<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Quarterly Period Ended: December 31, 1998
Commission File Number: 0-21900
-------
SUNDANCE HOMES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3111764
------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
150 West Center Court, Schaumburg, Illinois 60195
----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 255-5555
Indicate by check mark whether the registrant has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports).
Yes X No
----- -----
Indicate by check mark whether the registrant has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
At February 10, 1999, there were 7,816,866 shares outstanding of the
registrant's Common Stock ($0.01 par value).
<PAGE>
SUNDANCE HOMES, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page
No.
---
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
December 31, 1998 (unaudited) and September 30, 1998.....1
Consolidated Statements of Operations (unaudited) -
three months ended December 31, 1998 and 1997............2
Consolidated Statements of Cash Flows (unaudited) -
three months ended December 31, 1998 and 1997............3
Notes to Consolidated Financial Statements........................4-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................8-13
PART II OTHER INFORMATION
Item 1. Legal Proceedings.......................................14
Item 2. Changes in Securities...................................14
Item 3. Defaults Upon Senior Securities.........................14
Item 4. Submission of Matters to a Vote of Security Holders.....14
Item 5. Other Information.......................................14
Item 6. Exhibits and Reports on Form 8-K........................14
SIGNATURE PAGE..........................................................15
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SUNDANCE HOMES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
(unaudited)
----------------- -----------------
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 1,339 $ 1,947
Real estate inventories 109,114 102,088
Deferred income taxes 451 -
Prepaid expenses and other assets 2,521 2,227
Property and equipment, net 4,655 4,988
----------------- -----------------
Total assets $ 118,080 $ 111,250
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Accounts payable and accrued construction liabilities $ 18,067 $ 23,026
Other accrued expenses 2,125 2,386
Customer deposits 3,291 3,464
Notes payable 68,139 55,249
Notes payable to Principal Shareholder 2,500 2,500
Deferred income taxes - -
Subordinated notes payable to Principal Shareholder 4,193 4,193
----------------- -----------------
Total liabilities 98,314 90,818
----------------- -----------------
Minority interest - -
----------------- -----------------
Commitments and contingencies - -
----------------- -----------------
Shareholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized,
none issued or outstanding - -
Common stock, $0.01 par value, 20,000,000 shares authorized,
7,816,866 shares issued and outstanding 78 78
Additional paid-in capital 26,990 26,980
Retained earnings (deficit) (7,302) (6,626)
----------------- -----------------
Total shareholders' equity 19,766 20,432
----------------- -----------------
Total liabilities and shareholders' equity $ 118,080 $ 111,250
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
SUNDANCE HOMES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
December 31,
1998 1997
-------------- --------------
<S> <C> <C>
Residential sales $ 22,801 $ 19,420
Land and building sales 1,300 -
-------------- --------------
Total sales 24,101 19,420
Cost of residential sales 21,141 17,976
Cost of land and building sales 622 -
-------------- --------------
Total cost of sales 21,763 17,976
Gross profit 2,338 1,444
Selling expenses 2,356 1,660
General and administrative expenses 1,109 1,124
-------------- -------------
Income (loss) before provision (benefit) for income taxes (1,127) (1,340)
Provision (benefit) for income taxes (451) (536)
-------------- -------------
Income (loss) before cumulative effect of change in accounting
policy (676) (804)
Cumulative effect of change in accounting policy, net of related
tax effect - (2,234)
-------------- -------------
Net income (loss) $ (676) $ (3,038)
============== =============
Net income (loss) per share $ (0.09) $ (0.39)
============== =============
Weighted average number of shares outstanding 7,813 7,807
============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
SUNDANCE HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three months ended
December 31,
----------------------------------
1998 1997
(unaudited)
-------------- ---------------
<S> <C> <C>
Operating activities:
Income (loss) before cumulative effect of change in accounting policy $ (676) $ (804)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 422 334
Deferred income taxes (451) (552)
Minority interest - (4)
Changes in operating assets and liabilities:
Real estate inventories (7,026) (10,237)
Prepaid expenses and other assets (294) (745)
Income tax receivables - 405
Accounts payable and accrued construction liabilities (4,959) (4,156)
Other accrued expenses (261) 315
Customer deposits (173) (22)
-------------- ---------------
Net cash provided by (used for) operating activities (13,418) (15,466)
-------------- ---------------
Net cash used for investing activities: Property and equipment, net (89) (350)
-------------- ---------------
Financing activities:
Borrowings under notes payable 34,217 32,099
Repayments of notes payable (21,328) (17,130)
Proceeds from employee stock purchase plan 10 -
-------------- ---------------
Net cash provided by (used for) financing activities 12,899 14,969
-------------- ---------------
Net increase (decrease) in cash and cash equivalents (608) (847)
Cash and cash equivalents:
Beginning of period 1,947 4,615
-------------- ---------------
End of period $ 1,339 $ 3,768
============== ===============
</TABLE>
3
<PAGE>
SUNDANCE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PRINCIPLES OF CONSOLIDATION
- ------------------------------------
The accompanying interim consolidated financial statements include the accounts
of Sundance Homes, Inc. and its subsidiaries ("the Company"). These financial
statements are unaudited, but in the opinion of management contain all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial condition and results of operations of the Company.
