FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-92470
PROSPECTUS
$350,000,000
OFFER TO EXCHANGE
8 3/8% SENIOR NOTES DUE APRIL 15, 2012,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
FOR ANY AND ALL OUTSTANDING
8 3/8% SENIOR NOTES DUE APRIL 15, 2012,
WHICH HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
OF
[LOGO]
------------------------
- We will exchange all original notes that are validly tendered and not
withdrawn before the end of the exchange offer for an equal principal
amount of new notes that we have registered under the Securities Act of
1933.
- This exchange offer expires at 5:00 p.m., New York City time, on
September 12, 2002, unless extended.
- No public market exists for the original notes or the new notes. We do not
intend to list the new notes on any securities exchange or to seek
approval for quotation through any automated quotation system.
------------------------
THE NEW NOTES WILL BE UNSECURED AND WILL RANK EQUALLY WITH ALL OUR EXISTING
AND FUTURE SENIOR UNSECURED INDEBTEDNESS. THE NEW NOTES WILL BE GUARANTEED BY
ALL OF OUR SIGNIFICANT SUBSIDIARIES ON A SENIOR BASIS. THE GUARANTEES WILL BE
UNSECURED OBLIGATIONS OF OUR SUBSIDIARIES RANKING EQUALLY WITH ALL THEIR
EXISTING AND FUTURE UNSECURED SENIOR DEBT. THE NEW NOTES WILL BE EFFECTIVELY
SUBORDINATED TO ALL OF OUR AND OUR SUBSIDIARY GUARANTORS' SECURED DEBT TO THE
EXTENT OF THE VALUE OF THE ASSETS SECURING THE DEBT.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF THE RISKS THAT
HOLDERS SHOULD CONSIDER PRIOR TO MAKING A DECISION TO EXCHANGE ORIGINAL NOTES
FOR NEW NOTES.
------------------------
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the new notes. The letter of transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of new notes
received in exchange for original notes where such original notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities. We have agreed to use or reasonable best efforts to make this
prospectus available to any broker-dealer for a period of 180 days after the
date of this prospectus for use in connection with any such resale. See "Plan of
Distribution."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is August 13, 2002.
TABLE OF CONTENTS
PAGE
--------
WHERE YOU CAN FIND MORE INFORMATION......................... i
SUMMARY..................................................... 1
RISK FACTORS................................................ 13
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........... 22
THE EXCHANGE OFFER.......................................... 23
USE OF PROCEEDS............................................. 32
CAPITALIZATION.............................................. 33
BEAZER SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA...... 34
CROSSMANN SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA... 36
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION............................................... 37
DESCRIPTION OF NOTES........................................ 44
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS.... 76
PLAN OF DISTRIBUTION........................................ 80
LEGAL MATTERS............................................... 80
EXPERTS..................................................... 80
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
additional or different information. If anyone provides you with additional or
different information, you should not rely on it. We are not making an offer to
exchange and issue the new notes in any jurisdiction where the offer or exchange
is not permitted. You should assume that the information contained in this
prospectus is accurate only as of the date on the front cover of this prospectus
and that any information we have incorporated by reference is accurate only as
of the date of the document incorporated by reference.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, or SEC, a
registration statement on Form S-4 (SEC File No. 333-92470). This prospectus,
which forms part of this registration statement, does not contain all the
information included in the registration statement. For further information
about us and the securities offered in this prospectus, you should refer to the
registration statement and exhibits.
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
internet at the SEC's web site at HTTP://WWW.SEC.GOV. You may also read and copy
any document we file at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference room. In addition, because
our common stock is listed on the New York Stock Exchange, reports and other
information concerning us can also be inspected at the office of the New York
Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
We are "incorporating by reference" important business, financial and other
information about us into this prospectus. This means that we are disclosing
important information to you by referring you to another document filed
separately with the SEC that is not delivered with this prospectus. The
information incorporated by reference is considered to be part of this
prospectus. Information that we file with the SEC after the date of this
prospectus will automatically modify and supersede the information included or
incorporated by reference in this prospectus to the extent that the subsequently
filed information modifies or supersedes the existing information. We
incorporate by reference the following documents filed by us (SEC File
No. 1-12822) and any future filings made by us with the SEC under
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, until
the date that the exchange offer terminates:
- Our annual report on Form 10-K for the fiscal year ended September 30,
2001;
- Our quarterly report on Form 10-Q for the quarter ended December 31, 2001;
- Our quarterly report on Form 10-Q for the quarter ended March 31, 2002;
- Our current report on Form 8-K filed on August 10, 2001 as amended by our
current report on Form 8-K/A filed on October 15, 2001;
- Our current report on Form 8-K filed on February 1, 2002;
- Our current report on Form 8-K filed on March 12, 2002;
- Our current report on Form 8-K filed on April 4, 2002;
- Our current report on Form 8-K filed on April 4, 2002;
- Our current report on Form 8-K filed on April 10, 2002;
- Our current report on Form 8-K filed on April 15, 2002;
- Our current report on Form S-8 filed on April 18, 2002;
- Our current report on Form 8-K filed on May 2, 2002, as amended by our
current report on Form 8-K/A filed on July 2, 2002;
- Our current report on Form 8-K filed on July 18, 2002;
- Our current report on Form 8-K filed on July 25, 2002;
- Our current report on Form 8-K filed on July 29, 2002; and
i
- Our current report on Form 8-K filed on August 7, 2002.
We are also incorporating by reference in this prospectus the following
documents previously filed by Crossmann Communities, Inc. with the SEC (File
No. 0-22562):
- Crossmann's annual report on Form 10-K for the fiscal year ended
December 31, 2001;
- Crossmann's current report on Form 8-K filed on February 1, 2002;
- Crossmann's current report on Form 8-K filed on March 12, 2002; and
- Crossmann's current report on Form 8-K filed on March 21, 2002.
We will provide each person to whom a copy of this prospectus is delivered a
copy of any or all of the information that has been incorporated by reference in
this prospectus, but not delivered in this prospectus. We will provide this
information by first class mail at no cost upon written request addressed to
David S. Weiss, Executive Vice President and Chief Financial Officer, Beazer
Homes USA, Inc., 5775 Peachtree Dunwoody Road, Suite B-200, Atlanta, GA 30342.
Any statement made in this prospectus concerning the contents of any
contract, agreement or other document is only a summary of the actual document.
You may obtain a copy of any document summarized in this prospectus at no cost
by writing to or telephoning us at the address and telephone number given above.
To obtain timely delivery of any information requested from us, you must request
this information no later than five business days before this exchange offer
expires.
ii
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS. THE
FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE INFORMATION
CONTAINED ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. THIS
SUMMARY IS NOT COMPLETE AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU
SHOULD CONSIDER PRIOR TO MAKING A DECISION TO EXCHANGE ORIGINAL NOTES FOR NEW
NOTES. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE "RISK
FACTORS" SECTION BEGINNING ON PAGE 13 OF THIS PROSPECTUS AND THE FINANCIAL
STATEMENTS AND NOTES TO THESE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS. UNLESS THE CONTEXT REQUIRES OTHERWISE, ALL REFERENCES TO
"WE," "US," "OUR" AND "BEAZER" REFER SPECIFICALLY TO BEAZER HOMES USA, INC. AND
ITS SUBSIDIARIES, INCLUDING SUBSIDIARIES ACQUIRED AS A RESULT OF BEAZER'S
ACQUISITION OF CROSSMANN COMMUNITIES, INC. IN APRIL 2002. ALL REFERENCES TO
"CROSSMANN" OR "CROSSMANN COMMUNITIES" MEANS THE OPERATIVE ENTITIES COMPRISING
THE HOMEBUILDING AND RELATED ASSETS OF CROSSMANN COMMUNITIES, INC., WHICH WERE
ACQUIRED BY BEAZER IN APRIL 2002. UNLESS OTHERWISE INDICATED, OPERATING AND
FINANCIAL DATA PRESENTED IN THIS PROSPECTUS DOES NOT REFLECT BEAZER'S
ACQUISITION OF CROSSMANN
BEAZER HOMES USA, INC.
We design, sell and build single family homes in the Southeast, West,
Central, Mid-Atlantic and Midwest regions of the United States and, based on
home closings, are one of the six largest builders of single family homes in the
nation. Our Southeast region includes Florida, Georgia, North Carolina, South
Carolina and Tennessee; our West region includes Arizona, California, Colorado
and Nevada; our Central region includes Texas; our Mid-Atlantic region includes
Maryland, New Jersey, Pennsylvania and Virginia; and our Midwest region includes
Indiana, Kentucky and Ohio.
We design our homes to appeal primarily to entry-level and first time
move-up homebuyers. Our objective is to provide homes to our customers that
incorporate quality and value while seeking to maximize our return on invested
capital. To achieve this objective, we have developed a business strategy that
focuses on the following elements:
GEOGRAPHIC DIVERSITY AND GROWTH MARKETS. We compete in a large number of
geographically diverse markets in an attempt to reduce our exposure to any
particular regional economy. Most of the markets in which we operate have
experienced significant population growth in recent years. In our markets, we
build homes in a variety of projects, typically with fewer than 150 homesites.
QUALITY HOMES FOR ENTRY-LEVEL AND FIRST TIME MOVE-UP HOMEBUYERS. We seek to
maximize customer satisfaction by offering homes which incorporate quality
materials, distinctive design features, convenient locations and competitive
prices. We focus on entry-level and first time move-up homebuyers because we
believe they represent the largest segment of the homebuilding market. During
our fiscal year ended September 30, 2001, the average sales price of our homes
sold was approximately $195,300.
ADDITIONAL PRODUCTS AND SERVICES FOR HOMEBUYERS. In order to maximize our
profitability and provide our customers with the additional products and
services that they desire, we have incorporated design centers and mortgage
origination operations into our business. Recognizing that homebuyers want to
choose certain components of their new home, we offer limited customization
through the use of design centers in most of our markets. These design centers
allow the homebuyer to select certain non-structural customizations for their
homes such as cabinetry, flooring, fixtures, appliances and wallcoverings.
Additionally, recognizing the homebuyer's desire to simplify the financing
process, we originate mortgages on behalf of our customers through certain of
our subsidiaries. These subsidiaries originate, process and broker mortgages to
third party investors but do not retain or service the mortgages that they
broker. We also arrange title insurance for our homebuyers in many of our
markets.
1
DECENTRALIZED OPERATIONS WITH EXPERIENCED MANAGEMENT. We believe our
in-depth knowledge of our local markets enables us to better serve our
customers. Our local managers, who have significant experience in both the
homebuilding industry and the markets that they serve, are responsible for
operating decisions regarding design, construction and marketing. We combine
these decentralized operations with a centralized corporate-level management
which controls decisions regarding overall strategy, land acquisitions and
financial matters.
CONSERVATIVE LAND POLICIES. We seek to maximize our return on capital by
limiting our investment in land and by focusing on inventory turnover. To
implement this strategy and to reduce the risks associated with investments in
land, we use options to control land whenever possible. In addition, we do not
speculate in land that is not generally subject to entitlements providing basic
development rights to the owner.
VALUE CREATED. We evaluate our financial performance and the financial
performance of our operations using VALUE CREATED, a variation of economic
profit or economic value added. VALUE CREATED measures the extent to which we
exceed our cost of capital. It is calculated as earnings before interest and
taxes (EBIT) less a charge for all of the capital employed multiplied by our
estimate of our minimum weighted average cost of capital (currently 14%). Most
of our employees receive incentive compensation based upon a combination of
VALUE CREATED and the change in VALUE CREATED during the year. For key managers,
a portion of their incentive compensation is held in reserve by us. This portion
is always at risk and may be paid out over three years. We believe that our
VALUE CREATED system encourages managers to act like owners, rewards profitable
growth and focuses attention on long-term loyalty and performance.
We were incorporated in Delaware in 1993. Our principal office is located at
5775 Peachtree Dunwoody Road, Suite B-200, Atlanta, Georgia 30342 and our
telephone number is (404) 250-3420. We maintain an internet site at
WWW.BEAZER.COM which contains information concerning us and our subsidiaries.
The information contained on our internet site and those of our subsidiaries is
not incorporated by reference in this prospectus and should not be considered a
part of this prospectus.
ACQUISITION OF CROSSMANN COMMUNITES, INC.
On April 17, 2002, Crossmann merged with and into our wholly owned
subsidiary, Beazer Homes Investment Corp. In connection with such merger, the
former stockholders of Crossmann received an aggregate of approximately
$191.6 million in cash and 3.9 million shares of Beazer common stock.
On April 17, 2002, we sold $350.0 million aggregate principal amount of our
original 8 3/8% Senior Notes due April 15, 2012. The proceeds from the sale of
the original notes were used (1) to fund the cash portion of the acquisition of
Crossmann; (2) to repay Crossmann's outstanding indebtedness; (3) to reduce our
borrowings under our revolving credit facility and (4) to pay related fees,
commissions and other expenses.
CURRENT DEVELOPMENTS
In our results of operations for the quarter ended June 30, 2002, we will
record an increase to cost of sales of approximately $2.6 million ($0.12 per
diluted share) to adjust for misallocations made by our division based in
Fort Myers, Florida. Such misallocations resulted principally from land and home
costs allocated from closed homes and communities to inventory during the period
from March 1999 to March 2002. These errors did not have a material effect on
our reported operating results in any interim or annual period. The effect of
the errors on prior quarters ranged from 0.1% to 2.4% of pre-tax income.
After the effect of this adjustment, we expect our earnings per share for
the quarter ended June 30, 2002 to exceed $2.43, the high end of the range of
analysts' estimates for the quarter.
2
THE EXCHANGE OFFER
THE EXCHANGE OFFER.................. We are offering to exchange up to $350,000,000
aggregate principal amount of our new 8 3/8% senior
notes due April 15, 2012 for up to $350,000,000
aggregate principal amount of our original 8 3/8%
senior notes due April 15, 2012, which are currently
outstanding. Original notes may only be exchanged in
$1,000 principal increments. In order to be exchanged,
an original note must be properly tendered and
accepted. All original notes that are validly tendered
and not validly withdrawn prior to the expiration of
the exchange offer will be exchanged.
RESALES WITHOUT FURTHER We believe that the new notes issued pursuant to the
REGISTRATION...................... exchange offer may be offered for resale, resold or
otherwise transferred by you without compliance with
the registration and prospectus delivery provisions of
the Securities Act provided that:
- you are acquiring the new notes issued in the
exchange offer in the ordinary course of your
business;
- you have not engaged in, do not intend to engage in,
and have no arrangement or understanding with any
person to participate in, the distribution of the
new notes issued to you in the exchange offer in
violation of the provisions of the Securities Act;
and
- you are not our "affiliate," as defined under Rule
405 of the Securities Act.
Each broker-dealer that receives new notes for its own
account in exchange for original notes, where such
original notes were acquired by such broker-dealer as
a result of market-making activities or other trading
activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such new
notes.
The letter of transmittal states that, by so
acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning
of the Securities Act. This prospectus, as it may be
amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of new
notes received in exchange for original notes where
such original notes were acquired by such
broker-dealer as a result of market-making activities
or other trading activities. We have agreed to use our
reasonable best efforts to make this prospectus, as
amended or supplemented, available to any
broker-dealer for a period of 180 days after the date
of this prospectus for use in connection with any such
resale. See "Plan of Distribution."
3
EXPIRATION DATE..................... 5:00 p.m., New York City time, on September 12, 2002
unless we extend the exchange offer.
ACCRUED INTEREST ON THE NEW NOTES
AND ORIGINAL NOTES................ The new notes will bear interest from April 17, 2002
or the last interest payment date on which interest
was paid on the original notes surrendered in exchange
therefor. Holders of original notes that are accepted
for exchange will be deemed to have waived the right
to receive any payment in respect of interest on such
original notes accrued to the date of issuance of the
new notes.
CONDITIONS TO THE EXCHANGE OFFER.... The exchange offer is subject to certain customary
conditions which we may waive. See "The Exchange
Offer--Conditions."
PROCEDURES FOR TENDERING ORIGINAL
NOTES............................. Each holder of original notes wishing to accept the
exchange offer must complete, sign and date the letter
of transmittal, or a facsimile of the letter of
transmittal; or if the original notes are tendered in
accordance with the book-entry procedures described in
this prospectus, the tendering holder must transmit an
agent's message to the exchange agent at the address
listed in this prospectus. You must mail or otherwise
deliver the required documentation together with the
original notes to the exchange agent.
SPECIAL PROCEDURES FOR BENEFICIAL
HOLDERS........................... If you beneficially own original notes registered in
the name of a broker, dealer, commercial bank, trust
company or other nominee and you wish to tender your
original notes in the exchange offer, you should
contact such registered holder promptly and instruct
them to tender on your behalf. If you wish to tender
on your own behalf, you must, before completing and
executing the letter of transmittal for the exchange
offer and delivering your original notes, either
arrange to have your original notes registered in your
name or obtain a properly completed bond power from
the registered holder. The transfer of registered
ownership may take considerable time.
GUARANTEED DELIVERY PROCEDURES...... You must comply with the applicable guaranteed
delivery procedures for tendering if you wish to
tender your original notes and:
- your original notes are not immediately available;
or
- time will not permit your required documents to
reach the exchange agent prior to 5:00 p.m., New York
City time, on the expiration date of the exchange
offer; or
- you cannot complete the procedures for delivery by
book-entry transfer prior to 5:00 p.m., New York City
time, on the expiration date of the exchange offer.
4
WITHDRAWAL RIGHTS................... You may withdraw your tender of original notes at any
time prior to 5:00 p.m., New York City time, on the
date the exchange offer expires.
FAILURE TO EXCHANGE WILL AFFECT YOU
ADVERSELY......................... If you are eligible to participate in the exchange
offer and you do not tender your original notes, you
will not have further exchange or registration rights
and your original notes will continue to be subject to
restrictions on transfer under the Securities Act.
Accordingly, the liquidity of the original notes will
be adversely affected.
MATERIAL UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES........... The exchange of original notes for new notes pursuant
to the exchange offer will not result in a taxable
event. Accordingly, we believe that:
- no gain or loss will be realized by a United States
holder upon receipt of a new note;
- a holder's holding period for the new notes will
include the holding period of the original notes; and
- the adjusted tax basis of the new notes will be the
same as the adjusted tax basis of the original notes
exchanged at the time of such exchange.
See "Material United States Federal Income Tax
Considerations."
EXCHANGE AGENT...................... U.S. Bank National Association is serving as exchange
agent in connection with the Exchange Offer.
Deliveries by hand, registered, certified, first class
or overnight mail should be addressed to U.S. Bank
National Association, 180 East 5th Street,
4th Floor, St. Paul, MN 55101, Attention: Specialized
Finance Department, Reference: Beazer Homes USA, Inc.
Exchange. For information with respect to the Exchange
Offer, contact the Exchange Agent at telephone number
(800) 934-6802 or facsimile number (651) 244-1537.
USE OF PROCEEDS..................... We will not receive any proceeds from the exchange
offer. See "Use of Proceeds."
5
SUMMARY OF TERMS OF NEW NOTES
The exchange offer constitutes an offer to exchange up to $350.0 million
aggregate principal amount of the new notes for up to an equal aggregate
principal amount of the original notes. The new notes will be obligations of
Beazer evidencing the same indebtedness as the original notes, and will be
entitled to the benefit of the same indenture and supplemental indenture. The
form and terms of the new notes are substantially the same as the form and terms
of the original notes except that the new notes have been registered under the
Securities Act. See "Description of Notes."
COMPARISON WITH ORIGINAL NOTES
FREELY TRANSFERABLE................. The new notes will be freely transferable under the
Securities Act by holders who are not restricted
holders. Restricted holders are restricted from
transferring the new notes without compliance with the
registration and prospectus delivery requirements of
the Securities Act. The new notes will be identical in
all material respects (including interest rate,
maturity and restrictive covenants) to the original
notes, with the exception that the new notes will be
registered under the Securities Act. See "The Exchange
Offer--Terms of the Exchange Offer."
REGISTRATION RIGHTS................. The holders of the original notes currently are
entitled to certain registration rights pursuant to
the Registration Rights Agreement, dated as of April
17, 2002, by and among Beazer, the subsidiary
guarantors named therein and the initial purchasers
named therein, including the right to cause Beazer to
register the original notes under the Securities Act
if the Exchange Offer is not consummated prior to the
exchange offer termination date. However, pursuant to
the registration rights agreement, such registration
rights will expire upon consummation of the exchange
offer. Accordingly, holders of original notes who do
not exchange their original notes for new notes in the
exchange offer will not be able to reoffer, resell or
otherwise dispose of their original notes unless such
original notes are subsequently registered under the
Securities Act or unless an exemption from the
registration requirements of the Securities Act is
available.
TERMS OF NEW NOTES
ISSUER.............................. Beazer Homes USA, Inc.
MATURITY DATE....................... April 15, 2012.
6
NOTES OFFERED....................... $350,000,000 aggregate principal amount of 8 3/8%
senior notes due April 15, 2012.
The form and terms of the new notes will be the same
as the form and terms of the outstanding notes except
that:
- the new notes will bear a different CUSIP number
from the original notes;
- the new notes have been registered under the
Securities Act and, therefore, will not bear legends
restricting their transfer; and
- you will not be entitled to any exchange or
registration rights with respect to the new notes.
The new notes will evidence the same debt as the
original notes. They will be entitled to the benefits
of the indenture and the supplemental indenture
governing the original notes and will be treated under
the indenture and the supplemental indenture as a
single class with the original notes. We refer to the
new notes and the original notes collectively as the
notes in this prospectus.
INTEREST............................ The new notes will bear interest at the rate of 8 3/8%
per annum from April 17, 2002. Interest on the new
notes will be payable semi-annually in cash on
April 15 and October 15 of each year, beginning
October 15, 2002.
SUBSIDIARY GUARANTEES............... The new notes will be unconditionally guaranteed, on a
senior basis, by substantially all of Beazer's
existing wholly-owned direct and indirect subsidiaries
and each subsidiary that in the future guarantees the
supplemental indenture. The subsidiary guarantees will
be joint and several, general unsecured obligations of
the subsidiary guarantors.
RANKING............................. The original notes are, and the new notes will be,
general unsecured obligations of Beazer. As such, the
original notes do, and the new notes will, rank
equally in right of payment with all other senior
unsecured indebtedness of Beazer. The original notes
are, and the new notes will be, effectively
subordinated to all of our and our subsidiary
guarantors' secured debt to the extent of the value of
the assets securing the debt. See "Risk Factors" and
"Description of Notes--General."
7
OPTIONAL REDEMPTION................. Beazer may redeem all or part of the new notes at its
option at any time on or after April 15, 2007, at the
redemption prices set forth herein, together with
accrued and unpaid interest to the date of redemption.
In addition, on or prior to April 15, 2005, in the
event of one or more equity offerings, Beazer may, at
its option, redeem up to 35% of the principal amount
of the new notes originally issued from the net
proceeds thereof at a redemption price equal to
108.375% of the principal amount thereof, together
with accrued and unpaid interest to the date of
redemption. See "Description of Notes--Optional
Redemption."
CHANGE OF CONTROL................... Upon a change of control, each holder of the new notes
will have the right to require Beazer to repurchase
all or a portion of such holder's new notes at a price
of 101% of the principal amount thereof, plus accrued
interest to the repurchase date. See "Description of
Notes--Certain Covenants."
CERTAIN COVENANTS................... The indenture and the supplemental indenture contain
certain covenants that, among other things, limit the
ability of Beazer and its subsidiaries to incur
additional indebtedness, pay dividends or make other
distributions, make investments, dispose of assets,
create certain liens, enter into certain transactions
with affiliates, or enter into certain mergers or
consolidations or sell all or substantially all of the
company's assets. See "Description of Notes--Certain
Covenants."
For additional information regarding the notes, see the "Description of
Notes" section of this prospectus.
RISK FACTORS
You should carefully consider the information under "Risk Factors" beginning
on page 13 of this prospectus and all other information included in this
prospectus prior to making a decision to exchange original notes for new notes.
8
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
Our summary historical consolidated financial data set forth below as of and
for each of the three years ended September 30, 1999, 2000 and 2001 are derived
from our audited consolidated financial statements. Our summary historical
consolidated financial data set forth below as of and for the six months ended
March 31, 2001 and 2002 are derived from our unaudited consolidated financial
statements. These historical results are not necessarily indicative of the
results to be expected in the future. You should also read our historical
financial statements and related notes in our Annual Report on Form 10-K for the
year ended September 30, 2001 and our quarterly report on Form 10-Q for the six
months ended March 31, 2002, as well as the section of our Annual Report on
Form 10-K incorporated herein by reference entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Beazer."
Additionally, you should read the sections of this prospectus entitled
"Crossmann Selected Historical Consolidated Financial Data," as well as the
sections entitled "Unaudited Pro Forma Combined Condensed Financial Information"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations of Crossmann" in Crossmann's Annual Report on Form 10-K for the year
ended December 31, 2001.
FISCAL YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
--------------------------------------------- ---------------------------
1999 2000 2001 2001 2002
------------- ------------- ------------- ------------ ------------
($ IN THOUSANDS)
STATEMENT OF OPERATIONS
DATA:
Total revenue............. $ 1,394,074 $ 1,527,865 $ 1,805,177 $739,347 $ 993,029
Operating income.......... 61,800 75,623 122,229 52,066 75,353
Net income................ 36,934 43,606 74,876(1) 31,839 47,327
OPERATING DATA:
Number of new orders, net
of cancellations(2)..... 7,535 8,228 10,039 4,826 5,652
Backlog at end of
period(3)............... 2,558 2,929 3,977 4,039 4,825
Number of closings(4)..... 7,589 7,857 9,059 3,716 4,804
Average sales price per
home closed............. $ 181.4 $ 190.7 $ 195.3 $ 193.8 $ 203.4
BALANCE SHEET DATA (END OF
PERIOD):
Inventory................. $ 532,559 $ 629,663 $ 844,737 $719,254 $ 923,831
Total assets.............. 594,568 696,228 995,289 786,832 1,018,456
Total debt................ 211,836 252,349 395,238 342,121 395,522
Stockholders' equity...... 234,662 270,538 351,195 302,589 400,765
SUPPLEMENTAL FINANCIAL DATA:
Cash provided by (used
in):
Operating activities.... $ 34,080 $ (18,726) $ (29,415) $(83,468) $ (37,374)
Investing activities.... (98,004) (11,805) (72,835) (2,842) (4,689)
Financing activities.... (3,684) 30,531 143,928 86,310 385
EBIT(5)................... 86,013 99,189 157,185 66,259 93,523
EBITDA(5)................. 91,521 106,041 166,438 70,387 97,360
Interest incurred(6)...... 26,874 30,897 35,825 16,272 17,789
EBIT/Interest incurred.... 3.20x 3.21x 4.39x 4.07x 5.26x
EBITDA/Interest incurred.. 3.41x 3.43x 4.65x 4.33x 5.47x
Ratio of earnings to fixed
charges(7).............. 3.06x 3.08x 4.16x 3.89x 4.96x
- --------------------------
(1) Fiscal 2001 results include the effect of a $0.7 million extraordinary loss
(net of taxes) on the early extinguishment of debt. Excluding this
extraordinary loss, net income for fiscal 2001 is $75.6 million.
9
(2) New orders do not include homes in backlog from acquired operations.
(3) A home is included in "backlog" after a sales contract is executed and prior
to the transfer of title to the purchaser. Because the closing of pending
sales contracts are subject to contingencies, no assurances can be given
that homes in backlog will result in closings.
(4) A home is included in "closings" when title is transferred to the buyer.
Sales and cost of sales for a house are recognized at the date of closing.
