PURCHASE AGREEMENT
dated as of
October 20, 1998
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R E C I T A L S
A G R E E M E N T
DEFINITIONS/PURCHASE & SALE/CLOSING
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1.1 Definitions............................................................2
1.2 Purchase Price.........................................................7
1.3 Transfer of Stock by Sellers...........................................7
1.4 Transfer of Member Interests by Sellers................................7
1.5 Transfer of Partnership Interests......................................7
1.6 Post-Closing Adjustments to Purchase Price.............................8
1.7 The Closing............................................................9
1.8 Purchase Price Allocation.............................................10
REPRESENTATIONS AND WARRANTIES OF SELLERS
2.1 Management Corp. and Branching Tree...................................10
2.2 Stock.................................................................10
2.3 Mather and Desert Inn.................................................11
2.4 Parent Partnerships...................................................12
2.5 Financial Statements; Changes; Contingencies..........................12
2.6 Tax and Other Returns and Reports.....................................14
2.7 Material Contracts....................................................14
2.8 Real and Personal Property; Title to Property; Leases.................15
2.9 Intangible Property...................................................16
2.10 No Conflicts..........................................................17
2.11 Legal Proceedings and Certain Labor Matters...........................17
2.12 Minute Books..........................................................18
2.13 Accounting Records....................................................18
2.14 Insurance.............................................................18
2.15 Permits...............................................................18
2.16 Employee Benefits.....................................................19
2.17 Certain Interests.....................................................20
2.18 Bank Accounts, Powers, etc............................................20
2.19 No Brokers or Finders.................................................21
2.20 Environmental Compliance..............................................21
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ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SELLERS
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3.1 Ownership by Sellers; No Conflicts.....................................22
3.2 Securities Act Matters.................................................23
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Organization and Related Matters.......................................24
4.2 Authorization..........................................................24
4.3 No Conflicts...........................................................24
4.4 No Brokers or Finders..................................................24
4.5 Legal Proceedings......................................................24
4.6 Investment Representation..............................................25
4.7 Financing..............................................................25
4.8 Capital Stock..........................................................25
4.9 SEC Filings; Financial Statements......................................25
COVENANTS PRIOR TO CLOSING
5.1 Access................................................................26
5.2 Material Adverse Changes..............................................26
5.3 Conduct of Business...................................................27
5.4 Notification of Certain Matters.......................................29
5.5 Permits and Approvals.................................................29
5.6 Preservation of Business Prior to Closing Date........................29
5.7 Government Filings....................................................30
5.8 Elimination of Intercompany and Affiliate Liabilities.................30
5.9 Representative........................................................30
5.10 Exchange Listing; Registration Rights.................................31
5.11 Shareholders Agreement................................................31
5.12 Cost Sharing Agreements and Option Agreement..........................31
5.13 Employees.............................................................31
ADDITIONAL CONTINUING COVENANTS
6.1 Noncompetition........................................................32
6.2 Non-disclosure of Proprietary Data....................................33
6.3 Tax Returns...........................................................33
6.4 Tax Cooperation.......................................................34
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6.5 Other Cooperation.....................................................36
6.6 Employees and Employee Benefits.......................................36
6.7 Lewis Name and Mark License...........................................36
6.8 Fiscal 1998 Audited Financial Statements..............................36
6.9 Tenant Lists..........................................................37
6.10 Buyer's Right of First Offer..........................................37
CONDITIONS OF PURCHASE
7.1 General Conditions....................................................40
7.2 Conditions to Obligations of Buyer....................................40
7.3 Conditions to Obligations of Sellers..................................42
TERMINATION OF OBLIGATIONS; SURVIVAL
8.1 Termination of Agreement..............................................43
8.2 Effect of Termination.................................................43
8.3 Survival of Representations and Warranties............................44
INDEMNIFICATION
9.1 Obligations of Sellers................................................44
9.2 Obligations of Buyer..................................................44
9.3 Procedure.............................................................45
9.4 Survival..............................................................46
9.5 Limitation of Remedies................................................46
GENERAL
10.1 Amendments; Waivers...................................................46
10.2 Schedules, Exhibits, Integration......................................47
10.3 Efforts; Further Assurances...........................................47
10.4 Governing Law.........................................................47
10.5 No Assignment.........................................................47
10.6 Headings..............................................................47
10.7 Counterparts..........................................................48
10.8 Publicity and Reports.................................................48
10.9 Confidentiality.......................................................48
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10.10 Alternative Dispute Resolution........................................48
10.11 Parties in Interest...................................................50
10.12 Knowledge Convention..................................................50
10.13 Notices...............................................................50
10.14 Expenses..............................................................51
10.15 Remedies; Waiver......................................................52
10.16 Attorney's Fees.......................................................52
10.17 Representation By Counsel; Interpretation.............................52
10.18 Severability..........................................................52
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PURCHASE AGREEMENT
This Purchase Agreement is entered into as of October 20, 1998,
among Kaufman and Broad Home Corporation, a Delaware corporation ("Buyer"), and
the individuals and corporations identified on the signature page of this
Agreement (individually a "Seller" and collectively, the "Sellers").
R E C I T A L S
WHEREAS, Sellers collectively own (i) all the partnership
interests in Lewis Homes of California, a California general partnership
("LHC"), Lewis Development Co., a California general partnership ("Lewis
Development"), Lewis Homes Enterprises, a California general partnership
("LHE"), Lewis Homes of Nevada, a Nevada general partnership ("LHN"), and Lewis
Properties, a Nevada general partnership ("Lewis Properties," and collectively
with LHC, Lewis Development, LHE and LHN, the "Parent Partnerships"), (ii) all
of the issued and outstanding capital stock of Lewis Homes Management Corp., a
California corporation ("Management Corp."), and Branching Tree Corp., a
California corporation ("Branching Tree"), and (iii) all the member interests of
Mather Housing Company, LLC, a California limited liability company ("Mather"),
and Desert Inn Development, L.L.C., a Nevada limited liability company ("Desert
Inn"). The Parent Partnerships, directly and through their interests in joint
ventures, general partnerships and limited liability companies, and Management
Corp., Branching Tree, Mather and Desert Inn, excluding the Excluded Assets (as
defined below), collectively constitute the homebuilding operations of the
members of the Lewis Homes group of companies in California and Nevada (the
"Homebuilding Business").
WHEREAS, certain non-Homebuilding Business and other assets and
liabilities of the Homebuilding Entities identified on Exhibit A hereto
(collectively, the "Excluded Assets" and "Excluded Liabilities") will be removed
by Sellers prior to the Closing (as defined below) or conveyed to Sellers or
their designees after the Closing, and certain Homebuilding Business assets and
liabilities of Sellers identified on Exhibit A hereto (the "Included Assets" and
"Included Liabilities") will be transferred by Sellers or their non-Homebuilding
Entity affiliates to the Homebuilding Entities prior to the Closing; and
WHEREAS, Sellers desire to sell and Buyer desires to buy the
partnership interests in the Parent Partnerships (the "Partnership Interests"),
all of the issued and outstanding capital stock of Management Corp. and
Branching Tree (the "Stock") and all the member interests of Mather and Desert
Inn (the "Member Interests") for the consideration set forth herein.
A G R E E M E N T
In consideration of the mutual promises contained herein and
intending to be legally bound the parties agree as follows:
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ARTICLE I
DEFINITIONS/PURCHASE & SALE/CLOSING
1.1 DEFINITIONS.
For all purposes of this Agreement, except as otherwise expressly
provided,
(a) the terms defined in this Article I have the meanings assigned to
them in this Article I and include the plural as well as the singular,
(b) all accounting terms not otherwise defined herein have the meanings
assigned under GAAP,
(c) all references in this Agreement to designated "Articles,"
"Sections" and other subdivisions are to the designated Articles, Sections and
other subdivisions of the body of this Agreement,
(d) pronouns of either gender or neuter shall include, as appropriate,
the other pronoun forms, and
(e) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision.
As used in this Agreement and the Exhibits and Schedules delivered
pursuant to this Agreement, the following definitions shall apply.
"Action" means any action, complaint, petition, investigation, suit or
other proceeding, whether civil or criminal, in law or in equity, or before any
arbitrator or Governmental Entity.
"Affiliate" means a Person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, a specified Person.
"Agreement" means this Agreement by and among Buyer and Sellers as
amended or supplemented together with all Exhibits and Schedules attached or
incorporated by reference.
"Approval" means any approval, authorization, consent, consent to
assignment or transfer, qualification or registration, or any waiver of any of
the foregoing, required to be obtained from, or any notice, statement or other
communication required to be filed with or delivered to, any Governmental Entity
or any other Person.
"Associate" of a Person means
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(i) a corporation or organization of which such Person is an officer or
partner or is, directly or indirectly, the beneficial owner of 10% or more of
any class of equity securities;
(ii) any trust or other estate in which such Person has a substantial
beneficial interest or as to which such person serves as trustee or in a similar
capacity; and
(iii) any relative or spouse of such Person or any relative of such
spouse.
"Auditors" means Ernst & Young LLP, independent public accountants to
Management Corp., Branching Tree, Mather, Desert Inn, the Parent Partnerships
and their respective Subsidiaries.
"Branching Tree Sellers" means the Sellers identified as such on Exhibit
B.
"Buyer Common Stock" has the meaning set forth in Section 1.2.
"Closing" means the consummation of the purchase and sale of the
Partnership Interests, Member Interests, and Stock under this Agreement.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contract" means any agreement, arrangement, bond, commitment,
franchise, indemnity, indenture, instrument, lease, license or understanding,
whether or not in writing.
"Cost Sharing Agreements" has the meaning set forth in Section 5.12.
"Desert Inn Sellers" means the Sellers identified as such on Exhibit B.
"Disclosure Schedule" means the Disclosure Schedules dated the date of
this Agreement and delivered by Sellers to Buyer, or Buyer to Sellers, as the
case may be, as exhibits to this Agreement. The Sections of the Disclosure
Schedules shall be numbered to correspond to the applicable Section of this
Agreement and, together with all matters under such heading, shall be deemed to
qualify only that Section.
"Encumbrance" means any claim, charge, easement, encumbrance, lease,
covenant, security interest, lien, option, pledge, rights of others, or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise, except
for any restrictions on transfer generally arising under any applicable federal
or state securities law.
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"Equity Securities" means any capital stock or other equity interest or
any securities convertible into or exchangeable for capital stock or other
equity interest or any other rights, warrants or options to acquire any of the
foregoing securities.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the related regulations and published interpretations.
"Excluded Assets" has the meaning set forth in the Recitals.
"Excluded Liabilities" has the meaning set forth in the Recitals.
"GAAP" means generally accepted accounting principles in the United
States, as in effect from time to time.
"Governmental Entity" means any government or any agency (including any
licensing agency), bureau, board, commission, court, department, official,
political subdivision, tribunal or other instrumentality of any government,
whether federal, state or local, domestic or foreign.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the related regulations and published
interpretations.
"Hazardous Substance" means (but shall not be limited to) substances
that are defined or listed in, or otherwise classified pursuant to, any
applicable Laws as "hazardous substances," "hazardous materials," "hazardous
wastes" or "toxic substances," or any other formulation intended to define, list
or classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, radioactivity or carcinogenicity, and petroleum and
drilling fluids, produced waters and other wastes associated with the
exploration, development, or production of crude oil, natural gas or geothermal
energy, derivatives of petroleum products, and asbestos or asbestos-containing
materials.
"Homebuilding Business" has the meaning set forth in the Recitals.
"Homebuilding Entities" means Management Corp., Branching Tree, Mather,
Desert Inn, the Parent Partnerships and their respective Subsidiaries.
"Homebuilding Line of Business Financial Information" means the
financial information in the column labeled "Homebuilding" in the Combined
Companies (California and Nevada) Line of Business Operations/Selected Financial
Information as of December 31, 1997 and for the year then ended included in the
audited financial statements of the Lewis Homes group of companies referred to
in Section 2.5(a).
