of a Consolidated Subsidiary for any period during which it was not a
Consolidated Subsidiary, or any net income (or net loss) of any business,
properties or assets acquired (by way of merger, consolidation, purchase or
otherwise) by the Company or any Consolidated Subsidiary for any period prior to
the acquisition thereof.
"CONSOLIDATED SUBSIDIARY" means a Subsidiary of the Company whose
financial statements are included in the most recent annual consolidated
financial statements of the Company and its Subsidiaries.
"CONSOLIDATED TANGIBLE NET WORTH" means the dollar amount of:
(a) the tangible assets of the Company and its Consolidated
Subsidiaries (excluding intercompany items) after deducting for
minority interests and adequate reserves in each case where, in
accordance with generally accepted accounting principles, a
reserve is proper, in excess of
(b) the aggregate amount of Consolidated Indebtedness, and
Shareholders Subordinated Debt;
provided, however, that (i) inventory shall be taken into account on the basis
of the cost or current market value, whichever is lower, (ii) in no event shall
there be included as such tangible assets (a) any assets typically classified as
intangible assets, including but not limited to patents, trademarks, trade
names, copyrights, licenses, goodwill and debt issuance costs, or (b) treasury
stock or any securities or Indebtedness of the Company or a Consolidated
Subsidiary, or any other equity, convertible or unsecured debt securities unless
the same are readily marketable in the United States of America or entitled to
be used as a credit against Federal income tax liabilities, and (iii) securities
included as such tangible assets shall be taken into account at their current
market price or cost, whichever is lower, and (iv) any write-up in the book
value of any assets subsequent to December 31, 1995, shall not be taken into
account. The Consolidated Tangible Net Worth as of December 31, 1995 was
$5,968,000.
"DATE OF ISSUE", as to any Debenture, means the date as of which such
Debenture shall be dated when it is originally issued by the Company to the
initial purchaser (whether or not an underwriter), which date shall be the date
upon which it was originally purchased by such initial purchaser as designated
in the written confirmation of purchase thereof delivered to the Company
(evidenced by the "trade date" set forth in such confirmation of purchase),
subject to any agreements with respect thereto as the Company may enter into in
connection with the sale of the Debentures, and, otherwise, the Date of Issue
shall be as designated in the Company Order requesting authentication and
delivery thereof.
"DEBENTUREHOLDER" means a Person in whose name a Debenture is registered
in the Debenture Register, or the beneficial owner of such Debenture if record
ownership is held by a nominee.
"DEBENTURE REGISTER" and "DEBENTURE REGISTRAR" have the respective
meanings specified in Section 3.5.
"DEBT RESTRICTED CASH" means the unborrowed portion of any land
development loans to the Company held in restricted bank accounts under
financing arrangements substantially similar to such loans made to the Company
in the past.
"EQUITY SECURITIES" means shares of Common Stock or of any other class
or classes of capital stock of the Company, and any other securities of the
Company other than debt securities (whether or not such debt securities are
convertible into other securities of the Company).
"EVENT OF DEFAULT" has the meaning specified in Section 5.1.
"FUNDED DEBT" shall mean the sum of Senior Indebtedness, the Debentures
Outstanding, Parity Indebtedness and Subordinated Indebtedness (except
Shareholders Subordinated Debt) less Debt Restricted Cash.
"GAAP" means generally accepted accounting principles consistently
applied.
"HOLDER" when used with respect to any Debenture means a
Debentureholder.
"INDEBTEDNESS" with respect to any person at any date means and includes
all items of indebtedness which, in accordance with generally accepted
accounting principles, would be included in determining total liabilities as
shown on the liabilities side of a balance sheet of such person at such date,
and in addition shall include (i) all indebtedness guaranteed or endorsed (other
than for purposes of collection in the ordinary course of business), directly or
indirectly, in any manner by such person, and contingent obligations of such
person in respect of, or to purchase or otherwise acquire, indebtedness of
others, (ii) all lease obligations of such person required under generally
accepted accounting principles to be capitalized and reflected as a liability on
the balance sheet of such person, and (iii) all indebtedness secured by any
mortgage, lien, pledge, charge or encumbrance upon property owned by such
person, whether or not the indebtedness so secured has been assumed by such
person.
"INDEPENDENT" when used with respect to any specified Person means such
a Person who (1) is in fact independent, (2) does not have any direct financial
interest or any material indirect financial interest in the Company or in any
other obligor upon the Debentures or in any Affiliate of the Company or of such
other obligor, and (3) is not connected with the Company or such other obligor
or any Affiliate of the Company or of such other obligor, as an officer,
employee, promoter, underwriter, trustee, partner, director or person performing
similar functions. Whenever it is herein provided that any Independent Person's
opinion or certificate shall be furnished to the Trustee, such Person shall be
appointed by a Company Order and approved by the Trustee in the exercise of
reasonable care, and such opinion or certificate shall state that the signer has
read this definition and that the signer is Independent within the meaning
hereof.
"INITIAL INTEREST ACCRUAL DATE", as to any Debenture, means the date
from which interest shall begin to accrue in connection with the original
issuance of such Debenture, which shall be ___________, 1996, or with respect to
any Debenture sold after any quarterly Interest Payment Date, the most recent
Interest Payment Date.
"INTEREST PAYMENT DATE" means the Stated Maturity of an installment of
interest on the Debentures.
"MATURITY" when used with respect to any Debenture means the date on
which the principal of such Debenture becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
"OFFICERS' CERTIFICATE" means a certificate signed by the President or a
Vice President and delivered to the Trustee. Wherever this Indenture requires
that an Officers' Certificate be signed also by a engineer or an accountant or
other expert, such engineer, accountant or other expert (except as otherwise
expressly provided in this Indenture) may be in the employ of the Company, and
shall be reasonably acceptable to the Trustee.
"OPINION OF COUNSEL" means a written opinion of counsel, who may (except
as otherwise expressly provided in this Indenture) be counsel for the Company,
and shall be reasonably acceptable to the Trustee.
"OUTSTANDING" when used with respect to Debentures means, as of the date
of determination, all Debentures theretofore authenticated and delivered under
this Indenture, except:
(i) Debentures theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Debentures for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying
Agent (other than the Company) in trust or set aside and segregated in
trust by the Company (if the Company shall act as its own Paying Agent)
for the Holders of such Debentures, provided that, if such Debentures
are to be redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision therefor satisfactory to the
Trustee has been made; and
(iii) Debentures in exchange for or in lieu of which other Debentures
have been authenticated and delivered pursuant to this Indenture;
provided, however, that solely for purposes of determining whether the Holders
of the requisite principal amount of Debentures Outstanding have given any
request, demand, authorization, direction, notice, consent or waiver hereunder,
Debentures owned, of record or beneficially, by the Company or any other obligor
upon the Debentures or any Affiliate of the Company or such other obligor shall
be disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Debentures which the
Trustee knows, after due inquiry to be so owned shall be so disregarded.
Debentures so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Debentures and that the pledgee
is not the Company or any other obligor upon the Debentures or any Affiliate of
the Company or such other obligor.
"PARITY INDEBTEDNESS" means any and all Indebtedness of the Company
created, incurred, assumed, or guaranteed by the Company before, at, or after
the date of execution of the Indenture which (a) matures by its terms, or is
renewable at the option of the Company to a date, more than one year after the
date of the original creation, incurrence, assumption, or guaranty of such
Indebtedness by the Company, (b) contain covenants, conditions and restrictions
on the Company which are not inconsistent with nor violate any of the covenants,
conditions and restrictions in this Indenture, and (c) is neither Senior
Indebtedness nor Subordinated Indebtedness. Parity Indebtedness shall include,
without limitation, the Senior Subordinated Debentures, Series 10%, Due 2003.
"PAYING AGENT" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Debentures on behalf of
the Company.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivisions thereof.
"PLACE OF PAYMENT" means a city or any political subdivision thereof
designated as such in Section 3.1.
"PREDECESSOR DEBENTURES" of any particular Debenture means every
previous Debenture evidencing all or a portion of the same debt as that
evidenced by such particular Debenture; and, for the purposes of this
definition, any Debenture authenticated and delivered under Section 3.6 in lieu
of a lost, destroyed or stolen Debenture shall be deemed to evidence the same
debt as the lost, destroyed or stolen Debenture.
"REDEMPTION DATE" when used with respect to any Debenture to be redeemed
means the date fixed for such redemption by or pursuant to this Indenture.
"REDEMPTION PRICE" when used with respect to any Debenture to be
redeemed means the price at which it is to be redeemed pursuant to this
Indenture.
"REGULAR DIVIDEND" means a dividend declared by the Board of Directors
to be payable to all holders of a class (or a series of a class) of Equity
Securities of the Company as part of a program established by the Board of
Directors to provide regular and continuous dividends to such holders (subject
to the right of the Board of Directors to increase, decrease and omit such
regular dividends), and shall not include special dividends or other
distributions with respect to such Equity Securities not intended to be regular
and continuous.
"REGULAR RECORD DATE" for the interest payable on any Interest Payment
Date means the date specified in Article 3.
"REPAYMENT DATE" when used with respect to any Debenture to be repaid
pursuant to Article 13 means the earlier of (i) the date of repayment of the
principal of and interest on the Debenture (or portion thereof) as repaid in
accordance with the provisions of Article 13 or (ii) 30 days after receipt by
the Company or the Trustee of a request for repayment of the Debenture (or
portion thereof) by the Holder thereof or his duly authorized legal
representative in accordance with the provisions of Article 13.
"RESPONSIBLE OFFICER" when used with respect to the Trustee means the
Chairman or Vice-Chairman of the Board of Directors, the Chairman or
Vice-Chairman of the Executive Committee of the Board of Directors, the
President, any Vice President, the Secretary, any Assistant Secretary, the
Treasurer, any Assistant Treasurer, the Cashier, any Assistant Cashier, any
Trust Officer or Assistant Trust Officer, the Controller and any Assistant
Controller or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above designated officers and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of his knowledge of and familiarity with
the particular subject.
"SENIOR INDEBTEDNESS" means the principal of, premium (if any) and
interest on any and all Indebtedness of the Company (other than the Debentures,
Parity Indebtedness and Subordinated Indebtedness) incurred in connection with
(i) the borrowing of money (whether secured or unsecured) from or guaranteed to
banks, trust companies, insurance companies and other financial institutions,
(ii) all Indebtedness to specialized industry lenders to the extent it is
secured by real estate and/or assets of the Company (including the cash value of
life insurance) evidenced by bonds, debentures, mortgages, notes or other
securities or other instruments, (iii) obligations under capitalized leases as
determined by GAAP, and (iv) other non-recourse obligations to third parties in
connection with the acquisition of land (but excluding option agreements or
contingent purchase agreements which the Company has the right to terminate
unilaterally) incurred, assumed or guaranteed by the Company before, at or after
the date of execution of this Indenture, and all renewals, extensions and
refundings thereof, unless in the instrument creating or evidencing any such
Indebtedness or pursuant to which such Indebtedness is outstanding, it is
provided that such Indebtedness, or such renewal, extension or refunding
thereof, is junior or is not superior in right of payment to the Debentures.
"SHAREHOLDERS SUBORDINATED DEBT" means any borrowing by the Company from
its shareholders which is evidenced by a note or other instrument and expressly
made Subordinated Indebtedness as required by Section 10.11 and which has a
stated maturity which is later than the Stated Maturity of the Debentures.
"SPECIAL RECORD DATE" for the payment of any Defaulted Interest (as
defined in Section 3.7) means a date fixed by the Trustee pursuant to Section
3.7.
"STATED MATURITY" when used with respect to any Debenture or any
installment of interest thereon means the date specified in such Debenture as
the fixed date on which the principal of such Debenture or such installment of
interest is due and payable.
"SUBORDINATED INDEBTEDNESS" means any and all Consolidated Indebtedness
of the Company created, incurred, assumed, or guaranteed by the Company before,
at, or after the date of execution of this Indenture which, by the terms of the
instrument (or any supplemental instrument) creating or evidencing such
Consolidated Indebtedness or pursuant to which such Indebtedness is outstanding,
(a) it is provided that such Consolidated Indebtedness, or any renewal,
extension, or refunding thereof, is expressly subordinate and junior in right of
payment to the Debentures (whether or not subordinated to any other Indebtedness
of the Company) or (b) it is not, by its terms, Senior Indebtedness or Parity
Indebtedness. For purposes of Section 10.11, Indebtedness to Affiliates shall be
considered Subordinated Indebtedness only if such Indebtedness, and any renewal,
extension or refunding thereof, is subordinate in right of payment to the
Debentures in substantially the same manner and upon substantially the same
terms as the Debentures are subordinate in right of payment to Senior
Indebtedness as provided in Article 12.
"SUBSIDIARY" means any corporation of which at least a majority of the
outstanding voting stock is owned, at the time, directly or indirectly, by the
Company, or by one or more Subsidiaries of the Company. For purposes of this
definition, "voting stock" means stock which ordinarily has voting power for the
election of directors, whether at all times or only so long as no senior class
of stock has such voting power by reason of any contingency.
"TRUSTEE" means the Person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"WHOLLY-OWNED SUBSIDIARY" means a Subsidiary of which all of the
outstanding voting stock (other than directors' qualifying shares) is at the
time, directly or indirectly, owned by the Company, or by one or more
Wholly-Owned Subsidiaries. For purposes of this definition "voting stock" shall
have the same meaning as in the definition of Subsidiary.
1.2. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
Counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(1) a statement that each Person signing such certificate or opinion
has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained
in such certificate or opinion are based;
(3) a statement that, in the opinion of each such Person, he has
made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such Person,
such condition or covenant has been complied with.
1.3. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion, or, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based, in
so far as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, a copy of which shall be attached to any such
certificate or opinion of any such officer unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate or Opinion of Counsel may
be based, in so far as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company stating
that the information with respect to such factual matters is in the possession
of the Company, unless such Counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
1.4. Acts of Debentureholders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or
taken by Debentureholders may be embodied in and evidenced by
one or more instruments of substantially similar tenor signed by
such Debentureholders in person or by agent duly appointed in
writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or
instruments are delivered to the Trustee, and, where it is
hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the
Debentureholders signing such instrument or instruments. Proof
of execution of any such instrument or of a writing appointing
any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 6.1) conclusive in favor of
the Trustee and the Company, if made in the manner provided in
this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a
witness of such execution or by the certificate of any notary
public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution
thereof. Where such execution is by an officer of a corporation
or a member of a partnership, on behalf of such corporation or
partnership, such certificate or affidavit shall also constitute
sufficient proof of his authority. The fact and date of the
execution of any such instrument or writing, or the authority of
the person executing the same, may also be proved in any other
manner which the Trustee deems sufficient.
(c) The ownership of Debentures shall be proved by the Debenture
Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Debenture shall bind
every future Holder of the same Debenture and the Holder of
every Debenture issued upon the transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done or
suffered to be done by the Trustee or the Company in reliance
thereon, whether or not notation of such action is made upon
such Debenture.
1.5. Notices, etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Debentureholders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Debentureholder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished
or filed in writing to or with the Trustee at its principal
corporate trust office, or
(2) the Company by the Trustee or by any Debentureholder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class
postage prepaid, to the Company addressed to it at the address
of its principal office specified in the first paragraph of this
instrument or at any other address previously furnished in
writing to the Trustee by the Company.
1.6. Notices to Debentureholders; Waiver.
Where this Indenture or any Debenture provides for notice to
Debentureholders of any event, such notice shall be sufficiently given (unless
otherwise herein or in such Debenture expressly provided) if in writing and
mailed, first-class postage prepaid, to each Debentureholder affected by such
event, at his address as it appears in the Debenture Register, not later than
the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Debentureholders is given by
mail, neither the failure to mail such notice, nor any defect in any such notice
so mailed, to any particular Debentureholder shall affect the sufficiency of
such notice with respect to other Debentureholders. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by
Debentureholders shall be filed with the Trustee, but such filing shall not be a
condition precedent to the validity of any action taken in reliance upon such
waiver.
In case, by reason of the suspension of publication of any Authorized
Newspaper, or by reason of any other cause, it shall be impossible to make
publication of any notice in an Authorized Newspaper or Authorized Newspapers
required by this Indenture, then such method of publication or notification as
shall be made with the approval of the Trustee shall constitute a sufficient
publication of such notice.
