PURCHASE AGREEMENT
dated as of
October 20, 1998
2
TABLE OF CONTENTS
PAGE
R E C I T A L S
A G R E E M E N T
DEFINITIONS/PURCHASE & SALE/CLOSING
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
-i-
3
TABLE OF CONTENTS
(CONTINUED)
PAGE
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SELLERS
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
-ii-
4
TABLE OF CONTENTS
(CONTINUED)
PAGE
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
-iii-
5
TABLE OF CONTENTS
(CONTINUED)
PAGE
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
-iv-
6
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:
1
7
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
2
8
(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.
3
9
"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.
4
10
"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.
5
11
"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.
6
12
"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
7
13
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
8
14
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
9
15
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
10
16
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.
11
17
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.
12
18
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
13
19
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
14
20
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.
15
21
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.
16
22
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
17
23
(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
18
24
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.
19
25
(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.
20
26
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:
21
27
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.
22
28
(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:
23
29
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.
24
30
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
25
31
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
26
32
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
27
33
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
28
34
(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
29
35
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
30
36
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.
31
37
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
32
38
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.
33
39
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
34
40
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 applies) accordingly from the 25% amount otherwise allocable; (B)
the aggregate amount of the Basis Increase that is allocated on the Allocation
Agreement to goodwill and all other assets that would be Class IV or Class V
assets within the meaning of the
35
41
Treasury Regulations under Section 338 of the Code (collectively, "Goodwill")
shall not exceed an amount (the "Goodwill Cap") equal to 36% of the Purchase
Price (as adjusted pursuant to Section 1.6); (C) the aggregate amount of the
Basis Increase that is allocated to Goodwill shall not be less than an amount
(the "Goodwill Floor") equal to the lesser of (1) 30% of the Purchase Price (as
adjusted pursuant to Section 1.6) and (2) the Basis Increase; (D) 65% of the
amount allocated to real property inventory pursuant to clause (A) shall be
allocated on the Allocation Agreement to real property inventory located in
California; and (E) the parties will use their best efforts to cause the
allocations to be made such that no suspended basis adjustments result, but
notwithstanding clauses (A) through (D) above any amount otherwise allocable to
inventory under clause (A) that would result in a suspended basis will instead
be allocated to goodwill. "Basis Increase" means the aggregate net increase to
the tax basis of the assets of the Homebuilding Entities resulting from the
Section 754 Elections and the Section 338(h)(10) Elections.
6.5 OTHER COOPERATION.
After the Closing, the Buyer will afford the Sellers, and their
respective accountants, counsel and other representatives, reasonable access
during normal business hours to the books and records of the Homebuilding
Entities for the periods prior to the Closing. Sellers, or their respective
representatives may, at such Seller's own expense, make copies of such books and
records.
6.6 EMPLOYEES AND EMPLOYEE BENEFITS.
Buyer shall provide, or cause the Homebuilding Entities to provide,
employee benefits to the Homebuilding Entities employees who are retained after
the Closing Date that are at least as favorable to such employees in the
aggregate as the benefits provided by the Homebuilding Entities to their
employees as of the date of this Agreement.
6.7 LEWIS NAME AND MARK LICENSE.
Upon the Closing, Buyer, Branching Tree and Sellers will enter into an
agreement in substantially the form of Exhibit J hereto (the "License
Agreement"). Nothing in this Agreement shall prohibit Sellers or their
affiliates from using the name "Lewis" alone or in combination with any of the
following words: Industrial, Commercial, Retail, Apartment Communities,
Retirement, Asset Management, Family Asset Management, Holdings, Family Holdings
and any name consisting of initials, and in each case such names may include the
words "Company," "Inc.," "LLC," or similar words.
6.8 FISCAL 1998 AUDITED FINANCIAL STATEMENTS.
As soon as practicable after the Closing, and in any event within 60
days following the Closing Date, Sellers shall cause to be delivered to Buyer a
combined balance sheet for the Homebuilding Business of the Homebuilding
Entities as of December 31, 1998 and related combined statements of operations,
equity and cash flows of the Homebuilding Business of the Homebuilding Entities
for the year then ended, all examined by Ernst & Young LLP (or
36
42
another independent public accounting firm selected by mutual agreement of the
Sellers and Buyer) whose audit report thereon shall be included with such
statements, prepared in conformity with GAAP applied on a basis consistent with
the audited financial statements referred to in Section 7.2(g). 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 the 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 statements.