"Included Assets" and "Included Liabilities" have the meanings set forth
in the Recitals.
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"Indemnifiable Claim" means any Loss for or against which any party is
entitled to indemnification under Article IX of this Agreement; "Indemnified
Party" means the party entitled to indemnity hereunder; and "Indemnifying Party"
means the party obligated to provide indemnification hereunder.
"Intangible Property" means any trade secret, secret process or other
confidential information or know-how and any and all Marks.
"IRS" means the Internal Revenue Service or any successor entity.
"Law" means any constitutional provision, statute or other law, rule,
regulation, or interpretation of any Governmental Entity and any Order.
"License Agreement" has the meaning set forth in Section 6.7.
"Loss" means any cost, damage, disbursement, expense, liability, loss,
deficiency, diminution in value, obligation, penalty or settlement of any kind
or nature, whether foreseeable or unforeseeable, including but not limited to,
interest or other carrying costs, penalties, reasonable legal, accounting and
other professional fees and expenses actually incurred in the investigation,
collection, prosecution and defense of claims, and amounts paid in settlement,
that may be imposed on or otherwise incurred or suffered by the specified
person.
"Management Corp. Sellers" means the Sellers identified as such on
Exhibit B.
"Mark" means any brand name, copyright, patent, service mark, trademark,
trademark, and all registrations or application for registration of any of the
foregoing.
"material adverse change," "material adverse effect," "material" or
related terms herein mean a material adverse effect on the business, financial
condition, results of operations or prospects of the Homebuilding Business of
the Homebuilding Entities, taken as a whole; provided, however, that a decline
in general economic conditions or matters generally affecting real estate
markets or homebuilding companies in California or Nevada (or both) shall not be
deemed to be a material adverse change or material adverse effect; and provided,
further that solely for the purposes of determining whether a breach of a
representation or warranty made in or pursuant to this Agreement by Sellers or
the nonperformance by Sellers of any of the covenants or agreements made
hereunder results in Losses that are indemnifiable under Article IX hereof,
"material adverse change," "material adverse effect", "material" or related
terms herein mean a change or effect that results in Losses exceeding $750,000.
"Material Contract" means any Contract material to the Homebuilding
Business and includes but is not limited to those Contracts deemed material by
Section 2.7.
"Mather Sellers" means the Sellers identified as such on Exhibit B.
"Member Interests" means the member interests in Mather and Desert Inn.
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"Net Worth" means the stockholders', members' and partners' equity of
each of the Homebuilding Entities determined on a combined basis in accordance
with GAAP applied consistently with the audited financial statements referred to
in Section 7.2(g); provided, however, that (i) any severance payments payable to
officers or employees of any Homebuilding Entity on or after the Closing Date
shall not be considered in determining Net Worth, (ii) any bonuses payable to
officers or employees of any Homebuilding Entity on or after the Closing Date
(which shall be limited in accordance with Section 5.3(g)) shall be pro rated
over the period from the date the employee was notified of the intent to pay
such a bonus to the end of such bonus period and only that portion of the bonus
allocated to periods prior to the Closing Date shall be considered in
determining Net Worth (it being understood that all bonuses with respect to the
fiscal year ended December 31, 1998 shall be paid prior to the Closing), and
(iii) no amount payable by any of the Homebuilding Entities to related parties
shall be treated as equity in determining Net Worth.
"Option Agreement" has the meaning set forth in Section 5.12.
"Order" means any decree, injunction, judgment, order, ruling,
assessment or writ.
"Partnership Interests" has the meaning set forth in the Recitals.
"Partnership Sellers" means the Sellers identified as such on Exhibit B.
"Permit" means any license, permit, franchise, certificate of authority,
consent, variance, development agreement, exemption, or order, or any waiver of
the foregoing, required to be issued by any Governmental Entity.
"Person" means an association, a corporation, an individual, a
partnership, a limited liability company, a trust or any other entity or
organization, including a Governmental Entity.
"Purchase Price" has the meaning set forth in Section 1.2.
"Registration Rights Agreement" has the meaning set forth in Section
5.10.
"Representative" has the meaning set forth in Section 5.9.
"Shareholders" means the equity owners of those Sellers that are "S"
corporations under the Code.
"Shareholders Agreement" has the meaning set forth in Section 5.11.
"Stock" means all of the outstanding capital stock of Management Corp.
and Branching Tree.
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"Subsidiary" means any Person in which any Homebuilding Entity has a
direct or indirect equity or ownership interest in excess of 10%, other than
Persons included in Excluded Assets.
"Tax" means any foreign, federal, state, county or local income, sales
and use, excise, franchise, real and personal property, transfer, gross receipt,
capital stock, production, business and occupation, disability, employment,
payroll, severance or withholding tax or charge imposed by any Governmental
Entity, any interest and penalties (civil or criminal) related thereto or to the
nonpayment thereof.
"Tax Return" means a report, return or other information required to be
supplied to a Governmental Entity with respect to Taxes including, where
permitted or required, combined or consolidated returns for any group of
entities that includes any Homebuilding Entity.
1.2 PURCHASE PRICE.
Subject to the terms and conditions of this Agreement, the Buyer agrees
to acquire the Stock, Partnership Interests and Member Interests for an
aggregate purchase price (the "Purchase Price") of $271,000,000 in cash and
7,886,686 shares of the common stock, par value $1.00 per share, of Buyer (the
"Buyer Common Stock"), subject to adjustment as set forth in Section 1.6.
1.3 TRANSFER OF STOCK BY SELLERS.
Subject to the terms and conditions of this Agreement, the Management
Corp. Sellers and the Branching Tree Sellers agree to sell the Stock of
Management Corp. and Branching Tree, respectively, and deliver the certificates
evidencing such Stock to Buyer or it nominee(s) at the Closing. The certificates
will be properly endorsed for transfer to or accompanied by a duly executed
stock power in favor of Buyer or its nominee(s) as Buyer may have directed prior
to the Closing Date and otherwise in a form acceptable for transfer on the books
of said corporation.
1.4 TRANSFER OF MEMBER INTERESTS BY SELLERS.
Subject to the terms and conditions of this Agreement, the Mather
Sellers and the Desert Inn Sellers agree to sell the Member Interests of Mather
and Desert Inn, respectively, to Buyer or its nominee(s) at the Closing by
executing and delivering to Buyer or its nominee(s) an assignment, in the form
attached hereto as Exhibit C, of all such Seller's right, title and interest in
the Member Interests.
1.5 TRANSFER OF PARTNERSHIP INTERESTS.
Subject to the terms and conditions of this Agreement, Partnership
Sellers agree to sell the Partnership Interests to Buyer or its nominee(s) at
the Closing by executing and
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delivering to Buyer or its nominees(s) at the Closing an assignment, in the form
attached hereto as Exhibit D, of all such Partnership Seller's right, title and
interest in the Parent Partnerships.
1.6 POST-CLOSING ADJUSTMENTS TO PURCHASE PRICE.
(a) As soon as practicable after the Closing, and in any event within 45
days following the Closing Date, Sellers shall cause to be delivered to Buyer a
combined balance sheet of the Homebuilding Entities as of December 31, 1998 (if
the Closing occurs on or before January 8, 1999) or the Closing Date (if the
Closing occurs after January 8, 1999), prepared in accordance with GAAP (the
"Closing Date Balance Sheet") applied on a basis consistent with that used in
preparation of the audited financial statements referred to in Section 7.2(g), a
combined statement of the Net Worth of the Homebuilding Business of the
Homebuilding Entities as of December 31, 1998 (if the Closing occurs on or
before January 8, 1999) or the Closing Date (if the Closing occurs after January
8, 1999), and a certificate signed by Sellers' to the effect that such
statements have been prepared in accordance with GAAP applied on a basis
consistent with that used in the preparation of the audited financial statements
referred to in Section 7.2(g) and the terms of this Agreement (the "Post-Closing
Certificate"). Buyer shall cooperate fully with Sellers and shall provide
Sellers with access to the books and records of the Homebuilding Entities and
such other assistance as Sellers reasonably request (including, without
limitation, assignment of Buyer's or Homebuilding Entities' personnel to this
project). Buyer will reimburse Sellers upon request 50% of all reasonable
out-of-pocket costs and expenses actually incurred by Sellers in the preparation
of such statement. Within 30 days following the delivery of such information,
Buyer shall notify Sellers in writing whether Buyer agrees or disagrees with the
determination of the Net Worth of the Homebuilding Business of the Homebuilding
Entities set forth in the Post-Closing Certificate. If Buyer disagrees with such
determination, Buyer shall specify in writing in reasonable detail the nature
and amount of its disagreement. Unless such disagreement is resolved (or to the
extent not resolved) by Buyer and Sellers in writing within 10 days after
delivery of Buyer's statement of disagreement, the Closing Date Balance Sheet
shall be audited, and the Net Worth of the Homebuilding Business of the
Homebuilding Entities as of the Closing Date shall be determined, by E & Y
Kenneth Leventhal Real Estate Group of Ernst & Young LLP or another independent
public accounting firm selected by mutual agreement of the Sellers and Buyer.
Such accounting firm shall resolve the disagreement consistent with the language
of this Agreement. The determination of the Net Worth of the Homebuilding
Business of the Homebuilding Entities as of December 31, 1998 (if the Closing
occurs on or before January 8, 1999) or the Closing Date (if the Closing occurs
after January 8, 1999), shall be made by such accounting firm within 30 days of
submission of the disagreement to it, shall be final and binding on Buyer and
the Sellers (absent manifest error in calculations) and the fees and expenses of
such accounting firm shall be borne equally by the Sellers, on the one hand, and
Buyer, on the other hand. If the Net Worth of the Homebuilding Business of the
Homebuilding Entities as of December 31, 1998 (if the Closing occurs on or
before January 8, 1999) or the Closing Date (if the Closing occurs after January
8, 1999), as finally determined pursuant to this Section 1.6, is greater than
$215 million, Buyer shall pay to the Sellers the amount of such excess, plus
interest thereon at the rate of interest per annum publicly announced from time
to time by Morgan Guaranty Trust Company of New York as its prime commercial
lending rate (the "Agreed Rate") from (and including) the Closing Date to (but
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excluding) the date of such payment. If the Net Worth of the Homebuilding
Business of the Homebuilding Entities as of December 31, 1998 (if the Closing
occurs on or before January 8, 1999) or the Closing Date (if the Closing occurs
after January 8, 1999), as finally determined pursuant to this Section 1.6, is
less than $215 million, the Sellers shall pay to Buyer the amount of such
deficiency, plus interest thereon at the Agreed Rate from (and including) the
Closing Date to (but excluding) the date of such payment. Any payment
contemplated by this Section 1.6 shall be made by wire transfer in federal or
other immediately available funds on or before the tenth day following the final
determination thereof, and any payment by Buyer to Sellers shall be delivered to
the accounts and in the names designated by the Representative prior to the
Closing Date unless the Representative gives Buyer other instructions at least
one day prior to the date of payment.
(b) Notwithstanding the requirements in Section 1.6(a) of consistency in
the preparation of the Closing Date Balance Sheet and Net Worth statement, and
notwithstanding any other provision of this Agreement, for purposes of the
preparation and review of, and any resolution of disagreements regarding, the
Closing Date Balance Sheet and Net Worth of the Homebuilding Business of the
Homebuilding Entities as of December 31, 1998 (if the Closing occurs on or
before January 8, 1999) or the Closing Date (if the Closing occurs after January
8, 1999), the distribution or transfer of all of the Excluded Assets and
Excluded Liabilities by the Homebuilding Entities and transfer of all of the
Included Assets and Included Liabilities to the Homebuilding Entities shall be
deemed to have occurred prior to December 31, 1998 (if the Closing occurs on or
before January 8, 1999) or the Closing Date (if the Closing occurs after January
8, 1999), even if not all such transfers have been effected as of such date.