1.7. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
1.8. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
1.9. Separability Clause.
In case any provision in this Indenture or in the Debentures 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.
1.10. Benefits of Indenture.
Nothing in this Indenture or in the Debentures, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, the holders of Senior Indebtedness and the Debentureholders, any
benefit of any legal or equitable right, remedy or claim under this Indenture.
1.11. Governing Law.
This Indenture and the Debentures shall be governed by and construed in
accordance with the laws of the State of Minnesota, without giving effect to the
conflict of laws principles thereof.
1.12. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Debenture shall not be a Business Day at any Place of Payment
then (notwithstanding any other provision of this Indenture or of the Debenture)
payment of interest or principal (and premium, if any) of the Debentures need
not be made at such Place of Payment on such date, but may be made on the next
succeeding Business Day at such Place of Payment with the same force and effect
as if made on the Interest Payment Date or Redemption Date, or at the Stated
Maturity, provided that no interest shall accrue for the period from and after
such Interest Payment Date, Redemption Date or Stated Maturity, as the case may
be.
ARTICLE
2.
DEBENTURE FORMS
2.1. Forms Generally.
The Debentures and the certificates of authentication thereon shall be
in substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon, as may be
required to comply with the rules of any securities exchange, or as may,
consistently herewith, be determined by the officers executing such Debentures,
as evidenced by their execution of the Debentures. Any portion of the text of
any Debenture may be set forth on the reverse thereof, with an appropriate
reference thereto on the face of the Debenture.
The definitive Debentures shall be printed, lithographed or engraved or
produced by any combination of these methods on steel engraved borders or may be
produced in any other manner permitted by the rules of any securities exchange,
all as determined by the officers executing such Debentures, as evidenced by
their execution of such Debentures.
2.2. A. Form of Face of Debenture.
LUNDGREN BROS. CONSTRUCTION, INC.
SENIOR SUBORDINATED DEBENTURE, SERIES ____%
DUE 2004
Register No.: ___________ Registered Principal Amount:$____________
Initial Interest
Accrual Date: ___________ CUSIP: __________
LUNDGREN BROS. CONSTRUCTION, INC., a Minnesota corporation (herein
called the "Company," which term includes any successor corporation under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to ________________ , or registered assigns, the principal sum of _____________
Dollars on ________________, 2004, and to pay interest thereon from the Initial
Interest Accrual Date (as defined in said Indenture) on each January 1, April 1,
July 1 and October 1, commencing the first of such dates following the Initial
Interest Accrual Date, at the rate of _____% per annum, until the principal
hereof is paid or made available for payment. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in the Indenture hereinafter referred to, be paid to the person in
whose name this Debenture (or one or more Predecessor Debentures, as defined in
said Indenture) is registered at the close of business on the Regular Record
Date for such interest, which shall be the 15th day (whether or not a Business
Day) of the calendar month next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for shall forthwith cease to be
payable to the Registered Holder on such Regular Record Date, and may be paid to
the person in whose name this Debenture (or one or more Predecessor Debentures)
is registered at the close of business on a Special Record Date for the payment
of such defaulted interest to be fixed by the Trustee, notice whereof shall be
given to the Holders not less than ten days prior to such Special Record Date,
or may be paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Debentures may be listed,
and upon such notice as may be required by such exchange, all as more fully
provided in said Indenture. Payments of the principal of (and premium, if any)
and interest on this Debenture will be made at the office or agency of the
Company maintained for that purpose in Minneapolis or Saint Paul, Minnesota, or
in such other office or agency as may be established by the Company pursuant to
said Indenture, in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts;
provided, however, that at the option of the Company payment of interest may be
made (subject to collection) by check mailed to the address of the person
entitled thereto as such address shall appear on the Debenture Register.
Reference is hereby made to the further provisions of this Debenture set
forth on the reverse side hereof and such further provisions shall for all
purposes have the same effect as though fully set forth at this place.
This Debenture shall not be valid or become obligatory for any purpose
until the certificate of authentication hereon shall have been manually signed
by the Trustee under the Indenture.
IN WITNESS WHEREOF, LUNDGREN BROS. CONSTRUCTION, INC. has caused this
Debenture to be signed in its name by the manual or facsimile signature of its
President or one of its Vice Presidents and attested by the manual or facsimile
signature of its Secretary or one of its Assistant Secretaries.
Dated: __________________, 1996 LUNDGREN BROS
CONSTRUCTION, INC.
By
---------------------------------
Its
---------------------------------
ATTEST:
- --------------------------------
Secretary
2.3. B. Form of Reverse of Debenture.
LUNDGREN BROS. CONSTRUCTION, INC.
SENIOR SUBORDINATED DEBENTURE SERIES ____%
DUE 2004
This Debenture is one of a duly authorized issue of the Debentures of
the Company designated as its Senior Subordinated Debentures, Series ___%, Due
2004 (herein called the "Debentures"), limited in aggregate principal amount to
$3,000,000 issued and to be issued under an Indenture dated as of ________, 1996
(herein called the "Indenture"), between the Company and National City Bank of
Minneapolis, National Association, as Trustee (herein called the "Trustee,"
which term includes any successor Trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made of a
statement of the respective rights thereunder of the Company, the Trustee and
the Holders of the Debentures, and the terms upon which the Debentures are, and
are to be, authenticated and delivered.
The Debentures are general unsecured obligations of the Company. The
payment of the principal of (and premium, if any) and interest on this Debenture
is expressly subordinated, as provided in the Indenture, to the payment of all
Senior Indebtedness, as defined in the Indenture, and, by the acceptance of this
Debenture, the Holder hereof agrees, expressly for the benefit of the present
and future holders of Senior Indebtedness, to be bound by the provisions of the
Indenture relating to such subordination and authorizes and appoints as his
attorney-in-fact the Trustee to take such action in his behalf as may be
necessary or appropriate to effectuate such subordination.
The Debentures may not be redeemed prior to October 31, 1998.
Thereafter, the Company may, at its option, at any time on or after October 31,
1998, redeem the Debentures, either as a whole or from time to time in part, at
the following Redemption prices (expressed in percentages of the principal
amount thereof), together with interest accrued and unpaid thereon to the
Redemption Date, if redeemed during the twelve month period beginning October
31, in each of the following years:
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----
Redemption Price: 105% 104% 103% 102% 101% 100%
Notice of redemption shall be mailed to the registered Holders of the Debentures
designated for redemption at their addresses as the same shall appear on the
Debenture Register not less than thirty days prior to the Redemption Date,
subject to all the conditions and provisions of the Indenture.
The Debenture shall also be subject to a mandatory redemption by the
Company in the event of a "Change of Control" as defined in the Indenture.
Under certain circumstances and to the extent and subject to the
limitations provided in the Indenture and upon request, the Company will, upon
the death of the Holder of this Debenture, repay the principal amount of this
Debenture, together with interest accrued to the Repayment Date, within thirty
days following a request therefore from the Holder's authorized representative,
in accordance with the provisions of the Indenture, if (i) this Debenture has
been registered in the Holder's name since its date of Issue or for at least six
months prior to the Holder's death, whichever is less, (ii) the principal amount
of Debentures to be repaid as the result of the deceased Holder's death does not
exceed $25,000, (iii) either the Company or the Trustee has been notified in
writing of the request for repayment within 180 days after the Holder's death,
and (iv) not more than $200,000 principal amount of Debentures (including those
subject to the particular redemption request) have been redeemed from Holders in
the past twelve months.
If this Debenture, or a portion hereof, shall be redeemed by call for
redemption or shall be accepted for repayment upon the death of the Holder, and
payment be duly provided therefore as specified in the Indenture, interest shall
cease to accrue on this Debenture or such portion hereof, as the case may be.
Interest installments whose Stated Maturity is on or before the
Redemption Date or Repayment Date will be payable to the Holders of such
Debentures, or one or more Predecessor Debentures, of record at the close of
business on the relevant Record Date referred to on the face hereof, all as
provided in the Indenture. In the event of redemption or repayment of this
Debenture in part only, a new Debenture or Debentures for the unredeemed or
unrepaid portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
If an Event of Default as defined in the Indenture shall occur and be
continuing, the principal of all the Debentures may be declared due and payable
in the manner and with the effect provided in the Indenture. The Company shall
pay all costs of collection, whether or not judicial proceedings are instituted,
in the manner provided in the Indenture. The Indenture provides that such
declaration and its consequences may, in certain events, be annulled by the
Holders of a majority in principal amount of the Debentures Outstanding.
The Indenture permits, with certain exceptions, as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Debentures under the Indenture at
any time by the Company with the consent of the Holders of 66-2/3% in aggregate
principal amount of the Debentures at the time Outstanding, as defined in the
Indenture. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Debentures at the
time Outstanding, as defined in the Indenture, on behalf of the Holders of all
the Debentures, to waive compliance by the Company with certain provisions of
the Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Debenture shall
be conclusive and binding upon such Holder and upon all future Holders of this
Debenture and of any Debenture issued upon the registration of transfer hereof
or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Debenture.
No reference herein to the Indenture and no provisions of this Debenture
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Debenture at the time, places and rate, and in the coin and
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, this Debenture is transferable on the Debenture Register of the
Company, upon surrender of this Debenture for registration of transfer at the
office or agency of the Company to be maintained for that purpose in Minneapolis
or Wayzata, Minnesota, or at such other office or agency as may be established
by the Company for such purpose pursuant to the Indenture (initially the
principal corporate trust office of the Trustee in Minneapolis, Minnesota), duly
endorsed by, or accompanied by written instrument of transfer in form
satisfactory to the Company and the Debenture Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Debentures, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Debentures are issuable only in registered form, without coupons, in
denominations of $1,000 and any integral multiple of thereof, as provided in the
Indenture and subject to certain limitations therein set forth. Debentures are
exchangeable for a like aggregate principal amount of Debentures of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such transfer or exchange, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
Certain terms used in this Debenture which are defined in the Indenture
have the meanings set forth therein.
The Company, the Trustee and any agent of the Company or the Trustee may
treat the person in whose name this Debenture is registered as the owner hereof
for all purposes, whether or not this Debenture be overdue, and neither the
Company, the Trustee, nor any such agent shall be affected by notice to the
contrary.
2.4. Form of Trustee's Certificate of Authentication.
This is one of the Debentures referred to in the within mentioned
Indenture.
NATIONAL CITY BANK OF MINNEAPOLIS,
NATIONAL ASSOCIATION,
as Trustee
By
----------------------------------
Authorized Signature
[Form of Assignment]
(To be executed by the registered holder if such holder desires to
transfer this Debenture.)
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
(Please print name and address of transferee)
this Debenture, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint ______________________, as Attorney,
to transfer the within Debenture on the books kept for registration thereof,
with full power of substitution.
Dated:_______________________________
Signature:___________________________
(Signature must conform
in all respects to name of
holder as specified on the
face of the Debenture)
(Insert Social Security or other Identifying Number of Transferee)
_______________________________
Signature Guaranteed:
ARTICLE
3.
THE DEBENTURES
3.1. Title and Terms.
The aggregate principal amount of Debentures which may be authenticated
and delivered under this Indenture is limited to $3,000,000 except for
Debentures authenticated and delivered upon transfer of, or in exchange for, or
in lieu of other Debentures pursuant to Section 3.4, 3.5, 3.6, 9.5, 11.8 and
13.3. Forthwith upon the execution and delivery of this Indenture, or from time
to time thereafter, Debentures up to a maximum aggregate principal amount of
$3,000,000 may be executed by the Company and delivered to the Trustee for
authentication, and shall thereupon be authenticated and delivered by the
Trustee upon Company Order, without any further action by the Company.
The Debentures shall be known and designated as the Senior Subordinated
Debentures, Series ___% Due 2004 of the Company. Their Stated Maturity shall be
________ , 2004. The Debentures shall bear interest at the rate per annum as
specified in the title of the Debentures, from the Initial Interest Accrual
Date, payable on each January 1, April 1, July 1 and October 1, commencing the
first of such dates following the Initial Interest Accrual Date, until the
principal thereof is paid or made available for payment.
The principal of (and premium, if any) and interest on the Debentures
shall be payable at the office or agency of the Company maintained for such
purpose (Place of Payment) in Minneapolis or Wayzata, Minnesota (initially the
principal corporate trust office of the Trustee in Minneapolis, Minnesota),
pursuant to Section 10.2; provided, however, that, at the option of the Company,
payment of interest may be made (subject to collection) by check mailed to the
address of the person entitled thereto as such address shall appear on the
Debenture Register.
The Debentures shall be redeemable as provided in Article 11.
The Debentures shall be subordinated in right of payment to Senior
Indebtedness of the Company as provided in Article 12.
The Debentures shall be equal in right of payment to certain
Indebtedness of the Company, defined as Parity Indebtedness.
The Debentures shall be senior in right of payment to all Subordinated
Indebtedness of the Company and to any Management Bonuses as provided for in
Section 10.12.
The Debentures shall be repayable prior to their Stated Maturity as
provided in Article 13.
The Debentures are an obligation of the Company but not of any
Affiliate.
3.2. Denominations.
The Debentures shall be issuable only in fully registered form, without
coupons, and in denominations of $1,000 and any integral multiple thereof.
3.3. Execution, Authentication and Delivery and Dating.
The Debentures shall be executed on behalf of the Company by its
Chairman of the Board, its President or one of its Vice Presidents and attested
by its Secretary or one of its Assistant Secretaries. The signature of any of
these officers on the Debentures may be manual or facsimile.
Debentures bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Debentures or did not
hold such offices at the date of such Debentures.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Debentures executed by the Company to
the Trustee for authentication; and the Trustee shall authenticate and deliver
such Debentures as in this Indenture provided and not otherwise.
All Debentures authenticated for original issuance by the Company to the
initial purchaser thereof shall be dated as of their respective Dates of Issue.
All Debentures authenticated for any other purpose hereunder shall be dated the
date of their authentication.
No Debenture shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Debenture a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Debenture shall be conclusive evidence, and the only evidence, that such
Debenture has been duly authenticated and delivered hereunder and is entitled to
the benefits of the Indenture.
3.4. Temporary Debentures.
Pending the preparation of definitive Debentures, the Company may
execute, and upon Company Order, the Trustee shall authenticate and deliver,
temporary Debentures which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any denomination, substantially of the tenor of the
definitive Debentures in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Debentures may determine, as evidenced by their execution of such
Debentures.
If temporary Debentures are issued, the Company will cause definitive
Debentures to be prepared without unreasonable delay. After the preparation of
definitive Debentures, the temporary Debentures shall be exchangeable for
definitive Debentures upon surrender of the temporary Debentures at the office
or agency of the Company in a Place of Payment, without charge to the Holder.
Upon surrender for cancellation of any one or more temporary Debentures the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a like principal amount of definitive Debentures of authorized
denominations. Until so exchanged the temporary Debentures shall in all respects
be entitled to the same benefits under this Indenture as definitive Debentures.
3.5. Registration, Transfer and Exchange.
The Company shall cause to be kept at the principal corporate trust
office of the Trustee a register (herein sometimes referred to as the "Debenture
Register") in which, subject to such reasonable regulations as it may prescribe,
the Company shall provide for the registration of Debentures and of transfers of
Debentures. The Trustee is hereby appointed "Debenture Registrar" for the
purpose of registering Debentures and transfers of Debentures as herein
provided.
Upon surrender for registration of transfer of any Debenture at the
office or agency of the Company in a Place of Payment, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Debentures of any
authorized denominations, of a like aggregate principal amount.
At the option of the Holder, Debentures may be exchanged for other
Debentures of any authorized denominations, and of a like aggregate principal
amount, upon surrender of the Debentures to be exchanged at such office or
agency. Whenever any Debentures are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Debentures
which the Debentureholder making the exchange is entitled to receive.
All Debentures issued upon any registration of transfer or exchange of
Debentures shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Debentures
surrendered upon such registration of transfer or exchange.
Every Debenture presented or surrendered for transfer or exchange shall
(if so required by the Company or the Trustee) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Debenture Registrar duly executed, by the Holder thereof or his
attorney duly authorized in writing.