6.9 TENANT LISTS.
At the Closing, Sellers shall deliver to Buyer a list of the then
current tenants of apartment buildings owned by Sellers or their Affiliates who
are entitled to participate in Sellers or their Affiliates "Rent to Own"
program. For so long as both Buyer and Sellers, in their respective sole
discretion, determine to continue to participate in the "Rent to Own" program,
Sellers will provide to Buyer at least semiannually a list of tenants of
apartment buildings owned by Sellers or their Affiliates who are entitled to
participate in such program.
6.10 BUYER'S RIGHT OF FIRST OFFER.
(a) Right of First Offer. Restricted Party agrees that during the period
from the Closing Date to the fourth anniversary of the Closing Date (the "Right
of First Offer Period"), the Restricted Party shall not, and the Restricted
Party shall cause any Controlled Entity not to, offer to sell or sell, or
propose to enter into any joint venture with respect to, any Covered Properties
without first offering such Covered Properties for sale or joint venture to
Buyer pursuant to the procedures described below (the "Right of First Offer").
Notwithstanding the foregoing, neither the Restricted Party nor the Controlled
Entity shall be required to offer any Covered Properties to Buyer hereunder if
such Covered Properties (i) are being transferred to another Controlled Entity
or to any other Seller, or (ii) if such Covered Properties consists of 20 or
fewer lots (provided that not more than 40 lots may be excluded from the Right
of First Offer pursuant to this clause (ii) during any calendar year) or (iii)
the project in which the Covered Lots is located consists of 20 or fewer lots.
For the purposes of this Section 6.10, (A) "Restricted Party" means the Seller
which is developing the Covered Property in question; (B) "Covered Properties"
means any for sale residential lots that are developed by a Restricted Party or
any Controlled Entity in California or Nevada, whether for attached or detached
housing, other than lots to be sold for $300,000 or more or to a governmental
entity; and (C) "Controlled Entity" means any entity in which direct or indirect
beneficial ownership (as described in Rule 13d-3 under the Securities Exchange
Act of 1934) of voting securities represents at least 51% of the outstanding
voting power of a Person is held by one or more Restricted Parties. In the event
that a Restricted Party or a Controlled Entity is developing a mixed use
project, only the lots included therein that would constitute Covered Properties
as defined above shall be deemed Covered Properties.
(b) Offer. Prior to offering for sale or joint venture any Covered
Properties, the Restricted Party shall (or the Restricted Party shall cause the
Controlled Entity to) provide
37
43
written notice to Buyer describing such Covered Properties (the "Offered
Properties") and stating the lot prices or joint venture terms, whether such
Offered Properties are being offered as finished lots, mapped lots or in another
entitlement state, and other material terms at which the Restricted Party (or
the Controlled Entity) offers to sell or joint venture the Offered Properties to
Buyer (the "Offer").
(c) Evaluation Notice. Within ten (10) days following receipt of the
Initial Offer, Buyer shall notify the Restricted Party in writing whether or not
Buyer intends to evaluate the Offered Properties (an "Evaluation Notice"). If
the Evaluation Notice indicates that Buyer does not wish to evaluate the Offered
Properties or if Buyer fails to deliver an Evaluation Notice to the Restricted
Party within such ten (10) day period, the Restricted Party (or the Controlled
Entity) shall be free to negotiate and conclude a sale or joint venture, as
specified in the Offer, of the Offered Properties with other Persons for a
period of one (1) year following receipt by the Buyer of the Offer. If the
Evaluation Notice is received by the Restricted Party within such ten (10) day
period and it indicates that Buyer wishes to evaluate the Offered Properties,
then for thirty (30) days following receipt by the Restricted Party of the
Evaluation Notice, Buyer shall have the right to evaluate the Offered Properties
(the "Evaluation Period") and the remainder of this Section 6.10 shall apply.
(d) Certain Information. During the first ten (10) days of the
Evaluation Period, the Restricted Party shall, or shall cause the Controlled
Entity to, promptly provide Buyer with such documents and information concerning
the Offered Properties as Buyer shall reasonably request to the extent such
documents and information are possessed by or reasonably available (without cost
or expense) to the Restricted Party and the Controlled Entity. The type of
information to be provided shall include the square footage minimums applicable
to such lots and other restrictions (including deed restrictions, if applicable)
relating to such lots. Neither the Restricted Party nor the Controlled Entity
makes or shall be deemed to make any representation or warranty as to the
accuracy or completeness of such documents and information. Buyer will maintain
the confidentiality of such documents and information, provided that this will
not prevent disclosure by Buyer to the extent that such disclosure is required
by law or court order.