(5) EBIT and EBITDA: EBIT (earnings before interest and taxes) equals net income
before (a) previously capitalized interest amortized to costs and expenses;
(b) income taxes; and (c) extraordinary item. EBITDA (earnings before
interest, taxes, depreciation and amortization) is calculated by adding
depreciation and amortization for the period to EBIT. EBITDA is commonly
used to analyze companies on the basis of operating performance, leverage
and liquidity. EBITDA as presented may not be comparable to similarly titled
measures reported by other companies because not all companies calculate
EBITDA in an identical manner and, therefore, it is not necessarily an
accurate means of comparison between companies. EBIT and EBITDA are not
intended to represent cash flows for the period nor have they been presented
as an alternative to net income as an indicator of operating performance,
and they should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with accounting principles
generally accepted in the United States of America.
(6) "Interest incurred" is calculated in accordance with the definition of the
term "Interest Incurred" in the indenture governing the notes offered hereby
and set forth herein under "Description of Notes--Certain Definitions."
(7) Computed by dividing earnings by fixed charges. "Earnings" consist of
(i) income from operations before income taxes, (ii) amortization of
previously capitalized interest and (iii) fixed charges, exclusive of
capitalized interest cost. "Fixed charges" consist of (i) interest incurred,
(ii) amortization of deferred loan costs and (iii) that portion of operating
lease rental expense (33%) deemed to be representative of interest.
10
SUMMARY SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following summary selected unaudited pro forma combined condensed
financial data are presented to reflect our acquisition of Crossmann and our
offering of the original notes as if such transactions occurred on October 1,
2000 for income statement and operating data purposes, and on March 31, 2002 for
balance sheet data purposes. This pro forma combined information is derived from
our historical financial statements and the historical financial statements of
Crossmann. The companies may have performed differently if they had actually
been combined during the periods presented. You should not rely on the pro forma
information as being indicative of the combined results that we would have
experienced during the periods presented or of the results that we will
experience following the merger. For further detail, you should read the section
entitled "Unaudited Pro Forma Combined Condensed Financial Information"
beginning on page 37. You should also read the audited and unaudited
consolidated financial statements and related notes contained in our and
Crossmann's Annual Reports on Form 10-K and our quarterly reports on Form 10-Q,
which are incorporated by reference into this prospectus, including the sections
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Beazer," "Crossmann Selected Historical Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Crossmann."
The total purchase price for Crossmann's common stock was $511.4 million,
which included the value of the cash and equity consideration paid by us and
estimated merger costs. The purchase price included $17.60 in cash per Crossmann
share outstanding as of March 31, 2002, and 0.3544 of a share of Beazer common
stock for each share of Crossmann common stock outstanding as of March 31, 2002.
This calculation, which was made in accordance with the provisions of the merger
agreement, includes the final exchange ratio of 0.3544, which was determined by
using the average closing price of our common stock, as reported on the New York
Stock Exchange, for the 15 consecutive trading days ending on, and including,
the third trading day prior to the Crossmann shareholder meeting. Beazer common
stock is valued for accounting purposes at $80 per share, the average market
price of Beazer's common stock a few days before and after the date of
finalization of the exchange ratio. The aggregate consideration paid in the
merger consisted of approximately $191.3 million in cash and approximately
3.9 million shares of our common stock (valued at $308.1 million). We also
repaid Crossmann's net debt (total debt less cash on hand) which totaled
$110 million. Under accounting principles generally accepted in the United
States of America, the merger will be accounted for under the purchase method.
Accordingly, the purchase price was allocated to the Crossmann tangible and
intangible assets acquired and liabilities assumed based on their respective
fair values, with the excess to be allocated to goodwill. The valuations and
other studies required to determine the fair value of the Crossmann assets
acquired and liabilities assumed are currently being performed. As a result, the
related adjustments reflected in the unaudited pro forma combined financial data
are preliminary and subject to further revisions and estimates.
On August 1, 2001, we acquired the residential homebuilding operations of
Sanford Homes of Colorado LLLP, or SHOC, and April Corporation, or April. The
assets, liabilities and operating results of SHOC and April have been included
in our historical financial statements since the acquisition date. The
accompanying pro forma combined statement of operations data for the year ended
September 30, 2001 also assumes that the acquisitions of SHOC and April had been
completed on October 1, 2000.
11
SIX-MONTHS ENDED YEAR ENDED
MARCH 31, 2002 SEPTEMBER 30, 2001
------------------- ---------------------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $1,398,717 $2,708,587
Net income before extraordinary item per share:
Basic............................................... $ 5.40 $ 10.51
Diluted............................................. $ 5.01 $ 9.69
Weighted average number of shares outstanding:
Basic............................................... 12,316 11,997
Diluted............................................. 13,271 13,008
PRO FORMA COMBINED SELECTED OPERATING DATA:
Number of homes closed................................ 7,784 14,983
New sales orders, net(1).............................. 7,998 15,936
AS OF MARCH 31, 2002
-----------------------------------------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
PRO FORMA COMBINED BALANCE SHEET DATA:
Inventory................................................ $1,254,720
Total assets............................................. 1,701,047
Total debt............................................... 738,522
Stockholders' equity..................................... 708,901
Book value per share(2).................................. $ 53.42
- ------------------------
(1) Represents pro forma combined homes placed under contract during the period,
net of cancellations.
(2) Pro forma combined book value per share is computed by dividing pro forma
stockholders' equity at period end by the pro forma diluted weighted average
shares outstanding for the six month period.
12
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS DESCRIBED BELOW, AS WELL AS
THE OTHER INFORMATION INCLUDED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
PRIOR TO MAKING A DECISION TO EXCHANGE YOUR ORIGINAL NOTES FOR NEW NOTES. THE
RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES FACING OUR
COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN OR THAT WE
CURRENTLY BELIEVE TO BE LESS SIGNIFICANT MAY ALSO ADVERSELY AFFECT US.
RISKS FACTORS RELATING TO OUR BUSINESS
IF WE DO NOT SUCCESSFULLY INTEGRATE CROSSMANN'S OPERATIONS, WE MAY NOT
REALIZE THE BENEFITS WE EXPECTED FROM THE MERGER.
The integration of Crossmann's operations into our operations involves a
number of risks. The combination of the two companies requires, among other
things, coordination of management, administrative and other functions. The
integration process could also disrupt the activities of our respective
businesses. If we are not able to effectively integrate our operations and
personnel with Crossmann's in a timely and efficient manner, we may not realize
the benefits expected from the merger. In addition, if the integration is not
successful:
- our costs may be higher relative to our revenue than they were before the
merger;
- key personnel may be lost;
- we may not be able to retain or expand our market position in Crossmann's
markets; or
- the market price of our securities may decline.
The operations of Crossmann represent approximately 30% of the operations of
the combined company based on revenue, and a failure to integrate the operations
successfully could have a material adverse effect on the combined company.
THE HOMEBUILDING INDUSTRY IS CYCLICAL AND IS SIGNIFICANTLY AFFECTED BY
MACRO-ECONOMIC AND OTHER FACTORS OUTSIDE OF OUR CONTROL SUCH AS CONSUMER
CONFIDENCE, INTEREST RATES AND EMPLOYMENT LEVELS.
Because of the long-term financial commitment involved in purchasing a home,
general economic uncertainties tend to result in more caution on the part of
homebuyers and consequently fewer home purchases. While we believe the overall
demand for new housing over time should remain stable, these uncertainties could
periodically have an adverse effect on our operating performance and the market
price of our securities.
In addition, homebuilders are subject to various risks, many of which are
outside the control of the homebuilder. These conditions include:
- conditions of supply and demand in local markets;
- weather conditions and natural disasters, such as hurricanes, earthquakes
and wildfires;
- delays in construction schedules;
- cost overruns on land development and home construction;
- changes in government regulations;
- increases in real estate taxes and other local government fees;
- changes in employment levels;
- changes in consumer confidence and income; and
- availability and cost of land, materials and labor.
13
Although the principal raw materials used in the homebuilding industry
generally are available from a variety of sources, such materials are subject to
periodic price fluctuations. We cannot assure you that the occurrence of any of
the foregoing will not have a material adverse effect on us.
OUR QUARTERLY RESULTS MAY FLUCTUATE, WHICH COULD CAUSE THE MARKET PRICE OF
OUR SECURITIES TO FALL.
While we have reported positive annual net income for each of the past five
fiscal years, our quarterly results of operations have varied significantly and
may continue to do so in the future as a result of a variety of both national
and local factors, many of which are outside of our control. These factors
include:
- the timing of home closings and land sales;
- our ability to continue to acquire additional land or secure option
contracts to acquire land on acceptable terms;
- land development and construction delays;
- seasonal home buying patterns;
- delays in the opening of new active subdivisions by us or our competitors,
or market acceptance of the products and services provided in those
communities;
- changes in our pricing policies or those of our competitors; and
- other changes in operating expenses, personnel and general economic
conditions.
As a result, we believe that quarter-to-quarter comparisons of our operating
results are not necessarily meaningful, and you should not rely on them as an
indication of our future performance. In addition, our operating results in a
future quarter or quarters may fall below expectations of securities analysts or
investors and, as a result, the price of our notes may fluctuate.
WE ARE DEPENDENT ON THE AVAILABILITY OF MORTGAGE FINANCING FOR OUR
CUSTOMERS.
Virtually all purchasers of our homes finance their acquisitions through
lenders providing mortgage financing. A substantial increase in mortgage
interest rates would affect the ability of prospective first time and move-up
homebuyers to obtain financing for our homes, as well as affect the ability of
prospective move-up homebuyers to sell their current homes.
THE HOMEBUILDING INDUSTRY IS HIGHLY COMPETITIVE AND FRAGMENTED.
The competition in the homebuilding industry is intense. Some of our
competitors have substantially greater financial resources and lower costs of
funds than we do. Many of these competitors also have longstanding relationships
with subcontractors and suppliers in the markets in which we operate. We cannot
assure you that we will be able to compete successfully in our markets against
these competitors.
THE BARRIERS TO ENTRY INTO OUR BUSINESS ARE CURRENTLY LOW.
There are relatively low barriers to entry into our business. We do not own
any technologies that preclude or inhibit competitors from entering our markets.
Our competitors may independently develop land and construct housing units that
are superior or substantially similar to our products. We currently build in
several of the top markets in the nation and, therefore, we expect to continue
to face additional competition from new entrants into our markets.
THE NEED FOR ADDITIONAL FINANCING COULD IMPAIR OUR BUSINESS AND RESULTS OF
OPERATIONS.
The homebuilding industry is capital intensive and homebuilding requires
significant up-front expenditures to acquire land and begin development.
Accordingly, we incur substantial indebtedness to finance our homebuilding
activities. Although we believe that internally generated funds and available
borrowings under our revolving credit facility will be sufficient to fund our
capital and other
14
expenditures (including land purchases in connection with ordinary development
activities), we cannot assure you that the amounts available from such sources
will be sufficient. We may be required to seek additional capital in the form of
equity or debt financing from a variety of potential sources, including
additional bank financing and/or securities offerings. The amount and types of
indebtedness which we may incur are limited by the terms of the indentures
governing the notes, our 8 7/8% Senior Notes due 2008 and our 8 5/8% Senior
Notes due 2011 and by the terms of our revolving credit facility and our term
loan. In addition, the availability of borrowed funds, especially for land
acquisition and construction financing, may be greatly reduced nationally, and
the lending community may require increased amounts of equity to be invested in
a project by borrowers in connection with both new loans and the extension of
existing loans. If we are not successful in obtaining sufficient capital to fund
our planned capital and other expenditures, new projects planned or begun may be
significantly delayed or abandoned. Any such delay or abandonment could result
in a reduction in sales and may adversely affect our future results of
operations.
OUR LEVEL OF INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND
PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER OUR DEBT SECURITIES, INCLUDING
THE NOTES.
We currently have, after the issuance of the notes, a substantial amount of
debt. As of March 31, 2002, after giving effect to the acquisition of Crossmann,
the issuance of the original notes and application of the proceeds of such
original notes on that date, we had approximately $738.5 million of indebtedness
outstanding. In addition, subject to restrictions in the indentures governing
the notes, our 8 7/8% Senior Notes due 2008 and 8 5/8% Senior Notes due 2011 and
in our revolving credit facility and term loan, we may incur additional
indebtedness. In particular, as of March 31, 2002, after the acquisition of
Crossmann, the issuance of the original notes and application of the proceeds of
such original notes on that date, we have substantial additional borrowing
capacity under our $250 million revolving credit facility. If new debt is added
to our current debt levels, the related risks that we now face could intensify.
Our ability to make payments of principal or interest on, or to refinance our
indebtedness, including the notes, will depend on:
- our future operating performance; and
- our ability to enter into additional debt and/or equity financings.
Both of these factors are subject, to a certain extent, to economic,
financial, competitive and other factors beyond our control. If we are unable to
generate sufficient cash flow in the future to service our debt, we may be
required to refinance all or a portion of our existing debt or to obtain
additional financing. We cannot assure you that any such refinancing would be
possible or that any additional financing could be obtained. Our inability to
obtain additional financing could have a material adverse effect on us. Our
substantial indebtedness could have important consequences to the holders of the
notes, including:
- we may be unable to satisfy our obligations under the existing or new debt
agreements;
- we may be more vulnerable to adverse general economic and industry
conditions;
- we may find it more difficult to fund future working capital, land
purchases, acquisitions, general corporate purposes or other purposes;
- we will have to dedicate a substantial portion of our cash resources to
the payments on our indebtedness, thereby reducing the funds available for
operations and future business opportunities;
- we may be limited in our flexibility in planning for, or reacting to,
changes in our business and the industry in which we operate;
15
- we may be exposed to fluctuations in the interest rate environment,
because our credit facility is at a variable rate of interest which we may
not be able to control through hedge arrangements; and
- we may be placed at a disadvantage compared to our competitors who have
less debt.
FAILURE TO IMPLEMENT OUR BUSINESS STRATEGY COULD ADVERSELY AFFECT OUR
OPERATIONS.
Our financial position and results of operations depend on our ability to
execute our business strategy. Our ability to execute our business strategy
depends on our ability:
- to continue to improve profitability;
- to identify and acquire attractive parcels of land on which to build
homes;
- to expand our market share in regions where we are not currently a top
five builder;
- to identify, acquire and successfully integrate new business acquisitions;
and
- to attract and retain skilled employees.
Our failure or inability to execute our business strategy could materially
adversely affect our financial position, liquidity and results of operations.
OUR BUSINESS WOULD BE ADVERSELY AFFECTED IF FUTURE, MORE ONEROUS GOVERNMENT
REGULATIONS WERE ENACTED.
Our competitors and we are subject to local, state and federal statutes and
rules regulating, among other things:
- certain developmental matters;
- building and site design;
- matters concerning the protection of health and the environment; and
- mortgage origination procedures.
These regulations vary greatly by community and consist of items such as:
- impact fees, some of which may be substantial, which may be imposed to
defray the cost of providing certain governmental services and
improvements;
- "no growth" or "slow growth" initiatives, which may be adopted in
communities which have developed rapidly;
- building permit allocation ordinances;
- building moratoriums; or
- similar government regulations that could be imposed in the future.
Changes in existing laws or regulations, or in their interpretation, or the
adoption of any additional laws or regulations, could have a material adverse
effect on our business.
WE ARE SUBJECT TO ENVIRONMENTAL REGULATIONS.
We are subject to a variety of local, state and federal statutes,
ordinances, rules and regulations concerning the protection of health and the
environment. The particular environmental laws which apply to any given
community vary greatly according to the community site, the site's environmental
conditions and the present and former use of the site. Environmental laws may
result in delays, may cause us to incur substantial compliance and other costs
and may prohibit or severely restrict development in certain environmentally
sensitive regions or areas. In addition, environmental regulations can have an
adverse impact on the availability and price of certain raw materials such as
16
lumber. Our projects in California are especially susceptible to restrictive
government regulations and environmental laws.
IF WE ARE UNABLE TO RETAIN SKILLED PERSONNEL, OUR BUSINESS COULD BE
ADVERSELY AFFECTED.
Our future success depends upon our ability to attract, train, assimilate
and retain skilled personnel and subcontractors. Competition for qualified
personnel and subcontractors in all of our operating markets is intense. A
significant increase in the number of our active communities would necessitate
the hiring of a significant number of additional construction managers and
subcontractors, each of which is in short supply in our markets. We cannot
assure you that we will be able to retain our key employees or that we can
attract, train, assimilate or retain other skilled personnel in the future.
THE OCCURRENCE OF NATURAL DISASTERS AND THE AVAILABILITY OF HOMEOWNERS'
INSURANCE COULD ADVERSELY IMPACT OUR BUSINESS.
The climates and geology of many of the states in which we operate,
including California, Florida, Georgia, South Carolina, North Carolina,
Tennessee, Kentucky and Texas, present increased risks of natural disasters. To
the extent that hurricanes, severe storms, earthquakes, droughts, floods,
wildfires or other natural disasters or similar events occur, the homebuilding
industry in general, and our business in particular, in such states may be
adversely affected.
WE ACQUIRE LAND THROUGH THE USE OF OPTION CONTRACTS WITH SPECIFIC
PERFORMANCE OBLIGATIONS.
We acquire certain lots by means of option contracts, some of which have
specific performance obligations. Under such contracts, we generally are
required to purchase specific numbers of lots on fixed dates pursuant to a
contractually established schedule. If we fail to purchase the required number
of lots on the date fixed for purchase pursuant to such contracts, the party
granting the option to us generally has the right either to terminate the option
granted pursuant to the option contract in its entirety or to require us to
purchase such lots, notwithstanding a general decline in real estate values.
RISKS FACTORS RELATING TO THE NOTES, THE OFFERING AND THE EXCHANGE
SERVICING OUR DEBT WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH, AND OUR
ABILITY TO GENERATE SUFFICIENT CASH DEPENDS ON NUMEROUS FACTORS, MANY OF WHICH
ARE BEYOND OUR CONTROL.
Our ability to pay our expenses and to pay principal and interest on the
notes and our other debt depends on our ability to generate positive cash flow
in the future. Our ability to meet our expenses thus depends in part on the
future performance of our operating subsidiaries, which are subject to general
economic, financial, competitive, legislative and regulatory factors and other
factors that are beyond our control. We cannot assure you that our operations
will generate cash flow from operations in an amount sufficient to enable us to
pay principal and interest on our debt (including the notes) or to fund other
liquidity needs.
If we do not have sufficient cash flow from operations, we may be required
to incur additional indebtedness, refinance all or part of our existing debt
(including the notes) or sell assets. Our ability to borrow funds under our
credit facility in the future will depend on our meeting the financial covenants
in such credit facility, and we cannot guarantee that sufficient borrowings will
be available to us. If we are required to refinance our existing debt or sell
some of our assets, we cannot guarantee that we will be able to do so on terms
acceptable to us or at all. In addition, the terms of existing or future debt
agreements, including our credit facility, term loan and the indentures
governing our outstanding notes, may restrict us from effecting any of these
alternatives. Any inability to generate sufficient cash flow or refinance our
debt on favorable terms could significantly adversely affect our financial
condition, the value of the notes and our ability to pay the principal of and
interest on the notes.
17
WE DEPEND UPON DIVIDENDS FROM OUR SUBSIDIARIES TO MEET OUR DEBT SERVICE
OBLIGATIONS.
We are a holding company and conduct all of our operations through our
subsidiaries. Our ability to meet our debt service obligations depends upon our
receipt of dividends from our subsidiaries. Subject to the restrictions
contained in the indenture governing the notes and our other outstanding debt,
future borrowings by our subsidiaries could contain restrictions or prohibitions
on the payment of dividends by our subsidiaries to us. See "Description of
Notes--Certain Covenants." In addition, under applicable law, our subsidiaries
could be limited in the amounts that they are permitted to pay us as dividends
on their capital stock.
OUR INDENTURES AND OUR OTHER DEBT INSTRUMENTS IMPOSE SIGNIFICANT OPERATING
AND FINANCIAL RESTRICTIONS WHICH MAY LIMIT OUR ABILITY TO OPERATE OUR BUSINESS.
The indentures for the notes and our other outstanding notes and our other
debt instruments impose significant operating and financial restrictions on us.
These restrictions will limit our ability to, among other things:
- borrow money;
- pay dividends or make distributions on, or purchase or redeem, stock;
- make investments and extend credit;
- engage in transactions with our affiliates;
- consummate certain asset sales;
- consolidate or merge with another entity or sell, transfer, lease, or
otherwise dispose of all or substantially all of our assets; and
- create liens on our assets.
We cannot assure you that these covenants will not adversely affect our ability
to finance our future operations or capital needs or to pursue available
business opportunities.
In addition, such indentures and our other debt instruments require us to
maintain specified financial ratios and satisfy certain financial condition
tests which may require that we take action to reduce our debt or to act in a
manner contrary to our business objectives in order to avoid an event of
default. Events beyond our control, including changes in general economic and
business conditions, may affect our ability to meet those financial ratios and
financial condition tests. We cannot assure you that we will meet those tests or
that any failure to meet those tests will be waived. A breach of any of these
covenants or our inability to maintain the required financial ratios could
result in a default under the related indebtedness. If a default occurs, some or
all of our outstanding debt, together with accrued interest and other fees,
could be declared immediately due and payable.
THE GUARANTEES MAY BE VOIDED UNDER SPECIFIC LEGAL CIRCUMSTANCES.
The notes will be guaranteed by all of our existing and future significant
subsidiaries designated as restricted subsidiaries under the indenture. The
guarantee may be subject to review and possible avoidance under U.S. federal
bankruptcy law and comparable provisions of state fraudulent conveyance and
fraudulent transfer laws if a bankruptcy or reorganization case is commenced by
or against one of our subsidiary guarantors or a lawsuit is commenced or a
judgment is obtained by an unpaid creditor of one of our subsidiary guarantors.
Under these laws, if a court were to find in such a bankruptcy or reorganization
case or lawsuit that, at the time any subsidiary guarantor issued a guarantee of
the notes, the subsidiary guarantor:
- incurred the guarantee of the notes with the intent of hindering, delaying
or defrauding current or future creditors;
18
- was a defendant in an action for money damages or had a judgment for money
damages docketed against it if, in either case, after final judgment, the
judgment is unsatisfied;
- received less than reasonably equivalent value or fair consideration for
incurring the guarantee of the notes, and such subsidiary guarantor:
- was insolvent or was rendered insolvent by reason of issuing the
guarantee;
- was engaged, or about to engage, in a business or transaction for which
its remaining assets constituted unreasonably small capital to carry on
its business; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay as such debts matured;
(as all of the foregoing terms are defined in or interpreted under the relevant
fraudulent transfer or conveyance statutes), then such court could void the
guarantee of such guarantor or subordinate the amounts owing under such
guarantee to such guarantor's presently existing or future debt or take other
actions detrimental to you.
The measure of insolvency for purposes of these considerations will vary
depending upon the law of the jurisdiction that is being applied in any
proceeding. Generally, a company would be considered insolvent if, at the time
it incurred the debt or issued the guarantee, either:
- the sum of its debts (including contingent liabilities) is greater than
its assets, at fair valuation; or
- the present fair saleable value of its assets is less than the amount
required to pay the probable liability on its total existing debts and
liabilities (including contingent liabilities) as they become absolute and
matured.
If the guarantees of the notes were challenged, we cannot be sure as to the
standard that a court would use to determine whether any of our subsidiary
guarantors was solvent at the relevant time. If such a case were to occur, the
guarantee could also be subject to the claim that, since the guarantee was
incurred for our benefit, and only indirectly for the benefit of the subsidiary
guarantor, the obligations of the applicable subsidiary guarantor were incurred
for less than fair consideration. If a subsidiary guarantor were found to be
insolvent, a court could void the obligations under the guarantee, subordinate
the guarantee to the applicable subsidiary guarantor's other debt or take other
action detrimental to holders of the notes. If a guarantee is voided as a
fraudulent conveyance or fraudulent transfer or found to be unenforceable for
any other reason, you will not have a claim against that guarantor and will only
be a creditor of ours or any subsidiary guarantor whose obligation was not set
aside or found to be unenforceable.
IN THE EVENT WE AND/OR ONE OR MORE OF OUR SUBSIDIARIES WERE TO BECOME THE
SUBJECTS OF BANKRUPTCY CASES, THE COURT, UNDER APPROPRIATE CIRCUMSTANCES, MIGHT
ORDER THE SUBSTANTIVE CONSOLIDATION OF OUR ASSETS AND LIABILITIES WITH THOSE OF
OUR SUBSIDIARIES.
Substantive consolidation is a concept founded in the equitable powers of a
bankruptcy court and results in the consolidation of the assets and liabilities
of two entities and the payment of creditors as if they were all creditors of a
single economic unit. In general, substantive consolidation is imposed where
creditors of one entity justifiably relied upon the credit or financial
condition of other separate business entities as if they were one. Despite the
fact that we maintain our separateness from that of our subsidiaries and do not
hold ourselves out to be one and the same entity, the issuance of the guarantees
by certain of our subsidiaries, and the existence of numerous intercompany
agreements, might be seized upon by a bankruptcy court as a basis for imposing a
substantive consolidation of our assets and liabilities with those of one or
more of our subsidiaries in the event we and/or one or more of our subsidiaries
were to become the subjects of bankruptcy cases under the United States
Bankruptcy Code. If such a result were to occur, our assets would be made
available to satisfy not only
19
the claims of our own creditors but the claims of the creditors of our
subsidiaries, thereby diluting the potential recovery by our own creditors.
THE NOTES ARE UNSECURED AND EFFECTIVELY SUBORDINATED TO ANY SECURED
INDEBTEDNESS THAT WE OR THE SUBSIDIARY GUARANTORS MAY INCUR.
The notes will not be secured. While we and the subsidiary guarantors
currently do not have any material secured debt, under the terms of the
indenture governing the notes, we and the subsidiary guarantors may be able to
incur significant additional secured indebtedness without equally and ratably
securing the notes. If we become insolvent or are liquidated, or if payment
under any of our secured debt obligations is accelerated, our secured lenders
would be entitled to exercise the remedies available to a secured lender under
applicable law and will have a claim on their collateral before the holders of
the notes. As a result, the notes will be effectively subordinated to any
secured indebtedness we may incur in the future to the extent of the value of
the assets securing that indebtedness, and the holders of the notes may recover
ratably less than the lenders of our secured debt in the event of our bankruptcy
or liquidation. In addition, guarantees of the subsidiary guarantors will also
be unsecured. Any secured indebtedness that these subsidiaries may incur will be
effectively senior to such guarantee obligations.
THERE IS NO ESTABLISHED TRADING MARKET FOR THE NEW NOTES, WHICH MEANS THERE
ARE UNCERTAINTIES REGARDING THE ABILITY OF A HOLDER TO DISPOSE OF THE NEW NOTES
AND THE POTENTIAL SALE PRICE.
The notes constitute a new issue of securities and there is no established
trading market for the new notes. Even if this prospectus becomes effective,
which will generally allow resales of the new notes, the new notes will
constitute a new issue of securities with no established trading market. We do
not intend to apply for the notes to be listed on any securities exchange or to
arrange for quotation on any automated dealer quotation systems. The initial
purchasers have advised us that they intend to make a market in the notes, but
they are not obligated to do so. Each initial purchaser may discontinue any
market making in the notes at any time, in its sole discretion. As a result, we
are unable to assure you as to the liquidity of any trading market for the
notes.
We also cannot assure you that you will be able to sell your notes at a
particular time or that the prices that you receive when you sell will be
favorable. We also cannot assure you as to the level of liquidity of the trading
market for the notes or, in the case of any holders of notes that do not
exchange them, the trading market for the notes following the offer to exchange
the original notes for the new notes. Future trading prices of the notes will
depend on many factors, including:
- our operating performance and financial condition;
- our ability to complete the offer to exchange the original notes for the
new notes;
- the interest of securities dealers in making a market; and
- the market for similar securities.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused volatility in prices. It is possible that the
market for the notes and, if issued, the new notes will be subject to
disruptions. Any disruptions may have a negative effect on noteholders,
regardless of our prospects and financial performance.