No service charge shall be made for any transfer or exchange of
Debentures, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
transfer or exchange of Debentures, other than exchanges pursuant to Section 3.4
or Section 9.5 or Section 11.8 or Section 13.3 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer
of, or exchange any Debenture during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Debentures selected for redemption under Section 11.04 and ending at the close
of business on the day of such mailing, or (ii) to register the transfer or
exchange of any Debenture so selected for redemption in whole or in part, except
the unredeemed portion of any Debenture being redeemed in part.
3.6. Mutilated, Destroyed, Lost and Stolen Debentures.
If (i) any mutilated Debenture is surrendered to the Trustee, or the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Debenture, and (ii) there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Debenture has been acquired by a bona fide purchaser, the
Company shall execute and upon its request the Trustee shall authenticate and
deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or
stolen Debenture, a new Debenture of like tenor and principal amount, bearing a
number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Debenture has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Debenture, pay such Debenture.
Upon the issuance of any new Debenture under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Debenture issued pursuant to this Section in lieu of any
destroyed, lost or stolen Debenture shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Debenture shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Debentures duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Debentures.
3.7. Payment of Interest; Interest Rights Preserved.
Interest on any Debenture which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Debenture (or one or more Predecessor Debentures) is registered
at the close of business on the Regular Record Date for such interest specified
in Article 3.
Any interest on any Debenture which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the registered
Holder on the relevant Regular Record Date by virtue of having been such Holder;
and, except as hereinafter provided, such Defaulted Interest may be paid by the
Company, at its election in each case, as provided in Clause 3.7(1) or Clause
3.7(2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Debentures (or their
respective Predecessor Debentures) are registered at the close
of business on a Special Record Date for the payment of such
Defaulted Interest, which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each
Debenture and the date of the proposed payment, and at the same
time the Company shall deposit with the Trustee an amount of
money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date
of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted
Interest as in this Clause provided. Thereupon the Trustee shall
fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 nor less than 10 days
prior to the date of the proposed payment and not less than 10
days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company
of such Special Record Date and, in the name and at the expense
of the Company, shall cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to
be mailed, first class postage prepaid, to each Debentureholder
at his address as it appears in the Debenture Register, not less
than 10 days prior to such Special Record Date. The Trustee may,
in its discretion, in the name and at the expense of the
Company, cause a similar notice to be published at least once in
an Authorized Newspaper in each Place of Payment, but such
publication shall not be a condition precedent to the
establishment of such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special
Record Date therefor having been mailed by the Trustee as
aforesaid, such Defaulted Interest shall be paid from the
amounts so deposited by the Company to the Persons in whose
names the Debentures (or their respective Predecessor
Debentures) are registered on such Special Record Date and shall
no longer be payable pursuant to the following Clause 3.7(2).
(2) The Company may make payment of any Defaulted Interest on the
Debentures in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Debentures
may be listed, and upon such notice as may be required by such
exchange, if, after notice given by the Company to the Trustee
of the proposed payment pursuant to this Clause, such payment
shall be deemed practicable by the Trustee.
If any installment of interest whose Stated Maturity is on or prior to
the Redemption Date for any Debentures called for redemption pursuant to Article
11 is not paid or duly provided for on or prior to the Redemption Date in
accordance with the foregoing provisions of this Section, such interest shall be
payable as part of the Redemption Price of such Debentures.
If any installment of interest whose Stated Maturity is on or prior to
the Repayment Date for any Debentures repaid pursuant to Article 13 is not paid
or duly provided for on or prior to the Repayment Date in accordance with the
foregoing provisions of this Section, such interest shall be repayable at the
Repayment Date together with the repayment of such Debentures.
Subject to the foregoing provisions of this Section, each Debenture
delivered under this Indenture upon transfer of or in exchange for or in lieu of
any other Debenture shall carry the rights to interest accrued and unpaid, and
to accrue, which were carried by such other Debenture.
All payments of interest on the Debentures to the person entitled
thereto, whether made by the Company, the Trustee or any Paying Agent, as
authorized pursuant to this Indenture, shall be made (subject to collection) by
check mailed to the address of the person entitled thereto as such address shall
appear on the Debenture Register, unless the Trustee determines such methods to
be inappropriate in the circumstances.
The Regular Record Date referred to in this Section for the payment of
interest payable, and punctually paid or duly provided for, on any Interest
Payment Date shall be the 15th day (whether or not a Business Day) of the
calendar month next preceding such Interest Payment Date.
3.8. Persons Deemed Owners.
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name any Debenture is registered as the owner of such
Debenture for the purpose of receiving payment of principal of (and premium, if
any), and (subject to Section 3.7) interest on, such Debenture and for all other
purposes whatsoever, whether or not such Debenture be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
3.9. Cancellation.
All Debentures surrendered for payment, redemption, registration of
transfer, exchange or conversion shall, if surrendered to any Person other than
the Trustee, be delivered to the Trustee and, if not already cancelled, shall be
promptly cancelled by it. The Company may at any time deliver to the Trustee for
cancellation any Debentures previously authenticated and delivered hereunder
which the Company may have acquired in any manner whatsoever, and all Debentures
so delivered shall be promptly cancelled by the Trustee. No Debentures shall be
authenticated in lieu of or in exchange for any Debentures cancelled as provided
in this Section, except as expressly permitted by this Indenture. All cancelled
Debentures held by the Trustee shall be disposed of as directed by a Company
Order.
3.10. Authentication and Delivery of Original Issue.
Forthwith upon the execution and delivery of this Indenture, or from
time to time thereafter, Debentures up to the aggregate principal amount of
$3,000,000 may by executed by the Company and delivered to the Trustee for
authentication and delivered by the Trustee upon Company Order, without any
further action by the Company.
3.11. Computation of Interest.
Interest on the Debentures shall be computed on the basis of a 360-day
year of twelve 30-day months.
ARTICLE
4.
SATISFACTION AND DISCHARGE
4.1. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any
surviving rights of registration of transfer or exchange of Debentures herein
expressly provided for), and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(A) all Debentures theretofore authenticated and
delivered (other than (i) Debentures which have been destroyed,
lost or stolen and which have been replaced or paid as provided
in Section 3.6, and (ii) Debentures for whose payment money has
theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 10.3) have
been delivered to the Trustee cancelled or for cancellation; or
(B) all such Debentures not theretofore delivered to the
Trustee cancelled or for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the
expense, of the Company, and the Company, in the case of (i),
(ii) or (iii) above, has deposited or caused to be deposited
with the Trustee as trust funds in trust for the purpose an
amount sufficient to pay and discharge the entire indebtedness
on such Debentures not theretofore delivered to the Trustee
cancelled or for cancellation, for principal (and premium, if
any) and interest to the date of such deposit (in the case of
Debentures which have become due and payable), or to the Stated
Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company, including sums payable to the Trustee
under Section 6.7 hereof; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge
of this Indenture have been complied with; and
(4) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel to the effect that such deposit
does not violate (a) the provisions of Article 12 hereof or (b) any
provisions of any Senior Indebtedness.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.7 shall survive, and,
if the money shall have been deposited with the Trustee pursuant to subclause
(B) of clause (1) of this Section, the obligations of the Trustee under Section
4.2 and the last paragraph of Section 10.3 shall survive.
4.2. Application of Trust Money.
All money deposited with the Trustee pursuant to Section 4.1 shall be
held in trust and applied by it, in accordance with the provisions of the
Debentures and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal (and
premium, if any) and interest for whose payment such money has been deposited
with the Trustee; but such money need not be segregated from other funds except
to the extent required by law.
ARTICLE
5.
REMEDIES
5.1. EVENTS OF DEFAULT.
"EVENT OF DEFAULT", wherever used herein means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of any interest upon any Debenture when
it becomes due and payable, and continuance of such default for
a period of 30 days (whether or not such payment is prohibited
under the provisions of Article 12 hereof); or
(2) default in the payment of the principal of (or premium, if any,
on) any Debenture at its Maturity, and continuance of such
default for a period of 30 days (whether or not such payment is
prohibited under the provisions of Article 12 hereof); or
(3) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant
or warranty a default in whose performance or whose breach is
elsewhere in this Section specifically dealt with), and
continuance of such default or breach for a period of 60 days
after there has been given, by registered or certified mail, to
the Company by the Trustee or to the Company and the Trustee by
the Holders of at least 10% in principal amount of the
Outstanding Debentures, a written notice specifying such default
or breach and requiring it to be remedied and stating that such
notice is a "NOTICE OF DEFAULT" hereunder; or
(4) breach of any covenant of the Company contained in Sections
10.15 and 10.16 hereof and the continuance of such breach for a
period of 30 days after the due date for filing of the report
pursuant to Section 7.3(5) which reports such breach, unless
prior to the expiration of the 30 day period referred to above,
the Company shall have filed with the Trustee a certificate of
Coopers and Lybrand, LLP, or such other certified independent
public auditor, certifying that such breach has been cured; or
(5) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the
Company under the Federal Bankruptcy Code or any other
applicable Federal or State law, or appointing a receiver,
liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or of any substantial part of its
property, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order
unstayed and in effect for a period of 60 consecutive days; or
(6) the institution by the Company of proceedings to be adjudicated
a bankrupt or insolvent, or the consent by it to the institution
of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking
reorganization or relief under the Federal Bankruptcy Code or
any other applicable Federal or State law, or the consent by it
to the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Company or of any substantial part of
its property, or the making by it of an assignment for the
benefit of creditors, or the admission by it in writing of its
inability to pay its debts generally as they become due, or the
taking of corporate action by the Company in furtherance of any
such action;
(7) if any event of default, as defined in any bond, debenture,
note, mortgage, indenture or instrument under which there may be
issued, or by which there may be secured or evidenced, any
Indebtedness of the Company (including obligations under
capitalized leases), shall happen and shall result in such
Indebtedness in excess of the lesser of (i) $250,000 or (ii) the
amount set forth in the Company's principal credit facility for
such default in other Indebtedness, becoming or being declared
due and payable prior to the date on which it would otherwise
become due and payable, and such acceleration shall not be
rescinded or annulled, or such Indebtedness shall not have been
discharged, within a period of sixty days after such
Indebtedness has been so accelerated; or
(8) the rendering of any final judgment, decree or order in excess
of the lesser of (i) $250,000 or (ii) the amount set forth in
the Company's principal credit facility for such default in
other Indebtedness, which remains unsatisfied for any period of
30 days without a stay of execution.
5.2. Acceleration of Maturity; Recision and Annulment.
If an Event of Default occurs and is continuing, then and in every such
case the Trustee or the Holders of not less than 25% in principal amount of the
Debentures Outstanding may declare the principal amount of all the Debentures to
be due and payable immediately, by a notice in writing to the Company (and to
the Trustee if given by Debentureholders), and upon any such declaration such
entire principal amount and all interest shall become immediately due and
payable. Collection actions or judicial proceedings may be commenced as set
forth in Section 5.3.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Debentures Outstanding, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if:
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue installments of interest on all
Debentures
(B) the principal of (and premium, if any, on) any
Debentures which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate
borne by the Debentures,
(C) to the extent that payment of such interest is
lawful, interest upon overdue installments of interest at the
rate borne by the Debentures, and
(D) all sums paid or advanced by the Trustee hereunder
and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel and the Holders
and their agents and counsel if such Holders have initiated
action in accordance with this Section 5.2; and
(2) all Events of Default, other than the non-payment of the
principal amount of Debentures which have become due solely by such
acceleration, have been cured, or waived as provided in Section 5.13.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
5.3. Collection of Indebtedness and Suits for Enforcement by Trustee
The Company covenants that if
(1) default occurs in the payment of any installment of interest on
any Debenture when such interest becomes due and payable and
such default continues for a period of 30 days thereafter, or
(2) default occurs in the payment of the principal of (or premium,
if any, on) any Debenture at its Maturity thereof and such
default continues for a period of 30 days thereafter,
the Company will, upon demand of the (i) Trustee or (ii) Holders of not less
than 10% in principal amount of the Debentures Outstanding, pay to the Trustee,
for the benefit of the Holders of such Debentures, the whole amount then due and
payable on such Debentures for principal (and premium, if any) and interest,
with interest upon the overdue principal (and premium, if any) and, to the
extent that payment of such interest shall be legally enforceable, upon overdue
installments of interest, at the rate borne by the Debentures; and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of (i) the Trustee or (ii) such Holders as set forth
herein, and their respective agents and counsel, as the case may be, whether or
not judicial proceedings are commenced.
If the Company fails to pay such amount forthwith upon such demand, (i)
the Trustee, in its own name and as trustee of an express trust, or (ii) Holders
of not less than 25% in principal amount of the Debentures Outstanding, on
behalf of all Holders, may institute judicial proceedings for the collection of
the sums so due and unpaid, and may prosecute such proceeding to judgment or
final decree, and may enforce the same against the Company or any other obligor
upon the Debentures and collect the moneys adjudged or decreed to be payable in
the manner provided by law out of the property of the Company or any other
obligor upon the Debentures, wherever situated. The Trustee or the Holders of
not less than 25% in principal amount of the Debentures Outstanding may also
elect at any time to accelerate the entire principal amount pursuant to Section
5.2 and then may institute judicial proceedings or amend its existing judicial
proceedings for the collection of the entire amount due and owing as set forth
herein.
If an Event of Default occurs and is continuing, the Trustee may, in its
discretion, proceed to protect and enforce its rights and the rights of the
Debentureholders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy.
Holders of not less than 25% in principal amount of the Debentures Outstanding,
on behalf of all Holders, may initiate such appropriate judicial proceedings in
the same manner as the Trustee. The Trustee or the Holders initiating action
hereunder, as the case may be, shall be reimbursed for the costs of collection
incurred as provided for above in this Section 503.
5.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Debentures or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Debentures
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and
unpaid in respect of the Debentures and to file such
other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its
agents and counsel) and of the Debentureholders allowed
in such judicial proceeding, and
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to
distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator (or
other similar official) in any such judicial proceedings is hereby authorized by
each Debentureholder to make such payments to the Trustee and, in the event that
the Trustee shall consent to the making of such payments directly to the
Debentureholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 6.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Debentureholder any
plan of reorganization, arrangement, adjustment or composition affecting the
Debentures or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Debentureholder in any such proceeding.
5.5. Trustee May Enforce Claims Without Possession of Debentures.
All rights of action and claims under this Indenture or the Debentures
may be prosecuted and enforced by the Trustee without the possession of any of
the Debentures or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Debentures in respect of which such
judgment has been removed.
5.6. Application of Money Collected.
Any money collected by the Trustee or the Holders directly pursuant to
this Article shall be applied in the following order, at the date or dates fixed
by the Trustee and, in case of the distribution of such money on account of
principal (or premium, if any) or interest, upon presentation of the Debentures
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 6.7;
SECOND: To the payment of the amounts then due and unpaid upon the
Debentures for costs of collection, principal (and premium, if any) and
interest, in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind, according to the
amounts due and payable on such Debentures for principal (and premium, if any)
and interest, respectively; and
THIRD: To the payment of the remainder, if any, to the Company or any
other person lawfully entitled thereto.
5.7. Limitation on Suits.
(a) Prior to the declaration of acceleration provided for in Section
5.2 hereof, no Holder of any Debenture shall have any right to
institute any proceeding, judicial or otherwise, with respect to
this Indenture, or for the appointment of a receiver or trustee,
or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of
the Outstanding Debentures shall have made written
request to the Trustee to institute proceedings in
respect of such Event of Default in its own name as
Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity, consistent with typical
arrangements with other similar indenture trustees,
against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 30 days after its receipt of such
notice, request and offer of indemnity has failed to
institute any such proceedings; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 30 day period by
the Holders of a majority in principal amount of the
Outstanding Debentures;
it being understood and intended that no one or more Holders of
Debentures shall have any right in any manner whatever by virtue
of, or by availing of, any provision of this Indenture to
affect, disturb or prejudice the rights of any other Holders of
Debentures, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under
this Indenture, except in the manner herein provided and for the
equal and ratable benefit of all the Holders of Debentures.