(e) Acceptance; Rejection; Matching. Prior to the end of the Evaluation
Period, Buyer shall either accept or reject the Offer. If Buyer accepts the
Offer, the Restricted Party and Buyer shall use their, and the Restricted Party
shall cause the Controlled Entity to use its, good faith efforts to conclude the
sale or joint venture, as the case may be, of such Offered Properties on the
terms contained in the Offer as expeditiously as practicable. If Buyer rejects
the Offer, the Restricted Party (or the Controlled Party) shall be free to
negotiate with, and sell or joint venture, as specified in the Offer, the
Offered Properties to, other Persons provided that:
(i) the Restricted Party may not (or the Restricted Party shall
cause the Controlled Entity not to) accept any offer to purchase or
joint venture, as the case may be, the Offered Properties from any other
Person during the Right of First Offer Period without first re-offering
the Offered Properties on the same terms to Buyer if (a) the other offer
contains a closing sales price for the Offered Properties that is less
than the closing sales price contained in the Offer or, if the Offer
relates to a joint venture, contains terms in the aggregate less
favorable to the Restricted Party (or the Controlled Entity), (b) the
38
44
Restricted Party (or the Controlled Entity) changes the entitlement
state of the Offered Properties, or (c) the other offer is for the
purchase of the Offered Properties and the Offer was for a joint venture
of the Offered Properties, or vice versa. For this purpose, if the price
contained in either the Offer or in the other offer is payable over time
in whole or in part (the "financed portion"), then the present value of
the financed portion shall be calculated using an 8% discount rate, and
such present value shall be deemed to be included in the "price" for
comparison purposes; and
(ii) the Restricted Party shall be required to give (or the
Restricted Party shall cause the Controlled Entity to give) to Buyer ten
(10) days to match any offer described in Section 6.10(e)(i) above.
(f) Reoffer in Certain Circumstance. Subject to the terms of Section
6.10(g), the Restricted Party shall be required to (and the Restricted Party
shall cause the Controlled Entity to) offer Buyer another Evaluation Period in
accordance with this Section 6.10 with respect to any Offered Properties which
the Restricted Party or a Controlled Entity, as the case may be, is continuing
to offer for sale or propose to joint venture if such Offered Properties have
not been sold or joint ventured by the later of one (1) year after the
expiration of (i) the previous Evaluation Period with respect to such Offered
Properties or (ii) if applicable, to such Offered Properties, the ten (10) day
match period described in Section 6.10(e)(ii).
(g) Termination of Right of First Offer. In the event of a breach or
default by Buyer under (i) an agreement for purchase and sale or joint venture
for any of the Offered Properties or (ii) any obligations or restrictions
imposed by the documents of conveyance of any Offered Properties to Buyer (the
Offered Properties described in (i) or (ii) being the "Subject Offered
Properties") and such breach or default is not cured within any applicable cure
period provided in the applicable agreement or document and after any notice
required by any such agreement or document has been given, the provisions of
this Section 6.10 shall automatically terminate and be of no further force and
effect with respect to all Subject Offered Properties and with respect to all
other Covered Properties located in the project(s) in which the Subject Offered
Properties are located.
(h) No Obligation to Sell. It is understood that neither the Restricted
Party nor any Controlled Entity has an obligation to market or sell any Covered
Properties (provided that the foregoing shall not relieve the Restricted Party
from complying with this Section 6.10 if it decides to offer for sale any
Covered Properties) or to accept any offer made by Buyer.
(i) Sierra Lakes Adjacent Property. Without Buyer's consent in its sole
discretion, Sellers will not enter into any joint venture, partnership, or
similar agreement with a third party with respect to the approximately 135-acre
property adjacent to the Sierra Lakes property, if such agreement would prevent
Sellers from offering such property to Buyer in accordance with this Section
6.10.
39
45
ARTICLE VII
CONDITIONS OF PURCHASE
7.1 GENERAL CONDITIONS.
The obligations of the parties to effect the Closing shall be subject to
the following conditions unless waived in writing by all parties:
(a) No Orders, Legal Proceedings. No Law or Order shall have been
enacted, entered, issued, promulgated or enforced by any Governmental Entity,
nor shall any Action by a Governmental Entity have been instituted and remain
pending at what would otherwise be the Closing Date, which prohibits or
restricts the transactions contemplated by this Agreement.
(b) Approvals. All Permits and Approvals required to be obtained from
any Governmental Entity shall have been received or obtained on or prior to the
Closing Date and any applicable waiting period under the Hart-Scott-Rodino Act
shall have expired or been terminated.