WE MAY NOT BE ABLE TO SATISFY OUR OBLIGATIONS TO HOLDERS OF THE NOTES UPON A
CHANGE OF CONTROL.
Upon the occurrence of a "change of control," as defined in the indenture
related to the notes, each holder of notes will have the right to require us to
purchase the notes at a price equal to 101% of the principal amount, together
with any accrued and unpaid interest as of the date of repurchase. Our failure
to purchase, or give notice of purchase of, the notes would be a default under
the indenture, which would in turn be a default under our credit facility and
term loan. In addition, the indentures governing our 8 7/8% Senior Notes due
2008 and our 8 5/8% Senior Notes due 2011 also require us to
20
purchase such notes at a price equal to 101% of the principal amount thereof
plus accrued and unpaid interest upon the occurrence of a change of control.
Furthermore, a change of control may constitute an event of default under our
credit facility and term loan. A default under our credit facility and term loan
would result in an event of default under the indenture if the lenders were to
accelerate the debt under our credit facility and term loan.
If a change of control occurs, we may not have enough assets to satisfy all
obligations under the indenture related to the notes and our other debt
instruments. The source of funds for any purchase of notes pursuant to a change
of control will be our available cash or cash generated from our operations or
other sources, including borrowings, sales of assets or sales of equity. If we
did not have sufficient cash on hand, we could seek to refinance the
indebtedness under our credit facility, term loan and the notes or obtain a
waiver from the lenders or the holders of the notes. We cannot assure you,
however, that we would be able to obtain a waiver or refinance our indebtedness
on commercially reasonable terms, if at all. In addition, the terms of our
credit facility and term loan limit our ability to purchase the notes in those
circumstances and any of our future debt agreements may contain similar
restrictions and provisions. If the holders of the notes exercise their right to
require us to repurchase all of the notes upon a change of control, the
financial effect of this repurchase could cause a default under our other debt,
even if the change in control itself would not cause a default. Accordingly, it
is possible that we will not have sufficient funds at the time of the change of
control to make the required repurchase of notes or that restrictions in our
credit facility and term loan will not allow such repurchase.
IF YOU FAIL TO EXCHANGE YOUR ORIGINAL NOTES YOU WILL REMAIN SUBJECT TO THE
RESTRICTIONS ON TRANSFER DESCRIBED IN THE LEGEND ON YOUR ORIGINAL NOTES.
If you do not exchange your original notes for new notes in the exchange
offer, you will continue to be subject to the restrictions on transfer of your
original notes described in the legend on your original notes. The restrictions
on transfer of your original notes arise because we issued the original notes
under exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, you may only offer or sell the original notes if they are registered
under the Securities Act and applicable state securities laws, or offered and
sold under an exemption from those requirements. We do not intend to register
the original notes under the Securities Act. To the extent original notes are
tendered and accepted in the exchange offer, the trading market, if any, for the
original notes would be adversely affected. See "The Exchange
Offer--Consequences of Failure to Exchange."
BROKER-DEALERS OR NOTEHOLDERS MAY BECOME SUBJECT TO THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT.
Any broker-dealer that:
- exchanges its original notes in the exchange offer for the purpose of
participating in a distribution of the new notes, or
- resells new notes that were received by it for its own account in the
exchange offer,
may be deemed to have received restricted securities and may be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction by that broker-dealer.
Any profit on the resale of the new notes and any commission or concessions
received by a broker-dealer may be deemed to be underwriting compensation under
the Securities Act.
In addition to broker-dealers, any noteholder that exchanges its original
certificates in the exchange offer for the purpose of participating in a
distribution of the new notes may be deemed to have received restricted
securities and may be required to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction by that noteholder. See "Plan of Distribution."
21
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
On one or more occasions, we may make statements regarding our assumptions,
projections, expectations, targets, intentions or beliefs about future events.
All statements other than statements of historical facts included or
incorporated by reference in this prospectus, including, without limitation, the
statements under "Summary" and "Risk Factors" and located elsewhere in this
prospectus or incorporated by reference herein relating to expectations of
future financial performance, continued growth, changes in economic conditions
or capital markets and changes in customer usage patterns and preferences, are
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934.
Words or phrases such as "anticipates," "believes," "estimates," "expects,"
"intends," "plans," "predicts," "projects," "targets," "will likely result,"
"will continue" or similar expressions identify forward-looking statements.
Forward-looking statements involve risks and uncertainties which could cause
actual results or outcomes to differ materially from those expressed. We caution
that while we make such statements in good faith and we believe such statements
are based on reasonable assumptions, including without limitation, management's
examination of historical operating trends, data contained in records and other
data available from third parties, we cannot assure you that our projections
will be achieved.
In addition to other factors and matters discussed elsewhere in our
quarterly, annual and current reports that we and Crossmann file with the SEC,
and which are incorporated by reference into this prospectus, some important
factors that could cause actual results or outcomes for us to differ materially
from those discussed in forward-looking statements include:
- economic changes nationally or in our local markets;
- volatility of mortgage interest rates and inflation;
- increased competition;
- shortages of skilled labor or raw materials used in the production of
houses;
- increased prices for labor, land and raw materials used in the production
of houses;
- increased land development costs on projects under development;
- availability and cost of general liability and other types of insurance to
manage risks;
- any delays in reacting to changing consumer preference in home design;
- terrorist acts and other acts of war;
- changes in consumer confidence;
- difficulty of integrating our and Crossmann's operations;
- delays or difficulties in implementing initiatives to reduce production
and overhead cost structure;
- delays in land development or home construction resulting from adverse
weather conditions;
- potential delays or increased costs in obtaining necessary permits as a
result of changes to laws, regulations or governmental policies; or
- other factors over which we have little or no control.
Any forward-looking statement speaks only as of the date on which such
statement is made, and, except as required by law, we undertake no obligation to
update any forward-looking statement to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time and it is not
possible for management to predict all such factors.
22
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
We sold the original notes on April 17, 2002, in a transaction exempt from
the registration requirements of the Securities Act. The initial purchasers of
the original notes subsequently resold the original notes to qualified
institutional buyers in reliance on Rule 144A and under Regulation S under the
Securities Act.
In connection with the sale of original notes to the initial purchasers
pursuant to the purchase agreement, dated April 11, 2002, among us and the
initial purchasers named therein, the holders of the original notes became
entitled to the benefits of a registration rights agreement dated April 17,
2002, among us, the guarantors named therein and the initial purchasers.
The registration rights agreement provides that:
- Beazer will file an exchange offer registration statement with the SEC on
or prior to 90 days after April 17, 2002,
- Beazer will use its reasonable best efforts to cause the exchange offer
registration statement to be declared effective by the SEC within
150 days after April 17, 2002,
- unless the exchange offer would not be permitted by applicable law or SEC
policy, Beazer will use its reasonable best efforts to, on or prior to
180 days after April 17, 2002, complete the exchange of the new notes for
all original notes tendered prior thereto in the exchange offer, and
- if obligated to file the shelf registration statement, Beazer will use its
reasonable best efforts to file the shelf registration statement with the
SEC as promptly as practicable but in no event more than 45 days after
such filing obligation arises and to thereafter cause the shelf
registration statement to be declared effective by the SEC as promptly as
practicable thereafter. Beazer will be permitted to suspend use of the
prospectus that is part of the shelf registration statement during certain
periods of time and in certain circumstances relating to pending corporate
developments and public filings with the SEC and similar events.
The exchange offer being made by this prospectus, if consummated within the
required time periods, will satisfy our obligations under the registration
rights agreement. This prospectus, together with the letter of transmittal, is
being sent to all beneficial holders of original notes known to us.
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal, we will accept all original notes
properly tendered and not withdrawn prior to the expiration date. We will issue
$1,000 principal amount of new notes in exchange for each $1,000 principal
amount of outstanding original notes accepted in the exchange offer. Holders may
tender some or all of their original notes pursuant to the exchange offer.
Based on no-action letters issued by the staff of the SEC to third parties
we believe that holders of the new notes issued in exchange for original notes
may offer for resale, resell and otherwise transfer the new notes, other than
any holder that is an affiliate of ours within the meaning of Rule 405 under the
Securities Act, without compliance with the registration and prospectus delivery
provisions of the Securities Act. This is true as long as the new notes are
acquired in the ordinary course of the holder's business, the holder has no
arrangement or understanding with any person to participate in the distribution
of the new notes and neither the holder nor any other person is engaging in or
intends to engage in a distribution of the new notes. A broker-dealer that
acquired original notes directly from us cannot exchange the original notes in
the exchange offer. Any holder who tenders in the exchange offer for the purpose
of participating in a distribution of the new notes cannot rely on the no-action
letters
23
of the staff of the SEC and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
Each broker-dealer that receives new notes for its own account in exchange
for original notes, where such original notes were acquired by such
broker-dealer as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such new notes. See "Plan of Distribution" for additional information.
We shall be deemed to have accepted validly tendered original notes when, as
and if we have given oral or written notice of the acceptance of such notes to
the exchange agent. The exchange agent will act as agent for the tendering
holders of original notes for the purposes of receiving the new notes from the
issuer and delivering new notes to such holders.
If any tendered original notes are not accepted for exchange because of an
invalid tender or the occurrence of the conditions set forth under
"--Conditions" without waiver by us, certificates for any such unaccepted
original notes will be returned, without expense, to the tendering holder of any
such original notes as promptly as practicable after the expiration date.
Holders of original notes who tender in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
original notes, pursuant to the exchange offer. We will pay all charges and
expenses, other than certain applicable taxes in connection with the exchange
offer. See "--Fees and Expenses."
SHELF REGISTRATION STATEMENT
Pursuant to the registration rights agreement, if
- Beazer is not permitted to file the exchange offer registration statement
or consummate the exchange offer because the exchange offer is not
permitted by applicable law or SEC policy,
- the exchange offer is not consummated within 180 days after April 17,
2002,
- any holder (other than an initial purchaser) is prohibited by law or the
applicable interpretations of the SEC from participating in the exchange
offer,
- in the case of any holder that participates in the exchange offer, such
holder does not receive new notes on the date of the exchange that may be
sold without restriction under state and federal securities laws (other
than due solely to the status of such holder as an affiliate of ours),
- the initial purchaser so requests with respect to original notes that
have, or that are reasonably likely to be determined to have, the status
of unsold allotments in an initial distribution, or
- any holder of the new notes so requests, then
Beazer will file with the SEC a shelf registration statement to cover resales of
the notes by the holders thereof who satisfy certain conditions relating to the
provision of information in connection with the shelf registration statement.
Beazer will use its reasonable best efforts to cause the applicable
registration statement to be declared effective as promptly as possible by the
SEC. For purposes of the foregoing, "Transfer Restricted Securities" means each
original note, including notes acquired in a private exchange, until the earlier
to occur of:
- the date on which such original note has been exchanged by a person other
than a broker-dealer for a freely tradable new note in the exchange offer,
24
- following the exchange by a broker-dealer in the exchange offer of an
original note for a new note, the date on which such new note is sold to a
purchaser who receives from such broker-dealer on or prior to the date of
such sale a copy of the prospectus contained in the exchange offer
registration statement,
- the date on which such original note, including a note acquired in a
private exchange, has been effectively registered under the Securities Act
and disposed of in accordance with the shelf registration statement, or
- the date on which such original note, including a note acquired in a
private exchange, is distributed to the public pursuant to Rule 144 under
the Securities Act or is saleable pursuant to Rule 144(k) under the
Securities Act.
A holder that sells original notes pursuant to the shelf registration
statement generally must be named as a selling securityholder in the related
prospectus and must deliver a prospectus to purchasers, because a seller will be
subject to civil liability provisions under the Securities Act in connection
with these sales. A seller of the original notes also will be bound by
applicable provisions of the registration rights agreement, including
indemnification obligations. In addition, each holder of original notes must
deliver information to be used in connection with the shelf registration
statement and provide comments on the shelf registration statement in order to
have its original notes included in the shelf registration statement and benefit
from the provisions regarding any liquidated damages in the registration rights
agreement.
ADDITIONAL INTEREST IN CERTAIN CIRCUMSTANCES
If any of the following, each a "registration default," occurs:
- the exchange offer registration statement is not filed with the SEC on or
before the 90th calendar day following April 17, 2002 or, if that day is
not a business day, then the next day that is a business day;
- the exchange offer registration statement is not declared effective on or
before the 150th calendar day following April 17, 2002 or, if that day is
not a business day, then the next day that is a business day;
- the exchange offer is not completed on or before the 180th calendar day
following April 17, 2002 or, if that day is not a business day, then the
next day that is a business day; or
- the shelf registration statement is required to be filed but is not filed
or declared effective within the time periods required by the registration
rights agreement or is declared effective but thereafter ceases to be
effective or usable (subject to certain exceptions),
the interest rate borne by the notes will be increased by 0.25% per annum upon
the occurrence of a registration default. This rate will continue to increase by
0.25% each 90 day period that the liquidated damages (as defined below) continue
to accrue under any such circumstance. However, the maximum total increase in
the interest rate will in no event exceed one percent (1.0%) per year. We refer
to this increase in the interest rate on the notes as "liquidated damages." Such
interest is payable in addition to any other interest payable from time to time
with respect to the original notes and the new notes in cash on each interest
payment date to the holders of record for such interest payment date. After the
cure of registration defaults, the accrual of liquidated damages will stop and
the interest rate will revert to the original rate.
Under certain circumstances, we may delay the filing or the effectiveness of
the exchange offer or the shelf registration and shall not be required to
maintain its effectiveness or amend or supplement it for a period of up to
60 days during any 12-month period. Any delay period will not alter our
obligation to pay liquidated damages with respect to a registration default.
25
The sole remedy available to the holders of the original notes will be the
immediate increase in the interest rate on the original notes as described
above. Any amounts of additional interest due as described above will be payable
in cash on the same interest payment dates as the original notes.
EXPIRATION DATE; EXTENSIONS; AMENDMENT
We will keep the exchange offer open for not less than 20 business days, or
longer if required by applicable law, after the date on which notice of the
exchange offer is mailed to the holders of the original notes. The term
"expiration date" means the expiration date set forth on the cover page of this
prospectus, unless we extend the exchange offer, in which case the term
"expiration date" means the latest date to which the exchange offer is extended.
In order to extend the expiration date, we will notify the exchange agent of
any extension by oral or written notice and will issue a public announcement of
the extension, each prior to 5:00 p.m., New York City time, on the next business
day after the previously scheduled expiration date.
We reserve the right
- to delay accepting any original notes, to extend the exchange offer or to
terminate the exchange offer and not accept original notes not previously
accepted if any of the conditions set forth under "--Conditions" shall
have occurred and shall not have been waived by us, if permitted to be
waived by us, by giving oral or written notice of such delay, extension or
termination to the exchange agent, or
- to amend the terms of the exchange offer in any manner deemed by us to be
advantageous to the holders of the original notes.
Any delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice. If the exchange
offer is amended in a manner determined by us to constitute a material change,
we will promptly disclose such amendment in a manner reasonably calculated to
inform the holders of the original notes of such amendment. Depending upon the
significance of the amendment, we may extend the exchange offer if it otherwise
would expire during such extension period.
Without limiting the manner in which we may choose to make a public
announcement of any extension, amendment or termination of the exchange offer,
we will not be obligated to publish, advertise, or otherwise communicate any
such announcement, other than by making a timely release to an appropriate news
agency.
EXCHANGE OFFER PROCEDURES
To tender in the exchange offer, a holder must complete, sign and date the
letter of transmittal, or a facsimile thereof, have the signatures on the letter
of transmittal guaranteed if required by instruction 2 of the letter of
transmittal, and mail or otherwise deliver the letter of transmittal or such
facsimile or an agent's message in connection with a book entry transfer,
together with the original notes and any other required documents. To be validly
tendered, such documents must reach the exchange agent before 5:00 p.m., New
York City time, on the expiration date. Delivery of the original notes may be
made by book-entry transfer in accordance with the procedures described below.
Confirmation of such book-entry transfer must be received by the exchange agent
prior to the expiration date.
The term "agent's message" means a message, transmitted by a book-entry
transfer facility to, and received by, the exchange agent, forming a part of a
confirmation of a book-entry transfer, which states that such book-entry
transfer facility has received an express acknowledgment from the participant in
such book-entry transfer facility tendering the original notes that such
participant has received and
26
agrees to be bound by the terms of the letter of transmittal and that we may
enforce such agreement against such participant.
The tender by a holder of original notes will constitute an agreement
between such holder and us in accordance with the terms and subject to the
conditions set forth in this prospectus and in the letter of transmittal.
Delivery of all documents must be made to the exchange agent at its address
set forth below. Holders may also request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect such tender for such
holders.
Each broker-dealer that receives new notes for its own account in exchange
for original notes, where such original notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such new notes. See "Plan of Distribution."
THE METHOD OF DELIVERY OF ORIGINAL NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDERS. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY TO THE EXCHANGE AGENT BEFORE 5:00 P.M., NEW
YORK CITY TIME, ON THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR ORIGINAL
NOTES SHOULD BE SENT TO US.
Only a holder of original notes may tender original notes in the exchange
offer. The term "holder" with respect to the exchange offer means any person in
whose name original notes are registered on our books or any other person who
has obtained a properly completed bond power from the registered holder.
Any beneficial holder whose original notes are registered in the name of its
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on its behalf. If such beneficial holder wishes to
tender on its own behalf, such registered holder must, prior to completing and
executing the letter of transmittal and delivering its original notes, either
make appropriate arrangements to register ownership of the original notes in
such holder's name or obtain a properly completed bond power from the registered
holder. The transfer of record ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, must be
guaranteed by an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Securities Exchange Act of 1934, unless the original
notes are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter of
transmittal or
- for the account of an eligible guarantor institution.
In the event that signatures on a letter of transmittal or a notice of
withdrawal are required to be guaranteed, such guarantee must be by an eligible
guarantor institution.
If a letter of transmittal is signed by a person other than the registered
holder of any original notes listed therein, such original notes must be
endorsed or accompanied by appropriate bond powers and a proxy which authorizes
such person to tender the original notes on behalf of the registered holder, in
each case signed as the name of the registered holder or holders appears on the
original notes.
If a letter of transmittal or any original notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or
27
representative capacity, such persons should so indicate when signing, and
unless waived by us, evidence satisfactory to us of their authority so to act
must be submitted with such letter of transmittal.
All questions as to the validity, form, eligibility, including time of
receipt, and withdrawal of the tendered original notes will be determined by us
in our sole discretion, which determination will be final and binding. We
reserve the absolute right to reject any and all original notes not properly
tendered or any original notes our acceptance of which, in the opinion of
counsel for us, would be unlawful. We also reserve the absolute right to waive
any irregularities or conditions of tender as to particular original notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of original notes must be cured within such time as we shall determine. None of
us, the exchange agent or any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of original
notes, nor shall any of them incur any liability for failure to give such
notification. Tenders of original notes will not be deemed to have been made
until such irregularities have been cured or waived. Any original notes received
by the exchange agent that are not properly tendered and as to which the defects
or irregularities have not been cured or waived will be returned by the exchange
agent to the tendering holders of original notes without cost to such holder,
unless otherwise provided in the relevant letter of transmittal, as soon as
practicable following the expiration date.
In addition, we reserve the absolute right in our sole discretion to:
- purchase or make offers for any original notes that remain outstanding
subsequent to the expiration date or, as set forth under "--Conditions,"
to terminate the exchange offer in accordance with the terms of the
registration rights agreement and
- to the extent permitted by applicable law, purchase original notes in the
open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers may differ from the terms of the
exchange offer.
By tendering, each holder will represent to us that, among other things,
- such holder or other person is not our "affiliate," as defined under
Rule 405 of the Securities Act, or, if such holder or other person is such
an affiliate, will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable,
- the new notes acquired pursuant to the exchange offer are being obtained
in the ordinary course of business of such holder or other person,
- neither such holder or other person has any arrangement or understanding
with any person to participate in the distribution of such new notes in
violation of the Securities Act, and
- if such holder is not a broker-dealer, neither such holder nor such other
person is engaged in or intends to engage in a distribution of the new
notes.
We understand that the exchange agent will make a request promptly after the
date of this prospectus to establish accounts with respect to the original notes
at The Depository Trust Company for the purpose of facilitating the exchange
offer, and subject to the establishment of such accounts, any financial
institution that is a participant in The Depository Trust Company's system may
make book-entry delivery of original notes by causing The Depository Trust
Company to transfer such original notes into the exchange agent's account with
respect to the original notes in accordance with The Depository Trust Company's
procedures for such transfer. Although delivery of the original notes may be
effected through book-entry transfer into the exchange agent's account at The
Depository Trust Company, a letter of transmittal properly completed and duly
executed with any required signature guarantee, or an agent's message in lieu of
a letter of transmittal, and all other required documents
28
must in each case be transmitted to and received or confirmed by the exchange
agent at its address set forth below on or prior to the expiration date, or, if
the guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures. Delivery of documents to The
Depository Trust Company does not constitute delivery to the exchange agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their original notes and
- whose original notes are not immediately available; or
- who cannot deliver their original notes, the letter of transmittal or any
other required documents to the exchange agent prior to 5:00 p.m., New
York City time, on the expiration date of the exchange offer; or
- who cannot complete the procedures for delivery by book-entry transfer
prior to 5:00 p.m., New York City time, on the expiration date of the
exchange offer, may effect a tender if:
- the tender is made by or through an "eligible guarantor institution;"
- prior to 5:00 p.m., New York City time, on the expiration date of the
exchange offer, the exchange agent receives from such "eligible
guarantor institution" a properly completed and duly executed Notice of
Guaranteed Delivery, by facsimile transmission, mail or hand delivery,
setting forth the name and address of the holder of the original notes,
the certificate number or numbers of such original notes and the
principal amount of original notes tendered, stating that the tender is
being made thereby, and guaranteeing that, within three business days
after the expiration date, a letter of transmittal, or facsimile
thereof or agent's message in lieu of such letter of transmittal,
together with the certificate(s) representing the original notes to be
tendered in proper form for transfer and any other documents required
by the letter of transmittal will be deposited by the eligible
guarantor institution with the exchange agent; and
- a properly completed and duly executed letter of transmittal (or
facsimile thereof) together with the certificate(s) representing all
tendered original notes in proper form for transfer or an agent's
message in the case of delivery by book-entry transfer and all other
documents required by the letter of transmittal are received by the
exchange agent within three business days after the expiration date.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of original notes
may be withdrawn at any time prior to 5:00 p.m., New York City time, on the
expiration date.
To withdraw a tender of original notes in the exchange offer, a written or
facsimile transmission notice of withdrawal must be received by the exchange
agent at its address set forth in this prospectus prior to 5:00 p.m., New York
City time, on the expiration date. Any such notice of withdrawal must:
- specify the name of the depositor, who is the person having deposited the
original notes to be withdrawn,
- identify the original notes to be withdrawn, including the certificate
number or numbers and principal amount of such original notes or, in the
case of original notes transferred by book-entry transfer, the name and
number of the account at The Depository Trust Company to be credited,
- be signed by the depositor in the same manner as the original signature on
the letter of transmittal by which such original notes were tendered,
including any required signature
29
guarantees, or be accompanied by documents of transfer sufficient to have
the trustee with respect to the original notes register the transfer of
such original notes into the name of the depositor withdrawing the tender
and
- specify the name in which any such original notes are to be registered, if
different from that of the depositor.
All questions as to the validity, form and eligibility, including time of
receipt, of such withdrawal notices will be determined by us, and our
determination shall be final and binding on all parties. Any original notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
exchange offer and no new notes will be issued with respect to the original
notes withdrawn unless the original notes so withdrawn are validly retendered.
Any original notes which have been tendered but which are not accepted for
exchange will be returned to its holder without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer. Properly withdrawn original notes may be retendered by following one of
the procedures described above under "Exchange Offer Procedures" at any time
prior to the expiration date.
CONDITIONS
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or exchange, any new notes for any original
notes, and may terminate or amend the exchange offer before the expiration date,
if the exchange offer violates any applicable law or interpretation by the staff
of the SEC.
If we determine in our reasonable discretion that the foregoing condition
exists, we may
- refuse to accept any original notes and return all tendered original notes
to the tendering holders,
- extend the exchange offer and retain all original notes tendered prior to
the expiration of the exchange offer, subject, however, to the rights of
holders who tendered such original notes to withdraw their tendered
original notes, or
- waive such condition, if permissible, with respect to the exchange offer
and accept all properly tendered original notes which have not been
withdrawn. If such waiver constitutes a material change to the exchange
offer, we will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the holders, and we will extend the
exchange offer as required by applicable law.
EXCHANGE AGENT
U.S. Bank National Association has been appointed as exchange agent for the
exchange offer. Questions and requests for assistance and requests for
additional copies of this prospectus or of the letter of transmittal should be
directed to U.S. Bank National Association addressed as follows:
BY MAIL, OVERNIGHT COURIER OR HAND DELIVERY:
U.S. Bank National Association
180 East 5th Street
4th Floor
St. Paul, MN 55101
Attention: Specialized Finance Department
Reference: Beazer Homes USA, Inc. Exchange
30
BY FACSIMILE:
(651) 244-1537
Attention: Specialized Finance Department
Reference: Beazer Homes USA, Inc. Exchange
TO CONFIRM BY TELEPHONE OR FOR INFORMATION:
(800) 934-6802
Reference: Beazer Homes USA, Inc. Exchange
U.S. Bank National Association is the trustee under the indenture governing
the original notes and the new notes.
FEES AND EXPENSES
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the exchange offer. The estimated cash expenses to be incurred in
connection with the exchange offer will be paid by us. Such expenses include
fees and expenses of U.S. Bank National Association as exchange agent,
accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The new notes will be recorded at the same carrying value as the original
notes as reflected in our accounting records on the date of exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by us.
The expenses of the exchange offer and the unamortized expenses related to the
issuance of the original notes will be amortized over the term of the new notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of original notes who are eligible to participate in the exchange
offer but who do not tender their original notes will not have any further
registration rights, and their original notes will continue to be subject to
restrictions on transfer of the original notes as described in the legend on the
original notes as a consequence of the issuance of the original notes under
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the original notes may not be offered or sold, unless registered under
the Securities Act, except under an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws.
REGULATORY APPROVALS
We do not believe that the receipt of any material federal or state
regulatory approval will be necessary in connection with the exchange offer,
other than the effectiveness of the exchange offer registration statement under
the Securities Act.
OTHER
Participation in the exchange offer is voluntary and holders of original
notes should carefully consider whether to accept the terms and condition of
this exchange offer. Holders of the original notes are urged to consult their
financial and tax advisors in making their own decisions on what action to take
with respect to the exchange offer.
31
USE OF PROCEEDS
This exchange offer is intended to satisfy our obligations to register the
outstanding notes under the registration rights agreement entered into in
connection with the offering of the original notes. We will not receive any cash
proceeds from the issuance of the new notes. In consideration for issuing the
new notes, we will receive the outstanding original notes in like principal
amount, the terms of which are identical in all material respects to the terms
of the new notes, except as otherwise described herein. The original notes
surrendered in exchange for the new notes will be retired and cancelled and
cannot be reissued.