(b) After the declaration of acceleration provided for in Section
5.2 hereof, Holders of 5% or more in principal amount of
Outstanding Debentures may institute judicial proceedings in
respect to such Event of Default which triggers the declaration
of acceleration in their own name in the manner provided in
Section 5.3 if the Trustee has not instituted such proceedings
within 60 days after such declaration, it being understood that
such Holders shall not have any right in any manner whatever by
virtue of, or by availing of, any provision of the Indenture to
affect, disturb or prejudice the rights of any other Holders of
Debentures, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any rights under
this Indenture, except in the manner herein provided and for the
equal and ratable benefit of all the Holders of Debentures.
5.8. Unconditional Right of Debentureholder to Receive Principal, Premium and
Interest.
Notwithstanding any other provision in this Indenture, but subject to
the provisions of Article 12, the Holder of any Debenture shall have the right
which is absolute and unconditional to receive payment of the principal of (and
premium, if any) and (subject to Section 3.7) interest on such Debenture on the
respective Stated Maturities expressed in such Debenture (or, in the case of
redemption, on the Redemption Date), or in the case of repayment pursuant to
Article 13, on the Repayment Date, and to institute suit for the enforcement of
any such payment, and such right shall not be impaired without the consent of
such Holder.
5.9. Restoration of Rights and Remedies.
If the Trustee or any Debentureholder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Debentureholder, then and in every such case, the
Company, the Trustee and the Debentureholders shall, subject to any
determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Trustee and the Debentureholders shall continue as though no such proceeding had
been instituted.
5.10. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Debentures in the last paragraph of
Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee
or to the Debentureholders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
5.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Debenture to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Debentureholders may be exercised from time to time, and
as often as may be deemed expedient, by the Trustee or by the Debentureholders,
as the case may be.
5.12. Control by Debentureholders.
The Holders of a majority in principal amount of the Outstanding
Debentures shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
5.13. Waiver of Past Defaults.
The Holders of not less than 66-2/3% in principal amount of the
Debentures Outstanding specified in Article 5 may on behalf of the Holders of
all the Debentures waive any past default hereunder and its consequences, except
a default:
(1) in the payment of the principal of (or premium, if any) or
interest on any Debenture (provided, however, that Holders of
not less than 80% in principal amount of Debentures Outstanding
may consent to a postponement of any interest payment for a
period not exceeding two years from its due date), or
(2) in respect of a covenant or provision hereof which under Article
9 cannot be modified or amended without the consent of the
Holder of each Outstanding Debenture affected.
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 of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Debenture by
his acceptance thereof shall be deemed to have agreed, that any court may, in
its discretion, require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may,
in its discretion, assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee; to any suit instituted by any Debentureholder, or group of
Debentureholders, holding in the aggregate more than (i) 25% in principal amount
of the Outstanding Debentures if commenced prior to acceleration or (ii) 5% in
principal amount of Outstanding Debentures if commenced after acceleration; or
to any suit instituted by any Debentureholder for the enforcement of the payment
of the principal of (or premium, if any) or interest on any Debenture on or
after the respective Stated Maturities expressed in such Debenture (or, in the
case of redemption, on or after the Redemption Date), or in the case of
repayment pursuant to Article 13, on the Repayment Date.
5.15. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time thereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE
6.
THE TRUSTEE
6.1. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform its duties hereunder
in good faith, but only such duties as are specifically
set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against
the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but in
the case of any such certificates or opinions which by
any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a
duty to examine the same to determine whether or not
they conform to the requirements of this Indenture.
(b) In any case an Event of Default has occurred and is continuing,
the Trustee shall exercise such of the rights and powers vested
in it by this Indenture, and use the same degree of care and
skill in their exercise, as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except
that
(1) this Subsection shall not be construed to limit the
effect of Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer,
unless it shall be proved that such Responsible Officer
was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith
in accordance with the direction of the Holders of a
majority in principal amount of the Outstanding
Debentures relating to the time, method and place of
conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Indenture; and
(4) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its
rights or power, if it shall have good faith belief that
repayment of such funds or adequate indemnity as
required under this Indenture against such risk or
liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.
6.2. Notice of Defaults.
Within 10 days after the occurrence of any default hereunder, the
Trustee shall mail to the Underwriters, as defined in Section 7.1 hereof, a
notice of such default hereunder known to the Trustee unless such default shall
have been cured or waived. Within 90 days after the occurrence of any default
hereunder, the Trustee shall transmit by mail to all Debentureholders, as their
names and addresses appear in the Debenture Register, notice of such default
hereunder known to the Trustee, unless such default shall have been cured or
waived; provided, however, that, except in the case of a default in the payment
of the principal of (or premium, if any) or interest on any Debenture or in the
payment of any sinking or purchase fund installment, the Trustee shall be
protected in withholding such notice if and so long as the board of directors,
the executive committee or a trust committee of directors and/or Responsible
Officers of the Trustee in good faith determine that the withholding of such
notice is in the interest of the Debentureholders; and provided, further, that
in the case of any default of the character specified in Section 5.1(3) no such
notice to Debentureholders shall be given until at least 30 days after the
occurrence thereof. For the purpose of this Section the term "default" means any
event which is, or after notice or lapse of time or both would become, an Event
of Default.
6.3. Certain Rights of Trustee.
Except as otherwise provided in Section 6.1:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture or other paper or
document reasonably believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, rely
upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in
reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request
or direction of any of the Debentureholders pursuant to this
Indenture, unless such Debentureholders shall have offered to
the Trustee reasonable indemnity, consistent with typical
arrangements with other similar indenture trustees against the
costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction; and
(f) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture or other paper or
document, but the Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as
it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to
examine the books, records and premises of the Company,
personally or by agent or attorney.
6.4. Not Responsible for Recitals or Issuance of Debentures.
The recitals contained herein and in the Debentures, except the
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Debentures. The Trustee shall not be accountable for the use or
application by the Company of Debentures or the proceeds thereof.
6.5. May Hold Debentures.
The Trustee, any Paying Agent, Debenture Registrar or any other agent of
the Company, in its individual or any other capacity, may become the owner or
pledgee of Debentures and, subject to Section 6.11, if operative, may otherwise
deal with the Company with the same rights it would have if it were not Trustee,
Paying Agent, Debenture Registrar or such other agent.
6.6. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.
6.7. Compensation and Reimbursement.
The Company agrees
(1) to pay the Trustee from time to time reasonable compensation for
all services rendered by it hereunder (which compensation shall
not be limited by any provision of law in regard to the
compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of
its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs
and expenses of defending itself against any claim or liability
in connection with the exercise or performance of any of its
powers or duties hereunder, upon final adjudication of the right
to such indemnification from the Company.
As security for the performance of the obligations of the Company under
this Section, the Trustee shall have a lien prior to the Debentures upon all
property and funds held or collected by the Trustee as such, except funds held
in trust for the payment of principal of (and premium, if any) or interest on
Debentures.
6.8. Disqualification; Conflicting Interests.
(a) If the Trustee has or shall acquire any conflicting interest, as
defined in this Section 6.8, then, within 90 days after
ascertaining that it has such conflicting interest, and if the
default (as defined in Section 6.8 (c)) to which such
conflicting interest related has not been cured or duly waived
or otherwise eliminated before the end of such 90-day period,
the Trustee shall either eliminate such conflicting interest or
resign in the manner and with the effect hereinafter specified
in this Article.
(b) In the event that the Trustee shall fail to comply with the
provisions of Subsection (a) of this Section, within ten (10)
days after the expiration of such 90-day period, the Trustee
shall transmit by mail to all Debentureholders, as their names
and addresses appear in the Debenture Register, notice of such
failure.
(c) For the purposes of this Section, the Trustee shall be deemed to
have a conflicting interest if:
(1) the Trustee is trustee under another indenture under
which any other securities, or certificates of interest
or participation in any other securities, of the Company
are outstanding, unless such other indenture is a
collateral trust indenture under which the only
collateral consists of Debentures issued under this
Indenture, provided that there shall be excluded from
the operation of this paragraph any indenture or
indentures under which other securities, or certificates
of interest or participation in other securities, of the
Company are outstanding, if
(i) this Indenture and such other indenture or
indentures are wholly unsecured and such other
indenture or indentures are hereafter qualified
under the Trust Indenture Act, unless the
Commission shall have found and declared by
order pursuant to Section 3.6(b) or Section
3.7(l) of the Trust Indenture Act that
differences exist between the provisions of this
Indenture and the provisions of such other
indenture or indentures which are so likely to
involve a material conflict of interest as to
make it necessary in the public interest or for
the protection of investors to disqualify the
Trustee from acting as such under this Indenture
and such other indenture or indentures, or
(ii) the Company shall have sustained the burden of
proving, on application to the Commission and
after opportunity for hearing thereon, that
trusteeship under this Indenture and such other
indenture or indentures is not so likely to
involve a material conflict of interest as to
make it necessary in the public interest or for
the protection of investors to disqualify the
Trustee from acting as such under one of such
indentures;
(2) the Trustee or any of its directors or executive
officers is an underwriter for the Company;
(3) the Trustee directly or indirectly controls or is
directly or indirectly controlled by or is under direct
or indirect common control with an underwriter for the
Company;
(4) the Trustee or any of its directors or executive
officers is a director, officer, partner, employee,
appointee or representative of the Company, or of an
underwriter (other than the Trustee itself) for the
Company who is currently engaged in the business of
underwriting, except that (i) one individual may be a
director or an executive officer, or both, of the
Trustee and a director or an executive officer, or both,
of the Company but may not be at the same time an
executive officer of both the Trustee and the Company;
(ii) if and so long as the number of directors of the
Trustee in office is more than nine, one additional
individual may be a director or an executive officer, or
both, of the Trustee and a director of the Company; and
(iii) the Trustee may be designated by the Company or by
any underwriter for the Company to act in the capacity
of transfer agent, registrar, custodian, paying agent,
fiscal agent, escrow agent or depositary, or in any
other similar capacity or, subject to the provisions of
paragraph (a) of this Subsection, to act as trustee,
whether under an indenture or otherwise;
(5) Ten percent (10%) or more of the voting securities of
the Trustee is beneficially owned either by the Company
or by any director or executive officer thereof, or 20%
or more of such voting securities is beneficially owned,
collectively, by any two or more of such persons; or 10%
or more of the voting securities of the Trustee is
beneficially owned either by an underwriter for the
Company or by any director, partner or executive officer
of any such underwriter, or is beneficially owned,
collectively, by any two or more such persons;
(6) the Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in
default (as hereinafter in this Subsection defined), (i)
5% or more of the voting securities, or 10% or more of
any other class of security of the Company not including
the Debentures issued under this Indenture and
securities issued under any other indenture under which
the Trustee is also trustee, or (ii) 10% or more of any
class of security of an underwriter for the Company;
(7) the Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in
default (as hereinafter in this Subsection defined), 5%
or more of the voting securities of any person who, to
the knowledge of the Trustee, owns 10% or more of the
voting securities of, or controls directly or indirectly
or is under direct or indirect common control with the
Company;
(8) the Trustee is the beneficial owner of, or holds as
collateral security for an obligation which is in
default (as hereinafter in this Subsection defined), 10%
or more of a class of security of any person who, to the
knowledge of the Trustee, owns 50% or more of the voting
securities of the Company;
(9) the Trustee owns, on the date of default upon the
Debentures or on any anniversary of such default while
the default upon the Debentures remains outstanding, in
the capacity of executor, administrator, testamentary or
inter vivos trustee, guardian, committee or conservator,
or in any other similar capacity, an aggregate of 25% or
more of the voting securities, or of any class of
security, of any person, the beneficial ownership of a
specify percentage of which would have constituted a
conflicting interest under paragraph (6), (7) or (8) of
this Subsection. As to any such securities of which the
Trustee acquired ownership through becoming executor,
administrator or testamentary trustee of an estate which
included them, the provisions of the preceding sentence
shall not apply, for a period of two years from the date
of such acquisition, to the extent that such securities
included in such estate do not exceed 25% of such voting
securities or 25% of any such class of security.
Promptly after the date of any such default and annually
each succeeding year that the Debentures remain in
default, the Trustee shall make a check of its holdings
of such securities in any of the above-mentioned
capacities as of such dates. If the Company fails to
make payment in full of the principal of (or premium, if
any) or interest on any of the Debentures when and as
the same becomes due and payable, and such failure
continues for 30 days thereafter, the Trustee shall make
a prompt check of its holdings of such securities in any
of the above-mentioned capacities as of the date of the
expiration of such 30-day period, and after such date,
notwithstanding the foregoing provisions of this
paragraph, all such securities so held by the Trustee,
with sole or joint control over such securities vested
in it, shall, but only so long as such failure shall
continue, be considered as though beneficially owned by
the Trustee for the purposes of paragraphs (6), (7) and
(8) of this Subsection; or
(10) except under the circumstances described in paragraphs
(1), (3), (4), (5) or (6) of Section 3.11(b) of the
Trust Indenture Act, the Trustee shall be or become a
creditor of the Company.
The specification of percentages in paragraphs (5) to (9), inclusive, of
this Subsection shall not be construed as indicating that the ownership of such
percentage of the securities of a person is or is not necessary or sufficient to
constitute direct or indirect control for the purposes of paragraph (3) or (7)
of this Subsection.
For the purposes of paragraphs (6), (7), (8) and (9) of this Subsection
only, (i) the terms "security" and "securities" shall include only such
securities as are generally known as corporate securities, but shall not include
any note or other evidence of indebtedness issued to evidence an obligation to
repay moneys lent to a person by one or more banks, trust companies or banking
firms, or any certificate of interest or participation in any such note or
evidence of indebtedness; (ii) an obligation shall be deemed to be "in default"
when a default in payment of principal shall have continued for 30 days or more
and shall not have been cured; and (iii) the Trustee shall not be deemed to be
the owner or holder of (A) any security which it holds as collateral security,
as trustee or otherwise, for an obligation which is not in default as defined in
clause (ii) above, or (B) any security which it holds as collateral security
under this Indenture, irrespective of any default hereunder, or (C) an security
which it holds as agent for collection, or as custodian, escrow agent or
depositary, or in any similar representative capacity.
(d) For the purposes of this Section:
(1) The term "underwriter," when used with reference to the
Company means every person who, within one year prior to
the time as of which the determination is made, has
purchased from the Company with a view to, or has
offered or sold for the Company in connection with, the
distribution of any security of the Company outstanding
at such time, or has participated or has had a direct or
indirect participation in any such undertaking, or has
participated or has had a participation in the direct or
indirect underwriting of any such undertaking, but such
term shall not include a person whose interest was
limited to a commission from an underwriter or dealer
not in excess of the usual and customary distributors'
or sellers' commission.
(2) The term "director" means any director of a corporation
or any individual performing similar functions with
respect to any organization, whether incorporated or
unincorporated.
(3) The term "person" means an individual, a corporation,
association, a joint stock company, a trust, an
unincorporated organization or a government or political
subdivision thereof. As used in this paragraph, the term
"trust" shall include only a trust where the interest or
interests of the beneficiary or beneficiaries are
evidenced by a security.
(4) The term "voting security" means any security presently
entitling the owner or holder thereof to vote in the
direction or management of the affairs of a person, or
any security issued under or pursuant to any trust,
agreement or arrangement whereby a trustee or trustees
or agent or agents for the owner or holder of such
security are presently entitled to vote in the direction
or management of the affairs of a person.
(5) The term "Company" means any obligor upon the
Debentures.
(6) The term "executive officer" means the president, every
vice president, every trust officer, the cashier, the
secretary and the treasurer of a corporation, and any
individual customarily performing similar functions with
respect to any organization whether incorporated or
unincorporated, but shall not include the chairman of
the board of directors.
(7) The term "default" shall mean an Event of Default or an
event which with notice or passage of time, or both,
would constitute an Event of Default.
(e) The percentages of voting securities and other securities
specified in this Section shall be calculated in accordance with
the following provisions:
(1) A specified percentage of the voting securities of the
Trustee, the Company or any other person referred to in
this Section (each of whom is referred to as a "person"
in this paragraph) means such amount of the outstanding
voting securities of such person as entitles the holder
or holders thereof to cast such specified percentage of
the aggregate votes which the holders of all the
outstanding voting securities of such person are
entitled to cast in the direction or management of the
affairs of such person.
(2) A specified percentage of a class of securities of a
person means such percentage of the aggregate amount of
securities of the class outstanding.