(c) Notwithstanding any other provision of this Agreement, no fractional
shares of Buyer Common Stock, or certificates therefore, will be issued in
payment of the Purchase Price. Each Seller who would otherwise be entitled to
receive a fractional share of Buyer Common Stock in payment of the Purchase
Price (after aggregating all whole and fractional shares of Buyer Common Stock
to which such Seller would be entitled but for this Section in consideration for
all Stock, Member Interests and Partnership Interests delivered by such Seller)
shall receive, in lieu of such fractional share, cash equal to the product of
such fraction and the average closing price of Buyer Common Stock for the ten
trading days ending two business days prior to the Closing Date as reported on
the New York Stock Exchange Composite Tape.
1.7 THE CLOSING.
The Closing will take place at the offices of O'Melveny & Myers LLP, 400
South Hope Street, Los Angeles, California 90071. The Closing will take place no
earlier than January 7, 1999 or, if later, the fifth business day after the
satisfaction of the conditions set forth in Sections 7.1(b), 7.1(c), 7.2(c),
7.2(f), 7.2(g), 7.3(b) and 7.3(d) or such later date as Sellers and Buyer may
agree. The parties shall use their best efforts to effectuate the Closing on
January 7, 1999. At the Closing, Buyer, in exchange for the Stock, Partnership
Interests and Member Interests, shall pay to Sellers the Purchase Price by wire
transfer of the cash portion of the Purchase Price to an account designated by
the Representative at least three business days prior to the Closing and by
delivery to the Representative, on behalf of the Sellers, of stock certificates
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in the Sellers' names as designated by the Representative at least three
business days prior to the Closing.
1.8 PURCHASE PRICE ALLOCATION.
The Purchase Price shall be allocated among the Stock, the Member
Interests and the Partnership Interests in a manner that will facilitate
allocations being made in accordance with Section 6.4(c), and that is consistent
with the other provisions of this Agreement. The parties intend that the
acquisitions of Stock be taxable purchases, and a sufficient amount of the cash
portion of the Purchase Price shall be allocated to each of the acquisitions of
the Stock of Management Corp. and the Stock of Branching Tree so that neither
acquisition will qualify as a reorganization within the meaning of Section
368(a) of the Code. Subject to the foregoing, Sellers shall direct the manner in
which the cash and Buyer Common Stock portions of the Purchase Price are
allocated among the Sellers.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as otherwise indicated on the Sellers' Disclosure Schedule as
applying to a particular Section in this Article II, Sellers, jointly and
severally, represent, warrant and agree as follows:
2.1 MANAGEMENT CORP. AND BRANCHING TREE.
Each of Management Corp. and Branching Tree is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Each of Management Corp. and Branching Tree has all necessary
corporate power and authority to own its properties and to carry on its business
as now conducted and is duly qualified to do business as a foreign corporation
in good standing in all jurisdictions in which the character or the location of
its assets owned or leased or the nature of its business requires qualification,
except where the failure to be so qualified would not have a material adverse
effect on the Homebuilding Business. Neither Management Corp. nor Branching Tree
has any Subsidiaries.
2.2 STOCK.
Management Corp. Sellers own all of the outstanding shares of the
capital stock of Management Corp. The authorized capital stock of Management
Corp. consists of 10,000 shares of common stock, no par value, of which 1,000
shares are issued and outstanding. Branching Tree Sellers own all the
outstanding shares of the capital stock of Branching Tree. The authorized
capital stock of Branching Tree consists of 10,000 shares of common stock, no
par value, of which 480 shares are issued and outstanding. There are no
outstanding Contracts or other rights to subscribe for or purchase, or Contracts
or other obligations to issue or grant any rights to acquire, any Equity
Securities of Management Corp. or Branching Tree, or to
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restructure or recapitalize Management Corp. or Branching Tree. There are no
outstanding Contracts of Sellers or Management Corp. or Branching Tree to
repurchase, redeem or otherwise acquire any Equity Securities of Management
Corp. or Branching Tree. All Equity Securities of Management Corp. and Branching
Tree are duly authorized, validly issued and outstanding and are fully paid and
nonassessable and were issued in conformity with applicable Laws. There are no,
and never have been, preemptive rights in respect of any Equity Securities of
Management Corp. or Branching Tree. Except as described in Schedule 2.2, neither
Management Corp. nor Branching Tree owns any Equity Securities of any Person.
2.3 MATHER AND DESERT INN.
Each of Mather and Desert Inn is a limited liability company duly formed
and validly existing and in good standing under the laws of the state of its
organization. Continuously since its formation, each of Mather and Desert Inn
has been treated as a partnership for purposes of federal, state, and local
Taxes. Each of Mather and Desert Inn has all necessary power and authority under
its organizational documents to own its properties and carry on its business as
now conducted. Each of Mather and Desert Inn is duly qualified to do business as
a foreign limited liability company in good standing in all jurisdictions in
which the character or the location of its assets owned or leased or the nature
of its business requires qualification, except where the failure to be so
qualified would not have a material adverse effect on the Homebuilding Business.
The Mather Sellers and Desert Inn Sellers own all of the outstanding membership
interests in Mather and Desert Inn, respectively. There are no outstanding
Contracts or other rights to subscribe for or purchase, or Contracts or other
obligations to issue or grant any rights to acquire, any interest in Mather or
Desert Inn, or to restructure or recapitalize Mather or Desert Inn. There are no
outstanding Contracts of Sellers or Mather or Desert Inn to repurchase, redeem
or otherwise acquire any interest in Mather or Desert Inn. All Member Interests
were issued in conformity with all applicable Laws. Schedule 2.3 lists all
Subsidiaries of Mather or Desert Inn and correctly sets forth their respective
ownership interests therein, any other interest of any other Person in such
Subsidiary and the jurisdiction in which each such Subsidiary was organized.
Except as set forth on Schedule 2.3, all of the Equity Securities, partnership
interests, membership interests, or other interests owned by Mather or Desert
Inn in any such Subsidiary are validly issued and outstanding, fully paid and
nonassessable, were issued in conformity with applicable Laws and without
violation of, and are free of, any preemptive rights, and are owned by Mather or
Desert Inn, as applicable, free and clear of any and all covenants, conditions,
or other Encumbrances. Each of such Subsidiaries is duly formed and validly
existing and in good standing under the laws of the jurisdiction of its
organization. Each such Subsidiary has all necessary power and authority under
its organizational documents to own its properties and to carry on its business
as now conducted and is duly qualified to do business in all jurisdictions in
which the character or the location of the assets owned or leased by it or the
nature of the business conducted by it requires qualification, except where the
failure to be so qualified would not have a material adverse effect on the
Homebuilding Business. Except for such Subsidiaries or as set forth on Schedule
2.3, neither Mather nor Desert Inn own any Equity Securities of any Person.
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2.4 PARENT PARTNERSHIPS.
Each of the Parent Partnerships is a duly formed and validly existing
general partnership in good standing under the laws of the state of its
organization. Each Parent Partnership has all necessary power and authority
under its partnership agreement to own its property and to carry on its business
as now conducted and is duly qualified to do business in all jurisdictions in
which the character or the location of the assets owned or leased by it or the
nature of its business requires qualification, except where the failure to be so
qualified would not have a material adverse effect on the Homebuilding Business.
The Partnership Sellers own all the outstanding partnership interests in the
Parent Partnerships. There are no outstanding Contracts or other rights to
subscribe for or purchase, or Contracts or other obligations to issue or grant
any rights to acquire, any interest in the Parent Partnerships, or to
restructure or recapitalize the Parent Partnerships. There are no outstanding
Contracts of Sellers or the Parent Partnerships to repurchase, redeem or
otherwise acquire any interest in the Parent Partnerships. All Partnership
Interests were issued in conformity with all applicable Laws. Schedule 2.4 lists
all Subsidiaries of the Parent Partnerships and correctly sets forth the Parent
Partnership's ownership interest and profit or loss allocation (and any special
allocations with priority over the Parent Partnership's profit or loss
allocation) therein, any other interest of any other Person in such Subsidiary
and the jurisdiction in which each such Subsidiary was organized. Except as set
forth on Schedule 2.4, all of the Equity Securities, partnership interests,
membership interests, or other interests owned by a Parent Partnership in any
such Subsidiary are validly issued and outstanding, fully paid and
nonassessable, were issued in conformity with applicable Laws and without
violation of, and are free of, any preemptive rights, and are owned by such
Parent Partnership free and clear of any and all covenants, conditions, or other
Encumbrances. Each of such Subsidiaries is duly formed and validly existing
under the laws of the jurisdiction of its organization. Each such Subsidiary has
all necessary power and authority under its organizational documents to own its
properties and to carry on its business as now conducted and is duly qualified
to do business in all jurisdictions in which the character or the location of
the assets owned or leased by it or the nature of the business conducted by it
requires qualification, except where the failure to be so qualified would not
have a material adverse effect on the Homebuilding Business. Except for such
Subsidiaries or as set forth on Schedule 2.4, the Parent Partnerships own no
Equity Securities of any Person.
2.5 FINANCIAL STATEMENTS; CHANGES; CONTINGENCIES.
(a) Audited Financial Statements. Sellers have delivered to Buyer
combined balance sheets for the Lewis Homes group of companies at December 31,
1997 (the "Audited Balance Sheet Date") and 1996 and the related combined
statements of operations, equity and cash flows for the years ended December 31,
1997 and 1996. Such balance sheets and statements of operations, equity and cash
flows have been examined by the Auditors whose audit report thereon is included
with such statements. All such financial statements have been prepared in
conformity with GAAP applied on a consistent basis (except for changes, if any,
required by GAAP and disclosed therein) and present fairly, in all material
respects, the combined financial position of the Lewis Homes group of companies
at December 31, 1997 and 1996 and the combined results of their operations and
cash flows for the years then ended.
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Sellers have also delivered to Buyer combined Line of Business Operations/
Selected Financial Information for the Homebuilding Business at and for the year
ended December 31, 1997. Such combined Line of Business Operations/Selected
Financial Information has been subjected to the auditing procedures applied in
the audit by Auditors of the audited combined financial statements referred to
above, except as noted , and exclude the Excluded Assets (other than the
properties identified on Exhibit A as Sierra Lakes and Fontana (Zee) property)
and Excluded Liabilities and include the Included Assets and Included
Liabilities.
(b) Interim Financial Statements Sellers have delivered to Buyer a
combined balance sheet of the Homebuilding Business at June 30, 1998 and a
related combined income statement for the six months ended June 30, 1998. Such
financial statements have been prepared in conformity with GAAP on a basis
consistent with the audited financial statements referred to in Section 7.2(g)
(except for changes, if any, required by GAAP, the lack of notes thereto and the
exclusion of the Excluded Assets (other than the properties identified on
Exhibit A as Sierra Lakes and Fontana (Zee) property) and Excluded Liabilities
and the inclusion of the Included Assets and Included Liabilities) and present
fairly, in all material respects, the combined financial position of the
Homebuilding Business of the Homebuilding Entities at June 30, 1998 and the
combined results of operations for the six months ended June 30, 1998.