The net proceeds from the sale of the original notes after deducting the
discounts and commissions to the initial purchasers and estimated offering
expenses were approximately $343.0 million. We used the net proceeds that we
received from the sale of the original notes (1) to fund the cash portion of the
acquisition of Crossmann of approximately $191.6 million, (2) to repay
Crossmann's outstanding net indebtedness, which consisted of $50.0 million of
senior notes due 2008 with an interest rate of 7 3/4% per annum, $8.3 million of
senior notes due 2004 with an interest rate of 7 5/8% per annum and
$67.1 million outstanding on a revolving credit facility due 2004 with a
fluctuating interest rate based on prime and LIBOR, totaling approximately
$125.4 million and to pay accrued and unpaid interest and associated make-whole
amounts, (3) to reduce borrowings under our revolving credit facility of
approximately $14.0 million and (4) to pay related fees, commissions and other
expenses of approximately $12.0 million.
32
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2002 and
as adjusted to give effect to the acquisition of Crossmann, the sale of the
original notes and the use of net proceeds therefrom. This table should be read
in conjunction with our consolidated financial statements, including the notes
thereto, incorporated herein by reference, and the section entitled "Unaudited
Pro Forma Combined Condensed Financial Information" contained herein.
AS OF MARCH 31, 2002
-------------------------
ACTUAL AS ADJUSTED
-------- -----------
($ IN THOUSANDS)
DEBT:
Revolving credit facility................................. $ -- $ --
Term loan................................................. 100,000 100,000
8 7/8% Senior notes due 2008 (net of discount of
$1,331)................................................. 98,669 98,669
8 5/8% Senior notes due 2011 (net of discount of
$3,147)................................................. 196,853 196,853
Notes from offering (net of discount of $7,000)........... -- 343,000
-------- ----------
Total debt................................................ 395,522 738,522
-------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares
authorized and no shares issued and outstanding......... -- --
Common stock, $.01 par value; 30,000,000 shares
authorized; 12,566,435 shares issued and 8,736,359
shares outstanding on an actual basis and 16,418,413
shares issued and 12,588,337 shares outstanding on an as
adjusted basis.......................................... 126(1) 164
Additional paid-in capital................................ 204,552 512,650
Retained earnings......................................... 263,297 263,297
Treasury stock (3,830,076 shares)......................... (63,679) (63,679)
Unearned restricted stock................................. (1,506) (1,506)
Accumulated other comprehensive loss...................... (2,025) (2,025)
-------- ----------
Total stockholders' equity................................ 400,765 708,901
-------- ----------
Total capitalization...................................... $796,287 $1,447,423
======== ==========
- ------------------------
(1) Excludes an aggregate of 1,100,269 shares of our common stock reserved for
outstanding options under our Amended and Restated 1994 Stock Incentive
Plan, Amended and Restated 1999 Stock Incentive Plan and our Non-Employee
Director Stock Option Plan.
33
BEAZER SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Our selected historical consolidated financial data set forth below for each
of the five years ended September 30, 1997 through 2001 are derived from our
audited consolidated financial statements. Our selected historical consolidated
financial data set forth below for the six months ended March 31, 2001 and 2002
are derived from our unaudited consolidated financial statements. These
historical results are not necessarily indicative of the results to be expected
in the future. You should also read our historical consolidated financial
statements and related notes included in our Annual Report on Form 10-K for the
year ended September 30, 2001 and our Quarterly Report on Form 10-Q for the six
months ended March 31, 2002 incorporated by reference herein, as well as the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Beazer" in Beazer's Annual Report on Form 10-K
incorporated by reference herein.
SIX MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------------------------------------- ---------------------
1997 1998 1999 2000 2001 2001 2002
-------- -------- ---------- ---------- ---------- -------- ----------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Total revenue......................... $852,110 $977,409 $1,394,074 $1,527,865 $1,805,177 $739,347 $ 993,029
Operating income...................... 17,656(1) 36,916 61,800 75,623 122,229 52,066 75,353
Net income............................ 11,189(1) 23,201 36,934 43,606 74,876(2) 31,839 47,327
Net income per common share:
Basic............................... $ 1.18(1) $ 3.27 $ 4.59 $ 5.28 $ 9.19(2) $ 3.92 $ 5.59
Diluted............................. 1.15(1) 2.66 4.15 5.05 8.18(2) 3.52 5.02
BALANCE SHEET DATA (END OF PERIOD):
Inventory............................. $361,945 $405,095 $ 532,559 $ 629,663 $ 844,737 $719,254 $ 923,831
Total assets.......................... 399,595 525,591 594,568 696,228 995,289 786,832 1,018,456
Total debt............................ 143,155 211,324 211,836 252,349 395,238 342,121 395,522
Stockholders' equity.................. 179,286 199,224 234,662 270,538 351,195 302,589 400,765
SUPPLEMENTAL FINANCIAL DATA:
Cash provided by (used in):
Operating activities................ $(20,467) $ 27,149 $ 34,080 $ (18,726) $ (29,415) $(83,468) $ (37,374)
Investing activities................ (9,445) (23,741) (98,004) (11,805) (72,835) (2,842) (4,689)
Financing activities................ 18,237 62,933 (3,684) 30,531 143,928 86,310 385
EBIT(3)............................. 33,051(1) 56,525 86,013 99,189 157,185 66,259 93,523
EBITDA(3)........................... 35,272(1) 59,794 91,521 106,041 166,438 70,387 97,360
Interest incurred..................... 16,159 21,259 26,874 30,897 35,825 16,272 17,789
EBIT/Interest incurred................ 2.05x 2.66x 3.20x 3.21x 4.39x 4.07x 5.26x
EBITDA/Interest incurred.............. 2.18x 2.81x 3.41x 3.43x 4.65x 4.33x 5.47x
Ratio of earnings to fixed
charges(4).......................... 2.00x 2.55x 3.06x 3.08x 4.16x 3.89x 4.96x
FINANCIAL STATISTICS:
Total debt as a percentage of total
debt and stockholders' equity....... 44.4% 51.5% 47.4% 48.3% 53.0% 53.1% 49.7%
Asset turnover(5)..................... 2.25x 2.11x 2.49x 2.37x 2.13x 1.99x 1.97x
EBIT margin(5)........................ 3.9% 5.8% 6.2% 6.5% 8.7% 9.0% 9.4%
Return on average assets(5)........... 8.7% 12.2% 15.4% 15.4% 18.6% 17.9% 18.6%
Return on average capital(5).......... 10.7% 15.3% 19.9% 20.4% 24.8% 22.7% 24.2%
Return on average equity(5)........... 6.3% 12.3% 17.0% 17.3% 24.1% 22.2% 25.2%
- ------------------------------
(1) Fiscal 1997 results include the effect of a $6.3 million (pre-tax)
writedown.
(2) Fiscal 2001 results include the effect of a $0.7 million extraordinary loss
(net of taxes) on the early extinguishment of debt. Excluding this
extraordinary loss, net income, basic net income per share and diluted net
income per share for fiscal 2001 are $75.6 million, $9.28 and $8.26,
respectively.
(3) EBIT and EBITDA: EBIT (earnings before interest and taxes) equals net income
before (a) previously capitalized interest amortized to costs and expenses;
(b) income taxes; and (c) extraordinary item. EBITDA (earnings before
interest, taxes, depreciation and amortization) is calculated by adding
depreciation and amortization for the period to EBIT. EBITDA is commonly
used to analyze companies on the basis of operating performance, leverage
and liquidity. EBITDA as presented may not be comparable to similarly titled
measures reported by other companies because not all companies calculate
34
EBITDA in an identical manner and, therefore, it is not necessarily an
accurate means of comparison between companies. EBIT and EBITDA are not
intended to represent cash flows for the period nor have they been presented
as an alternative to net income as an indicator of operating performance and
they should not be considered in isolation or as a substitute for measures
of performance prepared in accordance with accounting principles generally
accepted in the United States of America.
(4) Computed by dividing earnings by fixed charges. "Earnings" consist of
(i) income from operations before income taxes; (ii) amortization of
previously capitalized interest and (iii) fixed charges, exclusive of
capitalized interest costs. "Fixed charges" consist of (i) interest
incurred; (ii) amortization of deferred loan costs and (iii) that portion of
operating lease rental expense (33%) deemed to be representative of
interest.
(5) Asset turnover is equal to total revenue divided by average total assets;
EBIT margin is equal to EBIT divided by total revenue; Return on average
assets is equal to EBIT divided by average total assets; Return on average
capital is equal to EBIT divided by average total debt plus stockholders'
equity; Return on average equity is equal to net income divided by average
stockholders' equity.
35
CROSSMANN SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data of Crossmann set forth
below as of and for each of the five years ended December 31, 1997 through 2001
are derived from the audited consolidated financial statements of Crossmann. The
Crossmann selected historical consolidated financial data set forth below for
the three months ended March 31, 2001 and 2002 are derived from Crossmann's
unaudited consolidated financial statements. The historical results presented
below are not necessarily indicative of the results to be expected in the future
following our merger with Crossmann. You should also read the Crossmann audited
financial statements and related notes, as well as the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Crossmann" in Crossmann's Annual Report on Form 10-K for the year
ended December 31, 2001, which are incorporated by reference herein.
THREE MONTHS
ENDED
FISCAL YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1997 1998 1999 2000 2001 2001 2002
-------- -------- -------- -------- -------- -------- --------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Sales.......................................... $316,435 $421,926 $609,319 $621,038 $798,356 $109,770 $141,556
Net income..................................... 20,006 29,872 39,737 35,779 53,683 4,303 5,506
Net income per common share
Basic........................................ $ 2.05 $ 2.63 $ 3.44 $ 3.33 $ 5.09 $ 0.41 $ 0.51
Diluted...................................... 2.02 2.57 3.40 3.28 5.01 0.40 0.51
OPERATING DATA:
Number of new orders, net of cancellations..... 2,848 4,378 4,852 5,318 5,897 2,507 1,575
Number of closings(1).......................... 2,774 3,714 5,100 4,804 5,924 793 1,023
Homes in backlog at end of period(2)........... 1,080 1,744 1,496 2,010 1,983 3,724 2,535
Average home sales price....................... $ 114.1 $ 113.6 $ 119.5 $ 129.3 $ 134.8 $ 138.4 $ 138.4
BALANCE SHEET DATA (AT PERIOD END):
Total assets................................... $185,276 $283,794 $339,875 $373,903 $429,618 $381,417 $423,401
Notes payable.................................. 51,122 101,223 119,959 141,287 118,333 142,417 117,933
Stockholders' equity........................... 110,803 150,281 188,479 207,710 264,407 212,068 274,013
- ------------------------------
(1) A home is included in "closings" when title is transferred to the buyer.
Sales and cost of sales for a house are recognized at the date of closing.
(2) A home is included in the "backlog" after a sales contract is executed and
prior to the transfer of title to the purchaser. Because the closings of
pending sales contracts are subject to contingencies, no assurances can be
given that homes in backlog will result in closings.
36
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed statements of
operations for the year ended September 30, 2001 and the six months ended
March 31, 2002 and the unaudited combined condensed balance sheet as of
March 31, 2002 have been prepared to reflect our purchase of the common stock of
Crossmann. The total purchase price for Crossmann's common stock was
$511.4 million, which includes the value of the cash and equity consideration
and estimated merger costs. The aggregate consideration paid in the merger
consists of approximately $191.3 million in cash and approximately 3.9 million
shares of our common stock (valued at $308.1 million). The purchase price
includes $17.60 in cash per Crossmann share outstanding as of March 31, 2002,
and 0.3544 of a share of Beazer common stock for each share of Crossmann common
stock outstanding as of March 31, 2002. This calculation, which was made in
accordance with the provisions of the merger agreement, includes the final
exchange ratio of 0.3544, which was determined by using the average closing
price of our common stock, as reported on the New York Stock Exchange, for the
15 consecutive trading days ending on, and including, the third trading day
prior to the Crossmann shareholder meeting. Beazer common stock is valued for
accounting purposes at $80 per share, the average market price of Beazer's
common stock a few days before and after the date of finalization of the
exchange ratio. The unaudited pro forma combined condensed balance sheet
reflects the combined financial position of Beazer and Crossmann as of
March 31, 2002, assuming that the acquisition of Crossmann by Beazer had taken
place on March 31, 2002. The unaudited pro forma combined condensed statements
of operations reflect the combined results of operations of Beazer and Crossmann
assuming that the merger had taken place on October 1, 2000.
On March 18, 2002, Crossmann notified the holders of its outstanding 7 5/8%
Senior Notes due 2004 and 7 3/4% Senior Notes due 2008 that it would exercise
its option to prepay all of such outstanding notes, for a price equal to the
outstanding principal amount and accrued but unpaid interest thereon, plus a
make-whole amount. The notes were prepaid on April 17, 2002. The make-whole
amount was approximately $0.5 million with respect to the 7 5/8% Senior Notes
due 2004 and $4.8 million with respect to the 7 3/4% Senior Notes due 2008.
The acquisition of Crossmann was financed with the offering of the original
notes.
Under accounting principles generally accepted in the United States of
America, the merger of Crossmann into our subsidiary will be accounted for under
the purchase method. The valuations and other studies required to determine the
fair value of the Crossmann assets acquired and liabilities assumed are
currently being performed. As a result, the excess purchase price has
tentatively been allocated to goodwill and the purchase price will be allocated
to the Crossmann tangible and intangible assets acquired and liabilities assumed
based on their respective fair values, with the excess to be allocated to
goodwill. Accordingly, the related adjustments reflected in the unaudited pro
forma combined condensed financial statements are preliminary and subject to
adjustments, which could be material, as further fair value information is
obtained.
On August 1, 2001, we acquired the residential homebuilding operations of
SHOC and April, collectively referred to herein as Sanford. The assets,
liabilities and operating results of Sanford have been included in our
historical financial statements since the acquisition date. However, the
accompanying pro forma combined condensed statement of operations for the year
ended September 30, 2001 also assumes that the acquisition of Sanford had been
completed on October 1, 2000.
Pro forma adjustments have been made in the accompanying statements to
reflect the impact of purchase accounting for and financing of the Crossmann and
Sanford acquisitions under SFAS No. 141. Goodwill arising from the Sanford
acquisition is not, and goodwill arising from the Crossmann acquisition will not
be, amortized in our historical financial statements and accordingly is not
amortized
37
in the accompanying pro forma statements of operations. This goodwill will be
subject to impairment tests in the future.
The unaudited pro forma combined condensed financial information is provided
for comparative purposes only and does not purport to be indicative of the
results that would actually have been obtained had the acquisition been effected
on October 1, 2000 nor of the results which may be obtained in the future. The
unaudited pro forma combined condensed financial information should be read in
conjunction with our historical financial statements and notes thereto, which
are incorporated by reference herein from our Annual Report on Form 10-K for the
year ended September 30, 2001, our historical financial statements and notes
thereto, which are incorporated by reference herein from our quarterly reports
on Form 10-Q for the quarters ended December 31, 2001 and March 31, 2002, the
historical financial statements and notes thereto of Crossmann which are
incorporated by reference herein from Crossmann's Annual Report on Form 10-K for
the year ended December 31, 2001, the unaudited consolidated financial
statements and notes of Crossmann as of March 31, 2002 included herein, and the
historical combined financial statements and notes of Sanford, which are
incorporated by reference herein from our Current Report on Form 8-K/A dated
October 15, 2001.
38
BEAZER HOMES USA, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 2002
(DOLLARS IN THOUSANDS)
BEAZER
BEAZER CROSSMANN PRO FORMA PRO FORMA
HISTORICAL(1) HISTORICAL(1) ADJUSTMENTS COMBINED
------------- ------------- ----------- ----------
ASSETS
Cash and cash equivalents.................... $ -- $ 7,948 $(191,295)(3) $ 23,420
206,767
Inventory.................................... 923,831 330,889 -- 1,254,720
Property, plant & equipment, net............. 12,781 10,185 -- 22,966
Goodwill, net................................ 14,094 20,606 242,718 (3) 277,418
Other assets................................. 67,750 53,773 1,000 (4) 122,523
---------- -------- --------- ----------
Total assets............................... $1,018,456 $423,401 $ 259,190 $1,701,047
========== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable....................... $ 69,630 $ 14,180 $ -- $ 83,810
Other payables and accrued liabilities....... 152,539 17,275 -- 169,814
Revolving credit facility.................... -- 59,600 (59,600)(4) --
Other debt................................... 395,522 58,333(2) (58,333)(4) 738,522
343,000 (4)
---------- -------- --------- ----------
Total liabilities.......................... 617,691 149,388 225,067 992,146
Stockholders' equity......................... 400,765 274,013 308,136 (3) 708,901
(274,013)(3)
---------- -------- --------- ----------
Total liabilities and stockholders' equity... $1,018,456 $423,401 $ 259,190 $1,701,047
========== ======== ========= ==========
- ------------------------
Pro forma adjustments to unaudited combined condensed balance sheet as of
March 31, 2002:
(1) For purposes of this unaudited pro forma combined condensed balance sheet,
our and Crossmann's balance sheets have been included as of March 31, 2002
and have been derived from our unaudited financial statements and
Crossmann's unaudited financial statements.
(2) On March 18, 2002, Crossmann notified the holders of its outstanding 7 5/8%
Senior Notes due 2004 and 7 3/4% Senior Notes due 2008 that it would
exercise its option to prepay all of such outstanding notes, for a price
equal to the outstanding principal amount and accrued but unpaid interest
thereon, plus a make-whole amount. The notes were prepaid on April 17, 2002.
The make-whole amount was approximately $0.5 million with respect to the
7 5/8% Senior Notes due 2004 and $4.8 million with respect to the 7 3/4%
Senior Notes due 2008. Such make-whole premium is added to goodwill in
accounting for the acquisition (see note 3).
39
BEAZER HOMES USA, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET (CONTINUED)
MARCH 31, 2002
(DOLLARS IN THOUSANDS)
(3) Reflects the acquisition of Crossmann for cash and shares of Beazer common
stock. A preliminary estimate of the excess of the purchase price over
identifiable tangible and intangible net assets of Crossmann is summarized
as follows:
Purchase Price(a):
Cash ($17.60 per Crossmann share)......................... $191,295
Beazer Common Stock ($28.35 per Crossmann share).......... 308,136
--------
Purchase price of acquisition............................. 499,431
Estimated merger expenses(b)................................ 12,000
--------
Total cost of acquisition................................. 511,431
Less net book value of Crossmann............................ (274,013)
Plus make-whole premium (see note 2)........................ 5,300
--------
Excess purchase price to be assigned in acquisition,
tentatively allocated to goodwill....................... $242,718
========
(a) Based upon 10,869,012 shares of Crossmann common stock outstanding at
March 31, 2002. The purchase price includes $17.60 in cash per Crossmann
share outstanding as of March 31, 2002, and 0.3544 of a share of Beazer
common stock for each share of Crossmann common stock outstanding as of
March 31, 2002. Beazer common stock is valued at $80 per share, the
average market price of Beazer's common stock a few days before and after
the date of finalization of the exchange ratio. Excludes the effect of
54,703 options outstanding and exercisable at March 31, 2002 to purchase
Crossmann common stock at an average exercise price of $16.57 per share.
(b) Does not include fees and expenses in the aggregate amount of
$1.75 million on a $250 million bridge facility which was available and
was not be drawn upon. Such costs will be included by us as interest
incurred in fiscal 2002.
(4) Reflects the issuance of $350 million of senior notes (net of discount and
estimated issuance costs of $7.0 million and $1.0 million, respectively) and
the application of the proceeds from these notes (i) to fund the cash
portion of the acquisition of Crossmann, (ii) to repay Crossmann's
outstanding indebtedness including the make-whole premium (see note 2) and
(iii) to reduce borrowings under our revolving credit facility.
(5) To eliminate the historical stockholders' equity of Crossmann.
40
BEAZER HOMES USA, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO
BEAZER SANFORD CROSSMANN FORMA BEAZER PRO
HISTORICAL(1) HISTORICAL(2) HISTORICAL(3) ADJUSTMENTS FORMA COMBINED
------------- ------------- ------------- ----------- --------------
Total revenues.................. $1,805,177 $105,054 $798,356 $ -- $2,708,587
Costs and expenses:
Home construction and land
sales....................... 1,444,215 76,271 624,648 5,500 (5) 2,138,834
(11,800)(7)
Selling, general and 205,498 11,574 86,312 (5,500)(5) 297,884
administrative..............
Interest...................... 33,235 1,170 -- 1,500 (4) 67,118
19,413 (6)
11,800 (7)
---------- -------- -------- -------- ----------
Operating income................ 122,229 16,039 87,396 (20,913) 204,751
Other income (expense), net..... 1,721 534 1,350 -- 3,605
---------- -------- -------- -------- ----------
Income before income taxes...... 123,950 16,573 88,746 (20,913) 208,356
Provision for income taxes...... 48,341 1,222 35,063 5,324 (8) 82,301
(7,649)(9)
---------- -------- -------- -------- ----------
Net income before extraordinary
item(10):..................... $ 75,609 $ 15,351 $ 53,683 $(18,588) $ 126,055
---------- -------- -------- -------- ----------
Weighted average number of
shares:
Basic......................... 8,145 3,852 11,997
Diluted....................... 9,156 3,852 13,008
Net income before extraordinary
item per common share(10):
Basic......................... $ 9.28 $ 10.51
Diluted....................... $ 8.26 $ 9.69
- ------------------------
Pro forma adjustments to unaudited combined condensed statements of
operations for the year ended September 30, 2001:
(1) For purposes of this unaudited pro forma combined condensed statement of
operations, our results of operations have been included for our year ended
September 30, 2001 and have been derived from our audited financial
statements.
(2) We acquired the residential homebuilding operations of Sanford on
August 1, 2001, and our historical statement of operations includes these
operations subsequent to such date. Accordingly, this column includes the
results of Sanford's operations for the ten months ended July 31, 2001
(prior to their acquisition by us) derived from Sanford's unaudited
combined financial statements.
(3) For purposes of this unaudited pro forma combined condensed statement of
operations, Crossmann's results of operations have been included for its
year ended December 31, 2001 and have been derived from its audited
financial statements. Accordingly, this pro forma statement
41
BEAZER HOMES USA, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
includes revenues and net income for Crossmann's quarter ended
December 31, 2001 of $264,133 and $19,197, respectively, and excludes
revenues and net income for Crossmann's quarter ended December 31, 2000 of
$212,055 and $11,284, respectively.
(4) To impute interest of $2.2 million on the aggregate purchase price of
Sanford and to adjust Sanford's average borrowing rate to our average
borrowing rate for the period October 1, 2000 to July 31, 2001 to 7.98%,
and to eliminate loan guarantee fees paid to an affiliate of $0.7 million.
(5) To reclassify certain expenses of Crossmann totaling $5.5 million from
general and administrative expenses to cost of sales, principally for
warranty and general liability insurance, to conform to our presentation.
(6) To impute interest and amortization of debt discount and issuance costs on
the $350 million 8 3/8% notes to be issued to finance the Crossmann
acquisition, net of interest incurred by Crossmann during 2001 on its notes
payable and revolver borrowings.
(7) To reclassify amortization of capitalized interest of Crossmann of
$11.8 million to conform to our presentation.
(8) To provide income taxes on Sanford's results based upon a 39.5% expected
effective rate. Sanford was organized as a limited liability partnership
and, therefore, did not record income taxes.
(9) To tax effect the pro forma adjustments and to adjust historical tax rates
based on the expected effective income tax rate of 39.5% for the combined
companies.
(10) Does not include Beazer's extraordinary loss on extinguishment of debt of
$0.7 million, net of taxes.
42
BEAZER HOMES USA, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 2002
(IN THOUSANDS, EXCEPT PER SHARE DATA)
BEAZER
BEAZER CROSSMANN PRO FORMA PRO FORMA
HISTORICAL(1) HISTORICAL(1) ADJUSTMENTS COMBINED
------------- ------------- ----------- ----------
Total revenues.............................. $993,029 $405,668 $ -- $1,398,717
Costs and expenses:
Home construction and land sales.......... 794,047 315,468 3,400 (2) 1,106,915
(6,000)(4)
Selling, general and administrative....... 107,691 46,034 (3,400)(2) 150,325
Interest.................................. 15,938 -- 10,397 (3) 32,335
6,000 (4)
-------- -------- -------- ----------
Operating income............................ 75,353 44,186 (10,397) 109,142
Other income (expense), net................. 2,232 (1,546) -- 686
-------- -------- -------- ----------
Income before income taxes.................. 77,585 42,640 (10,397) 109,828
Provision for income taxes.................. 30,258 17,937 (4,813)(5) 43,382
-------- -------- -------- ----------
Net income.................................. $ 47,327 $ 24,703 $ (5,584) $ 66,446
======== ======== ======== ==========
Weighted average number of shares:
Basic..................................... 8,464 3,852 12,316
Diluted................................... 9,419 3,852 13,271
Net income per share:
Basic..................................... $ 5.59 $ 5.40
Diluted................................... $ 5.02 $ 5.01
- ------------------------
Pro forma adjustments to unaudited combined condensed statements of
operations for the six months ended March 31, 2002:
(1) For purposes of this unaudited pro forma combined condensed statement of
operations, our and Crossmann's results of operations have been included for
the six months ended March 31, 2002 and have been derived from unaudited
financial statements.
(2) To reclassify certain expenses of Crossmann totaling $3.4 million from
general and administrative expenses to cost of sales, principally for
warranty and general liability insurance, to conform to our presentation.
(3) To impute interest and amortization of debt discount and issuance costs on
the $350 million 8 3/8% notes issued to finance the Crossmann acquisition,
net of interest incurred by Crossmann during the six months ended March 31,
2002 on its notes payable and revolver borrowings.
(4) To reclassify amortization of capitalized interest of Crossmann of
$6.0 million to conform to our presentation.
(5) To tax effect the pro forma adjustments and to adjust historical tax rates
based on the expected effective income tax rate of 39.5% for the combined
companies.
43
DESCRIPTION OF NOTES
Definitions for certain defined terms may be found under "Certain
Definitions" appearing below. References in this "Description of Notes" to the
"Company" refer to Beazer Homes USA, Inc. only and not to any of its
subsidiaries unless the context otherwise requires.
The Notes were issued as a series of securities under an Indenture and an
Supplemental Indenture, each dated as of April 17, 2002 (the "Indenture"), among
the Company, the Guarantors and U.S. Bank National Association (the "Trustee").
The following summaries of certain provisions of the Indenture do not purport to
be complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Indenture, including the definitions of certain
terms therein. Wherever particular sections or defined terms of the Indenture
not otherwise defined herein are referred to, such sections or defined terms
shall be incorporated herein by reference. A copy of the Indenture will be made
available to any prospective purchaser of the Notes upon request to the Company.
GENERAL
The Notes are general unsecured senior obligations of the Company. The
aggregate principal amount of the Notes issued was $350 million. Up to
$150 million aggregate principal amount of additional Notes may be issued from
time to time subject to the limitations set forth under "Certain
Covenants--Limitations on Additional Indebtedness." The Notes are guaranteed by
each of the Subsidiary Guarantors pursuant to the guarantees (the "Subsidiary
Guarantees") described below.
The Indebtedness represented by the Notes ranks PARI PASSU in right of
payment with all existing and future unsecured Indebtedness of the Company that
is not, by its terms, expressly subordinated in right of payment to the Notes.
The Subsidiary Guarantees are general unsecured obligations of the Subsidiary
Guarantors and rank PARI PASSU in right of payment with all existing and future
unsecured Indebtedness of the Subsidiary Guarantors that is not, by its terms,
expressly subordinated in right of payment to the Subsidiary Guarantees.
Substantially all of the operations of the Company are conducted through the
Subsidiary Guarantors, which comprise all of the significant subsidiaries of the
Company. As a result, the Company is dependent upon the earnings and cash flow
of the Subsidiary Guarantors to meet its obligations, including obligations with
respect to the Notes.