(3) The term "amount," when used in regard to securities,
means the principal amount if relating to evidences of
indebtedness, the number of shares if relating to
capital shares and the number of units if relating to
any other kind of security.
(4) The term "outstanding" means issued and not held by or
for the account of the issuer. The following securities
shall not be deemed outstanding within the meaning of
this definition:
(i) securities of an issuer held in a sinking fund
relating to securities of the issuer of the same
class;
(ii) securities of an issuer held in a sinking fund
relating to another class of securities of the
issuer, if the obligation evidenced by such
other class of securities is not in default as
to principal or interest or otherwise;
(iii) securities pledged by the issuer thereof as
security for an obligation of the issuer not in
default as to principal or interest or
otherwise; and
(iv) securities held in escrow if placed in escrow by
the issuer thereof, provided, that any voting
securities of an issuer shall be deemed
outstanding if any person other than the issuer
is entitled to exercise the voting rights
thereof.
(5) A security shall be deemed to be of the same class as
another security if both securities confer upon the
holder or holders thereof substantially the same rights
and privileges, provided, that, in the case of secured
evidences of indebtedness, all of which are issued under
a single indenture, differences in the interest rates or
maturity dates of various series thereof shall not be
deemed sufficient to constitute such series different
classes and provided, further, that, in the case of
unsecured evidences of indebtedness, differences in the
interest rates or maturity dates thereof shall not be
deemed sufficient to constitute the securities of
different classes, whether or not they are issued under
a single indenture.
6.9. Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall (a) be a
corporation or trust company organized and doing business under the laws of the
United States of America, any State thereof or the District of Columbia,
authorized under such laws to exercise corporate trust powers, (b) have a
combined capital and surplus of at least $25,000,000, and (c) either have an
office in Minneapolis or St. Paul, Minnesota or appoint an agent in Minneapolis
or St. Paul, Minnesota to conduct any activities which the Trustee is required
under the Indenture to conduct in St. Paul or Minneapolis. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
6.10. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor
Trustee under Section 6.9.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a
successor Trustee shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation,
the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of
a majority in principal amount of the Outstanding Debentures,
delivered to the Trustee and to the Company, or by action of the
Company upon reasonable cause, provided that the Company is not
or has not been in default in the past twelve months under this
Indenture, and provided further that the Company has engaged a
substitute corporate trustee which is qualified to act as
Trustee under the Trust Indenture Act of 1939, as amended.
(d) If at any time the Trustee shall become incapable of acting or
shall be adjudged a bankrupt or insolvent or a receiver of the
Trustee or of its property shall be appointed or any public
officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation,
conservation or liquidation, then, in any such case, (i) the
Company by a Board Resolution may remove the Trustee, or (ii)
subject to Section 5.14, any Debentureholder who has been a bona
fide Holder of a Debenture for at least six months may, on
behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly
appoint a successor Trustee. If, within one year after such
resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding
Debentures delivered to the Company and the retiring Trustee,
the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment, become the successor Trustee and
supersede the successor Trustee appointed by the Company. If no
successor Trustee shall have been so appointed by the Company or
the Debentureholders and accepted appointment in the manner
hereinafter provided, any Debentureholder who has been a bona
fide Holder of a Debenture or at least six months may, on behalf
of himself and all others similarly situated, petition any court
of competent jurisdiction for the appointment of a successor
Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor
Trustee by mailing written notice of such event by first-class
mail, postage prepaid, to the Holders of Debentures as their
names and addresses appear in the Debenture Register. Each
notice shall include the name of the successor Trustee and the
address of its principal corporate trust office.
6.11. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee, and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder, subject nevertheless to its lien, if any,
provided for in Section 6.7. Upon request of any such successor Trustee, the
Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
6.12. Merger, Conversion or Succession to Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, to the extent operative, without the execution or filing of any paper
or any further act on the part of any of the parties hereto. In case any
Debentures shall have been authenticated, but not delivered, by the Trustee then
in office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the Debentures
so authenticated with the same effect as if such successor Trustee had itself
authenticated such Debenture.
6.13. Preferential Collection of Claims against Company.
(a) Subject to Subsection (b) of this Section, if the Trustee shall
be or shall become a creditor, directly or indirectly, secured
or unsecured, of the Company within three months prior to a
default, as defined in Subsection (c) of this Section, or
subsequent to such a default, then, unless and until such
default shall be cured, the Trustee shall set apart and hold in
a special account for the benefit of the Trustee individually,
the Holders of the Debentures and the holders of other indenture
securities (as defined in Subsection (c) of this Section):
(1) an amount equal to any and all reductions in the amount
due and owing upon any claim as such creditor in respect
of principal or interest, effected after the beginning
of such three month period and valid as against the
Company and its other creditors, except any such
reduction resulting from the receipt or disposition of
any property described in paragraph (2) of this
Subsection, or from the exercise of any right of set-off
which the Trustee could have exercised if a petition in
bankruptcy had been filed by or against the Company upon
the date of such default; and
(2) all property received by the Trustee in respect of any
claim as such creditor, either as security therefor, or
in satisfaction or composition thereof, after the
beginning of such three months period, or an amount
equal to the proceeds of any such property, if disposed
of, subject, however, to the rights, if any, of the
Company and it other creditors in such property or such
proceeds.
Nothing herein contained, however, shall affect the right of the
Trustee:
(A) to retain for its own account (i) payments made
on account of any such claim by any Person
(other than the Company) who is liable thereon,
and (ii) the proceeds of the bona fide sale of
any such claim by the Trustee to a third person,
and (iii) distributions made in cash, securities
or other property in respect of claims filed
against the Company in bankruptcy or
receivership or in proceedings for
reorganization pursuant to the Federal
Bankruptcy Act or applicable State law;
(B) to realize, for its own account, upon any
property held by it as security for any such
claim, if such property was so held prior to the
beginning of such three months period;
(C) to realize, for its own account, but only to the
extent of the claim hereinafter mentioned, upon
any property held by it as security for any such
claim, if such claim was created after the
beginning of such three months period and such
property was received as security therefor
simultaneously with the creation thereof, and if
the Trustee shall sustain the burden of proving
that at the time such property was so received
the Trustee has no reasonable cause to believe
that a default as defined in Subsection (c) of
this Section would occur within three months; or
(D) to receive payment on any claim referred to in
paragraph (B) or (C), against the release of any
property held as security for such claims as
provided in paragraph (B) or (C), as the case
may be, to the extent of the fair value of such
property.
For the purposes of paragraphs (B), (C) and (D), property
substituted after the beginning of such three months period for
property held as security at the time of such substitution
shall, to the extent of the fair value of the property released,
have the same status as the property released, and, to the
extent that any claim referred to in any of such paragraphs is
created in renewal of or in substitution for or for the purpose
of repaying or refunding any pre-existing claim of the Trustee
as such creditor, such claim shall have the same status as such
pre-existing claim.
If the Trustee shall be required to account, the funds and
property held in such special account and the proceeds thereof
shall be apportioned between the Trustee, the Debentureholders
and the holders of other indenture securities in such manner
that the Trustee, the Debentureholders and the holders of other
indenture securities realize, as a result of payments from such
special account and payments of dividends on claims filed
against the Company in bankruptcy or receivership or in
proceedings for reorganization pursuant to the Federal
Bankruptcy Act or applicable State law, the same percentage of
their respective claims, figured before crediting to the claim
of the Trustee anything on account of the receipt by it from the
Company of the funds and property in such special account and
before crediting to the respective claims of the Trustee and the
Debentureholders and the holders of other indenture securities
dividends on claims filed against the Company in bankruptcy or
receivership or in proceedings for reorganization pursuant to
the Federal Bankruptcy Act or applicable State law, but after
crediting thereon receipts on account of the indebtedness
represented by their respective claims from all sources other
than from such dividends and from the funds and property so held
in such special accounts. As used in this paragraph, with
respect to any claim, the term "dividends" shall include any
distribution with respect to such claim, in bankruptcy or
receivership or proceedings for reorganization pursuant to the
Federal Bankruptcy Act or applicable State law, whether such
distribution is made in cash, securities, or other property, but
shall not include any such distribution with respect to the
secured portion, if any, of such claim. The court in which such
bankruptcy, receivership or proceedings for reorganization is
pending shall have jurisdiction (i) to apportion between the
Trustee and the Debentureholders and the holders of other
indenture securities, in accordance with the provisions of this
paragraph, the funds and property held in such special account
and proceeds thereof, or (ii) in lieu of such apportionment, in
whole or in part, to give the provisions of this paragraph due
consideration in determining the fairness of the distributions
to be made to the Trustee and the Debentureholders and the
holders of other indenture securities with respect to their
respective claims, in which event it shall not be necessary to
liquidate or to appraise the value of any securities or other
property held in such special account or as security for any
such claim, or to make a specific allocation of such
distributions as between the secured and unsecured portions of
such claims, or otherwise to apply the provisions of this
paragraph as a mathematical formula.
Any Trustee which has resigned or been removed after the
beginning of such three months period shall be subject to the
provisions of this Subsection as though such resignation or
removal had not occurred. If any Trustee has resigned or been
removed prior to the beginning of such three months' period, it
shall be subject to the provisions of this Subsection if and
only if the following conditions exist:
(i) the receipt of property or reduction of claim,
which would have given rise to the obligation to
account, if such Trustee had continued as
Trustee, occurred after the beginning of such
three months period; and
(ii) such receipt of property or reduction of claim
occurred within three months after such
resignation or removal.
(b) There shall be excluded from the operation of Subsection (a) of
this Section a creditor relationship arising from
(1) the ownership or acquisition of securities issued under
any indenture, or any security or securities having a
maturity of one year or more at the time of acquisition
by the Trustee;
(2) advances authorized by a receivership or bankruptcy
court of competent jurisdiction, or by this Indenture,
for the purpose of preserving any property which shall
at any time be subject to the lien of this Indenture or
of discharging tax liens or other prior liens or
encumbrances thereon, if notice of such advances and of
the circumstances surrounding the making thereof is
given to the Debentureholders at the time and in the
manner provided in this Indenture;
(3) disbursements made in the ordinary course of business in
the capacity of trustee under an indenture, transfer
agent, registrar, custodian, paying agent, fiscal agent
or depositary, or similar capacity;
(4) an indebtedness created as a result of services rendered
or premises rented; or an indebtedness created as a
result of goods or securities sold in a cash transaction
as defined in Subsection (c) of this Section;
(5) the ownership of stock or other securities of a
corporation organized under the provisions of Section
25(a) of the Federal Reserve Act, as amended, which is
directly or indirectly a creditor of the Company; or
(6) the acquisition, ownership, acceptance or negotiation of
any drafts, bills of exchange, acceptances or
obligations which fall within the classification of
self-liquidating paper as defined in Subsection (c) of
this Section.
(c) For the purposes of this Section only:
(1) The term "DEFAULT" means any failure to make payment in
full of the principal of or interest on any of the
Debentures or upon the other indenture securities when
and as such principal or interest becomes due and
payable.
(2) The term "OTHER INDENTURE SECURITIES" means securities
upon which the Company is an obligor outstanding under
any other indenture (i) under which the Trustee is also
trustee, (ii) which contains provisions substantially
similar to the provisions of this Section, and (iii)
under which a default exists at the time of the
apportionment of the funds and property held in such
special account.
(3) The term "CASH TRANSACTION" means any transaction in
which full payment for goods and securities sold is made
within seven days after delivery of the goods or
securities in currency or in checks or other orders
drawn upon banks or bankers and payable upon demand.
(4) The term "SELF-LIQUIDATING PAPER" means any draft, bill
of exchange, acceptance or obligation which is made,
drawn, negotiated or incurred by the Company for the
purpose of financing the purchase, processing,
manufacturing, shipment, storage or sale of goods, wares
or merchandise and which is secured by documents
evidencing title to, possession of, or a lien upon, the
goods, wares or merchandise or the receivables or
proceeds arising from the sale of the goods, wares or
merchandise previously constituting the security,
provided the security is received by the Trustee
simultaneously with the creation of the creditor
relationship with the Company arising from the making,
drawing, negotiating or incurring of the draft, bill of
exchange, acceptance or obligation.
(5) The term "COMPANY" means any obligor upon the
Debentures.
(6) The term "FEDERAL BANKRUPTCY ACT" means the Bankruptcy
Act or Title 11 of the United States Code.
ARTICLE
7.
DEBENTUREHOLDERS' LISTS AND
REPORTS BY TRUSTEE AND COMPANY
7.1. Company to Furnish Trustee Names and Addresses of Debentureholders.
The Company will furnish or cause to be furnished to the Trustee:
(1) semi-annually, not more than 15 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Holders of Debentures
as of such Regular Record Date, and
(2) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such
request, a list of similar form and content as of a date not
more than 15 days prior to the time such list is furnished.
The Company and/or the Trustee, within 30 days of receipt of their
request, will furnish or cause to be furnished to Miller & Schroeder Financial,
Inc. and Offerman & Company (the "UNDERWRITERS") the names and addresses of
Holders of the Debentures as of a date not more than 15 days prior to the date
such list is furnished to the Underwriters. The Trustee may not forward this
list to any other party without prior notice to the Underwriters and the prior
written consent of the Company.
7.2. Preservation of Information; Communications to Debentureholders.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders of
Debentures contained in the most recent list furnished to the
Trustee as provided in Section 7.1 and the names and addresses
of Holders of Debentures received by the Trustee in its capacity
as Debenture Registrar. The Trustee may destroy any list
furnished to it as provided in Section 7.1 upon receipt of a new
list so furnished.
(b) If three or more Holders of Debentures (hereinafter referred to
as "APPLICANTS") apply in writing to the Trustee, and furnish to
the Trustee reasonable proof that each such applicant has owned
a Debenture for a period of at least six months preceding the
date of such application, and such application states that the
applicants desire to communicate with other Holders of
Debentures with respect to their rights under this Indenture or
under the Debentures and is accompanied by a copy of the form of
proxy or other communication which such applicants propose to
transmit, then the Trustee shall, within five business days
after the receipt of such application, at its election, either:
(1) afford such applicants access to the information
preserved at the time by the Trustee in accordance with
Section 7.2(a); or
(2) inform such applicants as to the approximate number of
Holders of Debentures whose names and addresses appear
in the information preserved at the time by the Trustee
in accordance with Section 7.2(a), and as to the
approximate cost of mailing to such Debentureholders the
form of proxy or other communication, if any, specified
in such application.
If the Trustee shall elect not to afford such applicants access
to such information, the Trustee shall, upon the written request
of such applicants, mail to each Debentureholder whose name and
address appear in the information preserved at the time by the
Trustee in accordance with Section 7.2(a), a copy of the form of
proxy or other communication which is specified in such request,
with reasonable promptness after a tender to the Trustee of the
material to be mailed and of payment, or provision for the
payment, of the reasonable expenses of mailing, unless within
five days after such tender, the Trustee shall mail to such
applicants and file with the Commission, together with a copy of
the material to be mailed, a written statement to the effect
that, in the opinion of the Trustee, such mailing would be
contrary to the best interests of the Holders of Debentures or
would be in violation of applicable law. Such written statement
shall specify the basis of such opinion. If the Commission,
after opportunity for a hearing upon the objections specified in
the written statement so filed, shall enter an order refusing to
sustain any of such objections or if, after the entry of an
order sustaining one or more of such objections, the Commission
shall find, after notice and opportunity for hearing, that all
the objections so sustained have been met and shall enter an
order so declaring, the Trustee shall mail copies of such
material to all such Debentureholders with reasonable promptness
after the entry of such order and the renewal of such tender;
otherwise the Trustee shall be relieved of any obligation or
duty to such applicants respecting their application.
(c) Every Holder of Debentures, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company
nor the Trustee shall be held accountable by reason of the
disclosure of any such information as to the names and addresses
of the Holders of Debentures in accordance with Section 7.2(b),
regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under
Section 7.2(b).