(c) No Material Adverse Changes. Except as set forth in Schedule 2.5,
since June 30, 1998, the Homebuilding Entities have conducted the Homebuilding
Business in the ordinary course of business consistent with past practices
(except for the exclusion of Excluded Assets and Excluded Liabilities and the
inclusion of the Included Assets and Included Liabilities) and, whether or not
in the ordinary course of the Homebuilding Business, there has not been,
occurred or arisen:
(i) any change in or event affecting the Homebuilding Business that
has had or is reasonably expected to have a material adverse effect on the
Homebuilding Business,
(ii) any agreement, condition, action or omission which would be
proscribed by (or require consent under) subsections (e), (f), (g), (h), (i),
(j), (k), (p), (q), (t), (u) or (v) (solely as it relates to subsections (e),
(f), (g), (h), (i), (j), (k), (p), (q), (t) and (u)) of Section 5.3 had it
existed, occurred or arisen after the date of this Agreement,
(iii) any strike or other labor dispute, or
(iv) any casualty, loss, damage or destruction (whether or not
covered by insurance) of any property of the Homebuilding Entities that
constitutes a material adverse change and that has involved or may involve a
loss to any of the Homebuilding Entities in excess of applicable insurance
coverage.
(d) No Other Liabilities or Contingencies. None of the Homebuilding
Entities has any material liabilities of any nature, whether accrued, absolute,
contingent, known, unknown, or otherwise, except liabilities that (i) are
reflected or disclosed in the most recent of
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the financial statements referred to in subsection (b) above, (ii) were incurred
after June 30, 1998 in the ordinary course of business, or (iii) are set forth
in Schedule 2.5 hereto.
(e) Reserves. At December 31, 1997, the reserves for construction
defects and litigation, but not including any warranty reserves, aggregated $5.5
million and on the Closing Date will be no less than $2.7 million.
2.6 TAX AND OTHER RETURNS AND REPORTS.
The Homebuilding Entities have timely filed (taking into account any
extensions) all required Tax Returns required to be filed by them before the
date hereof and have paid all Taxes shown on such Tax Returns to be due. The
Homebuilding Entities shall timely file (taking into account any applicable
extensions) all Tax Returns that are required to be filed by them on or after
the date hereof and before the Closing Date and shall pay all Taxes shown on any
such Tax Return to be due. All Tax Returns referred to above in this section
were or shall be complete and correct in all material respects. Adequate
provision has been made in the books and records of the Homebuilding Entities
and in the financial statements referred to in Section 2.5 above, for all Taxes
required to be paid or withheld for the periods covered by such financial
statements, whether or not disputed and whether or not due and payable. Except
as listed on Schedule 2.6, there is no audit, examination or similar proceeding
pending or, to Sellers' knowledge, threatened, or claim or assessment of
deficiency pending or, to the Sellers' knowledge, threatened, with respect to
any Tax Return of the Homebuilding Entities, and there are no outstanding
agreements or waivers extending the statutory period of limitation applicable to
any such Tax Return. None of the Sellers is a "foreign person" within the
meaning of Section 1445(b)(2) of the Code. Each of Management Corp. and
Branching Tree is, and has for all taxable periods beginning on and after its
incorporation, qualified to be, and with all required consents of its
shareholders has validly elected to be, taxed as an "S corporation" under the
Code and analogous state tax law. Such elections have never been terminated or
revoked, are currently in effect, and will be in effect through such time as
they terminate as a result of the Closing. Since such elections, neither
Management Corp. nor Branching Tree has acquired assets with a carryover basis
from a C corporation under the Code. The Homebuilding Entities have no liability
for any Taxes of any person or entity other than themselves under Treasury
Regulation Section 1.1502.6 (or any similar provision of state, local,
territorial, or foreign law), as transferee or successor, or by contract or
otherwise. Except as set forth in Schedule 2.6, none of the Homebuilding
Entities is a party to any agreement, contract, arrangement, or plan that has
resulted or would result, separately or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Section 280G of the Code.
2.7 MATERIAL CONTRACTS.
Schedule 2.7 lists each Contract to which any Homebuilding Entity is a
party or to which any Homebuilding Entity or any of their respective properties
is subject or by which any thereof is bound that is deemed a Material Contract
under this Agreement. Each Contract that (a) after June 30, 1998, obligates any
Homebuilding Entity to pay an amount of $500,000 or more, (b) represents a
Contract upon which the Homebuilding Business is substantially dependent, (c)
provides for an extension, assumption, or guarantee of credit to or by a
Homebuilding Entity in
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an amount of $500,000 or more, (d) limits or restricts the ability of any
Homebuilding Entity to compete or otherwise to conduct its business in any
manner or place, (e) provides for a guaranty or indemnity by any Homebuilding
Entity, (f) grants a power of attorney, agency or similar authority to another
person or entity, (g) contains a right of first refusal, (h) contains a right or
obligation of any Affiliate, officer or director or any Associate of any
Homebuilding Entity with respect to any Homebuilding Entity that cannot be
terminated by Buyer within 30 days after the Closing without penalty or payment,
(i) requires any Homebuilding Entity to buy or sell goods or services with
respect to which there will be material losses or will be costs and expenses
materially in excess of expected receipts (other than as provided for or
otherwise reserved against on the most recent of the balance sheet referred to
in Section 2.5), (j) provides for the acquisition or disposition of real
property in an amount of $500,000 or more, (k) provides for a joint venture,
partnership, or other profit or loss sharing arrangement, or (l) is a
development, entitlement, or similar agreement with any Governmental Entity,
shall be deemed to be a Material Contract and has been identified on such
Schedule 2.7. True copies of the agreements appearing on Schedule 2.7, including
all amendments and supplements, have been made available to Buyer. Each Material
Contract is valid and enforceable; each Homebuilding Entity, as applicable, has
duly performed all its obligations thereunder to the extent that such
obligations to perform have accrued; and no breach or default, alleged breach or
default, or event which would (with the passage of time, notice or both)
constitute a breach or default thereunder by any Homebuilding Entity, or, to the
knowledge of Sellers, any other party or obligor with respect thereto, has
occurred or, except as set forth in Schedule 2.7, as a result of this Agreement
or the consummation of the transactions contemplated hereby will occur. Except
as set forth in Schedule 2.7, consummation of the transactions contemplated by
this Agreement will not (and will not give any person a right to) terminate or
modify any rights of, or accelerate or augment any obligation of, any
Homebuilding Entity. The parties agree that special assessment districts need
not be listed on Schedule 2.7.
2.8 REAL AND PERSONAL PROPERTY; TITLE TO PROPERTY; LEASES.
(a) The Homebuilding Entities have good and marketable title to, a valid
leasehold interest in, or other right to use, all properties and assets material
to the conduct of the Homebuilding Business as reflected in the balance sheet as
of June 30, 1998 referred to in Section 2.5(b) or acquired since that date,
except for properties and assets in an aggregate amount that would not
constitute a material adverse change in the Homebuilding Business that were
disposed of since such date in the ordinary course of business consistent with
past practice. Except as set forth on Schedule 2.8(a), the Homebuilding Entities
hold all such title, interest, or right free and clear of Encumbrances other
than (i) liens securing taxes, assessments, or payments not yet due, (ii) such
imperfections or irregularities in title, easements, or other liens as are not
substantial in character, amount or extent and do not interfere with the
Homebuilding Entity's or Subsidiary's current use of the property subject
thereto or affected thereby or the development of such property in accordance
with current entitlement, development, or similar agreements with Governmental
Entities, and (iii) other matters which, individually or in the aggregate, do
not and would not have a material adverse effect with respect to the
Homebuilding Entities. The Homebuilding Entities have obtained title insurance
policies covering all real property owned by a Homebuilding Entity with an
initial purchase price in excess of $1 million.
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All of such tangible properties and assets are in good operating condition and
repair (ordinary wear and tear excepted and subject to normal scheduled
maintenance). Schedule 2.8(a) lists all of the real property owned or leased by
any Homebuilding Entity and with respect to leased property sets forth the
lessor, lease term (including any renewal rights), and lease payment amounts and
schedule. All leased real property held by any Homebuilding Entity, as lessee or
sublessee, as the case may be, under a lease providing for annual lease payments
exceeding $25,000 are held under valid, binding and enforceable leases or
subleases, and none of the Homebuilding Entities are in default thereunder. To
the knowledge of Sellers, there is no pending or threatened Action that would
materially interfere with the quiet enjoyment of any such leased real property
by any Homebuilding Entity.
(b) Except as set forth on Schedule 2.8(b), to the knowledge of Sellers,
(i) there are no endangered species or protected natural habitat, flora or fauna
located on any of the real property owned or leased by any Homebuilding Entity
constituting part of the Homebuilding Business and no such real property is
designated as wetlands, (ii) none of such real property is located within a
100-year flood plain as designated by any United States Governmental Entity or
is subject to seismic safety problems that prevent residential development
thereon, (iii) none of the Homebuilding Entities has received any notice of any
condemnation or eminent domain proceedings with respect to any of such real
property, or negotiations for the purchase of any such real property in lieu of
condemnation, and (iv) there are no moratoriums (including utility moratoriums)
by Governmental Entities responsible for issuing approvals or according other
entitlements with respect to any such real property.
(c) Schedule 2.8(c) sets forth: (i) a true and complete list of all
those matters for which a file was opened by Management Corp.'s Legal Department
(which employs all the in-house lawyers serving the Homebuilding Entities) on
behalf of a Homebuilding Entity on or after January 1, 1997, relating to a claim
or complaint by the purchaser (a "Lewis Homeowner") of a residence (a "Lewis
Home") developed or constructed by a Homebuilding Entity with respect to his/her
Lewis Home; (ii) the aggregate net customer service expenditures (excluding any
overhead allocation) of the Homebuilding Entities for 1996, 1997, and January 1
through August 31, 1998 (whether or not such customer service expenditures
related to requests for customer service from Lewis Homeowners during the
Homebuilding Entities' formal one-year warranty period) by tract; (iii) a true
and complete list of all home repurchases by any of the Homebuilding Entities
which closed escrow between January 1, 1997 and September 30, 1998; and (iv) the
number of customer service requests by tract with respect to any Lewis Home
which were open and not resolved as of September 30, 1998. Except as set forth
on Schedule 2.8(c), to the knowledge of Sellers, there are no warranty claims
exceeding $12,000 per individual house pending or settled or which resulted in
home purchases since January 1, 1997 against any Homebuilding Entity.
2.9 INTANGIBLE PROPERTY.
Schedule 2.9 lists all Marks and other items of Intangible Property in
which any Homebuilding Entity has an interest, other than Marks or Intangible
Property the loss of which would not have a material adverse effect on the
Homebuilding Entities, and the nature of such interest. Schedule 2.9 also lists
all Permits or other rights with respect to any of the foregoing.
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The Homebuilding Entities have the rights to and ownership of all Intangible
Property required for use in connection with the Homebuilding Business, the
absence of which would have a material adverse effect on the Homebuilding
Business. Without limiting the foregoing, Branching Tree owns the exclusive
right to the distinctive tree symbol used in the Homebuilding Business. Except
as set forth in Schedule 2.9, none of the Homebuilding Entities use any
Intangible Property by consent of any other person or are required to and do
make any payments to others with respect thereto. The Homebuilding Entities have
in all material respects performed all obligations required to be performed by
them, and none of such entities is in default in any material respect under any
Contract relating to any of the foregoing. Except as set forth in Schedule 2.9,
none of the Homebuilding Entities has received any notice to the effect that the
Intangible Property or any use by any Homebuilding Entity of any such property
conflicts with or allegedly conflicts with or infringes the rights of any
Person, and, to the knowledge of Sellers, no other person is infringing upon the
rights of any of the Homebuilding Entities with respect to any Marks or other
Intangible Property.
2.10 NO CONFLICTS.
Except as set forth on Schedule 2.10, the execution, delivery and
performance of this Agreement by Sellers and the performance by Sellers of any
of the transactions contemplated hereby will not violate, or constitute a breach
or default (whether upon lapse of time or notice or both) under, or give rise to
a right of termination, cancellation or acceleration of any obligation under,
the charter, partnership, or other operating documents of any Homebuilding
Entity or any Material Contract of any of such entities, result in the
imposition of any Encumbrance against any material asset or material properties
of any Homebuilding Entity, or violate any Law (assuming that the appropriate
governmental approvals are received as contemplated by Section 7.1(b)), except
for such violations, breaches, defaults, terminations, cancellations,
accelerations, or impositions that would not have a material adverse effect on
the Homebuilding Business. Except as set forth in Schedule 2.10, the execution
and delivery of this Agreement by Sellers and the performance of this Agreement
by Sellers will not require a filing or registration with, or the issuance of
any Permit or Approval by, any other third party or Governmental Entity.