(c) Removal and Inclusion of Assets and Liabilities. The Excluded Assets
shall have been distributed and the Excluded Liabilities shall have been assumed
by Sellers, and the Included Assets and Included Liabilities shall have been
transferred to and assumed by the Homebuilding Entities, all in form and
substance reasonably satisfactory to Sellers and Buyer, without the imposition
or any tax or other adverse tax consequences to the Homebuilding Entities;
provided, however, that if Sellers are unable to distribute any of the Excluded
Assets or assume the Excluded Liabilities or transfer the Included Assets and
Included Liabilities prior to the Closing Date, Buyer will, and will cause the
Homebuilding Entities to, cooperate with Sellers after the Closing to ensure
that any such transfers and assumptions are effected as soon as practicable.
(d) Execution and Delivery of Agreements. Each of the Cost Sharing
Agreements, License Agreement, Option Agreement, Registration Rights Agreement,
Shareholders Agreement and Consulting and Noncompetition Agreement between Buyer
and John M. Goodman, in the form of Exhibit O (it being understood, however,
that only Exhibit A to such Consulting and Noncompetition Agreement is subject
to completion, which Buyer and Mr. Goodman shall proceed to do reasonably and in
good faith), shall have been executed and delivered by the parties thereto and
the employment agreements, dated the date of this Agreement, and executed by
Buyer or a Homebuilding Entity and the persons named on Schedule 7.1(d) shall be
in full force and effect.
7.2 CONDITIONS TO OBLIGATIONS OF BUYER.
The obligations of Buyer to effect the Closing shall be subject to the
following conditions except to the extent waived in writing by Buyer:
40
46
(a) Representations and Warranties and Covenants of Sellers. The
representations and warranties of Sellers herein contained (as qualified by
matters set forth as exceptions thereto in the Disclosure Schedule of Sellers)
shall be true in all material respects (except for such representations and
warranties as are qualified by their terms by reference to materiality, a
material adverse change or a material adverse effect, which representations and
warranties as so qualified shall be true in all respects) at the Closing Date
with the same effect as though made at such time; Sellers shall have performed
all obligations and complied with all covenants and conditions required by this
Agreement to be performed or complied with by it at or prior to the Closing Date
(except for such failures to perform as have not had and are not reasonably
expected to have, individually or in the aggregate, a material adverse effect
with respect to the Homebuilding Entities or to adversely affect the ability of
Sellers to consummate the transactions contemplated by this Agreement); and
Sellers shall have delivered to Buyer a certificate of Sellers in form and
substance satisfactory to Buyer, dated the Closing Date, and signed by the
Representative, to such effect; provided, however, that if any exceptions are
noted on the certificate of the Sellers, which would otherwise have entitled
Buyer to elect not to close, and Buyer elects to close notwithstanding the
exceptions noted, Buyer shall have irrevocably waived any indemnification rights
under Article IX with respect to any reasonably forseeable Losses arising from
or relating to any of the noted exceptions. Sellers shall use their reasonable
efforts to provide a draft of such certificate, with any exceptions known to
Sellers at that time, to Buyer at least ten business days prior to the Closing
Date.
(b) Opinion of Counsel. Buyer shall receive at the Closing from
O'Melveny & Myers LLP and Kenneth P. Corhan, Esq., General Counsel to Management
Corp., opinions dated the Closing Date, in form and substance substantially as
set forth in Exhibits K and L, respectively.
(c) Consents. Sellers shall have obtained and provided to Buyer the
Approvals of third parties set forth on Schedule 2.10 in form and substance
reasonably acceptable to Buyer.
(d) Resignation of Directors and Certain Officers. The directors and
officers of Management Corp., Branching Tree, Mather and Desert Inn listed in a
letter to be delivered by Buyer to Sellers not less than 10 days prior to the
Closing Date, shall have submitted their resignations in writing to Management
Corp., Branching Tree, Mather, and Desert Inn, as the case may be. Such
resignations shall be effective as of the Closing.
(e) Delivery of Stock, Member Interests and Partnership Interests and
Other Deliveries. All Sellers shall have delivered for sale to Buyer on or
before the Closing, stock certificates representing all shares of Stock as
contemplated hereby and Bills of Sale representing all Member Interests and
Partnership Interests as contemplated hereby, and such other customary closing
documents as Buyer may reasonably request for the consummation of the
transactions contemplated hereby.
(f) Release from Obligations. Buyer and each of the Homebuilding
Entities shall have been released from any liability with respect to the
obligations identified in Schedule 7.2(f) by instruments reasonably acceptable
to Buyer.