Secured creditors of the Company will have a claim on the assets which
secure the obligations of the Company to such creditors prior to claims of
holders of the Notes against those assets. At March 31, 2002, as adjusted to
give effect to the acquisition of Crossmann and the application of the proceeds
received upon issuance of the Notes, the total Indebtedness of the Company, was
approximately $738.5 million, none of which was subordinated to the Notes or the
Subsidiary Guarantees. Secured creditors of the Subsidiary Guarantors will have
a claim on the assets which secure the obligations of such Subsidiary Guarantors
prior to claims of holders of the Notes against those assets.
The Indenture relating to the Notes contains certain limitations on the
ability of the Company and its Restricted Subsidiaries to create Liens and incur
additional Indebtedness. In addition to certain other Permitted Liens, the
Company and its Restricted Subsidiaries may create Liens securing Indebtedness
permitted under the Indenture, provided that the aggregate amount of
Indebtedness secured by Liens (other than Non-Recourse Indebtedness secured by
Liens) does not exceed 40% of Consolidated Tangible Assets. As of the Issue
Date, each of the Company's Subsidiaries, other than minor Subsidiaries and
those Subsidiaries specifically named in the definition of "Unrestricted
Subsidiary," was a Restricted Subsidiary. See "Certain Covenants--Limitations on
Additional Indebtedness."
44
The Notes bear interest at the rate PER ANNUM of 8 3/8% from the Issue Date,
payable on April 15 and October 15 of each year, commencing on October 15, 2002,
to holders of record (the "Holders") at the close of business on April 1 or
October 1, as the case may be, immediately preceding the respective interest
payment date. The Notes will mature on April 15, 2012, and will be issued in
denominations of $1,000 and integral multiples thereof.
Principal, premium, if any, and interest on the Notes will be payable, and
the Notes may be presented for registration of transfer or exchange, at the
offices of the Trustee. Payments must be paid by check mailed to the registered
addresses of the Holders. The Holders must surrender their Notes to the Paying
Agent to collect principal payments. The Company may require payment of a sum
sufficient to cover any transfer tax or other governmental charge payable in
connection with certain transfers or exchanges of the Notes. Initially, the
Trustee will act as the Paying Agent and the Registrar under the Indenture. The
Company may subsequently act as the Paying Agent and/or the Registrar and the
Company may change any Paying Agent and /or any Registrar without prior notice
to the Holders.
OPTIONAL REDEMPTION
The Company may redeem all or any portion of the Notes at any time and from
time to time on or after April 15, 2007 and prior to maturity at the following
redemption prices (expressed in percentages of the principal amount thereof)
together, in each case, with accrued and unpaid interest to the date fixed for
redemption, if redeemed during the 12-month period beginning on April 15 of each
year indicated below:
YEAR PERCENTAGE
- ---- ----------
2007........................................................ 104.188%
2008........................................................ 102.791%
2009........................................................ 101.396%
2010 and thereafter......................................... 100.000%
In addition, on or prior to April 15, 2005, the Company may, at its option,
redeem up to 35% of the outstanding Notes with the net proceeds of an Equity
Offering at 108.375% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date fixed for redemption; PROVIDED, that at least
$227.5 million principal amount of the Notes remain outstanding after such
redemption.
In the event less than all of the Notes are to be redeemed at any time,
selection of the Notes to be redeemed will be made by the Trustee from among the
outstanding Notes on a PRO RATA basis, by lot or by any other method permitted
by the Indenture. Notice of redemption will be mailed at least 15 days but not
more than 60 days before the redemption date to each Holder whose Notes are to
be redeemed at the registered address of such Holder. On and after the
redemption date, interest will cease to accrue on the Notes or portions thereof
called for redemption.
MANDATORY OFFERS TO PURCHASE THE NOTES
The Indenture requires the Company
(i) to offer to purchase all of the outstanding Notes upon a Change of
Control of the Company,
(ii) to offer to purchase a portion of the outstanding Notes using Net
Proceeds neither used to repay certain Indebtedness nor used or invested as
provided in the Indenture or
(iii) to offer to purchase 10% of the original outstanding principal amount
of the Notes in the event that, at the end of any two consecutive fiscal
quarters, the Company's Consolidated Tangible Net Worth is less than
$85 million; PROVIDED that no such offer shall be required if, following such
two fiscal quarters but prior to the date the Company is required to make such
offer, capital in cash or cash equivalents is contributed to the Company in an
Equity Offering sufficient to increase the Company's
45
Consolidated Tangible Net Worth after giving effect to such contribution to an
amount equal to or greater than $85 million. See "Certain Covenants--Change of
Control," "Disposition of Proceeds of Asset Sales" and "Maintenance of
Consolidated Tangible Net Worth."
None of the provisions relating to an offer to purchase is waivable by the
Board of Directors of the Company. If an offer to purchase upon a Change of
Control or otherwise were to be required, there can be no assurance that the
Company would have sufficient funds to pay the purchase price for all Notes that
the Company is required to purchase. In addition, the Company's ability to
finance the purchase of Notes may be limited by the terms of its then existing
borrowing agreements. Failure by the Company to purchase the Notes when required
will result in an Event of Default with respect to the Notes.
If an offer is made to purchase Notes as a result of a Change of Control or
otherwise, the Company will comply with applicable law, including, without
limitation, Section 14(e) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and Rule 14e-1 thereunder, if applicable.
The Change of Control feature of the Notes may in certain circumstances make
more difficult or discourage a takeover of the Company and, thus, the removal of
incumbent management. The Change of Control feature, however, is not the result
of management's knowledge of any specific effort to obtain control of the
Company by means of a merger, tender offer, solicitation or otherwise, or part
of a plan by management to adopt a series of anti-takeover provisions.
THE SUBSIDIARY GUARANTEES
Each of the Subsidiary Guarantors will (so long as they remain Subsidiaries
of the Company) unconditionally guarantee on a joint and several basis all of
the Company's obligations under the Notes, including its obligations to pay
principal, premium, if any, and interest with respect to the Notes. Each of the
Subsidiary Guarantees will be an unsecured obligation of the Subsidiary
Guarantors and will rank PARI PASSU with all existing and future unsecured
Indebtedness of such Subsidiary Guarantors that is not, by its terms, expressly
subordinated in right of payment to the Subsidiary Guarantee. Except as provided
in "Certain Covenants" below, the Company is not restricted from selling or
otherwise disposing of any of the Subsidiary Guarantors.
The Indenture provides that each Restricted Subsidiary (other than, in the
Company's discretion, any Restricted Subsidiary the assets of which have a book
value of not more than $5 million) is a Subsidiary Guarantor and, at the
Company's discretion, any Unrestricted Subsidiary may be a Subsidiary Guarantor.
The Indenture provides that if all or substantially all of the assets of any
Subsidiary Guarantor or all of the capital stock of any Subsidiary Guarantor is
sold (including by issuance or otherwise) by the Company or any of its
Subsidiaries in a transaction constituting an Asset Sale, and if the Net
Proceeds from such Asset Sale are used in accordance with the covenant,
"Disposition of Proceeds of Asset Sales," then such Subsidiary Guarantor (in the
event of a sale or other disposition of all of the capital stock of such
Subsidiary Guarantor) or the corporation acquiring such assets (in the event of
a sale or other disposition of all or substantially all of the assets of such
Subsidiary Guarantor) shall be released and discharged of its Subsidiary
Guarantee obligations.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
terms used in the Indenture.
"ACQUISITION INDEBTEDNESS" means Indebtedness of any Person and its
Subsidiaries existing at the time such Person became a Subsidiary of the Company
(or such Person is merged with or into the
46
Company or one of the Company's Subsidiaries) or assumed in connection with the
acquisition of assets from any such Person, including, without limitation,
Indebtedness Incurred in connection with, or in contemplation of (a) such Person
being merged with or into or becoming a Subsidiary of the Company or one of its
Subsidiaries (but excluding Indebtedness of such Person which is extinguished,
retired or repaid in connection with such Person being merged with or into or
becoming a Subsidiary of the Company or one of its Subsidiaries) or (b) such
acquisition of assets from any such Person.
"AFFILIATE" of any Person means any other Person directly or indirectly
controlling or controlled by, or under direct or indirect common control with,
such Person. For purposes of the Indenture, each executive officer and director
of the Company and each Subsidiary of the Company will be an Affiliate of the
Company. In addition, for purposes of the Indenture, control of a 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. Notwithstanding the foregoing, the term "Affiliate" will not include,
with respect to the Company or any Restricted Subsidiary which is a Wholly Owned
Subsidiary of the Company, any Restricted Subsidiary which is a Wholly Owned
Subsidiary of the Company.
"ASSET SALE" for any Person means the sale, lease, conveyance or other
disposition (including, without limitation, by merger, consolidation or sale and
leaseback transaction, and whether by operation of law or otherwise) of any of
that Person's assets (including, without limitation, the sale or other
disposition of Capital Stock of any Subsidiary of such Person, whether by such
Person or such Subsidiary), whether owned on the date of the Indenture or
subsequently acquired in one transaction or a series of related transactions, in
which such Person and/or its Subsidiaries receive cash and/or other
consideration (including, without limitation, the unconditional assumption of
Indebtedness of such Person and/or its Subsidiaries) having an aggregate Fair
Market Value of $500,000 or more as to each such transaction or series of
related transactions; PROVIDED, HOWEVER, that
(i) a transaction or series of related transactions that results in a Change
of Control shall not constitute an Asset Sale,
(ii) sales of homes in the ordinary course of business will not constitute
Asset Sales,
(iii) sales, leases, conveyances or other dispositions, including, without
limitation, exchanges or swaps of real estate in the ordinary course of
business, for development of the Company's or any of its Subsidiaries' projects,
will not constitute Asset Sales,
(iv) sales, leases, sale-leasebacks or other dispositions of amenities,
model homes and other improvements at the Company's or its Subsidiaries'
projects in the ordinary course of business will not constitute Asset Sales, and
(v) transactions between the Company and any of its Restricted Subsidiaries
which are Wholly Owned Subsidiaries, or among such Restricted Subsidiaries which
are Wholly Owned Subsidiaries of the Company, will not constitute Asset Sales.
"BANK CREDIT FACILITY" means the credit facility among the Company, as
borrower thereunder, the Subsidiary Guarantors and the financial institutions
named therein, as such facility may be amended, restated, supplemented or
otherwise modified from time to time, and includes any facility extending the
maturity of, refinancing or restructuring (including, without limitation, the
inclusion of additional borrowers thereunder that are Unrestricted Subsidiaries)
all or any portion of, the Indebtedness under such facility or any successor
facilities and includes any facility with one or more lenders refinancing or
replacing all or any portion of the Indebtedness under such facility or any
successor facilities.
"BANKRUPTCY LAW" means title 11 of the United States Code, as amended, or
any similar federal or state law for the relief of debtors.
"BUSINESS DAY" means any day other than a Legal Holiday.
47
"CAPITAL STOCK" of any Person means any and all shares, rights to purchase,
warrants or options (whether or not currently exercisable), participations, or
other equivalents of or interests in (however designated and whether voting or
non-voting) the equity (which includes, but is not limited to, common stock,
preferred stock and partnership and joint venture interests) of such Person
(excluding any debt securities that are convertible into, or exchangeable for,
such equity).
"CAPITALIZED LEASE OBLIGATIONS" of any Person means the obligations of such
Person to pay rent or other amounts under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such obligation will be the capitalized amount thereof determined in
accordance with GAAP.
"CHANGE OF CONTROL" means any of the following:
(i) the sale, lease, conveyance or other disposition of all or substantially
all of the Company's assets as an entirety or substantially as an entirety to
any Person or "group" (within the meaning of Section 13(d)(3) of the Exchange
Act) in one or a series of transactions; PROVIDED that a transaction where the
holders of all classes of Common Equity of the Company immediately prior to such
transaction own, directly or indirectly, 50 percent or more of the aggregate
voting power of all classes of Common Equity of such Person or group immediately
after such transaction will not be a Change of Control;
(ii) the acquisition by the Company and/or any of its Subsidiaries of
50 percent or more of the aggregate voting power of all classes of Common Equity
of the Company in one transaction or a series of related transactions;
(iii) the liquidation or dissolution of the Company; PROVIDED that a
liquidation or dissolution of the Company which is part of a transaction or
series of related transactions that does not constitute a Change of Control
under the "provided" clause of clause (i) above will not constitute a Change of
Control under this clause (iii);
(iv) any transaction or a series of related transactions (as a result of a
tender offer, merger, consolidation or otherwise) that results in, or that is in
connection with, (a) any Person, including a "group" (within the meaning of
Section 13(d)(3) of the Exchange Act) acquiring "beneficial ownership" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
50 percent or more of the aggregate voting power of all classes of Common Equity
of the Company or of any Person that possesses "beneficial ownership" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
50 percent or more of the aggregate voting power of all classes of Common Equity
of the Company or (b) less than 50 percent (measured by the aggregate voting
power of all classes) of the Common Equity of the Company being registered under
Section 12(b) or 12(g) of the Exchange Act; or
(v) a majority of the Board of Directors of the Company not being comprised
of Continuing Directors.
"COMMON EQUITY" of any Person means all Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person, or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management and policies of such Person.
"CONSOLIDATED CASH FLOW AVAILABLE FOR FIXED CHARGES" of the Company and its
Restricted Subsidiaries means for any period, the sum of the amounts for such
period of
(i) Consolidated Net Income, PLUS
(ii) Consolidated Income Tax Expense (without regard to income tax expense
or credits attributable to extraordinary and nonrecurring gains or losses on
Asset Sales), PLUS
48
(iii) Consolidated Interest Expense, PLUS
(iv) all depreciation, and, without duplication, amortization (including,
without limitation, capitalized interest amortized to cost of sales), PLUS
(v) all other noncash items reducing Consolidated Net Income during such
period,
MINUS all other noncash items increasing Consolidated Net Income during such
period; all as determined on a consolidated basis for the Company and its
Restricted Subsidiaries in accordance with GAAP.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" of the Company means, with
respect to any determination date, the ratio of (i) Consolidated Cash Flow
Available for Fixed Charges of the Company for the prior four full fiscal
quarters for which financial results have been reported immediately preceding
the determination date, to (ii) the aggregate Consolidated Interest Incurred of
the Company for the prior four full fiscal quarters for which financial results
have been reported immediately preceding the determination date; PROVIDED that
(1) with respect to any Indebtedness Incurred during, and remaining
outstanding at the end of, such four full fiscal quarter period, such
Indebtedness will be assumed to have been incurred as of the first day of
such four full fiscal quarter period,
(2) with respect to Indebtedness repaid (other than a repayment of
revolving credit obligations repaid solely out of operating cash flows)
during such four full fiscal quarter period, such Indebtedness will be
assumed to have been repaid on the first day of such four full fiscal
quarter period,
(3) with respect to the Incurrence of any Acquisition Indebtedness, such
Indebtedness and any proceeds therefrom will be assumed to have been
Incurred and applied as of the first day of such four full fiscal quarter
period, and the results of operations of any Person and any Subsidiary of
such Person that, in connection with or in contemplation of such Incurrence,
becomes a Subsidiary of the Company or is merged with or into the Company or
one of the Company's Subsidiaries or whose assets are acquired, will be
included, on a pro forma basis, in the calculation of the Consolidated Fixed
Charge Coverage Ratio as if such transaction had occurred on the first day
of such four full fiscal quarter period, and
(4) with respect to any other transaction pursuant to which any Person
becomes a Subsidiary of the Company or is merged with or into the Company or
one of the Company's Subsidiaries or pursuant to which any Person's assets
are acquired, such Consolidated Fixed Charge Coverage Ratio shall be
calculated on a pro forma basis as if such transaction had occurred on the
first day of such four full fiscal quarter period, but only if such
transaction would require a pro forma presentation in financial statements
prepared pursuant to Rule 11-02 of Regulation S-X under the Securities Act.
"CONSOLIDATED INCOME TAX EXPENSE" of the Company for any period means the
income tax expense of the Company and its Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" of the Company for any period means the
Interest Expense of the Company and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED INTEREST INCURRED" of the Company for any period means the
Interest Incurred of the Company and its Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP.
49
"CONSOLIDATED NET INCOME" of the Company for any period means the aggregate
net income (or loss) of the Company and its Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP; PROVIDED
that there will be excluded from such net income (to the extent otherwise
included therein), without duplication:
(i) the net income (or loss) of any Person (other than a Restricted
Subsidiary) in which any Person (including, without limitation, an Unrestricted
Subsidiary) other than the Company or any Restricted Subsidiary has an ownership
interest, except to the extent that any such income has actually been received
by the Company or any Restricted Subsidiary in the form of cash dividends or
similar cash distributions during such period, or in any other form but
converted to cash during such period,
(ii) except to the extent includable in Consolidated Net Income pursuant to
the foregoing clause (i), the net income (or loss) of any Person that accrued
prior to the date that (a) such Person becomes a Restricted Subsidiary or is
merged with or into or consolidated with the Company or any of its Restricted
Subsidiaries or (b) the assets of such Person are acquired by the Company or any
of its Restricted Subsidiaries,
(iii) the net income of any Restricted Subsidiary to the extent that (but
only so long as) the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of that income is not permitted by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary during such period,
(iv) in the case of a successor to the Company by consolidation, merger or
transfer of its assets, any earnings of the successor prior to such merger,
consolidation or transfer of assets and
(v) the gains (but not losses) realized during such period by the Company or
any of its Restricted Subsidiaries resulting from (a) the acquisition of
securities issued by the Company or extinguishment of Indebtedness of the
Company or any of its Restricted Subsidiaries, (b) Asset Sales by the Company or
any of its Restricted Subsidiaries and (c) other extraordinary items realized by
the Company or any of its Restricted Subsidiaries.
Notwithstanding the foregoing, in calculating Consolidated Net Income, the
Company will be entitled to take into consideration the tax benefits associated
with any loss described in clause (v) of the preceding sentence, but only to the
extent such tax benefits are actually recognized by the Company or any of its
Restricted Subsidiaries during such period; PROVIDED, FURTHER, that there will
be included in such net income, without duplication, the net income of any
Unrestricted Subsidiary to the extent such net income is actually received by
the Company or any of its Restricted Subsidiaries in the form of cash dividends
or similar cash distributions during such period, or in any other form but
converted to cash during such period.
"CONSOLIDATED TANGIBLE ASSETS" of the Company as of any date means the total
amount of assets of the Company and its Restricted Subsidiaries (less applicable
reserves) on a consolidated basis at the end of the fiscal quarter immediately
preceding such date, as determined in accordance with GAAP, less:
(i) Intangible Assets and (ii) appropriate adjustments on account of minority
interests of other Persons holding equity investments in Restricted
Subsidiaries, in the case of each of clauses (i) and (ii) above, as reflected on
the consolidated balance sheet of the Company and its Restricted Subsidiaries as
of the end of the fiscal quarter immediately preceding such date.
"CONSOLIDATED TANGIBLE NET WORTH" of the Company as of any date means the
stockholders' equity (including any Preferred Stock that is classified as equity
under GAAP, other than Disqualified Stock) of the Company and its Restricted
Subsidiaries on a consolidated basis at the end of the fiscal quarter
immediately preceding such date, as determined in accordance with GAAP, plus any
amount of unvested deferred compensation included, in accordance with GAAP, as
an offset to stockholders' equity, less the amount of Intangible Assets
reflected on the consolidated balance sheet of the
50
Company and its Restricted Subsidiaries as of the end of the fiscal quarter
immediately preceding such date.
"CONTINUING DIRECTOR" means at any date a member of the Board of Directors
of the Company who
(i) was a member of the Board of Directors of the Company on the initial
issuance date of the Notes under the Indenture or
(ii) was nominated for election or elected to the Board of Directors of the
Company with the affirmative vote of at least a majority of the directors who
were Continuing Directors at the time of such nomination or election.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
"DEFAULT" means any event, act or condition that is, or after notice or the
passage of time, or both, would be, an Event of Default.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
final maturity date of the Notes; PROVIDED that any Capital Stock which would
not constitute Disqualified Stock but for provisions thereof giving holders
thereof the right to require the Company to repurchase or redeem such Capital
Stock upon the occurrence of a change of control occurring prior to the final
maturity of the Notes will not constitute Disqualified Stock if the change of
control provisions applicable to such Capital Stock are no more favorable to the
holders of such Capital Stock than the "Change of Control" covenant set forth in
the Indenture and such Capital Stock specifically provides that the Company will
not repurchase or redeem (or be required to repurchase or redeem) any such
Capital Stock pursuant to such provisions prior to the Company's repurchase of
Notes pursuant to the "Change of Control" covenant set forth in the Indenture.
"DISQUALIFIED STOCK DIVIDEND" of any Person means, for any dividend payable
with regard to Disqualified Stock issued by such Person, the amount of such
dividend multiplied by a fraction, the numerator of which is one and the
denominator of which is one minus the maximum statutory combined federal, state
and local income tax rate (expressed as a decimal number between 1 and 0) then
applicable to such Person.
"EQUITY OFFERING" means a public or private equity offering or sale by the
Company for cash of Capital Stock, other than an offering or sale of
Disqualified Stock.
"EVENT OF DEFAULT" has the meaning set forth in "Description of
Notes--Events of Default."
"EXISTING INDEBTEDNESS" means all of the Indebtedness of the Company and its
Subsidiaries that is outstanding on the date of the Indenture.
"FAIR MARKET VALUE" with respect to any asset or property means the sale
value that would be obtained in an arm's length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy. Fair Market Value shall be determined by the Board
of Directors of the Company acting in good faith and shall be evidenced by a
board resolution (certified by the Secretary or Assistant Secretary of the
Company) delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and interpretations of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and interpretations of
the Financial Accounting Standards Board or in
51
such other statements by such other entity as may be approved by a significant
segment of the accounting profession of the United States, as in effect on the
date of the Indenture.
"HEDGING OBLIGATIONS" of any Person means the obligations of such Person
pursuant to any interest rate swap agreement, foreign currency exchange
agreement, interest rate collar agreement, option or futures contract or other
similar agreement or arrangement relating to interest rates or foreign exchange
rates.
"HOLDER" means a Person in whose name a Note is registered in the Security
Register.
"INCUR" means to, directly or indirectly, create, incur, assume, guarantee,
extend the maturity of, or otherwise become liable with respect to any
Indebtedness; PROVIDED, HOWEVER, that neither the accrual of interest (whether
such interest is payable in cash or kind) nor the accretion of original issue
discount shall be considered an Incurrence of Indebtedness.
"INDEBTEDNESS" of any Person at any date means, without duplication,
(i) all indebtedness of such Person for borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such Person or only to a
portion thereof),
(ii) all obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments,
(iii) all fixed obligations of such Person in respect of letters of credit
or other similar instruments (or reimbursement obligations with respect
thereto), other than standby letters of credit issued for the benefit of, or
surety and performance bonds issued by, such Person in the ordinary course of
business,
(iv) all obligations of such Person with respect to Hedging Obligations
(other than those that fix or cap the interest rate on variable rate
Indebtedness otherwise permitted by the Indenture or that fix the exchange rate
in connection with Indebtedness denominated in a foreign currency and otherwise
permitted by the Indenture),
(v) all obligations of such Person to pay the deferred and unpaid purchase
price of property or services, including, without limitation, all conditional
sale obligations of such Person and all obligations under any title retention
agreement; PROVIDED, HOWEVER, that (a) any obligations described in the
foregoing clause (v) which are non-interest bearing and which have a maturity of
not more than six months from the date of Incurrence thereof shall not
constitute Indebtedness and (b) trade payables and accrued expenses Incurred in
the ordinary course of business shall not constitute Indebtedness,
(vi) all Capitalized Lease Obligations of such Person,
(vii) all Indebtedness of others secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person,
(viii) all Indebtedness of others guaranteed by, or otherwise the liability
of, such Person to the extent of such guarantee or liability, and
(ix) all Disqualified Stock issued by such Person (the amount of
Indebtedness represented by any Disqualified Stock will equal the greater of the
voluntary or involuntary liquidation preference plus accrued and unpaid
dividends).
The amount of Indebtedness of any Person at any date will be
(a) the outstanding balance at such date of all unconditional obligations
as described above,
(b) the maximum liability of such Person for any contingent obligations
under clause (viii) above and
52
(c) in the case of clause (vii) (if the Indebtedness referred to therein
is not assumed by such Person), the lesser of the (A) Fair Market
Value of all assets subject to a Lien securing the Indebtedness of
others on the date that the Lien attaches and (B) amount of the
Indebtedness secured.
"INDEPENDENT FINANCIAL ADVISOR" means an accounting, appraisal or investment
banking firm of nationally recognized standing that is, in the reasonable
judgment of the Company's Board of Directors, (i) qualified to perform the task
for which it has been engaged, and (ii) disinterested and independent, in a
direct and indirect manner, of the parties to the Affiliate Transaction with
respect to which such firm has been engaged.
"INTANGIBLE ASSETS" of the Company means all unamortized debt discount and
expense, unamortized deferred charges, goodwill, patents, trademarks, service
marks, trade names, copyrights and all other items which would be treated as
intangibles on the consolidated balance sheet of the Company and its Restricted
Subsidiaries prepared in accordance with GAAP.
"INTEREST EXPENSE" of any Person for any period means, without duplication,
the aggregate amount of (i) interest which, in conformity with GAAP, would be
set opposite the caption "interest expense" or any like caption on an income
statement for such Person (including, without limitation, imputed interest
included on Capitalized Lease Obligations, all commissions, discounts and other
fees and charges owed with respect to letters of credit securing financial
obligations and bankers' acceptance financing, the net costs associated with
Hedging Obligations, amortization of other financing fees and expenses, the
interest portion of any deferred payment obligation, amortization of discount or
premium, if any, and all other noncash interest expense other than interest and
other charges amortized to cost of sales) and includes, with respect to the
Company and its Restricted Subsidiaries, without duplication (including
duplication of the foregoing items), all interest amortized to cost of sales for
such period, and (ii) the amount of Disqualified Stock Dividends recognized by
the Company on any Disqualified Stock whether or not paid during such period.
"INTEREST INCURRED" of any Person for any period means, without duplication,
the aggregate amount of (i) interest which, in conformity with GAAP, would be
set opposite the caption "interest expense" or any like caption on an income
statement for such Person (including, without limitation, imputed interest
included on Capitalized Lease Obligations, all commissions, discounts and other
fees and charges owed with respect to letters of credit securing financial
obligations and bankers' acceptance financing, the net costs associated with
Hedging Obligations, amortization of other financing fees and expenses, the
interest portion of any deferred payment obligation, amortization of discount or
premium, if any, and all other noncash interest expense other than interest and
other charges amortized to cost of sales) and includes, with respect to the
Company and its Restricted Subsidiaries, without duplication (including
duplication of the foregoing items), all interest capitalized for such period,
all interest attributable to discontinued operations for such period to the
extent not set forth on the income statement under the caption "interest
expense" or any like caption, and all interest actually paid by the Company or a
Restricted Subsidiary under any guarantee of Indebtedness (including, without
limitation, a guarantee of principal, interest or any combination thereof) of
any other Person during such period and (ii) the amount of Disqualified Stock
Dividends recognized by the Company on any Disqualified Stock whether or not
declared during such period.
"INVESTMENTS" of any Person means all (i) investments by such Person in any
other Person in the form of loans, advances or capital contributions,
(ii) guarantees of Indebtedness or other obligations of any other Person by such
Person, (iii) purchases (or other acquisitions for consideration) by such Person
of Indebtedness, Capital Stock or other securities of any other Person and
(iv) other items that would be classified as investments on a balance sheet of
such Person determined in accordance with GAAP.
"ISSUE DATE" means the initial date of issuance of the Notes under the
Indenture.