The interim consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto for the year ended
September 30, 1998 included in the Company's Annual Report on Form 10-K, as
filed with the Securities and Exchange Commission on January 13, 1999.
The results of operations for the three months ended December 31, 1998 are not
necessarily indicative of the results to be expected for the entire fiscal year.
NOTE 2 - CHANGE IN ACCOUNTING POLICY
- ------------------------------------
Effective October 1, 1997 the Company adopted Statement of Position (SOP) No 98-
5, Reporting on the Costs of Start-up Activities and Organization Costs. Cost of
start up activities and organization costs are expensed as incurred. The
cumulative effect of this change in accounting decreased net assets at October
1, 1997 by $2,234,000, net of the related tax effect of $1,490,000.
4
<PAGE>
NOTE 3 - REAL ESTATE INVENTORIES
- --------------------------------
Real estate inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 September 30, 1998
--------------------- ---------------------
<S> <C> <C>
Work-in-process:
Land and land development $ 40,895 $ 41,696
Suburban inventory 12,932 12,545
Urban construction inventory 36,134 30,983
Completed homes:
Models 1,956 2,040
Speculative homes 4,948 3,590
Capitalized overhead 4,529 4,225
Capitalized interest 7,720 7,009
--------------------- ---------------------
$ 109,114 $ 102,088
===================== =====================
</TABLE>
Model homes are constructed to help market a development and include allocations
of land and development and other allocable costs. Speculative homes represent
non-model homes which are substantially complete and are not subject to a sales
contract.
NOTE 4 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 September 30, 1998
---------------------- ----------------------
<S> <C> <C>
Model home upgrades and furnishings $ 8,109 $ 8,047
Equipment and furniture 3,056 3,028
Vehicles 270 270
Leasehold improvements 476 476
---------------------- ----------------------
11,911 11,821
Accumulated depreciation 7,256 6,833
---------------------- ----------------------
$ 4,655 $ 4,988
====================== ======================
</TABLE>
5
<PAGE>
NOTE 5 - NOTES PAYABLE
- ----------------------
Notes and mortgages payable are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 September 30, 1998
----------------- ------------------
<S> <C> <C>
Revolving line of credit $67,084 $53,682
Notes payable to land sellers 1,054 1,567
----------------- ------------------
$68,138 $55,249
================= ==================
</TABLE>
On April 30, 1998, the Company entered into a new $80 million Revolving Credit
Loan Agreement (the "Loan Agreement") with LaSalle National Bank, American
National Bank and Trust Company of Chicago and BankBoston, NA (collectively,
"the lenders"), which replaced the Company's previous credit loan agreement
which had provided for a $60 million line of credit. The three banks participate
in the $80 million facility as follows: LaSalle National Bank, $35 million;
American National Bank and Trust Company of Chicago, $25 million; and
BankBoston, NA $20 million. The borrowings are secured by the real estate assets
of the Company with certain exceptions and are subject to certain customary
fees. Available borrowings under the Loan Agreement are reduced by the amount of
letters of credit outstanding. The Loan Agreement includes certain customary
representations and covenants, including restrictions on the Company's ability
to pay dividends and maintenance of certain financial ratios. As of September
30, 1998, the Company had violated certain covenants, specifically those related
to net worth and net income. On December 1, 1998, the Company's Lenders declared
a "default" under the Loan Agreement and the outstanding balance of the loan was
due and payable, subject to the satisfactory modification of the Loan Agreement.