41
47
(g) Audited Financial Statements. Sellers shall have delivered to Buyer
audited combined balance sheets for the Homebuilding Business of the
Homebuilding Entities as of December 31, 1996 and 1997, and related audited
combined statements of operations, equity, and cash flows of the Homebuilding
Business of the Homebuilding Entities for the years ended December 31, 1996 and
1997, along with the Auditor's audit report thereon (collectively, the "Audited
Homebuilding Financial Statements"), prepared in conformity with GAAP applied on
a consistent basis for the periods reflected therein, and such Audited
Homebuilding Financial Statements shall not reflect any material adverse change
in the financial position or results of operations of the Homebuilding Entities
as of or for the year ended December 31, 1997 from the financial position and
results of operations of the Homebuilding Entities reflected in the Homebuilding
Line of Business Financial Information as of and for the year ended December 31,
1997.
7.3 CONDITIONS TO OBLIGATIONS OF SELLERS.
The obligations of Sellers to effect the Closing shall be subject to the
following conditions, except to the extent waived in writing by Sellers:
(a) Representations and Warranties and Covenants of Buyer. The
representations and warranties of Buyer herein contained (as qualified by
matters set forth as exceptions thereto in the Disclosure Schedule of Buyer)
shall be true in all material respects (except for such representations and
warranties as are qualified by their terms by reference to materiality, a
material adverse change, or a material adverse effect, which representations and
warranties as so qualified shall be true in all respects) at the Closing Date
with the same effect as though made at such time; Buyer shall have in performed
all obligations and complied with all covenants and conditions required by this
Agreement to be performed or complied with by it at or prior to the Closing Date
(except for such failures to perform as have not had and are not reasonably
expected to have, individually or in the aggregate, a material adverse effect
with respect to Buyer or to adversely affect the ability of Buyer to consummate
the transactions contemplated by this Agreement); and Buyer shall have delivered
to Sellers a certificate of Buyer in form and substance satisfactory to Sellers,
dated the Closing Date and signed by its chief executive officer and chief
financial officer, to such effect; provided, however, that if any exceptions are
noted on the certificate of Buyer, which would otherwise have entitled Sellers
to elect not to close, and Sellers elect to close notwithstanding the exceptions
noted, Sellers shall have irrevocably waived any indemnification rights under
Article IX with respect to any reasonably forseeable Losses arising from or
relating to any of the noted exceptions. Buyer shall use its reasonable efforts
to provide a draft of such certificate, with any exceptions known to Buyer at
that time, to Sellers at least ten business days prior to the Closing Date.
(b) Consents. Buyer shall have obtained all Approvals of third parties
set forth on Schedule 4.3 in form and substance reasonably acceptable to
Sellers.
(c) Opinion of Counsel. Seller shall receive at the Closing from Munger,
Tolles & Olson LLP and Barton P. Pachino, Senior Vice President, General Counsel
of Buyer, opinions dated the Closing Date, in form and substance substantially
as set forth in Exhibits M and N, respectively.
42
48
(d) Assumption of Guarantees; Other Deliveries. Buyer shall have assumed
the guarantees identified in Schedule 7.3(d) by instruments reasonably
acceptable to Sellers that fully and completely release each Seller and
Shareholder from any liability under said guarantees, and shall have delivered
to Sellers such other customary closing documents as Sellers may reasonably
request for the consummation of the transactions contemplated hereby.
ARTICLE VIII
TERMINATION OF OBLIGATIONS; SURVIVAL
8.1 TERMINATION OF AGREEMENT.
Anything herein to the contrary notwithstanding, this Agreement and the
transactions contemplated by this Agreement shall terminate upon written notice
by Buyer or Sellers if the Closing does not occur on or before the close of
business on February 15, 1999 and otherwise may be terminated at any time before
the Closing as follows and in no other manner:
(a) Mutual Consent. By mutual consent in writing of Buyer and Sellers.
(b) Conditions to Buyer's Performance Not Met. By Buyer by written
notice to Sellers if any event occurs or condition exists which would render
impossible the satisfaction of one or more conditions to the obligations of
Buyer to consummate the transactions contemplated by this Agreement as set forth
in Section 7.1 or 7.2.
(c) Conditions to Sellers' Performance Not Met. By Sellers by written
notice to Buyer if any event occurs or condition exists which would render
impossible the satisfaction of one or more conditions to the obligation of
Seller to consummate the transactions contemplated by this Agreement as set
forth in Section 7.1 or 7.3.