7.3. Reports by Company.
The Company will:
(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the
annual reports and of the information, documents and other
reports (or copies of such portions of any of the foregoing as
the Commission may, from time to time, by rules and regulations
prescribe) which the Company may be required to file with the
Commission pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934; or, if the Company is not
required to file information, documents or reports pursuant to
either of said Sections, then it will file with the Trustee and
the Commission, in accordance with rules and regulations
prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports
which may be required pursuant to Section 13 of the Securities
Exchange Act of 1934 in respect of a security listed and
registered on a National Securities Exchange as may be
prescribed from time to time in such rules and regulations;
(2) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the
Commission, such additional information, documents and reports
with respect to compliance by the Company with the conditions
and covenants of this Indenture as may be required from time to
time by such rules and regulations;
(3) transmit by mail to all Debentureholders, as their names and
addresses appear in the Debenture Register, within 30 days after
the filing thereof with the Trustee, such summaries of any
information, documents and reports required to be filed by the
Company pursuant to paragraphs (1) and (2) of this Section, as
may be required by rules and regulations prescribed from time to
time by the Commission, or, if the Company is not required to
send Debentureholders such information by Commission rules, then
it will transmit by mail to them an annual report containing the
consolidated financial statements which have been audited by a
nationally or regionally recognized firm of independent public
accountants and will furnish to any Debentureholder who makes a
written request upon the Company or the Trustee, copies of any
filing of Form 10-K, Form 10-Q or Form 8-K made with the
Commission; and
(4) furnish to the Trustee, not less than annually, a brief
certificate from the principal executive officer, principal
financial officer or principal accounting officer as to his or
her knowledge of the Company's compliance with all conditions
and covenants under this Indenture, without regard to any period
of grace or requirement of notice provided under this Indenture.
(5) File with the Trustee within 45 days after the end of each of
the Company's first three fiscal quarters and within 90 days of
the end of each fiscal year a certificate of the Chief Executive
Officer Chief Operating Office or the Chief Financial Officer of
the Company stating that the Company is in compliance with
Article 10, setting forth the calculations supporting such
certification, where applicable, and attaching the unaudited
financial statements of the Company, and file a supplemental
certificate to the same effect attaching the audited financial
statements of the Company promptly after such statements become
available.
(6) file such annual reports, information, documents and other
reports with the Trustee as the Trustee may reasonably require.
(7) furnish to the Underwriters, copies of all reports, financial
statements and certificates provided for in paragraphs (1), (2),
(3), (4) (5) and (6) above.
ARTICLE
8.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
8.1. Company May Consolidate, Etc., on Certain Terms.
The Company shall not consolidate with or merge into any other
corporation or convey, transfer or lease its properties and assets as, or
substantially as, an entirety to any Person, and the Company shall not permit
any Person to consolidate with or merge into the Company or convey, transfer or
lease its properties and assets substantially as an entirety to the Company
unless:
(1) the corporation formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance or
transfer the properties and assets of the Company substantially
as an entirety shall be a corporation organized and existing
under the laws of the United States of America or any State or
the District of Columbia, and shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the
Trustee, in form reasonably satisfactory to the Trustee, the due
and punctual payment of the principal of (and premium, if any)
and interest on all the Debentures and the performance of every
covenant of this Indenture on the part of the Company to be
performed or observed;
(2) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time, or
both, would become an Event of Default, shall have happened and
be continuing;
(3) immediately after giving effect to such transaction, the
corporation formed by such consolidation or into which the
Company is merged or the Person who acquired by conveyance or
transfer all or substantially all of the properties and assets
of the Company shall have a Consolidated Tangible Net Worth of
not less than the Minimum Section 10.16 Consolidated Tangible
Net Worth required of the Company pursuant to Section 10.16 as
of such date, unless such transaction otherwise shall have been
approved by the Holders of 66 2/3% of the Debentures
Outstanding, by Act of such Holders; and
(4) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel as required by Section 1.2
each stating that such consolidation, merger, conveyance or
transfer and such supplemental indenture comply with this
Article and that all conditions precedent herein provided for
relating to such transaction have been complied with, provided
that such Opinion of Counsel may rely upon a certificate of the
Company's auditors as to the Consolidated Tangible Net Worth
determinations.
8.2. Successor Corporation Substituted.
Upon any consolidation or merger, or any conveyance, transfer or lease
of the properties and assets of the Company as, or substantially as an entirety
to any person in accordance with Section 8.1, the successor corporation formed
by such consolidation or into which the Company is merged or to which such
conveyance, transfer or lease is made shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under this Indenture with
the same effect as if such successor corporation had been named as the Company
herein; provided, however, that, except in the case of a lease to another
Person, no such conveyance or transfer shall have the effect of releasing the
Person named as the "Company" in the first paragraph of this instrument or any
successor corporation which shall theretofore have become such in the manner
prescribed in this Article from its liability as obligor and maker on any of the
Debentures.
8.3. Effect of Change in Control.
The provisions of this Article 8 shall not affect the operation of
Section 11.1 regarding redemption of the Debentures upon a Change of Control. In
the event any transaction entered into pursuant to this Article 8 shall
constitute a Change of Control, Section 11.1 shall control.
ARTICLE
9.
SUPPLEMENTAL INDENTURES
9.1. Supplemental Indentures without Consent of Debentureholders.
Without the consent of the Holders of any Debentures, the Company, when
authorized by a board resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another corporation to the
Company, and the assumption by any such successor of the
covenants of the Company herein and in the Debentures contained;
or
(2) to add to the covenants of the Company, for the benefit of the
Holders of the Debentures, or to surrender any right or power
herein conferred upon the Company; or
(3) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination shall become
effective only when there is no Debenture Outstanding created
prior to the execution of such supplemental indenture which is
entitled to the benefit of such provision; or
(4) to secure the Debentures; or
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters
or questions arising under this Indenture which shall not be
inconsistent with the provisions of this Indenture, provided
such action shall not adversely affect the interest of the
Holders of the Debentures.
9.2. Supplemental Indentures with Consent of Debentureholders.
With the consent of the Holders of not less than 66 2/3% in principal
amount of the Outstanding Debentures, by Act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by a board resolution, and
the Trustee may enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of modifying in any manner the rights
of the Holders of the Debentures under this Indenture; provided, however, that
no such supplemental indenture shall, without the consent of the Holder of each
Outstanding Debenture affected thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any such Debenture, or reduce the
principal amount thereof or the interest thereon or any premium
payable upon the redemption thereof, or change any Place of
Payment where, or the coin or currency in which, any Debenture
or any premium or the interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment
on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date), or in the case of
repayment pursuant to Article 13, on or after the Repayment Date
(2) reduce the percentage in principal amount of the Outstanding
Debentures, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is
required for any waiver (of compliance with certain provisions
of this Indenture or certain defaults hereunder and their
consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section or Section 5.13,
except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Debenture
affected thereby, or
(4) subordinate the indebtedness evidenced by the Debentures to any
Indebtedness of the Company other than Senior Indebtedness, as
provided in Article 12, or
(5) impair or restrict the rights of the Holders of the Debentures
to repayment of the Debentures prior to the Stated Maturity
thereof under the circumstances set forth in, and in accordance
with the provisions of, Article 13.
Notwithstanding the provisions set forth above in this Section 9.2, with
the consent of the Holders of not less than a majority of principal amount of
the Outstanding Debentures, by Act of said Holders delivered to the Company and
the Trustee, the Company, when authorized by a resolution of its board and its
shareholders, and the Trustee may enter into a supplemental indenture to modify
the provisions of Section 10.9 to permit the Company to elect to be taxed as a
"S" corporation under the Internal Revenue Code of 1986, as amended from time to
time, and to make the necessary and appropriate changes to the restrictions on
dividends and distributions to provide sufficient funds to the Company's
shareholders to pay the state and federal income tax liabilities on the income
of the Company passed through to such shareholders as a result of the Company's
election to be treated as a "S" corporation.
It shall not be necessary for any Act of Debentureholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
9.3. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 6.1) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not
(except to the extent required in the case of a supplemental indenture entered
into under Section 9.1(4)) be obligated to, enter into any such supplemental
indenture which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
9.4. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Debentures theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
9.5. Reference in Debentures to Supplemental Indentures.
Debentures authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article shall bear a notation in form
approved by the Trustee as to any matter provided for in such supplemental
indenture. If the Company shall so determine, new Debentures so modified as to
conform, in the opinion of the Trustee and the Board of Directors, to any such
supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding
Debentures.
9.6. Effect on Senior Indebtedness.
No supplemental indenture shall adversely affect the rights of any
holder of Senior Indebtedness under Article 12 without the consent of such
holder.
ARTICLE
10.
COVENANTS
10.1. Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of (and premium,
if any) and interest on the Debentures in accordance with the terms of the
Debentures and this Indenture.
10.2. Maintenance of Office or Agency.
The Company will maintain an office or agency in each Place of Payment
where Debentures may be presented or surrendered for payment, where Debentures
may be surrendered for transfer or exchange and where notices and demands to or
upon the Company in respect of the Debentures and this Indenture may be served.
The Company will give prompt written notice to the Trustee of the location, and
of any change in the location, of such office or agency. If at any time the
Company shall fail to maintain such office or agency or shall fail to furnish
the Trustee with the address thereof, such presentations, surrenders, notices
and demands may be made or served at the principal corporate trust office of the
Trustee, and the Company hereby appoints the Trustee its agent to receive all
such presentations, surrenders, notices and demands.
The Company may also from to time designate one or more other offices or
agencies where the Debentures may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain a office or agency in each Place of
Payment for such purposes. The Company will give prompt written notice to the
Trustee of any such designation or rescission and of any change in the location
of any such other office or agency.
10.3. Money for Debenture Payments to be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (and premium, if any) or interest
on, any of the Debentures, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal (and premium, if
any) or interest so becoming due until such sums shall be paid to such Persons
or otherwise disposed of as herein provided, and will promptly notify the
Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, on
or before each due date of the principal of (and premium, if any) or interest
on, any Debentures, deposit with a Paying Agent a sum sufficient to pay the
principal (and premium, if any) or interest, so becoming due, such sum to be
held in trust for the benefit of the Persons entitled to such principal, (and
premium, if any) or interest, and (unless such Paying Agent is the Trustee) the
Company will promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will
(1) hold all sums held by it for the payment of principal of (and
premium, if any) or interest on Debentures in trust for the
benefit of the Persons entitled thereto until such sums shall be
paid to such Persons or otherwise disposed of as herein
provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Debentures) in the making of any such
payment of principal (and premium, if any) or interest on the
Debentures; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all
sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the names trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any Debenture and remaining unclaimed for six years after
such principal (and premium, if any) or interest has become due and payable
shall be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Debenture
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in an Authorized Newspaper in
each Place of Payment, notice that such money remains unclaimed and that, after
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
10.4. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon it or upon its income, profits or
property, and (2) all lawful claims for labor, materials and supplies which, if
unpaid, might by law become a lien upon its property; provided, however, that
the Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings.
10.5. Maintenance of Properties.
The Company will cause all its properties used or useful in the conduct
of its business to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this Section shall prevent the
Company from discontinuing the operation and maintenance of any of its
properties if such discontinuance is, in the judgment of the Company, desirable
in the conduct of its business and not disadvantageous in any material respect
to the Debentureholders.
10.6. Statement as to Compliance.
The Company will deliver to the Trustee, within 90 days after the end of
each fiscal year, a written statement signed by the President or a Vice
President of the Company, stating, as to each signer thereof, that:
(1) a review of the activities of the Company during such year and
of performance under this Indenture has been made under his
supervision; and
(2) to the best of his knowledge, based on such review, the Company
has fulfilled all its obligations under this Indenture
throughout such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default
known to him and the nature and status thereof.
10.7. Corporate Existence; Existing Business.
Subject to Article 8, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence,
rights (charter and statutory) and franchises; provided, however, that the
Company shall not be required to preserve any right or franchise or any minor
business activity if the Board of Directors shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and that the loss thereof is not disadvantageous in any material
respect to the Debentureholders. The Company shall also not change its
fundamental line of business from land development and the design, construction
and sale of single family homes to other line of business.
10.8. Insurance.
(a) Subject to the right to sell, abandon or otherwise dispose of
any building or property whenever in the opinion of the Board of
Directors the retention thereof is inadvisable or not necessary
to the business of the Company and its Subsidiaries, the Company
will at all times cause all buildings, plants, equipment and
other insurable properties owned or operated by it or any
Subsidiary to be properly insured and kept insured with
responsible insurance carriers, against loss or damage by fire
and other hazards, to the extent that such properties are
usually insured by corporations owning or operation plants and
properties or a similar character in the same localities;
provided, however, that nothing in this Section shall prevent
the Company or any Subsidiary from maintaining any
self-insurance program covering minor risks if adequate reserves
are maintained in connection with such program.
(b) The Company shall obtain and deliver to the Trustee, for the
benefit of the Debentureholders during the term of the
Debentures, a life insurance policy from an insurer acceptable
to the Trustee insuring in the amount of the lesser of (i)
$1,000,000 or (ii) the maximum amount of insurance that can be
maintained with an annual premium of Seven Thousand Five Hundred
Dollars ($7,500) on the life of Peter Pflaum, on which the
Debentureholders are the primary beneficiaries and payees (the
"Key-man Insurance"). The Company shall be named as a secondary
beneficiary in accordance with the distribution provisions set
forth below. The Company shall maintain such Key-man Insurance
in full force and effect throughout the term of the Debentures
and this Indenture.
In the event of the death of Peter Pflaum, the proceeds of such policy
shall be held by the Trustee for the benefit of the Debentureholders. Pending
their distribution, the Trustee shall hold such proceeds in a segregated account
and may invest such proceeds in money markets or mutual funds investing only in
direct obligations of the United States of America. Such proceeds and any
interest earned thereon are referred to as the "Insurance Proceeds."
The Insurance Proceeds will be used and distributed only as follows:
(1) In the event that payment of the Debenture is accelerated under
Section 5.2, the Trustee shall immediately distribute the
Insurance Proceeds to the Debentureholders on a pro rata basis.
(2) Upon payment in full of the principal of, premium, if any, and
interest upon all of the Debentures, the Trustee shall
distribute any Insurance Proceeds, not otherwise distributed in
accordance with Section 10.8(b)(1) hereof, to the Company.
10.9. Restrictions on Dividends, Redemptions, etc.
(a) The Company will not (1) declare or pay any dividend or make any
other distribution on any Equity Securities of the Company,
except dividends or distributions payable in Equity Securities
of the Company, or (2) purchase, redeem or otherwise acquire or
retire for value any Equity Securities of the Company, except
(and provided all other covenants of this Indenture are complied
with) Equity Securities acquired upon conversion thereof into
other Equity Securities of the Company or pursuant to an
insurance funded buy-sell agreement covering the death or
disability of a shareholder of the Company, or pursuant to a
buy- sell agreement during the life time of a shareholder of the
Company if purchased under a debt obligation which is
Subordinated Indebtedness of the Company with a minimum term of
five years with equal annual payments (a "Buy-Sell Debt
Obligation"), or (3) permit a Subsidiary to purchase, redeem or
otherwise acquire or retire for value any Equity Securities of
the Company, if, upon giving effect to such dividend, purchase,
redemption or the acquisition, the aggregate amount expended for
all such purposes subsequent to December 31, 1995 would exceed
the sum of
(1) 50% of the Consolidated Net Income accumulated
subsequent to December 31, 1995;
(2) the aggregate of the net proceeds received by the
Company or a Wholly-Owned Subsidiary from the sale or
issuance after December 31, 1995 (other than to a
Subsidiary or upon the Conversion of Equity Securities
or Indebtedness or the Company or a Wholly-Owned
Subsidiary) of Equity Securities of the Company, said
net proceeds being deemed for the purposes of this
Section to equal the aggregate of (a) the cash, if any,
received by the Company or a Wholly-Owned Subsidiary
from such sale or issue, plus (b) the value of any
consideration, other than cash, received by the Company
or a Wholly-Owned Subsidiary from such sale or issue, as
determined by resolution of the Board of Directors; and
(3) the net proceeds (as above defined) received by the
Company or a Wholly-Owned Subsidiary from the issuance
or sale (other than to the Company or a Subsidiary) of
any convertible Indebtedness of the Company which
Indebtedness has been converted into Equity Securities
of the Company after December 31, 1995.