On January 14, 1999, the Company and its Lenders entered into a Forbearance and
Loan Modification Agreement (the "Forbearance Agreement") effective as of
December 15, 1998.
The Forbearance Agreement includes the following terms:
1. Existing defaults have been waived.
2. Significant limitations have been placed on the Company's ability to
acquire new land.
3. The Lenders have no further commitment or obligation to fund the 130 unit
condominium apartment project known as Plaza 32 in Chicago, Illinois.
4. Interest rates have been increased prime plus 0.75% to prime plus 3.0% and
there is no longer a LIBOR option.
5. Certain financial penalties shall be imposed if certain revised covenants
are not met in the future.
6. The maximum loan amount has been systematically reduced.
7. The maturity date has been changed to January 3, 2000.
8. Other various credit limiting and monitoring devices have been imposed.
6
<PAGE>
Notes payable to land sellers are non-interest bearing and are repaid through
application of agreed upon amounts from the proceeds of individual home sale
closings.
The Company also entered into certain financing agreements with the Principal
Shareholder as described in Note 6.
NOTE 6 - SUBORDINATED NOTES AND NOTES PAYABLE TO PRINCIPAL SHAREHOLDER
- ----------------------------------------------------------------------
Secured Note Payable
On May 1, 1998, Erie Center Lofts, Inc., a wholly owned subsidiary of the
Company, entered into a $2.5 million Secured Subordinated Promissory Note with a
maturity date of June 30, 1999, and an interest rate of 20% with Maurice
Sanderman, the Company's Chairman and President. The note is secured by a junior
mortgage on the property commonly known as Erie Tower located at 421 West Erie
Street in Chicago, Illinois. Principal payments under this note may only be paid
our of net sales proceeds from the sale of units within Erie Tower only after
all advances made under the New Loan Agreement related to the Erie Tower project
have been repaid.
Unsecured Notes Payable
As part of the public offering and recapitalization of the Company on July 9,
1993, the Company issued promissory notes to the Principal Shareholder. The
notes are subordinate to the Company's bank indebtedness, bear interest at 7
1/2% per annum, compounded daily, and originally matured in two equal annual
installments on the first and second anniversaries of the offering. The maturity
date of the notes is February 1, 2000. Payment of the outstanding principal
balances are subject to certain restrictions under the Loan Agreement.
<PAGE>
NOTE 7 - CONTINGENCIES
- ----------------------
The Company is frequently required, in connection with the development of its
projects, to obtain performance or other maintenance bonds of letters of credit
in lieu thereof. The amount of such obligations outstanding at any time varies
in connection with the Company's pending development activities. In the event
any such obligations are drawn upon, the Company would be obligated to reimburse
the issuing surety company or bank. At December 31, 1998, there were
approximately $7.4 million in performance or maintenance bonds and approximately
$3.2 million of letters of credit outstanding for such purposes. There have been
no such draws during the quarters ended December 31, 1998 or December 31 1997.
The Company currently leases 15,500 square feet of office space in Schaumburg,
Illinois where its Suburban Properties Division and Corporate offices are
located. The Company also leases approximately 3,000 square feet of office space
in Chicago, Illinois, where the Chicago Urban Properties Division is located.
Certain equipment is also currently leased under non-cancelable operating
leases.
Additionally, the Company is involved in various routine legal proceedings,
which the Company believes to be incidental to the conduct of its business.
Specifically, in November, 1994, a lawsuit was brought against the Company and
certain directors and employees of the Company by the Board of Managers of
Parkside on the Green Condominium Association. The complaint seeks damages
against the Company for alleged construction defects in the approximate amount
of $4.8 million, together with punitive damages against the named individuals
for alleged breach of fiduciary duty. The Company has assumed the defense of
this lawsuit on behalf of the individual defendants. The lawsuit is in the
discovery process and various inspections of the project are underway. The
Company is defending the lawsuit vigorously. Management believes that none of
these legal proceedings will have a material adverse impact on the financial
condition or results of operations of the Company.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Except for historical information, matters discussed in this Form 10-Q contain
forward looking information and describe the Company's belief concerning future
business conditions and the outlook for the Company based on currently available
information. The Company has identified these "forward looking" statements by
words such as "believes", "estimates", "should", "could", "expects",
"anticipates", and similar expressions. Risks and uncertainties which could
cause the Company's actual results or performance to differ materially from
those expressed in these statements include the following; the Company's
substantial leverage, ability to comply with the terms of the proposed
Forebearance Agreement (as defined below), changes in general economic and
market conditions, changes in interest rates and the availability of mortgage
financing, changes in costs and availability of materials, supplies and labor,
general competitive conditions, the availability of capital, and the ability to
successfully effect acquisitions. The Company assumes no obligation to update
the information contained herein.