(d) Material Breach. By Buyer or Sellers if there has been a
misrepresentation or other breach by the other party in its representations,
warranties, or covenants set forth in or pursuant to this Agreement sufficient
to result in a material adverse change; provided, however, that if such breach
is susceptible to cure, the breaching party shall have ten business days after
receipt of notice from the other party of its intention to terminate this
Agreement if such breach continues in which to cure such breach.
8.2 EFFECT OF TERMINATION.
In the event that this Agreement shall be terminated pursuant to Section
8.1, all further obligations of the parties under this Agreement shall terminate
without further liability of any party to another; provided that the obligations
of the parties contained in Section 6.2, Section 10.9 and Section 10.14 shall
survive any such termination. A termination under Section 8.1 shall not relieve
any party of any liability for a breach of, or for any misrepresentation under,
this
43
49
Agreement, or be deemed to constitute a waiver of any available remedy
(including specific performance if available) for any such breach or
misrepresentation.
8.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties contained in or made pursuant to this
Agreement shall survive the Closing and shall remain in full force and effect
until March 31, 2001, except that (i) the representations and warranties in
Sections 2.2, 2.3, 2.4, 2.5(d), and 2.20 shall remain in full force and effect
until March 31, 2002 and (ii) the representation and warranty in the second
sentence of Section 2.8(a) shall terminate upon the Closing. The parties
acknowledge and agree that the only representations and warranties regarding
product or construction warranties, construction defects and product defects are
the representations and warranties contained in Section 2.8(c) and shall not be
deemed to be covered by Section 2.5(d).
ARTICLE IX
INDEMNIFICATION
9.1 OBLIGATIONS OF SELLERS.
Sellers, jointly and severally, agree to indemnify and hold harmless
Buyer (including with respect to claims for indemnification by its officers,
directors and agents) and, after the Closing, the Homebuilding Entities, from
and against any and all Losses of such an Indemnified Party as a result of, or
based upon or arising from, (i) any breach of any of the representations or
warranties made by Sellers in or pursuant to this Agreement (other than the
second sentence of Section 2.8(a)) or any nonperformance of any of the covenants
or agreements of Sellers hereunder, in each case except for any exceptions noted
in the certificate referred to in Section 7.2(a), (ii) the litigation identified
on Schedule 9.1, (iii) the severance payments referred to in Section 2.16(a)
(v), or (iv) any Excluded Assets or Excluded Liabilities (including without
limitation any non-Homebuilding Business conducted by the Homebuilding Entities
prior to the Closing Date and any non-Homebuilding Business conducted by
entities in the Lewis group of companies other than the Homebuilding Entities at
any time).
9.2 OBLIGATIONS OF BUYER.
Buyer agrees to indemnify and hold harmless Sellers (including with
respect to claims for indemnification by its officers, directors and agents) and
Shareholders from and against any Losses of such an Indemnified Party as a
result of, or based upon or arising from, (i) any breach of any of the
representations or warranties made by Buyer in or pursuant to this Agreement or
any nonperformance of any of the covenants or agreement of Buyer hereunder, in
each case except for any exceptions noted in the certificate referred to in
Section 7.3(a) or (ii) the Included Liabilities and the Homebuilding Business of
the Homebuilding Entities after the Closing Date (including, without limitation,
all litigation existing on the Closing Date or
44
50
instituted thereafter relating to the Homebuilding Business of the Homebuilding
Entities, except for litigation referred to in Schedule 9.1).
9.3 PROCEDURE.
(a) Notice. Any party seeking indemnification with respect to any Loss
shall give notice to the Indemnifying Party on or before the applicable date
specified in Section 9.4.
(b) Defense. If any claim, demand or liability is asserted by any third
party against any Indemnified Party, the Indemnifying Party shall have the
right, if requested by the Indemnifying Party, and shall upon the written
request of the Indemnified Party, defend any actions or proceedings brought
against the Indemnified Party in respect of matters embraced by the indemnity.
In any such action or proceeding, the Indemnified Party shall have the right to
retain its own counsel, but the fees and expenses of such counsel shall be at
its own expense unless (i) the Indemnifying Party and the Indemnified Party
mutually agree to the retention of such counsel or (ii) the named parties to any
such suit, action or proceeding (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party, and in the reasonable judgment
of the Indemnified Party, representation of the Indemnifying Party and the
Indemnified Party by the same counsel would be inadvisable due to potential
conflicts of interests between them. The parties shall cooperate in the defense
of all third party claims which may give rise to Indemnifiable Claims hereunder.