2.11 LEGAL PROCEEDINGS AND CERTAIN LABOR MATTERS.
Except as set forth in Schedule 2.11, there is no Order or Action
pending, or, to the knowledge of Sellers, threatened, against or affecting any
Homebuilding Entity or any of their respective properties or assets that
individually or when aggregated with one or more other Orders or Actions has or
is reasonably expected to have a material adverse effect on the Homebuilding
Entities or on Sellers' ability to perform this Agreement. Schedule 2.l1 sets
forth all Orders or Actions pending or, to the knowledge of Sellers, threatened
against or affecting any Homebuilding Entity or any of their respective
properties or assets involving a claim for more than $100,000 or seeking or
imposing injunctive or other equitable relief against any Homebuilding Entity.
Except as set forth in Schedule 2.11, (i) each Homebuilding Entity is in
compliance in all material respects with the terms and requirements of each
Order listed on Schedule 2.11, which it, or any of the assets owned or used by
it, is or has been subject and (ii) to Sellers' knowledge, no Homebuilding
Entity has received any notice or other communication
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(whether oral or written) from any Governmental Entity or any other person
regarding any actual, alleged, possible, or potential violation of, or failure
to comply with, any term or requirement of any Order listed on Schedule 2.11,
except for any such violation that, individually or in the aggregate, will not
or could not reasonably be expected to result in a material adverse change to
the Homebuilding Entities. Except as set forth in Schedule 2.11, there is no
organized labor strike, dispute, slowdown or stoppage, or collective bargaining
or unfair labor practice claim pending or, to the knowledge of Sellers,
threatened against or affecting any Homebuilding Entity or the Homebuilding
Business. To Sellers' knowledge, none of the Homebuilding Entities nor any of
their respective officers, directors, partners, employees or agents has given or
made or agreed to give or make any illegal commissions, payment, gratuity, gift,
political contribution or similar benefit to any governmental employee who is in
a position to help or hinder the business of the Homebuilding Entities.
2.12 MINUTE BOOKS.
The minute books and similar records of organizational proceedings of
each of the Homebuilding Entities, to the extent required, accurately reflect
all actions and proceedings taken to date by the shareholders, board of
directors and committees, partners, or members (to the extent that any consent
of partners or members as a class has been required) of the Homebuilding
Entities, and such minute books and similar records contain true and complete
copies of the charter documents, partnership agreements, or operating agreement,
as applicable, of the Homebuilding Entities, and all related amendments. The
stock, partnership interest, or membership interest record books of each of the
Homebuilding Entities reflect accurately all transactions in its capital stock,
partnership interests, or membership interests of all classes.
2.13 ACCOUNTING RECORDS.
The Homebuilding Entities have records that accurately and validly
reflect their respective transactions, and accounting controls sufficient to
insure that such transactions are (i) executed in accordance with management's
general or specific authorization and (ii) recorded in conformity with GAAP so
as to maintain accountability for assets.
2.14 INSURANCE.
Schedule 2.14 lists all insurance policies and bonds held by the
Homebuilding Entities as of September 30, 1998. None of the Homebuilding
Entities is in default under any policy or bond. None of the Homebuilding
Entities has received any notice from any insurer or agent of any intent to
cancel or not to renew any insurance policy.
2.15 PERMITS.
The Homebuilding Entities hold all Permits that are required by any
Governmental Entity to permit each of them to conduct their respective
businesses as now conducted, and the Homebuilding Entities are in compliance
with such Permits, except (i) where the failure to hold or be in compliance with
such Permits would not, individually or in the aggregate, have a material
adverse effect on the Homebuilding Entities, and (ii) for Permits and
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entitlements for the development of real property which is not yet developed or
Permits not yet required in the development process of real property, and all
such Permits are valid and in full force and effect. To the knowledge of
Sellers, no suspension, cancellation or termination of any of such Permits is
threatened or imminent and no event has occurred that has resulted or would
reasonably be expected to result (with the passage of time, or notice, or both)
in a suspension, cancellation or termination of any such Permit.
2.16 EMPLOYEE BENEFITS.
(a) Employee Benefit Plans, Collective Bargaining and Employee
Agreements, and Similar Arrangements.
(i) Schedule 2.16 lists all employee benefit plans and collective
bargaining, employment or severance agreements or other similar arrangements to
which any Homebuilding Entity is a party or by which any of them is bound,
including, without limitation, (a) any profit-sharing, deferred compensation,
bonus (including any change-of-control, continuance or stay bonus), stock
option, stock purchase, phantom stock, restricted stock, pension, retainer,
consulting, retirement severance, termination, welfare or incentive plan,
agreement or arrangement, (b) any plan, agreement or arrangement providing for
"fringe benefits" or perquisites to employees, officers, directors or agents,
including but not limited to benefits relating to automobiles, clubs, vacation,
child care, parenting, sabbatical, sick leave, medical, dental, hospitalization,
life insurance and other types of insurance, (c) any employment agreement, or
(d) any other "employee benefit plan" (within the meaning of Section 3(3) or
ERISA).
(ii) Sellers have made available to Buyer true and complete copies
of all documents and summary plan descriptions with respect to such plans,
agreements and arrangements, or summary descriptions of any such plans,
agreements or arrangements not otherwise in writing.
(iii) The Homebuilding Entities are in full compliance with the
applicable provisions of ERISA (as amended through the date of this Agreement),
the regulations and published authorities thereunder, and all other Laws
applicable with respect to all such employee benefit plans, agreements and
arrangements, except where the failure to be in compliance would not have a
material adverse effect on the Homebuilding Entities. The Homebuilding Entities
have performed all of their obligations under all such plans, agreements and
arrangements. There are no Actions (other than routine claims for benefits)
pending or threatened against such plans or their assets, or arising out of such
plans, agreements or arrangements, and, to the knowledge of Sellers, no facts
exist which could give rise to any such Actions.
(iv) Except as set forth in Schedule 2.16, each of the plans,
agreements or arrangements can be terminated by the Homebuilding Entities within
a period of 30 days following the Closing Date, without payment of any
additional compensation or amount or the additional vesting or acceleration of
any such benefits.
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(v) Sellers shall pay or reimburse Buyer, upon request, for (A) any
severance payments made by Buyer or any Homebuilding Entity within the first 12
months after the Closing Date to Leon C. Swails pursuant to that certain
Employment Agreement dated as of February 27, 1995, as amended February 27,
1998, and (B) any "Deferred Salary" and "Special Bonus" under Section 3 of that
agreement if Mr. Swails' employment is terminated in the first 12 months of the
Closing Date as if Mr. Swails' employment was terminated as of the Closing Date.
(b) Qualified Plans. None of the Homebuilding Entities have a stock
bonus, pension or profit-sharing plan within the meaning of Section 401(a) of
the Code.
(c) Health Plans. All group health plans of the Homebuilding Entities
have been operated in substantial compliance with the group health plan
continuation coverage requirements of Section 162(k) and Section 4980B of the
Code to the extent such requirements are applicable.
(d) Fines and Penalties. There has been no act or omission by any
Homebuilding Entity or any ERISA Affiliate that has given rise to or may give
rise to fines, penalties, taxes, or related charges under Section 502(c) or (k)
or Section 4071 of ERISA or Chapter 43 of the Code.
(e) Other Plans. None of the Homebuilding Entities have an employee
pension benefit plan, a multi-employer plan (as defined in Section 3(37) of
ERISA) or a voluntary employees' beneficiary association as defined in Section
501(c) of the Code.
2.17 CERTAIN INTERESTS.
Except as set forth in Schedule 2.17, no Affiliate of any Seller or
Homebuilding Entity nor any officer, director, or partner of any thereof, nor
Associate of any such individual, has any material interest in any property or
other asset used in or pertaining to the Homebuilding Business. Except as set
forth in Schedule 2.17, the consummation of the transactions contemplated by
this Agreement will not (either alone, or upon the occurrence of any act or
event, or with the lapse of time, or both) result in any benefit or payment
(severance or other) arising or becoming due from any Homebuilding Entity or the
successor or assign of any thereof to any Person.
2.18 BANK ACCOUNTS, POWERS, ETC.
Schedule 2.18 lists each bank, trust company, savings institution,
brokerage firm, mutual fund or other financial institution with which any
Homebuilding Entity has an account or safe deposit box and the names and
identification of all Persons authorized to draw thereon or to have access
thereto, and lists the names of each Person holding powers of attorney or agency
authority from any Homebuilding Entity.
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2.19 NO BROKERS OR FINDERS.
No agent, broker, finder, or investment or commercial banker, or other
Person or firm engaged by or acting on behalf of Sellers or any Homebuilding
Entity or any of their respective Affiliates in connection with the negotiation,
execution or performance of this Agreement or the transactions contemplated by
this Agreement, is or will be entitled to any brokerage or finder's or similar
fee or other commission as a result of this Agreement or such transactions,
except Salomon Smith Barney, Inc. as to which Sellers shall have full
responsibility and neither Buyer nor any Homebuilding Entity shall have any
liability.
2.20 ENVIRONMENTAL COMPLIANCE.
Except as set forth in Schedule 2.20, (i) none of the Homebuilding
Entities has generated, used, transported, treated, stored, released or disposed
of, nor has suffered or permitted anyone else to generate, use, transport,
treat, store, release or dispose of any Hazardous Substance in violation of any
Laws, nor is in violation of or liable under any Laws relating to environmental
protection and compliance; (ii) there has not been any generation, use,
transportation, treatment, storage, release or disposal of any Hazardous
Substance in connection with the conduct of the Homebuilding Business or on or
in connection with the use of any property or facility of any Homebuilding
Entity or, to the knowledge of Sellers, any nearby or adjacent properties or
facilities, which has created or might reasonably be expected to create any
liability under any Laws or which would require reporting to or notification of
any Governmental Entity; (iii) no asbestos or polychlorinated biphenyl or
underground storage tank is contained in or located at any facility of any
Homebuilding Entity; and (iv) any Hazardous Substance handled or dealt with in
any way in connection with the businesses of any Homebuilding Entity has been
and is being handled or dealt with in all respects in compliance with applicable
Laws, in each case of clauses (i) through (iv) except where such action would
not have a material adverse effect on the Homebuilding Business. Sellers have
made available to Buyer true and complete copies of all reports, studies,
analyses, tests, or monitoring prepared or made by or on behalf of Sellers or
the Homebuilding Entities pertaining to Hazardous Materials in, on, or under
property now or previously owned or operated by any Homebuilding Entity,
including without limitation any Phase I or Phase II assessments referred to in
Schedule 2.20 of Sellers' Disclosure Schedule. With respect to properties that
are the subject of any such Phase I or Phase II assessments, Sellers' have no
knowledge of facts or circumstances inconsistent with the assessments therein.
ARTICLE III
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as otherwise indicated on the Sellers' Disclosure Schedule as
applying to a particular Section of this Article III, each Seller individually
represents, warrants and agrees as follows:
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3.1 OWNERSHIP BY SELLERS; NO CONFLICTS.
(a) Seller owns the number of shares of Stock, the Member Interests or
the Partnership Interests, as the case may be, set forth opposite his, her or
its name on Exhibit B hereto.
(b) Seller has good and marketable title to, and sole record and
beneficial ownership of, the shares of the Stock, the Member Interests or the
Partnership Interests, as the case may be, which are to be transferred to Buyer
by Seller pursuant hereto, free and clear of any and all covenants, conditions,
marital property rights, or other Encumbrances.