The following discussion of the Company's results of operations and financial
condition should be read in conjunction with the consolidated interim financial
statements of the Company and the notes thereto contained herein, as well as the
Company's Annual Report on Form 10-K for the year ended September 30, 1998, as
filed with the Securities and Exchange Commission on January 13, 1999.
Overview
The Company experienced increased revenues for the quarter ended December 31,
1998, as compared to the quarter ended December 31, 1997 and the average sales
price per home closed increased by $6,500 from $183,500 in the quarter ended
December 31, 1997 to $190,000 in the quarter ended December 31, 1998. The
primary reason for the increase in the average sales price was an increased
number of deliveries in the Company's Rembrandt Homes division, which delivered
homes ranging in price from about $380,000 to $475,000. Residential sales, which
are recognized upon the closing and delivery of homes, increased $3.4 million or
17.4% to $22.8 million, for the quarter ended December 31, 1998, as compared to
$19.4 million for the quarter ended December 31, 1997. The Company delivered 120
homes during the quarter ended December 31, 1998 compared to 107 in the quarter
ended December 31, 1997.
Gross profit as a percent of sales was 9.7% for the quarter ended December 31,
1998, compared to 7.4% for the same period in 1997. This increase is primarily
attributable to the sale of a parcel of land in Lake in the Hills, Illinois.
The aggregate value of sales in backlog as of December 31, 1998 increased by
110% or $41.6 million to $79.3 million representing 396 homes at an average
sales price of $200,200 compared to $37.7 million representing 202 homes at an
average sales price of $186,600 as of December 31, 1997.
Urban Development. The Company's wholly owned division, Chicago Urban
Properties, Inc., entered into 59 new contracts during the quarter ending
December 31, 1998, increasing its total backlog to 229 homes with a total sales
value of $46.4 million.
The Capitol Hill Lofts project and the Art House Loft project, consisting of 91
and 26 loft units respectively, were over 60% sold at December 31, 1998. The
Company's 24-story Erie Tower project was also over 60% sold by December 31,
1998. Initial deliveries at Erie Tower began in January, 1999.
Suburban Communities. During the quarter ended December 31, 1998, the Company's
suburban division, Sundance Suburban Properties, entered into 111 new contracts,
an increase of 44% over the same period in fiscal 1997. During the quarter the
Division delivered 105 homes, an increase of 44 homes over the quarter ended
December 31, 1997.
The Company's custom home division, Rembrandt Homes, entered into 16 new
contracts during the quarter and delivered 12 homes, with such deliveries being
an increase of 100% over the quarter ended December 31, 1997.
9
<PAGE>
Results of Operations
The following table sets forth, for the three months ended December 31, 1998,
and December 31, 1997 the percentage of the Company's total sales represented by
each income statement line item presented.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------
December 31, 1998 December 31, 1997
------------------------ ------------------------
<S> <C> <C>
Residential sales 94.6% 100.0%
Land and building sales 5.4 -
------------------------ ------------------------
Total sales 100.0% 100.0%
------------------------ ------------------------
Cost of residential sales 87.7 92.6
Cost of land and building sales 2.6 -
Gross profit 9.7 7.4
Selling expenses 9.8 8.5
General and administrative expenses 4.6 5.8
------------------------ ------------------------
Income (loss) before provision (benefit) for income taxes (4.7) (6.9)
------------------------ ------------------------
Provision (benefit) for income taxes (1.9) (2.8)
------------------------ ------------------------
Income (loss) before cumulative effect of change in
accounting policy (2.6) (4.1)
Cumulative effect of change in accounting policy, net of
related tax effect - (11.5)
------------------------ ------------------------
Net income (loss) (2.6)% (15.6)%
======================== ========================
</TABLE>
Residential Sales. Residential sales, which are recognized upon the closing and
delivery of homes, increased $3.4 million or 17.4% to $22.8 million, for the
quarter ended December 31, 1998, as compared to $19.4 million for the quarter
ended December 31, 1997. The Company delivered 120 homes in the quarter ended
December 31, 1998 compared to 107 in the quarter ended December 31, 1997. The
increase in sales for the quarter ended December 31, 1998 was due primarily to
the increase in the number of homes delivered during the period as compared to
the quarter ended December 31, 1997.