In connection with the defense of any claim, each party shall make available to
the party controlling such defense, any books, records or other documents within
its control that are reasonably requested in the course of or necessary or
appropriate for such defense. Neither the Indemnifying Party nor the Indemnified
Party (a "Settling Party") will, without the written consent of the other, (i)
settle or compromise any third party claim or consent to the entry of any
judgment with respect to a third party claim that does not include as an
unconditional term thereof the delivery by the third party claimant to the other
of a written release from all liability in respect of such third party claim or
(ii) settle or compromise any third party claim in any manner or consent to the
entry of any judgment or order that may adversely affect the other, except for
or as a result of money damages or other money payments for which the
Indemnifying Party has acknowledged in writing its obligation and ability to
indemnify the Indemnified Party in full.
(c) Calculation of Loss. The amount of any Loss for which
indemnification is provided under Section 9.1 or 9.2 shall be net of any
insurance proceeds received by the Indemnified Party. If such insurance proceeds
are received after payment by the Indemnifying Party of any amount otherwise
required to be paid to an Indemnified Party pursuant to Section 9.1 or 9.2, the
Indemnified Party shall repay to the Indemnifying Party promptly after such
receipt any amount the Indemnifying Party would not have had to pay pursuant to
Section 9.1 or 9.2 had such receipt occurred at the time of such payment.
(d) Tax Treatment of Indemnification Payments; Reduction for Tax
Benefits. Any payment under this Article IX shall be treated by the parties as
an adjustment to the Purchase Price. Any payment under Section 9.1 otherwise due
and payable hereunder shall be decreased to the extent of any net reduction in
Taxes payable by the Buyer and/or any affiliate thereof resulting from the Loss
(whether such reduction is realized with respect to the year in
45
51
which the Loss occurs or with respect to an earlier or later year), such net
reduction to be determined at an assumed marginal tax rate equal to 40%.
9.4 SURVIVAL.
This indemnification shall survive the Closing and shall remain
in effect until March 31, 2001, except that this indemnification shall remain in
effect until March 31, 2002 with respect to the representations and warranties
in Sections 2.2, 2.3, 2.4, 2.5(d), and 2.20 and until the expiration according
to its terms of any covenant herein contemplating performance for a longer
period. Any matter as to which a claim has been asserted by notice to the other
party that is pending or unresolved at March 31, 2001 or 2002, as applicable,
shall continue to be covered by this Article IX until such matter is finally
terminated or otherwise resolved by the parties under this Agreement and any
amounts payable hereunder are finally determined and paid.
9.5 LIMITATION OF REMEDIES.
The remedies provided in this Article IX shall constitute the sole and
exclusive remedy with respect to matters set forth in this Article IX. The
indemnification obligations of Sellers set forth in clauses (ii), (iii) and (iv)
of Section 9.1 and the indemnification obligations of Buyer set forth in Section
9.2(ii) shall be unlimited as to time or amount. With respect to the
indemnification obligations of Sellers set forth in Section 9.1(i) and the
indemnification obligations of Buyer set forth in Section 9.2(i), neither Buyer
or Sellers shall be obligated to indemnify the Indemnified Parties until the
aggregate amount of Losses for which indemnity would otherwise be available is
in excess of $750,000, in which event the Indemnifying Party shall be obligated
to indemnify for Losses in excess of such amount; provided, however, that
Sellers, in the aggregate, and Buyer shall be obligated to indemnify for Losses
up to $25 million and, for Losses in excess of $25 million and less than or
equal to $51.5 million, one-half of such Losses, it being understood that
neither Sellers, in the aggregate, or Buyer shall have any obligation to
indemnify with respect to Losses in excess of $51.5 million.
ARTICLE X
GENERAL
10.1 AMENDMENTS; WAIVERS.
This Agreement and any schedule or exhibit attached hereto may be
amended only by agreement in writing of all parties. No waiver of any provision
nor consent to any exception to the terms of this Agreement shall be effective
unless in writing and signed by the party to be bound and then only to the
specific purpose, extent and instance so provided.
46
52
10.2 SCHEDULES, EXHIBITS, INTEGRATION.
Each schedule and exhibit delivered pursuant to the terms of this
Agreement shall be in writing and shall constitute a part of this Agreement,
although schedules need not be attached to each copy of this Agreement. This
Agreement, together with such schedules and exhibits, constitutes the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements and understandings of the parties in connection
therewith.