(c) If Seller is a entity, it has been duly incorporated or formed and
is validly existing in good standing under the laws of its state of
incorporation or formation. Whether an individual or an entity, Seller has the
right, power and authority to enter into this Agreement and any ancillary
agreements hereto, to transfer, convey and sell to Buyer at the Closing the
Stock, the Member Interests or the Partnership Interests, as the case may be, to
be sold to Buyer by such Seller, and otherwise to perform its obligations under
this Agreement and any ancillary agreements. Upon consummation of the Closing,
Buyer will acquire from such Seller legal and beneficial ownership of, and all
right to vote and other rights (including the right to admission as a partner or
member of the pertinent partnership or limited liability company) inhering in
the Stock, the Member Interests or the Partnership Interests, as the case may
be, to be sold to Buyer by such Seller, free and clear of all covenants,
conditions, marital property rights, or other Encumbrances.
(d) Seller is not a party to, subject to or bound by any Law or Order,
and no Action is pending against Seller or any Homebuilding Entity or, to such
Seller's knowledge, threatened, that would prevent the execution, delivery or
performance of this Agreement by Seller or the transfer, conveyance and sale of
the Stock, Member Interests, or Partnership Interests, as the case may be, to be
sold by Seller to Buyer pursuant to the terms hereof.
(e) This Agreement has been duly authorized by all necessary corporate,
partnership, or limited liability company action on the part of Seller, if
Seller is a corporation, partnership or limited liability company, has been
executed and delivered by Seller and is a valid and binding obligation of
Seller, enforceable against Seller in accordance with its terms, except as may
be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws limiting creditors' rights generally and equitable principles.
(f) Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby by Seller violates or will
violate or results or will result in a breach of any of the terms and provisions
of, or constitutes or will constitute a default under, or results or will result
in any augmentation or acceleration of rights, benefits or obligations of any
party under, any Contract to which Seller is a party or is bound or which
applies to the Stock, Member Interests, or Partnership Interests being sold, or
any Order applicable to Seller or to the Stock, Member Interests, or Partnership
Interests being sold.
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(g) If and to the extent required, Seller hereby consents to the
execution, delivery, and performance of this Agreement by each other Seller and
consents to the admission of Buyer as a stockholder, partner, or member of each
Homebuilding Entity, as applicable.
3.2 SECURITIES ACT MATTERS.
(a) Seller will acquire the shares of Buyer Common Stock comprising the
stock portion of the Purchase Price for investment for Seller's own accounts and
not with a view to or for offer or sale in connection with any distribution
thereof. Seller understands that the shares of Buyer Common Stock delivered
pursuant to this Agreement will not have been registered under the Securities
Act of 1933, as amended (the "Securities Act") or any applicable state
securities laws by reason of a specific exemption or exception from the
registration requirements thereof which depend upon, among other things, the
accuracy of Seller's representations and warranties in this Section. Seller
understands that, until such time as a registration statement covering the
resale of such shares of Buyer Common Stock is effective under the Securities
Act, or such shares may otherwise be freely traded by Seller without
registration under the Securities Act, each stock certificate evidencing such
shares may bear a legend substantially to the effect that the shares represented
by such certificate have not been registered under the Securities Act or any
applicable state securities laws and may be offered and sold only if so
registered or upon delivery to Buyer of an opinion of counsel that an exemption
or exception from such registration is applicable.
(b) Seller acknowledges receipt, either directly or through the
Representative, of all information requested from Buyer and considered by Seller
to be necessary or appropriate for deciding whether to acquire the shares of
Buyer Common Stock to be delivered pursuant to this Agreement, including,
without limitation, the Buyer SEC Reports referred to in Section 4.9. Seller is
an "accredited investor" within the meaning of Rule 501(a) under the Securities
Act or has such knowledge and experience in financial and business matters that
Seller is capable of evaluating the merits and risks of, and Seller is able to
bear the economic risk of, acquiring such shares of Buyer Common Stock. Seller
has had the opportunity to ask questions and receive answers regarding the terms
and conditions of the acquisition of Buyer Common Stock pursuant to this
Agreement.
(c) Seller does not currently own, beneficially or of record, any shares
of Buyer Common Stock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Except as otherwise indicated on the Buyer's Disclosure Schedule as
applying to a particular Section in this Article IV, Buyer represents, warrants
and agrees as follows:
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4.1 ORGANIZATION AND RELATED MATTERS.
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Buyer has all necessary
corporate power and authority to carry on its business as now being conducted.
Buyer has the necessary corporate power and authority to execute, deliver and
perform this Agreement.
4.2 AUTHORIZATION.
The execution, delivery and performance of this Agreement by Buyer have
been duly and validly authorized by the Board of Directors of Buyer and by all
other necessary corporate action on the part of Buyer. This Agreement has been
duly executed and delivered by Buyer and constitutes the legal, valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms except as may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or limiting creditors' rights
generally and equitable principles.
4.3 NO CONFLICTS.
The execution, delivery and performance of this Agreement by Buyer will
not violate the provisions of, or constitute a breach or default (whether upon
lapse of time and/or the occurrence of any act or event or otherwise) under (a)
the certificate of incorporation or bylaws of Buyer, (b) any Law or Order to
which Buyer is subject or (c) any Contract to which Buyer is a party that is
material to the financial condition, results of operations or conduct of the
business of Buyer, provided (as to clauses (b) and (c) respectively) that the
appropriate regulatory approvals set forth on Schedule 4.3 are received as
contemplated by Section 7.1(b). Except as set forth in Schedule 4.3, the
execution and delivery of this Agreement by Buyer and the performance of this
Agreement by Buyer will not require a filing or registration with, or the
issuance of any Permit or Approval by, any other third party or Governmental
Entity.
4.4 NO BROKERS OR FINDERS.
No agent, broker, finder or investment or commercial banker, or other
Person or firms engaged by or acting on behalf of Buyer or its Affiliates in
connection with the negotiation, execution or performance of this Agreement or
the transactions contemplated by this Agreement, is or will be entitled to any
broker's or finder's or similar fees or other commissions as a result of this
Agreement or such transactions, except Warburg Dillon Read LLC, as to which
Buyer shall have full responsibility and none of the Sellers or the Homebuilding
Entities shall have any liability.
4.5 LEGAL PROCEEDINGS.
Except as set forth in Schedule 4.5, there is no Order or Action pending
or to the knowledge of Buyer, threatened against or affecting Buyer that
individually or when aggregated with one or more other Actions has or might
reasonably be expected to have a material adverse effect on Buyer's ability to
perform this Agreement.
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4.6 INVESTMENT REPRESENTATION.
Buyer is acquiring the Stock and Partnership Interests from Sellers for
Buyer's own accounts for investment purposes only and not with a view to or for
sale in connection with the public distribution thereof. Buyer is knowledgeable
and experienced in the purchase of businesses and securities of the type
contemplated by this Agreement and has the capacity to protect its own interest
in connection with the transactions contemplated hereby. Buyer acknowledges that
neither the Shares nor the Partnership Interests have been registered under the
Securities Act of 1933, as amended, or qualified under any state securities or
blue sky laws.
4.7 FINANCING.
The Buyer has available sufficient funds to enable it to consummate the
transactions contemplated hereby.
4.8 CAPITAL STOCK.
The shares of Buyer Common Stock to be issued as the stock portion of
the Purchase Price have been duly authorized by all necessary corporate action
on the part of the Buyer and, when issued pursuant to this Agreement, will be
validly issued, fully paid and nonassessable, and such shares will be issued
without any violation of preemptive rights.
4.9 SEC FILINGS; FINANCIAL STATEMENTS.
Buyer has delivered to the Sellers, in the form filed with the SEC, (i)
its Annual Report to Shareholders and Annual Report on Form 10-K for the fiscal
year ended November 30, 1997, (ii) its Proxy Statement for Annual Meeting of
Shareholders on April 2, 1998, (iii) its Quarterly Reports on Form 10-Q for the
quarters ended February 28, 1998, May 30, 1998, and August 30, 1998, (iv) its
Current Reports on Form 8-K, dated June 23, 1998 and August 14, 1998, and (v)
any amendments and supplements to any such reports filed by Buyer with the SEC
(collectively, the "Buyer SEC Reports"). The Buyer SEC Reports did not at the
time they were filed (or if amended or superseded by a filing prior to the date
hereof, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The consolidated financial statements of Buyer included in
the Buyer SEC Reports comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP (except, in the case
of unaudited consolidated quarterly statements, as permitted by Form 10-Q of the
SEC) applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated financial
position of Buyer and its consolidated subsidiaries as of the dates thereof and
the consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited quarterly statements, to normal
year-end audit adjustments). Neither Buyer nor any of its subsidiaries has any
material liability of any nature, whether accrued, absolute, contingent or
otherwise, except liabilities that (i) are reflected or disclosed in the most
recent financial
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statements included in the Buyer SEC Reports, (ii) were incurred after August
30, 1998 in the ordinary course of business, or (iii) are set forth in Schedule
4.5 hereto. Since August 30, 1998, there has not been, occurred or arisen any
change in or event affecting Buyer or any of its subsidiaries that has or is
reasonably expected to have a material adverse effect on Buyer, except as set
forth in Schedule 4.5.
ARTICLE V
COVENANTS PRIOR TO CLOSING
5.1 ACCESS.
Seller shall cause the Homebuilding Entities to authorize and permit
Buyer and its representatives (which term shall be deemed to include its
independent accountants and counsel) to have reasonable access during normal
business hours, upon reasonable notice and in such manner as will not
unreasonably interfere with the conduct of their respective businesses, to all
of their respective properties, books, records, operating instructions and
procedures, Tax Returns and all other information with respect to the
Homebuilding Business as Buyer may from time to time reasonably request, and to
make copies of such books, records and other documents and to discuss their
respective businesses with such other Persons, including, without limitation,
their respective directors, officers, employees, accountants, counsel,
suppliers, customers, and creditors, as Buyer considers necessary or appropriate
for the purposes of familiarizing itself with the Homebuilding Business,
obtaining any necessary Approvals of or Permits for the transactions
contemplated by this Agreement and conducting an evaluation of the organization
and Homebuilding Business. Without limiting the generality of the foregoing,
Buyer shall be entitled to conduct or cause to be conducted (at its expense) on
any real property of the Homebuilding Entities such soils and geological tests
and environmental inspections, audits and tests (including the taking of soils
and ground water samples) and such structural and other physical inspections as
Buyer shall deem necessary or useful in connection with the transactions
contemplated by this Agreement. Buyer shall cause any damages resulting from any
such testing, inspection or audit to be repaired at Buyer's sole cost, and Buyer
agrees to indemnify and hold the Sellers and the Homebuilding Entities harmless
from any loss, cost, expense or liability incurred by any Seller or Homebuilding
Entity relating to or arising out of the conduct of any such tests, inspections
or audits. Neither Buyer's making nor omitting to make any such test,
inspection, or audit shall affect the representations and warranties of Sellers
or the conditions to Buyer's obligations hereunder, or Seller's indemnification
obligations.
5.2 MATERIAL ADVERSE CHANGES.
Sellers will promptly notify Buyer of any event of which such Seller
obtains knowledge which has had or is reasonably expected to have a material
adverse effect on the Homebuilding Business or which if known as of the date
hereof would have been required to be included on a Schedule to this Agreement.
No such notification shall affect the representations
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or warranties of Sellers or the conditions to Buyer's obligations hereunder, or
Seller's indemnification obligations. Sellers will promptly notify Buyer of any
Action that commences or is threatened on or after the date hereof and before
the Closing Date that involves a claim for damages in excess of $50,000 or seeks
injunctive relief, specific performance, or other equitable remedies.