53
"LEGAL HOLIDAY" means Saturday, Sunday or a day on which banking
institutions in New York, New York, Chicago, Illinois, or at a place of payment
are authorized or obligated by law, regulation or executive order to remain
closed. If a payment date is a Legal Holiday at a place of payment, payment
shall be made at that place on the next succeeding day that is not a Legal
Holiday.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or other similar encumbrance of any kind upon or in respect of
such asset, whether or not filed, recorded or otherwise perfected under
applicable law (including, without limitation, any conditional sale or other
title retention agreement, and any lease in the nature thereof, any option or
other agreement to sell, and any filing of, or agreement to give, any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"MATERIAL SUBSIDIARY" means any Subsidiary of the Company which accounted
for five percent or more of the Consolidated Tangible Assets or Consolidated
Cash Flow Available for Fixed Charges of the Company on a consolidated basis for
the fiscal year ending immediately prior to any Default or Event of Default.
"NET PROCEEDS" means
(i) cash (in U.S. dollars or freely convertible into U.S. dollars) received
by the Company or any Restricted Subsidiary from an Asset Sale net of
(a) all brokerage commissions, investment banking fees and all other fees
and expenses (including, without limitation, fees and expenses of
counsel, financial advisors, accountants and investment bankers)
related to such Asset Sale,
(b) provisions for all income and other taxes measured by or resulting
from such Asset Sale of the Company or any of its Restricted
Subsidiaries,
(c) payments made to retire Indebtedness that was incurred in accordance
with the Indenture and that either (1) is secured by a Lien incurred
in accordance with the Indenture on the property or assets sold or
(2) is required in connection with such Asset Sale to the extent
actually repaid in cash,
(d) amounts required to be paid to any Person (other than the Company or
a Restricted Subsidiary) owning a beneficial interest in the assets
subject to the Asset Sale and
(e) appropriate amounts to be provided by the Company or any Restricted
Subsidiary thereof, as the case may be, as a reserve, in accordance
with GAAP, against any liabilities associated with such Asset Sale
and retained by the Company or any Restricted Subsidiary thereof, as
the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under
any indemnification obligations or post-closing purchase price
adjustments associated with such Asset Sale, all as reflected in an
Officers' Certificate delivered to the Trustee, and
(ii) all noncash consideration received by the Company or any of its
Restricted Subsidiaries from such Asset Sale upon the liquidation or conversion
of such consideration into cash, without duplication, net of all items
enumerated in subclauses (a) through (e) of clause (i) hereof.
"NON-RECOURSE INDEBTEDNESS" with respect to any Person means Indebtedness of
such Person for which (i) the sole legal recourse for collection of principal
and interest on such Indebtedness is against the specific property identified in
the instruments evidencing or securing such Indebtedness and such property was
acquired with the proceeds of such Indebtedness or such Indebtedness was
Incurred within 90 days after the acquisition of such property and (ii) no other
assets of such Person may be realized upon in collection of principal or
interest on such Indebtedness.
54
"OFFICER" means the chairman, the chief executive officer, the president,
the chief financial officer, the chief operating officer, the chief accounting
officer, the treasurer, or any assistant treasurer, the controller, the
secretary, any assistant secretary or any vice president of a Person.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers, one of
whom must be the Person's chief executive officer, chief operating officer,
chief financial officer or chief accounting officer.
"PAYING AGENT" means any office or agency where Notes and the Subsidiary
Guarantees may be presented for payment.
"PERMITTED INVESTMENTS" of any Person means Investments of such Person in
(i) direct obligations of the United States or any agency thereof or
obligations guaranteed by the United States or any agency thereof, in each case
maturing within 180 days of the date of acquisition thereof,
(ii) certificates of deposit maturing within 180 days of the date of
acquisition thereof issued by a bank, trust company or savings and loan
association which is organized under the laws of the United States or any state
thereof having capital, surplus and undivided profits aggregating in excess of
$250 million and a Keefe Bank Watch Rating of C or better,
(iii) certificates of deposit maturing within 180 days of the date of
acquisition thereof issued by a bank, trust company or savings and loan
association organized under the laws of the United States or any state thereof
other than banks, trust companies or savings and loan associations satisfying
the criteria in (ii) above, provided that the aggregate amount of all
certificates of deposit issued to the Company at any one time by such bank,
trust company or savings and loan association will not exceed $100,000,
(iv) commercial paper given the highest rating by two established national
credit rating agencies and maturing not more than 180 days from the date of the
acquisition thereof,
(v) repurchase agreements or money-market accounts which are fully secured
by direct obligations of the United States or any agency thereof and
(vi) in the case of the Company and its Subsidiaries, any receivables or
loans taken by the Company or a Subsidiary in connection with the sale of any
asset otherwise permitted by the Indenture.
"PERMITTED LIENS" means
(i) Liens for taxes, assessments or governmental charges or claims that
either (a) are not yet delinquent or (b) are being contested in good faith by
appropriate proceedings and as to which appropriate reserves have been
established or other provisions have been made in accordance with GAAP,
(ii) statutory Liens of landlords and carriers', warehousemen's, mechanics',
suppliers', materialmen's, repairmen's or other Liens imposed by law and arising
in the ordinary course of business and with respect to amounts that, to the
extent applicable, either (a) are not yet delinquent or (b) are being contested
in good faith by appropriate proceedings and as to which appropriate reserves
have been established or other provisions have been made in accordance with
GAAP,
(iii) Liens (other than any Lien imposed by the Employee Retirement Income
Security Act of 1974, as amended) incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security,
(iv) Liens incurred or deposits made to secure the performance of tenders,
bids, leases, statutory obligations, surety and appeal bonds, progress payments,
government contracts and other obligations of like nature (exclusive of
obligations for the payment of borrowed money), in each case incurred in the
ordinary course of business of the Company and its Subsidiaries,
55
(v) attachment or judgment Liens not giving rise to a Default or an Event of
Default and which are being contested in good faith by appropriate proceedings,
(vi) easements, rights-of-way, restrictions and other similar charges or
encumbrances not materially interfering with the ordinary course of business of
the Company and its Subsidiaries,
(vii) zoning restrictions, licenses, restrictions on the use of real
property or minor irregularities in title thereto, which do not materially
impair the use of such real property in the ordinary course of business of the
Company and its Subsidiaries or the value of such real property for the purpose
of such business,
(viii) leases or subleases granted to others not materially interfering with
the ordinary course of business of the Company and its Subsidiaries,
(ix) purchase money mortgages (including, without limitation, Capitalized
Lease Obligations and purchase money security interests),
(x) Liens securing Refinancing Indebtedness; PROVIDED that such Liens only
extend to assets which are similar to the type of assets securing the
Indebtedness being refinanced and such refinanced Indebtedness was previously
secured by such similar assets,
(xi) Liens securing Indebtedness of the Company and its Restricted
Subsidiaries permitted to be Incurred under the Indenture; PROVIDED that the
aggregate amount of Indebtedness secured by Liens (other than Non-Recourse
Indebtedness secured by Liens) will not exceed 40 percent of Consolidated
Tangible Assets,
(xii) any interest in or title of a lessor to property subject to any
Capitalized Lease Obligations incurred in compliance with the provisions of the
Indenture,
(xiii) Liens existing on the date of the Indenture, including, without
limitation, Liens securing Existing Indebtedness,
(xiv) any option, contract or other agreement to sell an asset; PROVIDED
such sale is not otherwise prohibited under the Indenture,
(xv) Liens securing Non-Recourse Indebtedness of the Company or a Restricted
Subsidiary thereof; PROVIDED that such Liens apply only to the property financed
out of the net proceeds of such Non-Recourse Indebtedness within 90 days of the
Incurrence of such Non-Recourse Indebtedness,
(xvi) Liens on property or assets of any Restricted Subsidiary securing
Indebtedness of such Restricted Subsidiary owing to the Company or one or more
Restricted Subsidiaries,
(xvii) Liens securing Indebtedness of an Unrestricted Subsidiary,
(xviii) any right of a lender or lenders to which the Company or a
Restricted Subsidiary may be indebted to offset against, or appropriate and
apply to the payment of, such Indebtedness any and all balances, credits,
deposits, accounts or monies of the Company or a Restricted Subsidiary with or
held by such lender or lenders,
(xix) any pledge or deposit of cash or property in conjunction with
obtaining surety and performance bonds and letters of credit required to engage
in constructing on-site and off-site improvements required by municipalities or
other governmental authorities in the ordinary course of business of the Company
or any Restricted Subsidiary,
(xx) Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of customs duties in connection with the importation of
goods,
(xxi) Liens encumbering customary initial deposits and margin deposits, and
other Liens that are customary in the industry and incurred in the ordinary
course of business securing Indebtedness under
56
Hedging Obligations and forward contracts, options, futures contracts, futures
options or similar agreements or arrangements designed to protect the Company or
any of its Subsidiaries from fluctuations in the price of commodities,
(xxii) Liens arising out of conditional sale, title retention, consignment
or similar arrangements for the sale of goods entered into by the Company or any
of its Subsidiaries in the ordinary course of business,
(xxiii) Liens on property acquired by the Company or a Restricted Subsidiary
and Liens on property of a Person existing at the time such Person is merged
with or into or consolidated with the Company or any Restricted Subsidiary or
becomes a Restricted Subsidiary; PROVIDED that in each case such Liens (A) were
in existence prior to the contemplation of such acquisition, merger or
consolidation and (B) do not extend to any asset other than those of the Person
merged with or into or consolidated with the Company or the Restricted
Subsidiary or the property acquired by the Company or the Restricted Subsidiary,
and
(xxiv) Liens replacing any of the Liens described in clauses (xiii) and
(xxiii) above; PROVIDED that (A) the principal amount of the Indebtedness
secured by such Liens shall not be increased (except to the extent of reasonable
premiums or other payments required to be paid in connection with the repayment
of the previously secured Indebtedness or Incurrence of related Refinancing
Indebtedness and expenses Incurred in connection therewith), (B) the principal
amount of new Indebtedness secured by such Liens, determined as of the date of
Incurrence, has a Weighted Average Life of Maturity at least equal to the
remaining Weighted Average Life to Maturity of the previously secured
Indebtedness, (C) the maturity of the new Indebtedness secured by such Liens is
not earlier than that of the previously secured Indebtedness Incurred or repaid,
and (D) the new Liens shall be limited to the property or part thereof which
secured the Lien so replaced or property substituted therefor as a result of the
destruction, condemnation or damage of such property.
"PERSON" means any individual, corporation, partnership, limited liability
company, joint venture, incorporated or unincorporated association, joint stock
company, trust, unincorporated organization or government or other agency or
political subdivision thereof or other entity of any kind.
"PREFERRED STOCK" of any Person means all Capital Stock of such Person which
has a preference in liquidation or with respect to the payment of dividends.
"REFINANCING INDEBTEDNESS" means Indebtedness that refunds, refinances or
extends any Existing Indebtedness or other Indebtedness permitted to be incurred
by the Company or its Restricted Subsidiaries pursuant to the terms of the
Indenture, but only to the extent that
(i) the Refinancing Indebtedness is subordinated to the Notes or the
Subsidiary Guarantees, as the case may be, to the same extent as the
Indebtedness being refunded, refinanced or extended, if at all,
(ii) the Refinancing Indebtedness is scheduled to mature either (a) no
earlier than the Indebtedness being refunded, refinanced or extended, or
(b) after the maturity date of the Notes,
(iii) the portion, if any, of the Refinancing Indebtedness that is scheduled
to mature on or prior to the maturity date of the Notes has a Weighted Average
Life to Maturity at the time such Refinancing Indebtedness is Incurred that is
equal to or greater than the Weighted Average Life to Maturity of the portion of
the Indebtedness being refunded, refinanced or extended that is scheduled to
mature on or prior to the maturity date of the Notes,
(iv) such Refinancing Indebtedness is in an aggregate amount that is equal
to or less than the aggregate amount then outstanding (including accrued
interest) under the Indebtedness being refunded, refinanced or extended plus an
amount necessary to pay any reasonable fees and expenses, including premiums and
defeasance costs, related to such refinancing,
57
(v) such Refinancing Indebtedness is Incurred by the same Person that
initially Incurred the Indebtedness being refunded, refinanced or extended,
except that the Company may Incur Refinancing Indebtedness to refund, refinance
or extend Indebtedness of any Restricted Subsidiary, and
(vi) such Refinancing Indebtedness is Incurred within 180 days after the
Indebtedness being refunded, refinanced or extended is so refunded, refinanced
or extended.
"REGISTRAR" means an office or agency where Notes may be presented for
registration of transfer or for exchange.
"RESTRICTED INVESTMENT" with respect to any Person means any Investment
(other than any Permitted Investment) by such Person in any (i) of its
Affiliates, (ii) executive officer or director or any Affiliate of such Person,
or (iii) any other Person other than a Restricted Subsidiary; PROVIDED, HOWEVER,
that with respect to the Company and its Restricted Subsidiaries, any loan or
advance to an executive officer or director of the Company or a Subsidiary will
not constitute a Restricted Investment provided such loan or advance is made in
the ordinary course of business and, if such loan or advance exceeds $100,000
(other than a readily marketable mortgage loan not exceeding $500,000) such loan
or advance has been approved by the Board of Directors of the Company or a
disinterested committee thereof. Notwithstanding the above, a Subsidiary
Guarantee shall not be deemed a Restricted Investment.
"RESTRICTED PAYMENT" with respect to any Person means
(i) the declaration of any dividend or the making of any other payment or
distribution of cash, securities or other property or assets in respect of such
Person's Capital Stock (except that a dividend payable solely in Capital Stock
(other than Disqualified Stock) of such Person will not constitute a Restricted
Payment),
(ii) any payment on account of the purchase, redemption, retirement or other
acquisition for value of such Person's Capital Stock or any other payment or
distribution made in respect thereof (other than payments or distributions
excluded from the definition of Restricted Payment in clause (i) above), either
directly or indirectly,
(iii) any Restricted Investment, and
(iv) any principal payment, redemption, repurchase, defeasance or other
acquisition or retirement of any Indebtedness of any Unrestricted Subsidiary or
of Indebtedness of the Company which is subordinated in right of payment to the
Notes or of Indebtedness of a Restricted Subsidiary which is subordinated in
right of payment to its Subsidiary Guarantee;
PROVIDED, HOWEVER, that with respect to the Company and its Subsidiaries,
Restricted Payments will not include (a) any payment described in clause (i),
(ii) or (iii) above made to the Company or any of its Restricted Subsidiaries
which are Wholly Owned Subsidiaries by any of the Company's Subsidiaries, or
(b) any purchase, redemption, retirement or other acquisition for value of
Indebtedness or Capital Stock of such Person or its Subsidiaries if the
consideration therefor consists solely of Capital Stock (other than Disqualified
Stock) of such Person.
"RESTRICTED SUBSIDIARY" means each of the Subsidiaries of the Company which
is not an Unrestricted Subsidiary.
"SECURITY REGISTER" is a register of the Notes and of their transfer and
exchange kept by the Registrar.
"SUBSIDIARY" of any Person means any (i) corporation of which at least a
majority of the aggregate voting power of all classes of the Common Equity is
directly or indirectly beneficially owned by such Person, and (ii) any entity
other than a corporation of which such Person, directly or indirectly,
beneficially owns at least a majority of the Common Equity.
58
"SUBSIDIARY GUARANTEE" means the guarantee of the Notes by each Subsidiary
Guarantor under the Indenture.
"SUBSIDIARY GUARANTORS" means each of (i) Beazer Homes Corp., a Tennessee
corporation, Beazer/ Squires Realty, Inc., a North Carolina corporation, Beazer
Homes Sales Arizona Inc., a Delaware corporation, Beazer Realty Corp., a Georgia
corporation, Beazer Mortgage Corporation, a Delaware corporation, Beazer Homes
Holdings Corp., a Delaware corporation, Beazer Homes Texas Holdings, Inc., a
Delaware corporation, Beazer Homes Texas, L.P., a Delaware limited partnership,
April Corporation, a Colorado corporation, Beazer SPE, LLC, a Georgia limited
liability company, Beazer Homes Investment Corp., a Delaware corporation, Beazer
Realty, Inc., a New Jersey corporation, Beazer Clarksburg, LLC, a Maryland
limited liability company, Homebuilders Title Services of Virginia, Inc., a
Virginia corporation, Homebuilders Title Services, Inc., a Delaware corporation,
Texas Lone Star Title, L.P., a Texas limited partnership, Universal Solutions
Insurance Agency, Inc., a Delaware corporation, Builder's Link, Inc., an Ohio
corporation, Crossmann Communities of North Carolina, Inc., a North Carolina
corporation, Crossmann Communities of Ohio, Inc., an Ohio corporation, Crossmann
Communities of Tennessee, LLC, a Tennessee limited liability company, Crossmann
Communities Partnership, an Indiana general partnership, Crossmann
Investments, Inc., an Indiana corporation, Crossmann Management Inc., an Indiana
corporation, Crossmann Mortgage Corp., an Indiana corporation, Crossmann Realty,
Co., an Indiana corporation, Cutter Homes Ltd., a Kentucky corporation, Deluxe
Aviation, Inc., an Indiana corporation, Deluxe Homes of Lafayette, Inc., an
Indiana corporation, Deluxe Homes of Ohio, Inc., an Ohio corporation, Merit
Realty, Inc., an Indiana corporation, Paragon Title, LLC, an Indiana limited
liability company, Pinehurst Builders LLC, a South Carolina limited liability
company, and Trinity Homes LLC, an Indiana limited liability company, and
(ii) each of the Company's Subsidiaries that becomes a guarantor of the Notes
pursuant to the provisions of the Indenture.
"TRUST OFFICER" means any vice president, trust officer or other authorized
person of the Trustee assigned by the Trustee to administer its corporate trust
matters.
"TRUSTEE" means the party named as such until a successor replaces such
party in accordance with the applicable provisions of the Indenture and
thereafter means the successor trustee serving under the Indenture.
"UNRESTRICTED SUBSIDIARY" means United Home Insurance Corp., Meridan
Structural Insurance, Risk Retention Group, Inc. and Security Title Insurance
Company and each of the Subsidiaries of the Company so designated by a
resolution adopted by the Board of Directors of the Company as provided below
and provided that (a) neither the Company nor any of its other Subsidiaries
(other than Unrestricted Subsidiaries) (1) provides any direct or indirect
credit support for any Indebtedness of such Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness) or (2) is
directly or indirectly liable for any Indebtedness of such Subsidiary, (b) the
creditors with respect to Indebtedness for borrowed money of such Subsidiary
have agreed in writing that they have no recourse, direct or indirect, to the
Company or any other Subsidiary of the Company (other than Unrestricted
Subsidiaries), including, without limitation, recourse with respect to the
payment of principal or interest on any Indebtedness of such Subsidiary and
(c) no default with respect to any Indebtedness of such Subsidiary (including
any right which the holders thereof may have to take enforcement action against
such Subsidiary) would permit (upon notice, lapse of time or both) any holder of
any other Indebtedness of the Company and of its other Subsidiaries (other than
other Unrestricted Subsidiaries), to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity. The Board of Directors of the Company may designate an
Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED that (i) any
such redesignation will be deemed to be an Incurrence by the Company and its
Restricted Subsidiaries of the Indebtedness (if any) of such redesignated
Subsidiary for purposes of the "Limitations on Additional Indebtedness" covenant
set forth in the Indenture as of the date of such redesignation,
59
(ii) immediately after giving effect to such redesignation and the Incurrence of
any such additional Indebtedness, the Company and its Restricted Subsidiaries
could incur $1.00 of additional Indebtedness under the Consolidated Fixed Charge
Coverage Ratio contained in the "Limitations on Additional Indebtedness"
covenant set forth in the Indenture and (iii) the Liens of such Unrestricted
Subsidiary could then be incurred in accordance with the "Limitation on Liens"
covenant set forth in the Indenture as of the date of such redesignation.
Subject to the foregoing, the Board of Directors of the Company also may
designate any Restricted Subsidiary to be an Unrestricted Subsidiary; provided
that (i) all previous Investments by the Company and its Restricted Subsidiaries
in such Restricted Subsidiary (net of any returns previously paid on such
Investments) will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the "Limitations on Restricted Payments" covenant set forth in the Indenture,
(ii) immediately after giving effect to such designation and reduction of
amounts available for Restricted Payments under the "Limitations on Restricted
Payments" covenant set forth in the Indenture, the Company and its Restricted
Subsidiaries could incur $1.00 of additional Indebtedness under the Consolidated
Fixed Charge Coverage Ratio contained in the "Limitations on Additional
Indebtedness" covenant set forth in the Indenture and (iii) no Default or Event
of Default shall have occurred or be continuing. Any such designation or
redesignation by the Board of Directors of the Company will be evidenced to the
Trustee by the filing with the Trustee of a certified copy of the resolution of
the Board of Directors of the Company giving effect to such designation or
redesignation and an Officers' Certificate certifying that such designation or
redesignation complied with the foregoing conditions and setting forth the
underlying calculations.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
or portion thereof, at any date, the number of years obtained by dividing
(i) the sum of the products obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including, without limitation, payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment
by (ii) the sum of all such payments described in clause (a) above.
"WHOLLY OWNED SUBSIDIARY" of any Person means (i) a Subsidiary, of which
100 percent of the Common Equity (except for directors' qualifying shares or
certain minority interests owned by other Persons solely due to local law
requirements that there be more than one stockholder, but which interest is not
in excess of what is required for such purpose) is owned directly by such Person
or through one or more other Wholly Owned Subsidiaries of such Person, or
(ii) any entity other than a corporation in which such Person, directly or
indirectly, owns all of the Common Equity of such entity.
"WORKING CAPITAL FACILITIES" means, collectively, the Bank Credit Facility
and one or more other facilities among the Company, any Subsidiary Guarantor and
one or more lenders pursuant to which the Company or any Subsidiary Guarantor
may Incur Indebtedness for working capital purposes or to finance the
acquisition, holding or development of property by the Company and the
Restricted Subsidiaries (including the financing of any related interest
reserve), as any such facility may be amended, restated, supplemented or
otherwise modified from time to time, and includes any agreement extending the
maturity of, or restructuring (including, without limitation, the inclusion of
additional borrowers thereunder that are Unrestricted Subsidiaries), all or any
portion of the Indebtedness under such facility or any successor facilities and
includes any facility with one or more lenders refinancing or replacing all or
any portion of the Indebtedness under such facility or any successor facility.
60
CERTAIN COVENANTS
DISPOSITION OF PROCEEDS OF ASSET SALES. The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, make any Asset Sale unless
(i) the Company or the Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value for the shares or assets sold or otherwise disposed of; PROVIDED that the
aggregate Fair Market Value of the consideration received from any Asset Sale
that is not in the form of cash or cash equivalents (in U.S. dollars or freely
convertible into U.S. dollars) will not, when aggregated with the Fair Market
Value of all other noncash consideration received by the Company and its
Restricted Subsidiaries from all previous Asset Sales since the date of the
Indenture that has not been converted into cash or cash equivalents (in U.S.
dollars or freely convertible into U.S. dollars), exceed five percent of the
Consolidated Tangible Assets of the Company at the time of the Asset Sale under
consideration, and
(ii) the Company will apply or will cause one or more of its Restricted
Subsidiaries to apply an amount equal to the aggregate Net Proceeds received by
the Company or any Restricted Subsidiary from all Asset Sales occurring
subsequent to the date of the Indenture as follows: (A) to repay any outstanding
Indebtedness of the Company that is not subordinated to the Notes or other
Indebtedness of the Company, or to the payment of any Indebtedness of any
Restricted Subsidiary that is not subordinated to the Subsidiary Guarantee of
such Restricted Subsidiary, in each case within one year after such Asset Sale;
or (B) to acquire properties and assets that will be used in the businesses of
the Company and its Restricted Subsidiaries existing on the date of the
Indenture within one year after such Asset Sale,
PROVIDED, HOWEVER, that (x) in the case of applications contemplated by
clause (ii)(A) the payment of such Indebtedness will result in a permanent
reduction in committed amounts, if any, under the Indebtedness repaid at least
equal to the amount of the payment made, (y) in the case of applications
contemplated by clause (ii)(B), the Board of Directors has, within such one year
period, adopted in good faith a resolution committing such Net Proceeds to such
use and (z) none of such Net Proceeds shall be used to make any Restricted
Payment.
The amount of such Net Proceeds neither used to repay the Indebtedness
described above nor used or invested as set forth in the preceding sentence
constitutes "Excess Proceeds." Notwithstanding the above, any Asset Sale that is
subject to the "Limitations on Mergers and Consolidations" covenant set forth in
the Indenture will not be subject to the "Disposition of Proceeds of Asset
Sales" covenant set forth in the Indenture.
The Indenture also provides that, notwithstanding the foregoing, to the
extent the Company or any of its Restricted Subsidiaries receives securities or
other noncash property or assets as proceeds of an Asset Sale, the Company will
not be required to make any application of such noncash proceeds required by
clause (a) of the "Disposition of Proceeds of Asset Sale" covenant set forth in
the Indenture until it receives cash or cash equivalent proceeds from a sale,
repayment, exchange, redemption or retirement of or extraordinary dividend or
return of capital on such noncash property. Any amounts deferred pursuant to the
preceding sentence will be applied in accordance with clause (a) of the
"Disposition of Proceeds of Asset Sale" covenant set forth in the Indenture when
cash or cash equivalent proceeds are thereafter received from a sale, repayment,
exchange, redemption or retirement of or extraordinary dividend or return of
capital on such noncash property.
The Indenture also provides that, when the aggregate amount of Excess
Proceeds equals $10,000,000 or more, the Company will so notify the Trustee in
writing by delivery of an Officers' Certificate and will offer to purchase from
all Holders (an "Excess Proceeds Offer"), and will purchase from Holders
accepting such Excess Proceeds Offer on the date fixed for the closing of such
Excess Proceeds Offer (the "Asset Sale Offer Date"), the maximum principal
amount (expressed as a multiple
61
of $1,000) of Notes plus accrued and unpaid interest thereon, if any, to the
Asset Sale Offer Date that may be purchased and paid, as the case may be, out of
the Excess Proceeds, at an offer price (the "Asset Sale Offer Price") in cash in
an amount equal to 100 percent of the principal amount thereof plus accrued and
unpaid interest, if any, to the Asset Sale Offer Date, in accordance with the
procedures set forth in the "Disposition of Proceeds of Asset Sale" covenant in
the Indenture. To the extent that the aggregate amount of Notes tendered
pursuant to an Excess Proceeds Offer is less than the Excess Proceeds relating
thereto, then the Company may use such Excess Proceeds, or a portion thereof,
for general corporate purposes in the business of the Company and its Restricted
Subsidiaries existing on the date of the Indenture. Upon completion of an Excess
Proceeds Offer, the amount of Excess Proceeds will be reset at zero.
In addition, the Indenture provides that, within 30 days after the date on
which the amount of Excess Proceeds equals $10,000,000 or more, the Company
(with notice to the Trustee) or the Trustee at the Company's request (and at the
expense of the Company) will send or cause to be sent by first-class mail, to
all Persons who were Holders on the date such Excess Proceeds equaled
$10,000,000, at their respective addresses appearing in the Security Register, a
notice of such occurrence and of such Holders' rights arising as a result
thereof. The Indenture also provides that:
(a) In the event the aggregate principal amount of Notes surrendered by
Holders together with accrued interest thereon exceeds the amount of Excess
Proceeds, the Company will select the Notes to be purchased on a pro rata
basis from all Notes so surrendered, with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000, or
integral multiples thereof, will be purchased. To the extent that the Excess
Proceeds remaining are less than $1,000, the Company may use such Excess
Proceeds for general corporate purposes. Holders whose Notes are purchased
only in part will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered.