(b) The Company will not (1) declare or pay any dividend or make any
other distribution, other than a Regular Dividend, on any Equity
Securities of the Company, except dividends or distributions
payable in Equity Securities of the Company, or (2) purchase,
redeem or otherwise acquire or retire for value any Equity
Securities of the Company, except Equity Securities acquired
upon conversion thereof into other Equity Securities of the
Company or pursuant to an insurance funded buy-sell agreement
covering the death or disability of a shareholder of the
Company, or pursuant to a Buy-Sell Debt Obligation, (3) or,
except as permitted by Section 10.9(b)(2) herein, permit a
Subsidiary to purchase, redeem or otherwise acquire or retire
for value any Equity Securities of the Company, if, upon giving
effect to such dividend, distribution, purchase, redemption or
other acquisition, the Consolidated Tangible Net Worth of the
Company would be reduced to less than an amount equal to 150% of
the aggregate principal amount of Debentures and all Parity
Indebtedness then outstanding.
(c) The provisions of this Section 10.9 shall not prevent (1) the
payment of annual year-end bonuses to key employees, executive
officers and shareholder employees of the Company pursuant to
the bonus plan described in and consistent with the restrictions
in Section 10.12 hereof, (2) the payment of any dividend within
60 days after the date of declaration thereof, if at such date
such declaration complied with the foregoing provisions,
although the dividends so paid shall be considered in
determining subsequent restrictions under this Section or (3)
the acquisition or retirement of any Equity Securities of the
Company by exchange for, or upon conversion of, or out of the
proceeds of the substantially concurrent sale (other than to a
Subsidiary) of, other Equity Securities of the Company, and no
effect shall be given to any such acquisition or retirement or
the proceeds of any sale, conversion or exchange in any
computation made under this Section 10.9(c)(3). A certificate of
a firm of independent certified public accountants shall be
conclusive evidence of the amount of accumulated Consolidated
Net Income and the amount of Consolidated Tangible Net Worth.
10.10. Limitation on Issuance of Certain Securities.
From and after the date of this Indenture as originally executed and for
so long as any of the Debentures are Outstanding, the Company will not publicly
offer for sale or publicly sell any of its long-term Indebtedness in connection
with the borrowing of money, which Indebtedness, by the terms of the instrument
creating or evidencing such Indebtedness, is pari passu or subordinated in right
of payment to the Debentures of the Company, if such Indebtedness has a stated
maturity for payment of principal, (exclusive of reasonable payments of
principal through the operation of a sinking fund), earlier than the Stated
Maturity for payment of principal of the Debentures.
However, nothing in this Section 10.10, or in this Indenture as a whole
shall limit the Company in the issuance and sale of Equity Securities, Senior
Indebtedness, or a Subordinated Indebtedness, regardless of amount, if such
securities otherwise comply with the covenants, conditions and restrictions, if
any, imposed upon such securities by this Indenture.
10.11. Indebtedness to Affiliates.
Except for the existing office lease from Glenbrook Office Building
Partnership, which shall not be Subordinated Indebtedness, the Company will
cause any and all Indebtedness of the Company to any Affiliate of the Company,
other than a Subsidiary, to be expressly Subordinated Indebtedness, and to be
subordinate and junior in right of payment of the Debentures, according to the
terms of the instrument (or any supplemental instrument) creating or evidencing
such Indebtedness or pursuant to which such Indebtedness is outstanding, and
otherwise pursuant to written agreement by such Affiliate. Nothing in this
section shall restrict the Company from making any payments due on such
Subordinated Indebtedness if there has been no default hereunder as defined in
Section 6.2 hereof.
10.12. Transactions with Affiliates.
The Company will not itself engage, and will not permit any Subsidiary
to engage, in any transaction of any kind or nature with any Affiliate of the
Company not otherwise subject to a contract already existing as of the date of
this Indenture, other than a Subsidiary, unless the Board of Directors has
determined by Board Resolution (a copy of which need not be delivered to the
Trustee unless and until requested) that (a) such transaction, or, in the case
of a course of related or similar transactions, or continuing transactions, such
course of transactions or continuing transactions is or are fair to the Company
or such Subsidiary, as the case may be, and (b) the terms of such transaction or
transactions are reasonably similar to, or more beneficial to the Company or
such Subsidiary than, the terms deemed likely to occur in similar transactions
with unrelated persons under the same circumstances.
The provisions of this Section shall not be applicable to any
pre-existing bonus plan to persons who are key employees, executive officers and
shareholder employees of the Company provided that any such bonus payment made
under such pre-existing bonus plan to any employee of the Company (whether an
executive officer or not) ("MANAGEMENT BONUSES") shall be expressly subordinate
and junior in right of payment to the Debentures and Parity Indebtedness and
shall not be paid if there exists any default in the payment of interest on or
any default on the payment of principal of (or premium, if any, on) any
Debenture, any other Senior Indebtedness or Parity Indebtedness and the
aggregate amount of such bonuses do not exceed 50% of income for the year then
ending before provision for income taxes and such bonuses for that year. The
Company shall deliver to the Trustee an Officers' Certificate certifying
compliance with the restrictions set forth herein prior to any payment under
such bonus plans.
The Company may increase the annual base salary of those persons who are
shareholders of the Company, and are eligible to participate in the bonus plan
described above from year to year by the greater of the following two
percentages (i) the increase from the previous calendar year in the Consumer
Price Index for all items for all United States urban areas as of January 1 of
such year, as published by the United Stated Bureau of Labor Statistics, or (ii)
the increase in the Company's Consolidated Tangible Net Worth for the fiscal
year just completed compared to the previous fiscal year's Consolidated Tangible
Net Worth. Furthermore, advances or loans made to such persons during the
current year prior to the determination of any bonuses pursuant to the bonus
plan set forth above shall be limited to an aggregate of $25,000 per individual.
10.13. Particular Covenants as to Certain of Company's Affairs.
The Company at all times will keep, and will cause each Subsidiary to
keep, true and complete books of record and account, all in reasonable detail,
with respect to all transactions between the Company or such Subsidiary, as the
case may be, and any Affiliate of the Company, other than a Subsidiary. The
Company shall furnish to the Trustee appropriate summaries of such transactions
as the same may reasonably be requested by the Trustee from time to time and
will permit the Trustee and its officers, employees and agents to visit any of
the properties of the Company and its Subsidiaries and inspect such records at
such reasonable times as the Trustee may desire.
10.14. Certain Covenants as to Subsidiaries.
The Company will not:
(1) sell any equity securities of a Subsidiary, or
(2) cause or permit any Subsidiary to sell any equity securities of
any other Subsidiary,
(3) cause or permit any Subsidiary to sell or issue its own equity
securities (other than directors' qualifying shares); or
(4) cause or permit any Subsidiary to sell, transfer or dispose of
any substantial portion of its assets, whether in one
transaction or a series of transactions:
to any Person except the Company or a Wholly-Owned Subsidiary; provided,
however, that this Section shall not prevent the Company or any
Subsidiary from: (i) selling all the outstanding equity securities or
assets of any Subsidiary owned by the Company and any Subsidiaries to
any Person if sold in a single transaction; or (ii) selling or issuing
any equity securities or assets of a Subsidiary organized under the laws
of and doing substantially all of its business in any country other than
the United States of America; unless such subsidiary constitutes a
substantial part of the consolidated assets or operations of the Company
and all Subsidiaries. For purposes of this Section, the term "equity
securities" shall have the same meaning applied to a Subsidiary as the
terms "Equity Securities" and "Redeemable Preferred Stock," inclusive,
as applied to the Company.
10.15. Limitations on Additional Funded Debt.
The Company shall not, and shall not permit any Subsidiary to, create,
incur, assume or issue, directly or indirectly, or guarantee or in any manner
become, directly or indirectly, liable for or with respect to the payment of any
Indebtedness, except for:
(1) Indebtedness under the Debentures and this Indenture;
(2) Indebtedness of the Company and any Subsidiary not otherwise
referred to in this Section 10.15 outstanding on the Date of
Issue (specifically including the full amount available to the
Company or its Subsidiary pursuant to the loan agreements
referred to in clauses (i) and (ii) of the definition of "Senior
Indebtedness" contained in Section 1.1 hereof);
(3) Indebtedness (plus interest, premium, fees and other obligations
associated therewith), that, immediately to the incurrence
thereof, does not cause the ratio of Funded Debt to Consolidated
Tangible Net Worth plus Shareholder Subordinated Debt to exceed
7:1; or
(4) any deferrals, renewals, extensions, replacements, refinancings
or refundings of, or amendments, modifications or supplements
to, Indebtedness incurred under clauses (2) or (3) above,
whether involving the same or any other lender or creditor or
group of lenders or creditors, provided that any such deferrals,
renewals, extensions, replacements, refinancings, refundings,
amendments, modifications or supplements (i) shall not provide
for any mandatory redemption, amortization or sinking fund
requirement in an amount greater than or at a time prior to the
amounts and times specified in the Indebtedness being deferred,
renewed, extended, replaced, refinanced, refunded, amended,
modified or supplemented, (ii) shall not exceed the principal
amount (plus accrued interest and prepayment premium, if any) of
the Indebtedness being renewed, extended, replaced, refinanced
or refunded and (iii) shall be subordinated to the Debentures at
least to the extent and in the manner, if at all, that the
Indebtedness being renewed, extended, replaced, refinanced or
refunded is subordinated to the Debentures.
Compliance with this covenant shall be measured on the last day of
March, June, September and December of each year. Notwithstanding Section 5.1(3)
of this Indenture, the Company shall have 30 days to cure any default in this
Funded Debt covenant, and the Company shall be prohibited from incurring any
additional Funded Debt from the date of measurement until such default is cured.
In the event of any non-compliance with this covenant, the Company shall deliver
to the Trustee a certificate from the Company's independent public accountants
as to subsequent compliance to cure any such default.
10.16. Minimum Net Worth.
The Company will maintain at all times until the Maturity of all
Debentures a Minimum Section 10.16 Consolidated Tangible Net Worth, determined
as of December 31 of each year, based upon the annual audited financial
statements, of at least Five Million and no/100 Dollars ($5,000,000) plus 50% of
the Consolidated Net Income earned after December 31, 1995, assuming for
purposes of this Net Worth calculation only that the maximum Management Bonuses
permitted pursuant to Section 10.12 are paid as of December 31 of each year and
taxes are then determined based upon the assumed Consolidated Net Income level.
Compliance with this covenant shall be determined quarterly but the net worth
utilized each calendar quarter in March, June and September shall be the
previous December 31 Net Worth Amount.
Compliance with this covenant shall be measured on the last day of
March, June, September and December of each year, and the Company shall provide
the Trustees with a detailed calculation of the Minimum Section 10.16
Consolidated Tangible Net Worth as of each quarter with 45 days of each calendar
quarter except December 31 for which the Company shall have 75 days to provide
the calculation. Notwithstanding Section 5.1(3) of this Indenture, the Company
shall have 30 days to cure any default in this Minimum Section 10.16 Net Worth
covenant. In the event of any non-compliance with this covenant, the Company
shall deliver to the Trustee a certificate from the Company's independent public
accountants as to subsequent compliance to cure any such default.
10.17. Waiver of Certain Covenants.
Without limiting the rights of the Holders and the Company with respect
to waivers and amendments set forth in Section 5.13 and 9.2, the Company may
fail, in any particular instance, to comply with any covenant or condition set
forth in Section 1.8 to 10.15, which otherwise does not have a specific waiver
provision, if before or after the time for such compliance the Holders of at
least 66-2/3% in principal amounts of the Debentures Outstanding shall, by Act
of such Holders, either waive such compliance in such instance or generally
waive compliance with such covenant or condition, but no such waiver shall
extend to or affect such covenant or condition except to the extent so expressly
waived, and, until such waiver shall become effective, the obligations of the
Company and the duties of the Trustee in respect of any such covenant or
condition shall remain in full force and effect.
ARTICLE
11.
REDEMPTION OF DEBENTURES
11.1. Right of Redemption.
The Company may, at its option, redeem (provided that at the time of
first publication of notice of redemption it is not in default in the payment of
any Senior Indebtedness and that at such time the making of such redemption
would not result in a default in any covenant contained in any indenture or
other instrument pursuant to which Senior Indebtedness is outstanding) the
Debentures, at any time as a whole or from time to time in part on or after
October 31, 1998, at Redemption Prices which shall consist of the applicable
percentage of the principal amount of the Debentures redeemed as set forth
below.
If redeemed during the twelve-month period beginning October 31, 1998:
1988 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----
Redemption Price: 105% 104% 103% 102% 101% 100%
plus in each case, any interest accrued on the Debentures so redeemed to the
Redemption Date, exclusive of installments of interest whose Stated Maturity is
on or prior to the Redemption Date, payment of which shall have been made or
duly provided for to the registered Holders of Debentures on the relevant Record
Dates in accordance with Section 3.7.
In the event of a Change of Control at any time prior to the maturity of
the Debentures, the Company shall immediately redeem all Debentures in whole at
the applicable Redemption Price set forth above plus accrued interest, provided
if such mandatory redemption occurs prior to 1998, the Redemption Price shall be
105% of the principal amount.
11.2. Applicability of Article.
Redemption of Debentures at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
11.3. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Debentures shall be evidenced
by a Board Resolution. In case of any redemption at the election of the Company
of less than all of the Debentures, the Company shall, at least 45 days prior to
the Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee) notify the Trustee of such Redemption Date and of
the principal amount of Debentures to be redeemed.
11.4. Selection by Trustee of Debentures to be Redeemed.
If less than all the Debentures are to be redeemed, the particular
Debentures to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Debentures not previously
called for redemption, by such method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
of the principal of Debentures of a denomination larger than $1,000. The
portions of the principal of Debentures so selected for partial redemption shall
be equal to a multiple of $1,000 in excess of the minimum $1,000 amount;
provided, that the unredeemed portion of any such Debenture shall also be a
multiple of $1,000 in excess of the minimum $1,000 amount.
The Trustee shall promptly notify the Company in writing of the
Debentures selected for redemption and, in the case of any Debenture selected
for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Debentures shall relate,
in the case of any Debenture redeemed or to be redeemed only in part, to the
portion of the principal of such Debenture which has been or is to be redeemed.
11.5. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Debentures to be redeemed, at his address appearing in
the Debenture Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all Outstanding Debentures are to be redeemed, the
identification (and, in the case of partial redemption, the
respective principal amounts) of the Debentures to be redeemed,
(4) that on the Redemption Date the Redemption Price will become due
and payable upon each such Debenture (together with accrued
interest to the Redemption Date payable as provided on Section
3.7 and 11.7), and that interest thereon shall cease to accrue
from and after said date, and
(5) the place where such Debentures are to be surrendered for
payment of the Redemption Price, which shall be the office or
agency of the Company in each Place of Payment.
Notice of redemption of Debentures to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
11.6. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the Trustee
or with a Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 10.3) an amount of money
sufficient to pay the Redemption Price of all the Debentures which are to be
redeemed on that date.
11.7. Debentures Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Debentures so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Debentures shall cease to bear interest. Upon surrender of such
Debentures for redemption in accordance with said notice, such Debentures shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date. Installments of interest whose Stated Maturity is on or
prior to the Redemption Date shall be payable to the Holders of such Debentures
registered as such on the relevant Record Dates according to their terms and the
provisions of Section 3.7.
If any Debenture called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Debenture.
11.8. Debentures Redeemed in Part.
Any Debenture which is to be redeemed only in part shall be surrendered
at a Place of Payment (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing) and the Company shall execute and the Trustee shall
authenticate and deliver to the Holder of such Debenture without service charge,
a new Debenture or Debentures, of any authorized denomination as requested by
such Holder in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Debenture so surrendered.
ARTICLE
12.
SUBORDINATION OF DEBENTURES
12.1. Agreement to Subordinate.
The Company covenants and agrees, and each Holder of Debentures by his
acceptance thereof (whether upon original issue or upon transfer or assignment)
likewise covenants and agrees, that the indebtedness represented by the
Debentures and the payment of the principal of (and premium, if any) and
interest on each and all of the Debentures is hereby expressly subordinated, and
junior to the extent and in the manner hereinafter set forth, in right of
payment to the prior payment in full of all Senior Indebtedness.