Land Sales. During the quarter ended December 31, 1998, the Company sold a
parcel of land consisting of approximately 7.0 acres in Lake in the Hills,
Illinois for $1.3 million. The buyer of the property has a continuing option to
purchase an additional 6.0 acres contiguous to the sold property, such option
expiring in June, 2000. There were no land sales in the quarter ended December
31, 1997.
Cost of Residential Sales. Cost of residential sales increased $3.1 million from
$18.0 million to $21.1 million for the quarter ended December 31, 1998 as
compared to the quarter ended December 31, 1997. Cost of residential sales as a
percentage of residential sales increased nominally during the quarter ended
December 31, 1998 as compared to the quarter ended December 31, 1997.
10
<PAGE>
Selling, General and Administrative Expenses. Selling expenses increased from
$1.7 million for the quarter ended December 31, 1997 to $2.4 million for the
quarter ended December 31, 1998. As a percentage of residential sales, selling
expenses increased from 8.5% for the quarter ended December 31, 1997 to 10.3%
for the quarter ended December 31, 1998. The increase in selling expenses as a
percentage of residential sales was a direct result of significantly increased
marketing activities in both suburban and urban communities related to projects
scheduled to deliver units later in fiscal 1999.
General and Administrative expenses were effectively unchanged for the quarter
ending December 31, 1998 compared to $1.1 million for the quarter ended December
31, 1997. General and Administrative expenses, as a percentage of total sales,
decreased from 5.8% for the quarter ended December 31, 1997 to 4.6% for the
quarter ended December 31, 1998. This is a result of the Company's continued
efforts to control overhead costs.
Income Taxes
The provision for income taxes for the three months ended December 31, 1998 and
1997 reflect management's estimate of the Company's effective tax rate of
approximately 40%.
Seasonality and Variability in Quarterly Results
The Company has experienced, and expects to continue to experience, significant
seasonal and quarterly variability in residential sales and net income.
Year 2000 Compliance
The Year 2000 or "Y2K" issue is the result of many legacy computer programs
using a two digit format, as opposed to a four digit format, to indicate the
year. Many computer systems will not be able to interpret dates beyond the year
1999, which could cause a system failure or other errors, leading to disruptions
in operations. In 1997, the Company developed a three phase plan to address this
issue.
Phase I of the plan, which began during the fiscal year ended September 30,
1998, is the identification of all the systems, services and key operating
infrastructures where the Company has exposure. Phase II is the development and
implementation of the necessary steps to bring the systems, services and
infrastructures into compliance. Phase II is scheduled to be completed by spring
of 1999. Phase III, which is scheduled to be completed in mid to late 1999, is
the testing and acceptance of each modification necessary to the systems,
services and infrastructure components identified in Phase I and implemented in
Phase II. The Company has identified four major areas of focus necessary to
ensure successful Y2K compliance. These are: (1) its integrated suite of
accounting, costing and job control applications, (2) all custom developed
enhancements to the base suite, (3) all operating infrastructure components
including, but not limited to various operating systems, personal computers and
their associated software tools, along with other hardware and software
necessary for the operation of the business and (4) third party relationships
and their respective Y2K readiness.
The Company's current installed core accounting, costing and job control
applications are not Y2K compliant. However a project is currently underway to
upgrade the suite to a version which is believed to be compliant. The upgrade
plan will include a corresponding upgrade of the custom developed
enhancements. Many of the operating infrastructure components will require
modifications to achieve compliance. These modifications are currently underway
and do not directly impact the upgrade of any other system. The Company is in
the process of contacting all significant suppliers and other third party
relationships to obtain responses indicating compliance or plans to be compliant
by the year 2000.
The Company has identified the potential for 1,000 man hours of project-related
work to achieve compliance. The Company has hired outside consulting resources
to help facilitate the timely completion of the projects identified. Y2K
specific costs incurred to date have not been significant. Estimated future
costs will range from approximately $50,000-$150,000 and are scheduled to be
incurred in fiscal 1999.
A formal contingency plan has not been prepared at this time due to the variety
of alternatives available to the Company.