(b) Not later than one Business Day after the Asset Sale Offer Date in
connection with which the Excess Proceeds Offer is being made, the Company
will (i) accept for payment Notes or portions thereof tendered pursuant to
the Excess Proceeds Offer (on a pro rata basis if required), (ii) deposit
with the Paying Agent money sufficient, in immediately available funds, to
pay the purchase price of all Notes or portions thereof so accepted and
(iii) deliver to the Paying Agent an Officers' Certificate identifying the
Notes or portions thereof accepted for payment by the Company. The Paying
Agent will promptly mail or deliver to Holders so accepted payment in an
amount equal to the Asset Sale Offer Price of the Notes purchased from each
such Holder, and the Company will execute and upon receipt of an Officers'
Certificate of the Company the Trustee will promptly authenticate and mail
or deliver to such Holder a new Note equal in principal amount to any
unpurchased portion of the Note surrendered. Any Notes not so accepted will
be promptly mailed or delivered by the Paying Agent at the Company's expense
to the Holder thereof. The Company will publicly announce the results of the
Excess Proceeds Offer promptly after the Asset Sale Offer Date.
(c) Any Excess Proceeds Offer will be conducted by the Company in
compliance with applicable law, including, without limitation,
Section 14(e) of the Exchange Act and Rule 14e-1 thereunder, if applicable.
(d) Whenever Excess Proceeds are received by the Company, and prior to
the allocation of such Excess Proceeds pursuant to this covenant, such
Excess Proceeds will be set aside by the Company in a separate account to be
held in trust for the benefit of the Holders; PROVIDED, HOWEVER, that in the
event the Company will be unable to set aside such Excess Proceeds in a
separate account because of provisions of applicable law or of the Working
Capital Facilities, the Company will not be required to set aside such
Excess Proceeds.
62
(e) Notwithstanding the foregoing, an Excess Proceeds Offer may be made
by one or more Restricted Subsidiaries in lieu of the Company.
There can be no assurance that sufficient funds will be available at the
time of an Excess Proceeds Offer to make any required repurchases. The Company's
failure to make or to cause one or more Restricted Subsidiaries to make any
required repurchases in the event of an Excess Proceeds Offer will create an
Event of Default under the Indenture.
LIMITATIONS ON RESTRICTED PAYMENTS. The Indenture provides that the Company
will not, and will not cause or permit any of its Restricted Subsidiaries to,
make any Restricted Payment, directly or indirectly, after the date of the
Indenture if at the time of such Restricted Payment:
(i) the amount of such proposed Restricted Payment (the amount of such
Restricted Payment, if other than in cash, will be determined in good faith by a
majority of the disinterested members of the Board of Directors of the Company),
when added to the aggregate amount of all Restricted Payments declared or made
after the date of the Indenture, exceeds the sum of:
(1) $100 million, plus
(2) 50 percent of the Company's Consolidated Net Income accrued during
the period (taken as a single period) commencing April 1, 2002 and ending on
the last day of the fiscal quarter immediately preceding the fiscal quarter
in which the Restricted Payment is to occur (or, if such aggregate
Consolidated Net Income is a deficit, minus 100 percent of such aggregate
deficit), PLUS
(3) the net cash proceeds derived from the issuance and sale of Capital
Stock of the Company and its Restricted Subsidiaries that is not
Disqualified Stock (other than a sale to a Subsidiary of the Company) after
the date of the Indenture, PLUS
(4) 100 percent of the principal amount of, or, if issued at a discount,
the accreted value of, any Indebtedness of the Company or a Restricted
Subsidiary which is issued (other than to a Subsidiary of the Company) after
the date of the Indenture that is converted into or exchanged for Capital
Stock of the Company that is not Disqualified Stock, PLUS
(5) 100 percent of the aggregate amounts received by the Company or any
Restricted Subsidiary from the sale, disposition or liquidation (including
by way of dividends) of any Investment (other than to any Subsidiary of the
Company and other than to the extent sold, disposed of or liquidated with
recourse to the Company or any of its Subsidiaries or to any of their
respective properties or assets) but only to the extent (x) not included in
clause (2) above and (y) that the making of such Investment constituted a
permitted Restricted Investment, PLUS
(6) 100 percent of the principal amount of, or if issued at a discount,
the accreted value of, any Indebtedness or other obligation that is the
subject of a guarantee by the Company which is released (other than due to a
payment on such guarantee) after the date of the Indenture, but only to the
extent that such guarantee constituted a permitted Restricted Payment; or
(ii) the Company would be unable to incur $1.00 of additional Indebtedness
under the Consolidated Fixed Charge Coverage Ratio contained in the "Limitations
on Additional Indebtedness" covenant set forth in the Indenture; or
(iii) a Default or Event of Default has occurred and is continuing or occurs
as a consequence thereof.
Notwithstanding the foregoing, the provisions of the "Limitation on
Restricted Payments" covenant set forth in the Indenture will not prevent:
(i) the payment of any dividend within 60 days after the date of declaration
thereof if the payment thereof would have complied with the limitations of the
Indenture on the date of declaration,
63
provided that (x) such dividend will be deemed to have been paid as of its date
of declaration for the purposes of this covenant and (y) at the time of payment
of such dividend no other Default or Event of Default shall have occurred and be
continuing or would result therefrom;
(ii) the retirement of shares of the Company's Capital Stock or the
Company's or a Restricted Subsidiary of the Company's Indebtedness for, or out
of the net proceeds of a substantially concurrent sale (other than a sale to a
Subsidiary of the Company) of, other shares of its Capital Stock (other than
Disqualified Stock), provided that the proceeds of any such sale will be
excluded in any computation made under clause (3) above;
(iii) the redemption, repurchase, defeasance or retirement for value of
Indebtedness, including premium, if any, with the proceeds of Refinancing
Indebtedness;
(iv) payments or distributions pursuant to or in connection with a merger,
consolidation or transfer of assets that complies with the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of the Company or any Guarantor; or
(v) any purchase, redemption, retirement or other acquisition for value of
Capital Stock of the Company or any Subsidiary held by officers or employees or
former officers or employees of the Company or any Subsidiary (or their estates
or beneficiaries under their estates) not to exceed $500,000 in any calendar
year and $5 million in the aggregate since the Issue Date.
LIMITATIONS ON ADDITIONAL INDEBTEDNESS. The Indenture provides that the
Company will not, and will not cause or permit any of its Restricted
Subsidiaries, directly or indirectly, to, Incur any Indebtedness including
Acquisition Indebtedness; PROVIDED that the Company and the Subsidiary
Guarantors may Incur Indebtedness, including Acquisition Indebtedness, if, after
giving effect thereto and the application of the proceeds therefrom, either
(i) the Company's Consolidated Fixed Charge Coverage Ratio on the date thereof
would be at least 2.0 to 1.0 or (ii) the ratio of Indebtedness of the Company
and the Restricted Subsidiaries to Consolidated Tangible Net Worth is less than
2.25 to 1.
Notwithstanding the foregoing, the provisions of the Indenture will not
prevent:
(i) the Company or any Subsidiary Guarantor from Incurring (A) Refinancing
Indebtedness or (B) Non-Recourse Indebtedness,
(ii) the Company from Incurring Indebtedness evidenced by the Notes issued
on the Issue Date or the Exchange Notes,
(iii) the Company or any Subsidiary Guarantor from Incurring Indebtedness
under Working Capital Facilities not to exceed the greater of $150 million or
15% of Consolidated Tangible Assets,
(iv) any Subsidiary Guarantee of Indebtedness of the Company under the
Notes,
(v) the Company and its Restricted Subsidiaries from Incurring Indebtedness
under any deposits made to secure performance of tenders, bids, leases,
statutory obligations, surety and appeal bonds, progress statements, government
contracts and other obligations of like nature (exclusive of the obligation for
the payment of borrowed money),
(vi) any Subsidiary Guarantor from guaranteeing Indebtedness of the Company
or any other Subsidiary Guarantor, or the Company from guaranteeing Indebtedness
of any Subsidiary Guarantor, in each case permitted to be Incurred under the
Indenture (other than Non-Recourse Indebtedness),
(vii) (a) any Restricted Subsidiary from Incurring Indebtedness owing to the
Company or any Subsidiary Guarantor that is both a Wholly Owned Subsidiary and a
Restricted Subsidiary; PROVIDED that (I) such Indebtedness is subordinated to
any Subsidiary Guarantee of such Restricted Subsidiary, if any, and (II) such
Indebtedness shall only be permitted pursuant to this clause (vii)(a) for so
long as
64
the Person to whom such Indebtedness is owing is the Company or a Subsidiary
Guarantor that is both a Wholly Owned Subsidiary and a Restricted Subsidiary,
and (b) the Company from Incurring Indebtedness owing to any Subsidiary
Guarantor that is both a Wholly Owned Subsidiary and a Restricted Subsidiary;
PROVIDED that (I) such Indebtedness is subordinated to the Company's obligations
under the Notes and the Indenture, and (II) such Indebtedness shall only be
permitted pursuant to this clause (vii)(b) for so long as the Person to whom
such Indebtedness is owing is a Subsidiary Guarantor that is both a Wholly Owned
Subsidiary and a Restricted Subsidiary,
(viii) the Company and any Subsidiary Guarantor from Incurring Indebtedness
under Capitalized Lease Obligations or purchase money obligations, in each case
Incurred for the purpose of acquiring or financing all or any part of the
purchase price or cost of construction or improvement of property or equipment
used in the business of the Company or such Subsidiary Guarantor, as the case
may be, in an aggregate amount not to exceed $20 million, and
(ix) Indebtedness of the Company or any Restricted Subsidiary in an
aggregate principal amount at any time outstanding not to exceed $20 million.
The Company shall not, and the Company will not cause or permit any
Subsidiary Guarantor that is a Restricted Subsidiary to, directly or indirectly,
in any event Incur any Indebtedness that purports to be by its terms (or by the
terms of any agreement governing such Indebtedness) subordinated to any other
Indebtedness of the Company or of such Subsidiary Guarantor, as the case may be,
unless such Indebtedness is also by its terms (or by the terms of any agreement
governing such Indebtedness) made expressly subordinated to the Notes or the
Subsidiary Guarantee of such Subsidiary Guarantor, as the case may be, to the
same extent and in the same manner as such Indebtedness is subordinated to such
other Indebtedness of the Company or such Subsidiary Guarantor, as the case may
be.
For purposes of determining compliance with this "Limitations on Additional
Indebtedness" covenant, in the event an item of Indebtedness meets the criteria
of more than one of the types of Indebtedness described in the above clauses of
this covenant, the Company, in its sole discretion, shall classify such item of
Indebtedness in any manner that complies with this covenant and may from time to
time reclassify such item of Indebtedness in any manner in which such item could
be Incurred at the time of such reclassification.
LIMITATIONS AND RESTRICTIONS ON ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. The Indenture provides that the Company will not permit any
Restricted Subsidiary to issue, or permit to be outstanding at any time,
Preferred Stock or any other Capital Stock constituting Disqualified Stock other
than any such Capital Stock issued to or held by the Company or any Restricted
Subsidiary of the Company which is a Wholly Owned Subsidiary.
CHANGE OF CONTROL. The Indenture provides that, following the occurrence of
any Change of Control, the Company will so notify the Trustee in writing by
delivery of an Officers' Certificate and will offer to purchase (a "Change of
Control Offer") from all Holders, and will purchase from Holders accepting such
Change of Control Offer on the date fixed for the closing of such Change of
Control Offer (the "Change of Control Payment Date"), the outstanding principal
amount of Notes at an offer price (the "Change of Control Price") in cash in an
amount equal to 101 percent of the aggregate principal amount thereof plus
accrued and unpaid interest, if any, to the Change of Control Payment Date in
accordance with the procedures set forth in the "Change of Control" covenant of
the Indenture.
In addition, the Indenture provides that, within 30 days after the date on
which a Change of Control occurs, the Company (with Notice to the Trustee) or
the Trustee at the Company's request (and at the expense of the Company) will
send or cause to be sent by first-class mail, postage pre-paid, to all Persons
who were Holders on the date of the Change of Control at their respective
addresses appearing in the Security Register, a notice of such occurrence and of
such Holder's rights arising as a result thereof.
65
The Indenture also provides that:
(a) In the event of a Change of Control Offer, the Company will only be
required to accept Notes in denominations of $1,000 or integral multiples
thereof.
(b) Not later than one Business Day after the Change of Control Payment
Date in connection with which the Change of Control Offer is being made, the
Company will (i) accept for payment Notes or portions thereof tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent
money sufficient, in immediately available funds, to pay the purchase price
of all Notes or portions thereof so accepted and (iii) deliver to the Paying
Agent an Officers' Certificate identifying the Notes or portions thereof
accepted for payment by the Company. The Paying Agent will promptly mail or
deliver to Holders of Notes so accepted payment in an amount equal to the
Change of Control Price of the Notes purchased from each such Holder, and
the Company will execute and, upon receipt of an Officer's Certificate of
the Company, the Trustee will promptly authenticate and mail or deliver to
such Holder a new Note equal in principal amount to any unpurchased portion
of the Note surrendered. Any Notes not so accepted will be promptly mailed
or delivered by the Paying Agent at the Company's expense to the Holder
thereof. The Company will publicly announce the results of the Change of
Control Offer promptly after the Change of Control Payment Date.
(c) Any Change of Control Offer will be conducted by the Company in
compliance with applicable law, including, without limitation,
Section 14(e) of the Exchange Act and Rule 14e-1 thereunder.
The Company may enter into other arrangements or Incur other Indebtedness
with similar change of control obligations. There can be no assurance that
sufficient funds will be available at the time of a Change of Control to make
any required repurchases. The Company's failure to make any required repurchases
in the event of a Change of Control Offer will create an Event of Default under
the Indenture.
No quantitative or other established meaning has been given to the phrase
"all or substantially all" (which appears in the definition of Change of
Control) by courts which have interpreted this phrase in various contexts. In
interpreting this phrase, courts make a subjective determination as to the
portion of assets conveyed, considering such factors as the value of the assets
conveyed and the proportion of an entity's income derived from the assets
conveyed. Accordingly, there may be uncertainty as to whether a Holder of Notes
can determine whether a Change of Control has occurred and exercise any remedies
such Holder may have upon a Change of Control.
LIMITATIONS ON TRANSACTIONS WITH STOCKHOLDERS AND AFFILIATES. The Indenture
provides that the Company will not, and will not permit any of its Subsidiaries
to, make any Investment, loan, advance, guarantee or capital contribution to or
for the benefit of, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or for the benefit of, or purchase or lease any
property or assets from, or enter into or amend any contract, agreement or
understanding with, or for the benefit of, (i) any Affiliate of the Company or
any Affiliate of the Company's Subsidiaries or (ii) any Person (or any Affiliate
of such person) holding 10 percent or more of the Common Equity of the Company
or any of its Subsidiaries (each an "Affiliate Transaction"), except on terms
that are no less favorable to the Company or the relevant Subsidiary, as the
case may be, than those that could have been obtained in a comparable
transaction on an arm's length basis from a person that is not an Affiliate.
The Indenture also provides that the Company will not, and will not permit
any of its Subsidiaries to, enter into any Affiliate Transaction involving or
having a value of more than $5 million, unless, in each case, such Affiliate
Transaction has been approved by a majority of the disinterested members of the
Company's Board of Directors.
66
The Indenture also provides that the Company will not, and will not permit
any of its Subsidiaries to, enter into an Affiliate Transaction involving or
having a value of more than $20 million unless the Company has delivered to the
Trustee an opinion of an Independent Financial Advisor to the effect that the
transaction is fair to the Company or the relevant Subsidiary, as the case may
be, from a financial point of view.
The Indenture also provides that, notwithstanding the foregoing, an
Affiliate Transaction will not include (i) any contract, agreement or
understanding with, or for the benefit of, or plan for the benefit of, employees
of the Company or its Subsidiaries (in their capacity as such) that has been
approved by the Company's Board of Directors, (ii) Capital Stock issuances to
members of the Board of Directors, officers and employees, of the Company or its
Subsidiaries pursuant to plans approved by the stockholders of the Company,
(iii) any Restricted Payment otherwise permitted under the "Limitations on
Restricted Payments" covenant set forth in the Indenture, (iv) any transaction
between the Company and a Restricted Subsidiary or a Restricted Subsidiary and
another Restricted Subsidiary or (v) any transaction pursuant to the tax sharing
agreement, the agreement with Beazer Homes Ltd. regarding use of name and the
cross-indemnity agreement, in each case with the Company's former parent or
affiliates, as such agreements are in effect on the date of the Indenture.
LIMITATIONS ON LIENS. The Indenture provides that the Company will not, and
will not permit any of its Restricted Subsidiaries to, create, incur, assume or
suffer to exist any Liens, other than Permitted Liens, on any of its or their
assets, property, income or profits therefrom unless contemporaneously therewith
or prior thereto all payments due under the Indenture and the Notes are secured
on an equal and ratable basis with the obligation or liability so secured until
such time as such obligation or liability is no longer secured by a Lien. The
Indenture also provides that no Liens will be permitted to be created or
suffered to exist on any Indebtedness from the Company in favor of any
Restricted Subsidiary and that such Indebtedness will not be permitted to be
sold, disposed of or otherwise transferred.
LIMITATIONS ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, create, assume or otherwise cause
or suffer to exist or become effective any consensual encumbrance or restriction
on the ability of any Restricted Subsidiary to (i) pay dividends or make any
other distributions on its Capital Stock or any other interest or participation
in, or measured by, its profits, owned by the Company or any of its other
Restricted Subsidiaries, or pay interest on or principal of any Indebtedness
owed to the Company or any of its other Restricted Subsidiaries, (ii) make loans
or advances to the Company or any of its other Restricted Subsidiaries, or
(iii) transfer any of its properties or assets to the Company or any of its
other Restricted Subsidiaries, except for encumbrances or restrictions existing
under or by reason of (a) applicable law, (b) covenants or restrictions
contained in the agreements evidencing Existing Indebtedness as in effect on the
date of the Indenture, (c) any restrictions or encumbrances arising under
Acquisition Indebtedness; PROVIDED that such encumbrance or restriction applies
only to the obligor on such Indebtedness and its Subsidiaries and that such
Acquisition Indebtedness was not incurred by the Company or any of its
Subsidiaries or by the Person being acquired in connection with or in
anticipation of such acquisition, (d) any restrictions or encumbrances arising
in connection with Refinancing Indebtedness; PROVIDED that any restrictions and
encumbrances of the type described in this clause (d) that arise under such
Refinancing Indebtedness are not more restrictive than those under the agreement
creating or evidencing the Indebtedness being refunded, refinanced, replaced or
extended, (e) any agreement restricting the sale or other disposition of
property securing Indebtedness permitted by the Indenture if such agreement does
not expressly restrict the ability of a Subsidiary of the Company to pay
dividends or make loans or advances, and (f) reasonable and customary borrowing
base covenants set forth in agreements evidencing Indebtedness otherwise
permitted by the Indenture, which covenants restrict or limit the distribution
of revenues or sale proceeds from real estate or a real estate project based
upon the amount of indebtedness outstanding on such real estate or real estate
67
project and the value of some or all of the remaining real estate or the
project's remaining assets, and customary provisions restricting subletting or
assignment of any lease governing a leasehold interest of the Company or any of
its Restricted Subsidiaries.
MAINTENANCE OF CONSOLIDATED TANGIBLE NET WORTH. The Indenture provides
that:
(a) In the event that the Consolidated Tangible Net Worth of the Company
is less than $85 million at the end of any two consecutive fiscal quarters
(the last day of the second fiscal quarter being referred to in the
Indenture as the "Deficiency Date"), within 30 days after the end of each
such period or 60 days in the event that the end of the period is the end of
the Company's fiscal year, the Company will so notify the Trustee in writing
by delivery of an Officers' Certificate and will offer to purchase from all
Holders (a "Net Worth Offer"), and will purchase from Holders accepting such
Net Worth Offer on the date fixed for the closing of such Net Worth Offer
(the "Net Worth Offer Date"), 10 percent of the original outstanding
principal amount of the Notes (the "Net Worth Amount") at an offer price
(the "Net Worth Offer Price") in cash in an amount equal to 100 percent of
the aggregate principal amount thereof plus accrued and unpaid interest, if
any, to the Net Worth Offer Date; PROVIDED that no such offer shall be
required if, following such two fiscal quarters but prior to the date the
Company is required to make such offer, capital in cash or cash equivalents
is contributed to the Company in an Equity Offering sufficient to increase
the Company's Consolidated Tangible Net Worth after giving effect to such
contribution to an amount equal to or greater than $85 million. To the
extent that the aggregate amount of Notes tendered pursuant to a Net Worth
Offer is less than the Net Worth Amount relating thereto, then the Company
may use the excess of the Net Worth Amount over the amount of Notes
tendered, or a portion thereof, for general corporate purposes. In no event
shall the Company's failure to meet the Consolidated Tangible Net Worth
threshold at the end of any fiscal quarter be counted toward the making of
more than one Net Worth Offer. The Company may reduce the principal amount
of Notes to be purchased pursuant to the Net Worth Offer by subtracting
100 percent of the principal amount (excluding premium) of Notes acquired by
the Company or any Wholly Owned Subsidiary subsequent to the Deficiency Date
and surrendered for cancellation through purchase, redemption (other than
pursuant to this covenant) or exchange, and that were not previously used as
a credit against any obligation to repurchase Notes pursuant to this
covenant.
(b) Subject to the proviso contained in paragraph (a) above, in the
event that the Consolidated Tangible Net Worth of the Company is less than
$85 million at the end of any two consecutive fiscal quarters, within
30 days after the end of such period, the Company (with notice to the
Trustee) or the Trustee at the Company's request (and at the expense of the
Company) will send or cause to be sent by first-class mail, postage
pre-paid, to all Persons who were Holders on the date of the end of the
second such consecutive fiscal quarter, at their respective addresses
appearing in the Security Register, a notice of such occurrence and of each
Holder's rights arising as a result thereof. Such notice will contain all
instructions and materials necessary to enable Holders to tender their Notes
to the Company.
(c) In the event that the aggregate principal amount of Notes
surrendered by Holders exceeds the Net Worth Amount, the Company will select
the Notes to be purchased on a pro rata basis from all Notes so surrendered,
with such adjustments as may be deemed appropriate by the Company so that
only Notes in denominations of $1,000, or integral multiples thereof, will
be purchased. To the extent that the Net Worth Amount remaining is less than
$1,000, the Company may use such Net Worth Amount for general corporate
purposes. Holders whose Notes are purchased only in part will be issued new
Notes equal in principal amount to the unpurchased portion of the Notes
surrendered.
68
(d) Not later than one Business Day after the Net Worth Offer Date in
connection with which the Net Worth Offer is being made, the Company will
(i) accept for payment Notes or portions thereof tendered pursuant to the
Net Worth Offer (on a pro rata basis if required pursuant to the
"Maintenance of Consolidated Tangible Net Worth" covenant set forth in the
Indenture), (ii) deposit with the Paying Agent money sufficient, in
immediately available funds, to pay the purchase price of all Notes or
portions thereof so accepted and (iii) deliver to the Paying Agent an
Officers' Certificate identifying the Notes or portions thereof accepted for
payment by the Company. The Paying Agent will promptly mail or deliver to
Holders of Notes so accepted payment in an amount equal to the Net Worth
Offer Price of the Notes purchased from each such Holder, and the Company
will execute and the Trustee will promptly authenticate and mail or deliver
to such Holder a new Note equal in principal amount to any unpurchased
portion of the Note surrendered. Any Notes not so accepted will be promptly
mailed or delivered by the Paying Agent at the Company's expense to the
Holder thereof. The Company will publicly announce the results of the Net
Worth Offer promptly after the Net Worth Offer Date.
(e) Any Net Worth Offer will be conducted by the Company in compliance
with applicable law, including, without limitation, Section 14(e) of the
Exchange Act and Rule 14e-1 thereunder, if applicable.
There can be no assurance that sufficient funds will be available at the
time of a Net Worth Offer to make any required repurchases. The Company's
failure to make any required repurchases in the event of a Net Worth Offer will
create an Event of Default under the Indenture.
LIMITATIONS ON MERGERS AND CONSOLIDATIONS. The Indenture provides that
neither the Company nor any Subsidiary Guarantor will consolidate or merge with
or into, or sell, lease, convey or otherwise dispose of all or substantially all
of its assets (including, without limitation, by way of liquidation or
dissolution), or assign any of its obligations under the Notes, the Guarantees
or the Indenture (as an entirety or substantially in one transaction or series
of related transactions), to any Person or permit any of its Restricted
Subsidiaries to do any of the foregoing (in each case other than with the
Company or another Wholly Owned Restricted Subsidiary) unless:
(i) the Person formed by or surviving such consolidation or merger (if other
than the Company or such Subsidiary Guarantor, as the case may be), or to which
such sale, lease, conveyance or other disposition or assignment will be made
(collectively, the "Successor"), is a solvent corporation or other legal entity
organized and existing under the laws of the United States or any state thereof
or the District of Columbia, and the Successor assumes by supplemental indenture
in a form reasonably satisfactory to the Trustee all of the obligations of the
Company or such Subsidiary Guarantor, as the case may be, under the Notes or
such Subsidiary Guarantor's Subsidiary Guarantee, as the case may be, and the
Indenture,
(ii) immediately after giving effect to such transaction, no Default or
Event of Default has occurred and is continuing,
(iii) immediately after giving effect to such transaction and the use of any
net proceeds therefrom, on a pro forma basis, the Consolidated Tangible Net
Worth of the Company or the Successor (in the case of a transaction involving
the Company), as the case may be, would be at least equal to the Consolidated
Tangible Net Worth of the Company immediately prior to such transaction and
(iv) immediately after giving effect to such transaction and the use of any
net proceeds therefrom, on a pro forma basis, the Consolidated Fixed Charge
Coverage Ratio of the Company or the Successor (in the case of a transaction
involving the Company), as the case may be, would be such that the Company or
the Successor (in the case of a transaction involving the Company), as the case
may be, would be entitled to Incur at least $1.00 of additional Indebtedness
under such Consolidated Fixed Charge Coverage Ratio test in the "Limitations on
Additional Indebtedness" covenant set forth in the Indenture.
69
The foregoing provisions shall not apply to a transaction involving the
consolidation or merger of a Subsidiary Guarantor with or into another Person,
or the sale, lease, conveyance or other disposition of all or substantially all
of the assets of such Subsidiary Guarantor, that results in such Subsidiary
Guarantor being released from its Subsidiary Guarantee as provided under "The
Subsidiary Guarantees" above.