12.2. Distribution of Assets, Etc.
Upon any distribution of assets of the Company upon any dissolution,
winding-up, liquidation or reorganization of the Company, whether in bankruptcy,
insolvency, reorganization or receivership proceedings or upon an assignment for
the benefit of creditors or any other marshalling of the assets and liabilities
of the Company or upon any acceleration or maturity or the Debentures or
otherwise:
(1) the holders of all Senior Indebtedness shall first be entitled
to receive payment in full of the principal thereof (and
premium, if any) and interest due thereon, or adequate
provisions shall be made for such payment, before the Holders or
the Debentures are entitled to receive any payment on account of
the principal of (or premium, if any) or interest on the
Indebtedness evidenced by the Debentures; and
(2) any payment by, or distribution of assets of, the Company of any
kind or character, whether in cash, property or securities, to
which the Holders of the Debentures or the Trustee would be
entitled except for the provisions of this Article 12 shall be
paid or delivered by the person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of
Senior Indebtedness which may have been issued, ratably
according to the aggregate amounts remaining unpaid on account
of the Senior Indebtedness hold or represented by each, to the
extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid after giving effect to any
concurrent payment or distribution (or provision therefore) to
the holders of such Senior Indebtedness.
12.3. No Payment to Debentureholders if Senior Indebtedness is in Default.
(a) Upon the maturity of any Senior Indebtedness by lapse of time,
acceleration or otherwise, all principal thereof (and premium,
if any) and interest due thereon shall first be paid in full, or
such payment duly provided for in cash or in a manner
satisfactory to the holder or holders of such Senior
Indebtedness before any payment is made on account of the
principal of (or premium, if any) or interest on the debentures
or to acquire any of the Debentures.
(b) Upon the happening of an event of default with respect to any
Senior Indebtedness, as such event of default is defined therein
or in the instrument under which it is outstanding, permitting
the holders to accelerate the maturity thereof, and, if the
default is other than default in payment of the Principal of (or
premium, if any) or interest on such Senior Indebtedness, upon
written notice thereof given to the Company and the Trustee by
the holder or holders of such Senior Indebtedness or their
representative or representatives, then, unless and until such
event of default shall have been cured or waived or shall have
ceased to exist, no payment shall be made by the Company with
respect to the principal (or premium, if any) or interest on the
Debentures or to acquire any of the Debentures.
12.4. Subrogation.
Subject to the payment in full of all Senior Indebtedness, the Holders
of the Debentures shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of cash, property or
securities of the Company applicable to the Senior Indebtedness until all
amounts owning on the Debentures shall be paid in full, and, as between the
Company, its creditors other than holders of Senior Indebtedness, and the
Holders of the Debentures, no such payment or distribution made to the holders
of Senior Indebtedness by virtue of this Article 12 which otherwise would have
been made to the Holders of the Debentures shall be deemed to be a payment by
the Company on account of the Senior Indebtedness, it being understood that the
provisions of this Article 12 are and are intended solely for the purpose of
defining the relative rights of the Holders of the Debentures, on the one hand,
and the holders of Senior Indebtedness, on the other hand.
12.5. Obligation of Company Unconditional.
Nothing contained in this Article 12 or elsewhere in this Indenture or
in the Debentures is intended to or shall impair, as between the Company, its
creditors other than the holders of Senior Indebtedness, and the Holders of the
Debentures, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders of the Debentures the principal of (and premium, if any)
and interest on the Debentures as and when the same shall become due and payable
in accordance with their terms, or affect the relative rights of the Holders of
the Debentures and creditors of the Company other than the holders of Senior
Indebtedness, nor shall anything herein or exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article 12 of the holders of Senior Indebtedness in
respect of cash, property or securities of the Company received upon the
exercises of any such remedy.
Upon any payment or distribution of assets of the Company referred to in
this Article 12, the Trustee and the Holders of the Debentures shall be entitled
to rely upon any order or decree made by any court of competent jurisdiction in
which any such dissolution, winding-up, liquidation or reorganization proceeding
affecting the affairs of the Company is pending or upon a certificate of the
liquidating trustee or agent or other person making any payment or distribution
to the Trustee or to the Holders of the Debentures for the purpose of
ascertaining the persons entitled to participate in such payment or
distribution, the holders of the Senior Indebtedness and other Indebtedness or
the Company, the amount thereof or payable thereon, the amount paid or
distributed thereon and all other facts pertinent thereto or to this Article 12.
12.6. Payments on Debentures Permitted.
Nothing contained in this Article 12 or elsewhere in this Indenture, or
in any of the Debentures, shall (a) affect the obligation of the Company to
make, or prevent the Company from making, at any time except during the pendency
of any dissolution, winding-up, liquidation of reorganization proceeding, and
except during the continuance of any event of default specified in Section 12.3
(not cured or waived), payments at the time of principal of (or premium, if any)
or interest on the Debentures, or (b) prevent the application by the Trustee or
any Paying Agent of any moneys hold by the Trustee or such Paying Agent, in
trust for the benefit of the Holders of Debentures as to which notice of
redemption shall have been mailed or published at least once prior to the
happening of an event of default specified in Section 12.3, to the payment of or
on account of the principal or (and premium, if any) and interest on such
Debentures, or (c) prevent the application by the Trustee or any Paying Agent of
any moneys deposited prior to the happening of any event of default specified in
Section 12.3, with the Trustee or such Paying Agent in trust for the purpose of
paying a specified installment or installments or interest on the Debentures, to
the payment of such installments of interest on the Debentures.
12.7. Effectuation of Subordination by Trustee.
Each Holder of Debentures, by his acceptance thereof, authorizes and
directs the Trustee in his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article 12 and
appoints the Trustee his attorney-in-fact for any and all such purposes.
12.8. Knowledge of Trustee.
Notwithstanding the provisions of this Article 12 or any other
provisions of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts which would prohibit the making of any payment of
moneys to or by the Trustee, or the taking of any other action by the trustee,
unless and until the Trustee shall have received written notice thereof from the
Company, any Debentureholder, any paying agent or the holder or representative
or any class of Senior Indebtedness.
12.9. Rights of Holders of Senior Indebtedness Not Impaired.
No right of any present or future holder of any Senior Indebtedness to
enforce the subordination herein shall at any time or in any way be prejudiced
or impaired by any act or failure to act on the part of the Company with the
terms, provisions and covenants of this Indenture, regardless of any knowledge
thereof any such holder may have or be otherwise charged with.
12.10. Trustee Not Fiduciary for Holders of Senior Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to the holders
of Senior Indebtedness and shall not be liable to any such holders if it shall
in good faith pay over or distribute to the Holders of the Debentures, to the
Company or to any other Person cash, property or securities to which any holders
of Senior Indebtedness shall be entitled by virtue of this Article or otherwise.
12.11. Rights of Trustee as Holder of Senior Indebtedness.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness which
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
12.12. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context shall otherwise
require) be construed as extending to and including such Paying Agent within its
meaning as fully for all intents and purposes as if such Paying Agent were named
in this Article in addition to or in place of the Trustee; provided, however,
that Section 12.10 and 12.11 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
12.13. Rights and Obligations Subject to Power of Court.
The rights of the holders of Senior Indebtedness and the obligations of
the Trustee and the Debentureholders set forth in this Article 12 are subject to
the power of a court of competent jurisdiction to make other equitable provision
reflecting the rights conferred in this Indenture upon the Senior Indebtedness
and the holders thereof with respect to the Debentures and the Holders thereof
by a plan or reorganization under applicable bankruptcy law.
ARTICLE
13.
REPAYMENT AT OPTION OF HOLDER
IN CERTAIN CIRCUMSTANCES
13.1. Repayment Option Upon Death of Holder.
Upon the death of any Holder of a Debenture or Debentures, the Company
shall be required to pay up to $25,000 principal amount of, together with
interest accrued to the Repayment Date on, all or such part in integral
multiples of $1,000 in excess of a minimum $1,000 of the Debentures held by the
deceased Holder of such Debentures at the date of such Holder's death, as
requested in the manner, and subject to the limitations, set forth below.
Repayment of such Debentures shall be made within 30 days following the receipt
by the Company or the Trustee of the following:
(1) a written request for repayment or the Debenture signed by a
duly authorized representative of the deceased Holder, which
request shall set forth the name of the deceased Holder, the
date of death of the deceased Holder and the principal amount of
the Debentures to be repaid;
(2) the certificates representing the Debentures to be repaid; and
(3) evidence satisfactory to the Trustee and the Company of the
death of such deceased Holder and the authority of the
representative to the extent as may be required by Trustee.
The Debentures held by the deceased Holder shall not be entitled to repayment
pursuant to this Section unless each of the following conditions are met:
(i) the Debentures to be repaid have been registered on the
Debenture Register in the deceased Holder's name since their
Date of Issue or for a period of at least six months prior to
the date of the deceased Holder's death, whichever is less;
(ii) either the Company or the Trustee has been notified in writing
of the request for repayment within 180 days after the date of
the deceased Holder's death; and
(iii) not more than $200,000 principal amount of Debentures (including
those subject to the particular redemption request) have been
redeemed from Holders in the past twelve months pursuant to the
Section 13.1.
Authorized representatives of a Holder shall include only the following:
executors, administrators or other legal representatives of an estate; trustee
of a trust; joint owners of Debentures owned in joint tenancy or tenancy by the
entirety; custodians; conservators; guardians; attorneys-in-fact; and other
persons generally recognized as having legal authority to act on behalf of
another.
For purposes of this Article 13 the death of a person owning a Debenture
in joint tenancy or tenancy by the entirety with another or others shall be
deemed the death of the Holder of the Debenture, and the entire principal amount
of the Debenture so held (up to $25,000) shall be subject to repayment in
accordance with the provisions of this Article 13. For purposes of this Article
13, the death of a person owning a Debenture by tenancy in common shall be
deemed the death of a Holder of a Debenture only with respect to the deceased
Holder's interest in the Debenture so held (up to $25,000) by tenancy in common;
except that in the event a Debenture is held by husband and wife as tenants in
common, the death of either shall be deemed the death of the Holder of the
Debenture, and the entire principal amount of the Debenture so held shall be
subject to repayment in accordance with the provisions of this Article 13. A
person who, during his or her lifetime, was entitled to substantially all of the
beneficial interest of ownership of a Debenture will, upon such person's death,
be deemed the Holder thereof for purposes of this Article 13, regardless of the
registered Holder, if such beneficial interest can be established to the
satisfaction of the Trustee. Such beneficial interest will be deemed to exist in
typical cases of street name or nominee ownership, ownership under the Uniform
Gifts to Minors Act, community property or other joint ownership arrangements
between a husband and wife, and trust arrangement where one person has
substantially all of the beneficial ownership interests in the Debenture during
his or her lifetime. Beneficial interests shall include the power to sell,
transfer or otherwise dispose of a Debenture and the right to receive the
proceeds therefrom, as well as interest and principal payable with respect
thereto.
13.2. Repayment of Debentures.
Within 30 days after the receipt by the Company or the Trustee of any
request for repayment of the Debentures (or any portion thereof) duly made
pursuant to Section 13.1, the Company shall deposit with the Trustee or with a
Paying Agent (or, if the Company is acting as its own Paying Agent, segregate
and hold in trust as provided in Section 10.3) an amount of money sufficient to
repay the principal amount of all Debentures which are to be repaid, together
with interest accrued thereon to the Repayment Date, exclusive of installments
of interest with a Stated Maturity on or prior to the Repayment Date, payment of
which shall have been made or duly provided for to the registered Holders of the
Debentures on the relevant Record Dates in accordance with Section 3.7. The
Debentures so to be repaid shall become due and payable on the Repayment Date
with respect to each such Debenture at the amount to be repaid as provided above
and from and after the Repayment Date (unless the Company shall default in such
repayment) such Debenture shall cease to bear interest.
Immediately upon deposit with the Trustee or with a Paying Agent (or, if
the Company is acting as its own Paying Agent, upon segregation and holding in
trust) of the amounts as provided above with respect to each Debenture (or
portion thereof), the Company shall cause such Debenture (or portion thereof) to
be repaid. Installments of interest whose Stated Maturity is on or prior to the
Repayment Date shall be payable to the Holders of such Debentures registered as
such on the relevant Record Dates according to their terms and the provisions of
Section 3.7.
If any Debenture duly requested to be repaid shall not be repaid upon
the Repayment Date, the principal shall, until paid, bear interest from the
Repayment Date at the rate borne by the Debenture.
No premium shall be payable by the Company upon repayments of Debentures
pursuant to this Article 13.
If all or any portion of Debentures otherwise eligible for redemption
under this Article 13 are not so repurchased because of the $200,000 limitation
of Section 13.1, such unredeemed amount shall be subject to redemption in the
first month thereafter in which such Debentures would then be so eligible.
13.3. Debentures Repaid in Part.
The Company shall execute and the Trustee shall authenticate and
deliver, with respect to any Debenture surrendered pursuant to this Article 13
and to be repaid only in part, to the Holder of such debenture, without service
charge, a new Debenture or Debentures, of any authorized denomination as
requested by such Holder, in aggregate principal amount equal to and in exchange
for the unrepaid portion of the principal of the Debenture so surrendered and
repaid in part. If required by the Company or the Trustee, such Debenture so
surrendered shall be duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Trustee duly executed by
the authorized representative of the Holder thereof or his attorney duly
authorized in writing.
ARTICLE
14.
IMMUNITY OF STOCKHOLDERS,
OFFICERS AND DIRECTORS
14.1. Personal Immunity of Stockholders, Etc.
No recourse under or upon any obligation, covenant or agreement of this
Indenture, or of any Debenture, or for any claim based thereon or otherwise in
respect thereof, shall be had against any past, present, or future stockholder,
officer or director, as such, of the Company or of any successor corporation,
either directly or indirectly or through the Company, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly agreed that this Indenture and the
Debenture issued hereunder are corporate obligations and that no such personal
liability whatever shall attach to, or is or shall be incurred by, the
stockholders, officers or directors, as such of the Company, or of any successor
corporation, or any of them, because of the creation of the indebtedness hereby
authorized, or under or by reason of the obligations, covenants or agreements
contained in this Indenture or in any of the Debentures or implied therefrom;
and that any and all such personal liability, either at common law or in equity
or by constitution or statute, or, and any and all such rights and claims
against, every such stockholder, officer or director, as such, because of the
creation of the indebtedness hereby authorized or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any of
the Debentures or implied therefrom, are hereby expressly waived and released as
a condition of, and as a consideration for, the execution of this Indenture and
the issue of such Debentures.
***
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all of such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and the Trustee has caused its corporate seal to be hereunto
affixed and attested, all as of the day and year first written above.
LUNDGREN BROS. CONSTRUCTION, INC.
By
------------------------------------
Its
--------------------------------
Attest:
- --------------------------------
Secretary
NATIONAL CITY BANK OF MINNEAPOLIS,
NATIONAL ASSOCIATION,
as Trustee
By
------------------------------------
Its
--------------------------------
EXHIBIT 12
<TABLE>
<CAPTION>
FIXED CHARGE RATIO
Six months
Years Ended Decemeber 31, ended June 30,
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL INFORMATION
Income from continuing operations before taxes $ 2,106 $ 2,590 $ 740 $ (426) $ 183
Interest Expense 667 942 1,734 894 993
Interest Charged to Cost of Sales 804 1,027 1,324 517 659
Interest factor in rent expense 62 138 96 56 49
Amortization of debt issuance costs 30 51 51 25 25
------- ------- ------- ------- -------
3,669 4,748 3,945 1,066 1,909
FIXED CHARGES
Interest Expense 667 942 1,734 894 993
Interest Capitalized 837 1,316 1,505 587 732
Interest factor in rent expense 62 138 96 56 49
Amortization of debt issuance costs 30 51 51 25 25
------- ------- ------- ------- -------
$ 1,596 $ 2,447 $ 3,386 $ 1,562 $ 1,799
------- ------- ------- ------- -------
FIXED CHARGE RATIO 2.30 1.94 1.16 0.68 1.06
======= ======= ======= ======= =======
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of Form S-1 of our
report dated January 27, 1996, on our audits of the consolidated financial
statements of Lundgren Bros. Construction, Inc. We also consent to the reference
to our Firm under the captions "Selected Consolidated Financial Data" and
"Experts." COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
September 16, 1996