11
<PAGE>
Liquidity and Capital Resources
Net cash provided by or used for operating activities varies from period to
period, due primarily to the Company's houseline inventory activity, land and
building acquisition and development requirements, and in lesser part to the
Company's net income. Net cash used for operating activities for the quarter
ended December 31, 1998 decreased by approximately $2.0 million to $13.4 million
compared to net cash used for operating activities of $15.5 million in the
quarter ended December 31, 1997. The decrease is primarily due to the slower
growth in real estate inventory levels and a slight reduction in accounts
payable and accrued construction liabilities.
On April 30, 1998, the Company entered into a new $80 million Revolving Credit
Loan Agreement (the "Loan Agreement") with LaSalle National Bank, American
National Bank and Trust Company of Chicago and BankBoston, NA (collectively,
"the lenders"), which replaced the Company's previous credit loan agreement
which had provided for a $60 million line of credit. The three banks participate
in the $80 million facility as follows: LaSalle National Bank, $35 million;
American National Bank and Trust Company of Chicago, $25 million; and
BankBoston, NA $20 million. The borrowings are secured by the real estate assets
of the Company with certain exceptions and are subject to certain customary
fees. Available borrowings under the Loan Agreement are reduced by the amount of
letters of credit outstanding.
The Loan Agreement includes certain customary representations and covenants,
including restrictions on the Company's ability to pay dividends and maintenance
of certain financial ratios. As of September 30, 1998, the Company had violated
certain covenants, specifically those related to net worth and net income. On
December 1, 1998, the Company's Lenders declared a "default" under the Loan
Agreement and the outstanding balance of the loan was due and payable, subject
to the satisfactory modification of the Loan Agreement.
On January 14, 1999, the Company and its Lenders entered into a Forbearance and
Loan Modification Agreement (the "Forbearance Agreement") effective as of
December 15, 1998.
The Forbearance Agreement includes the following terms:
1. Existing defaults have been waived.
2. Significant limitations have been placed on the Company's ability to
acquire new land.
3. The Lenders have no further commitment or obligation to fund the 130
unit condominium apartment project known as Plaza 32 in Chicago,
Illinois.
4. Interest rates have been increased from prime plus 0.75% to prime plus
3.0% and there is no longer a LIBOR option.
5. Certain financial penalties shall be imposed if certain revised
covenants are not met in the future.
6. The maximum loan amount has been systematically reduced.
7. The maturity date has been changed to January 3, 2000.
8. Other various credit limiting and monitoring devices have been
imposed.
Notes payable to land sellers are non-interest bearing and are repaid through
application of agreed upon amounts from the proceeds of individual home sale
closings.
The Company entered into certain financing agreements with the Principal
Shareholder as described below.
12
<PAGE>
Secured Note Payable
On May 1, 1998, Erie Center Lofts, Inc., a wholly owned subsidiary of the
Company, entered into a $2.5 million Secured Subordinated Promissory Note with a
maturity date of June 30, 1999, and an interest rate of 20% with Maurice
Sanderman, the Company's Chairman and President. The note is secured by a junior
mortgage on the property commonly known as Erie Tower located at 421 West Erie
Street in Chicago, Illinois. Principal payments under this note may only be paid
out of net sales proceeds from the sale of units within Erie Tower only after
all advances made under the New Loan Agreement related to the Erie Tower project
have been repaid.
Unsecured Notes Payable
As part of the public offering and recapitalization of the Company on July 9,
1993, the Company issued promissory notes to the Principal Shareholder. The
notes are subordinate to the Company's bank indebtedness, bear interest at 7
1/2% per annum, compounded daily, and originally matured in two equal annual
installments on the first and second anniversaries of the offering. The maturity
date of the notes is February 1, 2000. Payment of the outstanding principal
balances are subject to certain restrictions under the Loan Agreement.
The Company believes that its current credit facility, together with its cash
flow from operations will be sufficient to fund projected, near term cash needs,
including land acquisitions and any relevant market opportunities.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various routine legal proceedings
incidental to the conduct of its business. Management believes that
none of these legal proceedings will have a material adverse impact on
the financial condition or results of operations of the Company.
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of
Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibit No. 27.1 - Financial Data Schedule
(b)None
14
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SUNDANCE HOMES, INC.
By: /s/ Joseph R. Atkin Date: February 12, 1999
--------------------------------
Joseph R. Atkin, Vice President
and Chief Financial Officer
15
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0
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