5.3 CONDUCT OF BUSINESS.
Sellers shall cause the Homebuilding Entities not to take, any of the
following actions without the prior consent in writing of Buyer (which consent
shall not be unreasonably withheld, except that Buyer may give or withhold its
consent in its sole discretion with respect to the matters specified in clauses
(f), (h), (i), (k), (l), (m), (n), (s) and (u)):
(a) conduct the Homebuilding Business in any manner except in the
ordinary course substantially as now conducted; or
(b) amend, terminate, renew, fail to renew or renegotiate any Material
Contract or default (or take or omit to take any action that, with or without
the giving of notice or passage of time, would constitute a default) in any of
its obligations under any Material Contract or enter into any new Material
Contract; or
(c) terminate, amend or fail to renew any existing insurance coverage;
or
(d) terminate or fail to renew or preserve any Permits; or
(e) create, incur, assume or guarantee any long-term debt or capitalized
lease obligation of more than $250,000 in any specific case or $1,000,000 in the
aggregate; or
(f) create, incur, assume or guarantee any long-term debt or capitalized
lease obligation of more than $500,000 in any specific case or $2,000,000 in the
aggregate, or assume or guarantee any debt or obligation of any person that is
not one of the Homebuilding Entities; or
(g) make any loan, guaranty or other extension of credit, or enter into
any commitment to make any loan, guaranty or other extension of credit, to or
for the benefit of, or enter into any agreement for the acquisition or
disposition of property from or to, any director, officer, employee,
stockholder, partner or any of their respective Associates or Affiliates of less
than or equal to $500,000 in any specific case or $1,000,000 in the aggregate;
or
(h) make any loan, guaranty or other extension of credit, or enter into
any commitment to make any loan, guaranty or other extension of credit, to or
for the benefit of, or enter into any agreement for the acquisition or
disposition of property from or to, any director, officer, employee,
stockholder, partner or any of their respective Associates or Affiliates of more
than $500,000 in any specific case or $1,000,000 in the aggregate.
(i) grant any general or uniform increase in the rates of pay or
benefits to officers, directors or employees (or a class thereof) or any
increase in salary or benefits of or pay
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any bonus to any officer, director, employee or agent, or enter into any new, or
amend, supplement, or renew any existing, employment, collective bargaining,
severance, change in control, bonus, profit sharing, deferred compensation,
fringe benefit, consultancy, or other employee benefit agreement or plan, or
increase or accelerate any benefits payable under any of the foregoing; or
(j) sell, transfer, mortgage, encumber or otherwise dispose of any
assets, except (i) for dispositions of property not greater than $250,000 in any
specific case or $1,500,000 in the aggregate, (ii) the disposition of Excluded
Assets or (iii) in the ordinary course of business consistent with past
practice; or
(k) sell, transfer, mortgage, encumber or otherwise dispose of any
assets, except (i) for dispositions of property not greater than $500,000 in any
specific case or $3,000,000 in the aggregate, (ii) the disposition of Excluded
Assets or (iii) in the ordinary course of business consistent with past
practice; or
(l) issue, sell, redeem or acquire for value, or agree to do so, any
debt obligations or Equity Securities of any Homebuilding Entity; or
(m) split, combine, dividend, distribute or reclassify any shares of the
Equity Securities of Management Corp., Branching Tree, Mather, Desert Inn or the
Parent Partnerships; or declare, issue, make or pay any dividend or other
distribution of assets, whether consisting of money, other personal property,
real property or other thing of value, to the shareholders of Management Corp.
or Branching Tree, the members of Mather or Desert Inn or the partners of the
Parent Partnerships, other (i) than the distribution of the Excluded Assets,
(ii) pursuant to those agreements existing on the date of this Agreement and
identified on Schedules 2.3 or 2.4 and (iii) cash on hand so long as the Net
Worth of the Homebuilding Business of the Homebuilding Entities as of the
Closing Date is not less than $215 million; or
(n) change or amend the charter documents or bylaws of Management Corp.
or Branching Tree or the governing agreements of Mather, Desert Inn or the
Parent Partnerships or any of their Subsidiaries or merge, consolidate, transfer
substantially all the assets of (other than Excluded Assets), liquidate, or
dissolve any of the Homebuilding Entities; or
(o) make any investment, by purchase, contributions to capital, property
transfers, loan, or otherwise, in any other Person; or
(p) make any Tax election or make any change in any method or period of
accounting or in any accounting policy, practice or procedure; or
(q) introduce any new method of management or operation in respect of
the Homebuilding Business; or
(r) acquire or agree to acquire any assets the consideration for which
would exceed $250,000 individually or $1,000,000 in the aggregate; or
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(s) acquire or agree to acquire any assets the consideration for which
would exceed $500,000 individually or $2,000,000 in the aggregate; or
(t) settle or compromise any Action; or
(u) settle or consent to the entry in any Action of any Order that would
have or reasonably be expected to have a material adverse effect on the
Homebuilding Business; or
(v) agree to or make any commitment to take any actions prohibited by
this Section 5.3.
5.4 NOTIFICATION OF CERTAIN MATTERS.
Each Seller shall give prompt written notice to Buyer, and Buyer shall
give prompt written notice to Sellers, of (i) the occurrence, or failure to
occur, of any event that is reasonably likely to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect (or with respect to those representations and warranties that are
qualified by reference to materiality or a material adverse effect, to be untrue
or inaccurate in any respect taking into account such qualification) at any time
from the date of this Agreement to the Closing Date and (ii) any failure of
Buyer or Sellers, as the case may be, to comply with or satisfy, in any material
respect, any covenant, condition or agreement to be complied with or satisfied
by it under this Agreement.
No such notification shall affect the representations or warranties of
the parties or the conditions to their respective obligations hereunder, or
their respective indemnification obligations.
5.5 PERMITS AND APPROVALS.
(a) Sellers and Buyer each agree to cooperate and use their commercially
reasonable efforts to obtain (and will promptly prepare all registrations,
filings and applications, requests and notices preliminary to all) Approvals and
Permits that may be necessary to consummate the transactions contemplated by
this Agreement.
(b) To the extent that the Approval of a third party with respect to any
Material Contract is required in connection with the transactions contemplated
by this Agreement, Sellers shall use its commercially reasonable efforts to
obtain such Approval prior to the Closing Date and in the event that any such
Approval is not obtained (but without limitation on Buyer's rights under Section
7.2), Sellers shall cooperate with Buyer to ensure that Buyer obtains the
benefits of each such Contract.
5.6 PRESERVATION OF BUSINESS PRIOR TO CLOSING DATE.
During the period beginning on the date hereof and ending on the Closing
Date, (a) Sellers will use their commercially reasonable efforts to preserve the
Homebuilding Business and to preserve the goodwill of employees, customers,
suppliers and others having business relations with the Homebuilding Entities
and (b) Sellers and Buyer will consult with each other
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concerning, and Sellers will cooperate to keep available to Buyer, the services
of the officers and employees of the Homebuilding Entities that Buyer may wish
to have any Homebuilding Entity retain.
5.7 GOVERNMENT FILINGS.
Buyer will make and Sellers will make, and will cause the Homebuilding
Entities to make, any and all filings required under the Hart-Scott-Rodino Act.
Sellers and Buyer shall furnish each other such necessary information and
reasonable assistance as the other may reasonably request in connection with its
preparation of necessary filings or submissions under the provisions of such
law, and shall provide each other a reasonable opportunity to review, prior to
filing, any filing with a Governmental Entity related to this Agreement. Sellers
and Buyer will supply to each other copies of all correspondence, filings or
communications, including file memoranda evidencing telephonic conferences, by
such party or its affiliates with any Governmental Entity or members of its
staff, with respect to the transactions contemplated by this Agreement and any
related or contemplated transactions, except for documents filed pursuant to
Item 4(c) of the Hart-Scott Rodino Notification and Report Form or
communications regarding the same.
5.8 ELIMINATION OF INTERCOMPANY AND AFFILIATE LIABILITIES.
No later than the Closing Date, Sellers shall purchase, cause to be
repaid or (with respect to guarantees) assume liability for any and all loans or
other extensions of credit made or guaranteed by any Homebuilding Entity to or
for the benefit of a Seller or any of such Seller's Associates. At the Closing
Date, neither Buyer nor any Homebuilding Entity shall have any continuing
commitment, obligation or liability of any kind with respect to any Seller or
any Associates of any Seller, except as set forth in Schedule 5.8.
5.9 REPRESENTATIVE.
Each Seller hereby appoints John M. Goodman as representative (the
"Representative") to represent such Seller in connection with the transactions
contemplated by this Agreement, and to take any and all action, and to receive
any and all notices, on Seller's behalf hereunder that may be taken or received
by Seller under the terms hereof. Without giving notice to the Sellers, the
Representative shall have full and irrevocable authority on behalf of the
Sellers to (i) deal with Buyer, (ii) accept and give notices and other
communications relating to this Agreement, (iii) settle any disputes relating to
this Agreement, (iv) waive any condition to the obligations of the Sellers
included in this Agreement, (v) execute any document or instrument that the
Representative may deem necessary or desirable in the exercise of the authority
granted under this Section, and (vi) act in connection with all matters arising
out of, based upon, or in connection with, this Agreement and the transactions
contemplated hereby. Each Seller understands and agrees that the Representative
has been appointed as the Representative by each of the other Sellers. Buyer
shall be entitled to rely on the advice, information and decisions of the
Representative evidenced by a writing signed by him without any obligation
independently to verify, authenticate or seek the confirmation or approval of
the Representative's advice, information or decisions or any other facts from
Sellers or any other Person. Any certificate or other document to be delivered
by Sellers at the Closing may be executed and delivered by the
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Representative on behalf of all Sellers and shall constitute a reaffirmation of
any representations herein as of the Closing by such Seller unless he, she or it
otherwise notifies Buyer in writing on or prior to the Closing of any exceptions
thereto.
5.10 EXCHANGE LISTING; REGISTRATION RIGHTS.
Buyer will use its best efforts to cause the shares of Buyer Common
Stock comprising the stock portion of the Purchase Price to be authorized for
listing on the New York Stock Exchange, upon notice of issuance, prior to the
Closing Date. On the Closing Date, Buyer will enter into an agreement in
substantially the form of Exhibit E providing for registration rights upon the
terms and conditions set forth therein (the "Registration Rights Agreement").
5.11 SHAREHOLDERS AGREEMENT.
On the Closing Date, Buyer and Sellers shall enter into a shareholders
agreement in substantially the form of Exhibit F hereto (the "Shareholder
Agreement").
5.12 COST SHARING AGREEMENTS AND OPTION AGREEMENT.
On the Closing Date, Buyer and Sellers (or their designee(s)) shall
enter into cost sharing agreements with respect to the Highland/Lytle Creek and
Terra Vista projects in substantially the forms of Exhibit G and H,
respectively, hereto (collectively, the "Cost Sharing Agreements"), and an
option agreement with respect to the Sierra Lakes project in substantially the
form of Exhibit I hereto (the "Option Agreement").
5.13 EMPLOYEES.
The parties agree to consult in good faith with each other prior to the
Closing and prior to soliciting Homebuilding Entities' employees to determine
which employees of the Homebuilding Entities will remain with the Homebuilding
Business of the Homebuilding Entities and which employees of the Homebuilding
Entities will become employees of the non-Homebuilding Business of Sellers.
Sellers shall provide to Buyer such information regarding the employees of the
Homebuilding Entities as Buyer may reasonably request. The parties agree to
consult in good faith with each other prior to the Closing to determine which
employees, if any, of the Homebuilding Entities need to be loaned on a
short-term basis between them and the reasonable expense charges for any loaned
employees.