No quantitative or other established meaning has been given to the phrase
"all or substantially all" by courts which have interpreted this phrase in
various contexts. In interpreting this phrase, courts make a subjective
determination as to the portion of assets conveyed, considering such factors as
the value of the assets conveyed and the proportion of an entity's income
derived from the assets conveyed. Accordingly, there may be uncertainty as to
whether a Holder of Notes can determine whether the Company has sold, leased,
conveyed or otherwise disposed of all or substantially all of its assets and
exercise any remedies such Holder may have upon the occurrence of any such
transaction.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture:
(i) the failure by the Company to pay interest on any Note when the same
becomes due and payable and the continuance of any such failure for a period of
30 days;
(ii) the failure by the Company to pay the principal or premium of any Note
when the same becomes due and payable at maturity, upon acceleration or
otherwise (including the failure to make payment pursuant to a Change of Control
Offer, a Net Worth Offer or an Excess Proceeds Offer);
(iii) the failure by the Company or any of its Subsidiaries to comply with
any of its agreements or covenants in, or provisions of, the Notes, the
Subsidiary Guarantees or the Indenture and such failure continues for the period
and after the notice specified below;
(iv) the acceleration of any Indebtedness (other than Non-Recourse
Indebtedness) of the Company or any of its Subsidiaries that has an outstanding
principal amount of $10 million or more in the aggregate;
(v) the failure by the Company or any of its Subsidiaries to make any
principal or interest payment in respect of Indebtedness (other than
Non-Recourse Indebtedness) of the Company or any of its Subsidiaries with an
outstanding aggregate amount of $10 million or more within five days of such
principal or interest payment becoming due and payable (after giving effect to
any applicable grace period set forth in the documents governing such
Indebtedness); PROVIDED, that if such failure to pay shall be remedied, waived
or extended, then the Event of Default hereunder shall be deemed likewise to be
remedied, waived or extended without further action by the Company;
(vi) a final judgment or judgments that exceed $10 million or more in the
aggregate, for the payment of money, having been entered by a court or courts of
competent jurisdiction against the Company or any of its Subsidiaries and such
judgment or judgments is not satisfied, stayed, annulled or rescinded within
60 days of being entered;
(vii) the Company or any Material Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an
involuntary case,
(C) consents to the appointment of a Custodian of it or for all or
substantially all of its property, or
(D) makes a general assignment for the benefit of its creditors;
70
(viii) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(A) is for relief against the Company or any Material Subsidiary as
debtor in an involuntary case,
(B) appoints a Custodian of the Company or any Material Subsidiary or a
Custodian for all or substantially all of the property of the Company
or any Material Subsidiary, or
(C) orders the liquidation of the Company or any Material Subsidiary and
the order or decree remains unstayed and in effect for 60 days; or
(ix) any Subsidiary Guarantee ceases to be in full force and effect (other
than in accordance with the terms of such Subsidiary Guarantee and the
Indenture) or is declared null and void and unenforceable or found to be invalid
or any Subsidiary Guarantor denies its liability under its Subsidiary Guarantee
(other than by reason of release of a Subsidiary Guarantor from its Subsidiary
Guarantee in accordance with the terms of the Indenture and the Subsidiary
Guarantee).
A Default as described in sub-clause (iii) above will not be deemed an Event
of Default until the Trustee notifies the Company, or the Holders of at least
25 percent in principal amount of the then outstanding Notes notify the Company
and the Trustee, of the Default and the Company does not cure the Default within
60 days after receipt of the notice. The notice must specify the Default, demand
that it be remedied and state that the notice is a "Notice of Default." If such
a Default is cured within such time period, it ceases.
If an Event of Default (other than an Event of Default specified in
sub-clauses (vii) and (viii) above) shall have occurred and be continuing under
the Indenture, the Trustee by notice to the Company, or the Holders of at least
25 percent in principal amount of the Notes then outstanding by notice to the
Company and the Trustee, may declare all Notes to be due and payable
immediately. Upon such declaration of acceleration, the amounts due and payable
on the Notes, as determined pursuant to the provisions of the "Acceleration"
section of the Indenture, will be due and payable immediately. If an Event of
Default with respect to the Company specified in sub-clauses (vii) and
(viii) above occurs, such an amount will IPSO FACTO become and be immediately
due and payable without any declaration, notice or other act on the part of the
Trustee and the Company or any Holder. The Holders of a majority in principal
amount of the Notes then outstanding by written notice to the Trustee and the
Company may waive such Default or Event of Default (other than any Default or
Event of Default in payment of principal or interest) on the Notes under the
Indenture. Holders of a majority in principal amount of the then outstanding
Notes may rescind an acceleration and its consequence (except an acceleration
due to nonpayment of principal or interest on the Notes) if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
have been cured or waived.
The Holders may not enforce the provisions of the Indenture, the Notes or
the Subsidiary Guarantees except as provided in the Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the Notes then
outstanding may direct the Trustee in its exercise of any trust or power,
provided, however, that such direction does not conflict with the terms of the
Indenture. The Trustee may withhold from the Holders notice of any continuing
Default or Event of Default (except any Default or Event of Default in payment
of principal or interest on the Notes or that resulted from the failure to
comply with the covenant entitled Change of Control) if the Trustee determines
that withholding such notice is in the Holders' interest.
The Company is required to deliver to the Trustee a quarterly statement
regarding compliance with the Indenture, and include in such statement, if any
Officer of the Company is aware of any Default or Event of Default, a statement
specifying such Default or Event of Default and what action the Company is
taking or proposes to take with respect thereto. In addition, the Company is
required to deliver to the Trustee prompt written notice of the occurrence of
any Default or Event of Default and any other development, financial or
otherwise, which might materially affect its business, properties or affairs or
the ability of the Company to perform its obligations under the Indenture.
71
REPORTS
The Indenture provides that, as long as any of the Notes are outstanding,
the Company will deliver to the Trustee and mail to each Holder within 15 days
after the filing of the same with the Commission copies of the quarterly and
annual reports and of the information, documents and other reports with respect
to the Company and the Subsidiary Guarantors, if any, which the Company and the
Subsidiary Guarantors may be required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act. The Indenture further provides that,
notwithstanding that neither the Company nor any of the Guarantors may be
required to remain subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, the Company will continue to file with the Commission and
provide the Trustee and Holders with such annual and quarterly reports and such
information, documents and other reports with respect to the Company and the
Subsidiary Guarantors as are required under Sections 13 and 15(d) of the
Exchange Act. If filing of documents by the Company with the Commission as
aforementioned in this paragraph is not permitted under the Exchange Act, the
Company shall promptly upon written notice supply copies of such documents to
any prospective holder. The Company and each Subsidiary Guarantor will also
comply with the other provisions of Section 314(a) of the Trust Indenture Act.
DISCHARGE OF INDENTURE
The Indenture permits the Company and the Subsidiary Guarantors to terminate
all of their respective obligations under the Indenture, other than the
obligation to pay interest on and the principal of the Notes and certain other
obligations, at any time by (i) depositing in trust with the Trustee, under an
irrevocable trust agreement, money or U.S. Government Obligations in an amount
sufficient to pay principal of and interest on the Notes to their maturity or
redemption, as the case may be, and to pay all other sums payable by the Company
and the Subsidiary Guarantors under the Indenture as they become due and
(ii) complying with certain other conditions, including delivery to the Trustee
of an opinion of counsel to the effect that Holders will not recognize income,
gain or loss for federal income tax purposes as a result of the Company's
exercise of such right and will be subject to federal income tax on the same
amount and in the same manner and at the same times as would have been the case
otherwise.
In addition, the Indenture permits the Company and the Subsidiary Guarantors
to terminate all of their respective obligations under the Indenture (including
the obligations to pay interest on and the principal of the Notes and certain
other obligations), at any time by (i) depositing in trust with the Trustee,
under an irrevocable trust agreement, money or U.S. Government Obligations in an
amount sufficient (without regard to reinvestment of any interest thereon), in
the opinion of a nationally recognized firm of independent public accountants
expressed in a written certificate thereof delivered to the Trustee, to pay
principal of and interest on the Notes to their maturity or redemption, as the
case may be, and to pay all other sums payable by the Company and the Subsidiary
Guarantors under the Indenture as they become due and (ii) complying with
certain other conditions, including delivery to the Trustee of an opinion of
counsel that the Company has received from the Internal Revenue Service a ruling
or that since the date of the Indenture there has been a change in the
applicable federal income tax law, in either case to the effect that Holders
will not recognize income, gain or loss for federal income tax purposes as a
result of the Company's exercise of such right and will be subject to federal
income tax on the same amount and in the same manner and at the same times as
would have been the case otherwise.
TRANSFER AND EXCHANGE
A Holder will be able to transfer or exchange Notes only in accordance with
the provisions of the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate
72
endorsements and transfer documents, and to pay any taxes and fees required by
law or permitted by the Indenture.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture or the Notes may be amended or
supplemented with the consent (which may include consents obtained in connection
with a tender offer or exchange offer for Notes) of the Holders of at least a
majority in principal amount of the Notes then outstanding, and any existing
Default or Event of Default (other than any continuing Default or Event of
Default in the payment of interest on or the principal of the Notes) under, or
compliance with any provision of, the Indenture may be waived with the consent
(which may include consents obtained in connection with a tender offer or
exchange offer for Notes) of the Holders of a majority in principal amount of
the Notes then outstanding. Without the consent of any Holder, the Company, the
Subsidiary Guarantors and the Trustee may amend the Indenture or the Notes or
waive any provision of the Indenture to cure any ambiguity, defect or
inconsistency, to comply with the "Limitations on Mergers and Consolidations"
section set forth in the Indenture; to provide for uncertificated Notes in
addition to certificated Notes; to make any change that does not adversely
affect the legal rights under the Indenture of any Holder; to comply with or
qualify the Indenture under the Trust Indenture Act; or to reflect a Subsidiary
Guarantor ceasing to be liable on the Subsidiary Guarantees because it is no
longer a Subsidiary of the Company.
Without the consent of each Holder affected, the Company may not
(i) reduce the amount of Notes whose Holders must consent to an amendment,
supplement or waiver,
(ii) reduce the rate of or change the time for payment of interest,
including default interest, on any Note,
(iii) reduce the principal of or change the fixed maturity of any Note or
alter the provisions with respect to redemption under the "Optional Redemption"
section set forth in the Indenture or with respect to mandatory offers to
repurchase Notes pursuant to the "Disposition of Proceeds of Asset Sales,"
"Change of Control" and "Maintenance of Consolidated Tangible Net Worth"
covenants set forth in the Indenture,
(iv) make any Note payable in money other than that stated in the Note,
(v) make any change in the "Waiver of Past Defaults and Compliance with
Indenture Provisions", "Rights of Holders to Receive Payment" or, in part, the
"With Consent of Holders" sections set forth in the Indenture,
(vi) modify the ranking or priority of the Notes or any Subsidiary
Guarantee,
(vii) release any Subsidiary Guarantor from any of its obligations under its
Subsidiary Guarantee or the Indenture otherwise than in accordance with the
terms of the Indenture, or
(viii) waive a continuing Default or Event of Default in the payment of
principal of or interest on the Notes.
The right of any Holder to participate in any consent required or sought
pursuant to any provision of the Indenture (and the obligation of the Company to
obtain any such consent otherwise required from such Holder) may be subject to
the requirement that such Holder shall have been the Holder of record of any
Notes with respect to which such consent is required or sought as of a date
identified by the Trustee in a notice furnished to Holders in accordance with
the terms of the Indenture.
73
NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal of,
premium, if any, or interest on any of the Notes, or for any claim based thereon
or otherwise in respect thereof, and no recourse under or upon any obligation,
covenant or agreement of the Company or any Subsidiary Guarantor in the
Indenture or in any of the Notes or because of the creation of any Indebtedness
represented thereby, shall be had against any incorporator, shareholder,
officer, director, employee or controlling person of the Company, any Subsidiary
Guarantor or any successor Person thereof. Each Holder, by accepting such Notes
waives and releases all such liability.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined in
the Indenture), it must eliminate such conflict or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
occurs and is not cured, the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent person in similar circumstances in
the conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to the Trustee.
GOVERNING LAW
The Indenture, the Notes and the Subsidiary Guarantees are governed by the
laws of the State of New York.
BOOK-ENTRY, DELIVERY AND FORM OF NOTES
The notes will be represented by one or more global notes, referred to
herein as global notes, in definitive form. The global notes will be deposited
on the Issue Date with, or on behalf of, the Depository Trust Company, or DTC,
and registered in the name of Cede & Co., as nominee of DTC. Cede & Co. is
referred to herein as the global note holder. The global notes will be subject
to certain restrictions on transfer and will bear the legend regarding these
restrictions set forth under the heading "Notice to Investors." DTC will
maintain the notes in denominations of $1,000 and integral multiples thereof
through its book-entry facilities.
We have been advised by DTC of the following:
DTC is a limited-purpose trust company that was created to hold securities
for its participating organizations, referred to herein as participants,
including the Euroclear System and Clearstream Banking, Societe Anonyme,
Luxembourg, and to facilitate the clearance and settlement of transactions in
these securities between participants through electronic book-entry changes in
accounts of its participants. DTC's participants include securities brokers and
dealers (including the initial purchasers of the notes), banks and trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other indirect participants such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. Persons who are
not participants may beneficially own securities held by or on behalf of DTC
only through DTC's participants or indirect participants. Pursuant to procedures
established by
74
DTC, ownership of the notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC (with respect
to the interests of DTC's participants) and the records of DTC's participants
(with respect to the interests of DTC's indirect participants).
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer the notes will be limited to such extent.
So long as the global note holder is the registered owner of any notes, it
will be considered the sole holder of outstanding notes represented by such
global notes under the indenture governing the notes. Except as provided below,
owners of notes will not be entitled to have notes registered in their names and
will not be considered the owners or holders thereof under the indenture
governing the notes for any purpose, including with respect to the giving of any
directions, instructions, or approvals to the trustee thereunder. Neither we,
the guarantors of the notes or the trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of notes by DTC, or for maintaining, supervising or reviewing any records of DTC
relating to such notes.
Payments in respect of the principal of, premium, if any, and interest on
any notes registered in the name of a global note holder on the applicable
record date will be payable by the trustee to or at the direction of such global
note holder in its capacity as the registered holder under the indenture
governing the notes. Under the terms of such indenture, Beazer and the Trustee
may treat the persons in whose names any notes, including the global notes, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither Beazer nor the
trustee has or will have any responsibility or liability for the payment of such
amounts to beneficial owners of notes (including principal, premium, if any, and
interest). We believe, however, that it is currently the policy of DTC to
immediately credit the accounts of the relevant participants with such payments,
in amounts proportionate to their respective beneficial interests in the
relevant security as shown on the records of DTC. Payments by DTC's participants
and indirect participants to the beneficial owners of notes will be governed by
standing instructions and customary practice and will be the responsibility of
DTC's participants or indirect participants.
Subject to certain conditions, any person having a beneficial interest in
the global notes may, upon request to the trustee and confirmation of such
beneficial interest by DTC, its participants or indirect participants, exchange
such beneficial interest for notes in definitive form. Upon any such issuance,
the trustee is required to register such notes in the name of and cause the same
to be delivered to, such person or persons (or the nominee of any thereof). Such
notes would be issued in fully registered form and would be subject to the legal
requirements described in Indenture. In addition, if (i) we notify the trustee
in writing that DTC is no longer willing or able to act as a depositary and we
are unable to locate a qualified successor within 90 days or (ii) we, at our
option, notify the trustee in writing that we elect to cause the issuance of
notes in definitive form under the indenture governing the notes, then, upon
surrender by the relevant global note holder of its global note, notes in such
form will be issued to each person that such global note holder and DTC
identifies as being the beneficial owner of the related notes.
Neither Beazer nor the trustee will be liable for any delay by the global
note holder or DTC in identifying the beneficial owners of notes and Beazer and
the trustee may conclusively rely on, and will be protected in relying on,
instructions from the global note holder or DTC for all purposes.
The information in this section concerning DTC, Euroclear and Clearstream
and their book-entry systems has been obtained from sources that we believe to
be reliable, but we take no responsibility for the accuracy thereof.
75
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes material United States federal income
tax considerations that may be relevant to the purchase, ownership and
disposition of the notes, but does not purport to be a complete analysis of all
the potential tax considerations relating thereto. This summary deals only with
holders that will hold the notes as capital assets and does not address tax
considerations applicable to investors that may be subject to special tax rules
such as dealers in securities, financial institutions, insurance companies,
tax-exempt entities, persons holding the notes as part of a hedging or
conversion transaction, a straddle or a constructive sale, and persons whose
functional currency is not the United States dollar. In addition, this
discussion does not consider the effect of any estate, gift or other tax laws.
As used in this summary: "United States Holder" means a beneficial owner of
the notes, who or that: is a citizen or resident of the United States; is a
corporation, partnership or other entity created or organized in or under the
laws of the United States or political subdivision thereof; is an estate the
income of which is subject to United States federal income taxation regardless
of its source; or is a trust if (a) a United States court is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have authority to control all substantial decisions of the trust,
or (b) the trust has a valid election in effect under applicable United States
treasury regulations to be treated as a United States person; A "Foreign Holder"
is a beneficial owner of notes that is not a United States Holder; "Code" means
the United States Internal Revenue Code of 1986, as amended to date; and "IRS"
means the United States Internal Revenue Service.
THE DISCUSSION OF THE UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS BELOW
IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, THE APPLICABLE UNITED
STATES TREASURY REGULATIONS PROMULGATED AND PROPOSED UNDER THE CODE, JUDICIAL
DECISIONS AND ADMINISTRATIVE INTERPRETATIONS, ALL OF WHICH ARE SUBJECT TO
CHANGE, POSSIBLY ON A RETROACTIVE BASIS. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY
DIFFER, YOU ARE STRONGLY URGED TO CONSULT YOUR TAX ADVISOR WITH RESPECT TO YOUR
PARTICULAR TAX SITUATION AND THE PARTICULAR TAX EFFECTS OF ANY STATE, LOCAL,
NON-UNITED STATES OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.
UNITED STATES HOLDER
INTEREST
A United States Holder will be required to include in gross income the
stated interest on a note at the time that such interest accrues or is received,
in accordance with the United States Holder's regular method of accounting for
United States federal income tax purposes. The notes are not expected to be
issued with original issue discount and the remainder of this section so
assumes.
SALE, EXCHANGE, OR RETIREMENT OF THE NOTES
A United States Holder's tax basis in a note generally will be its cost. A
United States Holder generally will recognize gain or loss on the sale, exchange
or retirement (including a redemption) of a note in an amount equal to the
difference between the amount of cash plus the fair market value of any property
received, other than any such amount attributable to accrued interest (which
will be taxable as such if not previously included in income), and the United
States Holder's tax basis in the note. Gain or loss recognized on the sale,
exchange or retirement of a note generally will be capital gain or loss. In the
case of a non-corporate United States Holder, the federal tax rate applicable to
capital gains will depend upon the United States Holder's holding period for the
notes, with a
76
preferential rate available for notes held for more than one year, and upon the
United States Holder's marginal tax rate for ordinary income. The deductibility
of capital losses may be subject to limitations.
THE EXCHANGE OFFER
Pursuant to the exchange offer, holders are entitled to exchange the
original notes for new notes that will be substantially identical in all
material respects to the original notes, except that the new notes will be
registered with the SEC and therefore will not be subject to transfer
restrictions. We believe that the exchange pursuant to the exchange offer as
described above will not result in a taxable event. Accordingly,
- no gain or loss will be realized by a U.S. Holder upon receipt of a new
note,
- the holding period of the new note will include the holding period of the
original note exchanged therefor, and
- the adjusted tax basis of the new note will be the same as the adjusted
tax basis of the original note exchanged at the time of such exchange.
FOREIGN HOLDERS
INTEREST
Payments of interest on a note to a Foreign Holder will not be subject to
United States federal withholding tax provided that:
- the holder does not actually or constructively own 10% or more of the
total combined voting power of all of our classes of stock;
- the holder is not a controlled foreign corporation that is related to us
through stock ownership;
- the holder is not a bank whose receipt of interest on a note is described
in Section 881(c)(3)(A) of the Code; and
- either (a) the beneficial owner of the note certifies to us or our paying
agent, under penalties of perjury, that it is not a United States person
and provides its name and address on IRS Form W-8BEN (or a suitable
substitute form) or (b) a securities clearing organization, bank, or other
financial institution that holds the notes on behalf of such Foreign
Holders in the ordinary course of its trade or business certifies to us or
our paying agent, under penalties of perjury, that IRS Form W-8BEN or IRS
Form W-8IMY (or a suitable substitute form) has been received from the
beneficial owner by it or by another financial institution and furnishes
to us or our paying agent a copy thereof.
For purposes of this summary, we refer to this exemption from United States
federal withholding tax as the "Portfolio Interest Exemption." Under United
States treasury regulations, which generally are effective for payments made
after December 31, 2000, subject to certain transition rules, the certification
under penalties of perjury described above may also be provided by a qualified
intermediary on behalf of one or more beneficial owners or other intermediaries,
provided that such intermediary has entered into a withholding agreement with
the IRS and certain other conditions are met.
The gross amount of payments to a Foreign Holder of interest that does not
qualify for the Portfolio Interest Exemption and that is not effectively
connected to a United States trade or business will be subject to United States
federal withholding tax at the rate of 30%, unless a United States income tax
treaty applies to reduce or eliminate withholding.
77
A Foreign Holder will generally be subject to tax in the same manner as a
United States Holder with respect to payments of interest if such payments are
effectively connected with the conduct of a trade or business by the Foreign
Holder in the United States and, if an applicable tax treaty so provides, such
gain is attributable to a United States permanent establishment maintained by
the Foreign Holder. Such effectively connected income received by a Foreign
Holder, that is a corporation, may be subject to an additional "branch profits
tax" at a 30% rate or, if applicable, a lower treaty rate.
To claim the benefit of a tax treaty or to claim exemption from withholding
because the income is effectively connected with a United States trade or
business, the Foreign Holder must provide a properly executed IRS Form W-8 BEN
or IRS Form W-8 ECI (or a suitable substitute form), as applicable, prior to the
payment of interest. These forms must be periodically updated. United States
treasury regulations, which generally are effective for payments made after
December 31, 2000, subject to certain transition rules, require Foreign Holders
or, under certain circumstances, a qualified intermediary to file a withholding
certificate with our withholding agent to obtain the benefit of an applicable
tax treaty providing for a lower rate of withholding tax. Such certificate must
contain, among other information, the name, address and the United States
taxpayer identification number of the Foreign Holder.
Foreign Holders should consult their own tax advisors regarding applicable
income tax treaties, which may provide different rules.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
A Foreign Holder generally will not be subject to United States federal
income tax or withholding tax on gain realized on the sale, exchange or
retirement (including a redemption) of notes unless
(1) the holder is an individual who was present in the United States for an
aggregate of 183 or more days during the taxable year of the sale, exchange
or retirement and other conditions are met,
(2) the gain is effectively connected with the conduct of a trade or business of
the holder in the United States and, if an applicable tax treaty so
provides, such gain is attributable to a United States permanent
establishment maintained by such holder or
(3) a Foreign Holder is subject to tax pursuant to the provisions of the United
States federal income tax law applicable to certain expatriates.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Backup withholding and information reporting may apply to payments of
interest on a note and to the proceeds of the sale, redemption or other
disposition of a note. We, our paying agent or a broker, as the case may be,
will be required to withhold from any payment a backup withholding tax if a
United States Holder (other than an exempt recipient such as a corporation)
(1) fails to furnish or certify his correct taxpayer identification number to
the payor in the manner required, (2) is notified by the IRS that he has failed
to report payments of interest or dividends properly or (3) fails to certify
that he has not been notified by the IRS that he is subject to backup
withholding for failure to report interest or dividend payments. Pursuant to
legislation enacted in 2001, the backup withholding rate is 30% for calendar
years 2002 and 2003; 29% for calendar years 2004 and 2005 and 28% for calendar
years 2006 through 2010. This legislation is scheduled to expire and the backup
withholding rate will be 31% for amounts paid after December 31, 2010 unless
Congress enacts legislation providing otherwise. A United States Holder will
generally be eligible for an exemption from backup withholding by providing a
properly completed IRS Form W-9 to the applicable payor.
Information reporting requirements will apply to payments of interest to
Foreign Holders where such interest is subject to withholding or is exempt from
United States withholding tax pursuant to a tax treaty, or where such interest
is exempt from United States tax under the Portfolio Interest
78
Exemption discussed above. Copies of these information returns may also be made
available under the provisions of a specific treaty or agreement to the tax
authorities of the country in which the Foreign Holder resides.
The payment of the proceeds from the disposition of notes to or through the
United States office of any broker, United States or foreign, will be subject to
information reporting and possible backup withholding unless the holder
certifies as to its non-United States status under penalties of perjury or
otherwise establishes an exemption, provided that the broker does not have
actual knowledge that the Foreign Holder is a United States person or that the
conditions of any other exemption are not, in fact, satisfied. The payment of
the proceeds from the disposition of a note to or through a non-United States
office of a non-United States broker that is not a "United States related
person" will not be subject to information reporting or backup withholding. For
this purpose, a "United States related person" is:
- a "controlled foreign corporation" for United States federal income tax
purposes;
- a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding
the payment (or for such part of the period that the broker has been in
existence), is derived from activities that are effectively connected with
the conduct of a United States trade or business; or
- a foreign partnership, if at any time during its tax year, one or more of
its partners are United States persons, as defined in the United States
treasury regulations, who in the aggregate hold more than 50% of the
income or capital interests in the partnership, or if at any time during
its taxable year, such foreign partnership is engaged in a trade or
business in the United States.
In the case of the payment of proceeds from the disposition of notes to or
through a non-United States office of a broker that is either a United States
person or a United States related person, United States treasury regulations
require information reporting on the payment unless the broker has documentary
evidence in its files that the owner is a Foreign Holder and the broker has no
knowledge to the contrary.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such holder's United States federal income tax
liability provided the required information is furnished to the IRS.
United States treasury regulations, which generally are effective for
payments made after December 31, 2000, subject to certain transition rules, will
generally expand the circumstances under which information reporting and backup
withholding may apply. Holders of notes should consult their tax advisors
regarding the application of the information and reporting and backup
withholding rules, including such United States treasury regulations.
79
PLAN OF DISTRIBUTION
If you wish to exchange your original notes in the exchange offer, you will
be required to make representations to us as described in "The Exchange
Offer--Exchange Offer Procedures" in this prospectus and in the letter of
transmittal. In addition, each broker-dealer that receives new notes for its own
account pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such new notes. This prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of new notes received in exchange for
original notes where such original notes were acquired as a result of
market-making activities or other trading activities. We have agreed to use our
reasonable best efforts to make this prospectus, as amended or supplemented,
available to any broker-dealer for a period of 180 days after the date of this
prospectus for use in connection with any such resale.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the new notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such new notes. Any broker-dealer that
resells new notes that were received by it for its own account pursuant to the
exchange offer and any broker or dealer that participates in a distribution of
such new notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of new notes and any commission
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The letter of transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
A broker-dealer that acquired original notes directly from us cannot
exchange the original notes in the exchange offer. Any holder who tenders in the
exchange offer for the purpose of participating in a distribution of the new
notes cannot rely on the no-action letters of the staff of the SEC and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
For a period of 180 days after the date of this prospectus, we will promptly
send additional copies of this prospectus and any amendment or supplement to
this prospectus to any broker-dealer that requests such documents in the letter
of transmittal. We have agreed to pay all expenses incident to the exchange
offer, including the expenses of one counsel for the holders of the original
notes, other than commissions or concessions of any brokers or dealers, and will
indemnify the holders of the original notes, including any broker-dealers,
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The legality of the new notes offered in this prospectus and other matters
will be passed upon for us by Paul, Hastings, Janofsky & Walker LLP, New York,
New York.
EXPERTS
Our consolidated financial statements as of and for each of the three years
in the period ended September 30, 2001, incorporated in this prospectus by
reference to our Annual Report on Form 10-K for the year ended September 30,
2001, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report which is incorporated herein by reference and has been so
80
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The consolidated financial statements as of and for each of the three years
in the period ended December 31, 2001, incorporated in this prospectus by
reference from Crossmann's Annual Report on Form 10-K for the year ended
December 31, 2001, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report which is incorporated herein by reference
and has been so incorporated in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The combined financial statements of April Corporation and Sanford Homes of
Colorado, LLLP incorporated in this prospectus by reference to our Form 8-K/A
dated October 15, 2001 have been audited by KPMG LLP, independent auditors, as
stated in their report which is incorporated herein by reference and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
81
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OF OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT 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 THE INITIAL PURCHASERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME AFTER THE DATE HEREOF OR THAT THERE HAS NOT BEEN A CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------------
PROSPECTUS
---------------------
August 13, 2002
[LOGO]
BEAZER HOMES USA, INC.
OFFER TO EXCHANGE ITS
8 3/8% SENIOR NOTES DUE 2012,
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933,
FOR ANY AND ALL OUTSTANDING
8 3/8% SENIOR NOTES DUE 2012,
WHICH HAVE NOT
BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