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ARTICLE VI
ADDITIONAL CONTINUING COVENANTS
6.1 NONCOMPETITION.
(a) Restrictions on Competitive Activities. Subject to the provisions of
Section 6.10, each Seller agrees that after the Closing, Buyer and the
Homebuilding Entities shall be entitled to the goodwill and going concern value
of the Homebuilding Business and to protect and preserve the same to the maximum
extent permitted by law. For these and other reasons and as an inducement to
Buyer to enter into this Agreement, each Seller, other than John M. Goodman,
agrees that for a period of four years after the Closing Date or one year after
termination of that Seller's employment or consulting agreement with Buyer or
any of the Homebuilding Entities, whichever is later, and in the case of John M.
Goodman, for a period of two years after the Closing Date, such Seller will not,
in the States of California or Nevada, directly or indirectly, for its own
benefit or as agent for another carry on or participate in the ownership,
management or control of, or be employed by, or consult for, or serve as a
director of, or otherwise render services to, the business of constructing or
selling single family homes of any business entity.
(b) Exceptions. Nothing contained herein shall limit the right of a
Seller as an investor to hold and make investments in securities of any
corporation or limited partnership that is registered on a national securities
exchange or admitted to trading privileges thereon or actively traded in a
generally recognized over-the-counter market, provided such Seller's equity
interest therein does not exceed 5% of the outstanding shares or interests in
such corporation or partnership.
(c) Nonsolicitation. During the period of one year after the Closing
Date, Sellers and their affiliates (excluding the Homebuilding Entities after
the Closing Date) shall refrain from soliciting for employment, directly or
indirectly, any then employees of the Homebuilding Entities. This prohibition
shall not extend to employing any such person who contacts Sellers or their
affiliates on his or her own initiative without any direct or indirect
solicitation or encouragement from any Seller or its affiliates or employees (it
being understood that placing a general advertisement does not constitute
solicitation).
(d) Special Remedies and Enforcement. Each Seller recognizes and agrees
that a breach by such Seller of any of the covenants set forth in this Section
6.1 could cause irreparable harm to Buyer, that Buyer's remedies at law in the
event of such breach would be inadequate, and that, accordingly, in the event of
such breach a restraining order or injunction or both may be issued against such
Seller, in addition to any other rights and remedies which are available to
Buyer. If this Section 6.1 is more restrictive than permitted by the Laws of the
jurisdiction in which Buyer seeks enforcement hereof, this Section 6.1 shall be
limited to the extent required to permit enforcement under such Laws. Without
limiting the generality of the foregoing, the parties intend that the covenants
contained in the preceding portions of this Section 6.1 shall be construed as a
series of separate covenants, one for each state. Except for
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geographic coverage, each such separate covenant shall be deemed identical in
terms. If, in any judicial proceeding, a court shall refuse to enforce any of
the separate covenants deemed included in this Section 6.1, then such
unenforceable covenant shall be deemed eliminated from these provisions for the
purpose of those proceedings to the extent necessary to permit the remaining
separate covenants to be enforced.
6.2 NON-DISCLOSURE OF PROPRIETARY DATA.
Each Seller agrees that such Seller will not, at any time, make use of,
divulge or otherwise disclose, directly or indirectly, any trade secret or other
proprietary data concerning the business or policies of any Homebuilding Entity
as they relate to the Homebuilding Business, other than form documents used by
any Homebuilding Entity, or of Buyer obtained in connection with the
negotiation, execution, or performance of this Agreement. In addition, each
Seller agrees not to make use of, divulge or otherwise disclose, directly or
indirectly, to persons other than Buyer, any confidential information concerning
the business or policies of any Homebuilding Entity as they relate to the
Homebuilding Business which may have been learned in any such capacity or of
Buyer which may have been learned in connection with the negotiation, execution,
or performance of this Agreement. The Seller's obligations under this Section
with respect to any trade secret, other proprietary data, or confidential
information of Buyer shall survive the termination of this Agreement if this
Agreement is terminated prior to the Closing.
6.3 TAX RETURNS.
(a) The Sellers shall cause to be prepared and timely filed (or provided
to Buyer for execution and filing, if applicable) when due (taking into account
all extensions properly obtained) all income and franchise Tax Returns of the
Homebuilding Entities for taxable periods ending on or before the Closing Date,
and all other Tax Returns required to be filed by or on behalf of such entities
on or before the Closing Date. All Tax Returns described in this Section 6.3(a)
shall be prepared and filed in a manner consistent with past practice and, on
such Tax Returns, no position shall be taken, election made or method adopted
without Buyer's written consent (which shall not be unreasonably withheld) that
is inconsistent with positions taken, elections made or methods used in
preparing and filing similar Tax Returns in prior periods (including, but not
limited to, positions, elections or methods which would have the effect of
deferring income to periods after the Closing Date).
(b) Buyer shall cause to be prepared and timely filed all Tax Returns of
the Homebuilding Entities that are not described in Section 6.3(a) above. If any
such Tax Return covers a period beginning before the Closing Date, Sellers shall
have the right to review and approve (which approval shall not be unreasonably
withheld) such Tax Return before it is filed if it could affect the Sellers' or
Shareholders' liability for Taxes to any taxing authority or their
indemnification obligations to Buyer under this Agreement. Any Tax Return
described in the preceding sentence shall be provided to the Sellers not less
than 14 days prior to the proposed filing date together with any underlying
information or records requested by the Sellers to assist their review.
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6.4 TAX COOPERATION.
(a) After the Closing, the Sellers and the Buyer shall, and shall cause
their respective Affiliates to, cooperate fully with each other in the
preparation and filing of all Tax Returns and any Tax investigation, audit or
other proceeding respecting the Homebuilding Business (a "Tax Proceeding") and
shall provide, or cause to be provided, any records and other information in
their possession or control or in the control of their agents reasonably
requested by such other party in connection therewith as well as access to, and
the cooperation of, their respective auditors. Buyer shall notify Sellers in
writing promptly upon receipt by Buyer or any Affiliate of any notice of any
pending or threatened audits or assessments relating to Taxes with respect to
any Homebuilding Entity other than Taxes as to which Sellers or the Shareholders
have no indemnification obligation or other liability relating to Taxes. Sellers
shall have the right to control the handling and disposition of such audit and
any administrative or court proceeding relating thereto (and to employ counsel
of their choice at their expense) to the extent that such audit or proceeding
might result in increased Tax liabilities of the Sellers or the Shareholders for
the period covered by the Tax Proceeding or an increase in their indemnification
obligations to Buyer under this Agreement; provided, however, that Buyer may
monitor the Tax Proceeding. Sellers shall not agree to any settlement concerning
Taxes of any Homebuilding Entity for any taxable period which would result in an
increase in Taxes of Buyer or any Homebuilding Entity for any taxable period
ending after the Closing Date, without the prior written consent of the Buyer
(which consent shall not be unreasonably withheld). The Buyer and the Sellers
shall bear their respective costs and expenses in connection with any Tax
Proceeding. Any information obtained pursuant to this Section 6.4 or pursuant to
any other Section hereof providing for the sharing of information or the review
of any Tax Return or other information relating to Taxes shall be subject to
Section 10.9.
(b) At Buyer's election, made not less than 60 days before any such
election must be made, (i) the Management Corp. Sellers and Branching Tree
Sellers, jointly with Buyer, shall make timely and irrevocable elections under
Section 338(h)(10) of the Code and similar elections under any applicable state
or local Tax laws for Management Corp. and Branching Tree (the "Section
338(h)(10) Elections"), (ii) the Partnership Sellers shall cause the Parent
Partnerships and their Subsidiaries to make, timely and irrevocable elections
under Section 754 of the Code and similar elections under any applicable state
or local Tax laws for the Parent Partnerships and their Subsidiaries, and (iii)
the Mather Sellers and Desert Inn Sellers shall cause Mather, Desert Inn, and
their Subsidiaries to make timely and irrevocable elections under Section 754 of
the Code and similar elections under any applicable state or local Tax laws for
Mather, Desert Inn, and their Subsidiaries (collectively with the elections for
the Parent Partnerships and their Subsidiaries, the "Section 754 Elections" and
collectively with the Section 338(h)(10) Elections, the "Tax Elections"). If the
Tax Elections are made, Buyer, Sellers, and the Homebuilding Entities shall
report the transactions contemplated herein consistently with the Tax Elections
and shall take no position contrary thereto unless and to the extent required to
do so pursuant to a final determination of liability in respect of a Tax that,
under applicable law, is not subject to further appeal, review, or modification
through proceedings or otherwise). To the extent possible, Buyer, Sellers, and
the Homebuilding Entities, as applicable, shall execute at the Closing any and
all documents, statements, and other forms that are required to be submitted to
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any Taxing authority in connection with the Tax Elections (the "Tax Election
Forms"). If any Tax Election Forms are not executed at the Closing, Buyer,
Sellers, and the Homebuilding Entities, as applicable, shall prepare and
complete each such Tax Election Form no later than 30 days before the date such
Tax Election Form is required to be filed, shall cause such Tax Election Forms
to be duly executed by their respective authorized persons, and shall timely
file such Tax Election Forms in accordance with applicable Tax laws.
(c) Buyer and Sellers agree to use their best efforts to agree upon a
schedule and supporting sub-allocation schedules, in substantially the form of
(but without regard to the specific numbers on) Schedule 6.4(c) hereto
(collectively the "Allocation Agreement"), and Sellers and Buyer agree to cause
each of the Homebuilding Entities to agree to the Allocation Agreement insofar
as the Allocation Agreement addresses them, (i) to allocate the Management Corp.
Stock Purchase Price and the liabilities of Management Corp. (and other relevant
items) to the assets of Management Corp. and the Branching Tree Stock Purchase
Price and liabilities of Branching Tree (and other relevant items) to the assets
of Branching Tree, in both cases for all applicable Tax purposes, including the
Section 338(h)(10) Elections, and (ii) to make and allocate the basis
adjustments to the assets of Mather, the assets of Desert Inn and its
Subsidiary, and the assets of the Parent Partnerships and their respective
Subsidiaries, in each case for all applicable Tax purposes, including the
Section 754 Elections and the allocation of inside basis adjustments resulting
from the Section 754 Elections. Sellers shall initially prepare the schedules
setting forth the allocations described above and submit the proposed
allocations to Buyer within the later of (x) 30 days after the date of delivery
to Buyer of the 1998 audited financial statements referred to in Section 6.8
hereof, and (y) 30 days after the final determination of the adjustment to the
Purchase Price pursuant to Section 1.6 hereof, but in no event later than 120
days after the Closing Date. If, within 30 days after Sellers' submission, Buyer
has not objected in writing to such allocation, specifying in reasonable detail
the nature and amount of the disagreement, Sellers' proposed allocation shall
become the Allocation Agreement. If Buyer objects, then unless Buyer and Sellers
resolve such disagreement within 10 days after delivery of Buyer's notice of
disagreement, the disagreement shall be resolved by an accounting firm chosen as
stated in Section 1.6. Such accounting firm shall resolve such disagreement
within 30 days of submission of the disagreement to it. The determination of
such accounting firm shall be final and binding on Buyer and Sellers (absent
manifest error in calculations) and the fees and expenses of such accounting
firm shall be borne equally by Sellers, on the one hand, and Buyer, on the other
hand. Notwithstanding the foregoing, Buyer and Sellers hereby agree that (A)
subject to any adjustment imposed by clause (E) below to avoid suspended basis,
(1) unless either the "Goodwill Cap" imposed by (B) below or the "Goodwill
Floor" imposed by clause (C) below applies, an amount equal to 75% of the Basis
Increase (defined below) shall be allocated on the Allocation Agreement to
goodwill, and 25% of the Basis Increase shall be allocated on the Allocation
Agreement to real property inventory, and (2) if either the Goodwill Cap or the
Goodwill Floor applies, then the amount of the Basis Increase allocated to
goodwill shall be equal to the Goodwill Cap or the Goodwill Floor, as
applicable, and the amount of the Basis Increase allocated to real property
inventory shall be increased (if the Goodwill Cap applies) or decreased (if the
Goodwill Floor applie