10.3 EFFORTS; FURTHER ASSURANCES.
Each party will use its commercially reasonable efforts to cause all
conditions to its obligations hereunder to be timely satisfied and to perform
and fulfill all obligations on its part to be performed and fulfilled under this
Agreement, to the end that the transactions contemplated by this Agreement shall
be effected substantially in accordance with its terms as soon as reasonably
practicable. The parties shall cooperate with each other in such actions and in
securing requisite Approvals. Each party shall execute and deliver both before
and after the Closing such further certificates, agreements and other documents
and take such other actions as the other party may reasonably request to
consummate or implement the transactions contemplated hereby or to evidence such
events or matters.
10.4 GOVERNING LAW.
This Agreement, the legal relations between the parties and any Action,
whether contractual or non-contractual, instituted by any party with respect to
matters arising under or growing out of OR in connection with or in respect of
this Agreement, including but not limited to the negotiation, execution,
interpretation, coverage, scope, performance, breach, termination, validity, or
enforceability of this Agreement, shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts made
and performed in such State and without regard to conflicts of law doctrines.
10.5 NO ASSIGNMENT.
Neither this Agreement nor any rights or obligations under it are
assignable except that (i) Buyer may assign its rights hereunder (including but
not limited to its rights under Article IX) to any Affiliates of Buyer, in which
event Buyer shall remain liable to Sellers for the payment of the Purchase Price
and other obligations of Buyer hereunder notwithstanding a permitted assignment,
and (ii) Sellers may assign their rights hereunder to any Affiliates of Sellers,
in which event Sellers shall remain liable to Buyer for the delivery of the
Stock, Partnership Interests and Member Interests and other obligations of
Sellers hereunder notwithstanding a permitted assignment.
10.6 HEADINGS.
The descriptive headings of the Articles, Sections and subsections of
this Agreement are for convenience only and do not constitute a part of this
Agreement.
47
53
10.7 COUNTERPARTS.
This Agreement may be executed in any number of identical counterparts,
each of which when executed and delivered shall be an original, but all such
counterparts shall constitute but one and the same instrument. Any signature
page of this instrument may be detached from any counterpart without impairing
the legal effect of any signatures thereof, and may be attached to another
counterpart, identical in form thereto, but having attached to it one or more
additional signature pages. Delivery by any party or its respective
representatives of telecopied (counterpart) signature pages shall be as binding
an execution and delivery of this Agreement by such party as if the other party
had received the actual physical copy of the entire Agreement with an ink
signature from such party.
10.8 PUBLICITY AND REPORTS.
Sellers and Buyer shall coordinate all publicity relating to the
transactions contemplated by this Agreement and no party shall issue any press
release, publicity statement or other public notice relating to this Agreement,
or the transactions contemplated by this Agreement, without consulting with the
other party except to the extent that a particular action is required by
applicable law or rule of or listing agreement with a securities exchange on
which such party's securities are listed for trading or quotation.
10.9 CONFIDENTIALITY.
All information disclosed by any party (or its representatives) whether
before or after the date hereof, in connection with the transactions
contemplated by, or the discussions and negotiations preceding, this Agreement
to any other party (or its representatives) shall be kept confidential by such
other party and its representatives and shall not be used by any such Persons
other than as contemplated by this Agreement, except to the extent that such
information (i) was known by the recipient when received, (ii) it is or
hereafter becomes lawfully obtainable from other sources, (iii) is necessary or
appropriate to disclose to a Governmental Entity having jurisdiction over the
parties, (iv) as may otherwise be required by law or (v) to the extent such duty
as to confidentiality is waived in writing by the other party; provided,
however, that following the Closing Date nothing in this section shall apply to
or restrict the use of information by Buyer or the Homebuilding Entities in
their businesses. If this Agreement is terminated in accordance with its terms,
each party shall use all reasonable efforts to return upon written request from
the other party all documents (and reproductions thereof) received by it or its
representatives from such other party (and, in the case of reproductions, all
such reproductions made by the receiving party) that include information not
within the exceptions contained in the first sentence of this Section 10.9,
unless the recipients provide assurances reasonably satisfactory to the
requesting party that such documents have been destroyed.
10.10 ALTERNATIVE DISPUTE RESOLUTION.
(a) Negotiation. In the event of any dispute or disagreement between
Sellers and Buyer as to the interpretation of any provision of this Agreement or
any other agreement or
48
54
instrument delivered in connection with this Agreement, or the performance of
obligations hereunder or thereunder, the matter, upon written request of either
party, shall be referred to representatives of the parties for decision, each
party being represented by a senior executive officer of the party or a
controlling affiliate (a "Dispute Representative"). The Dispute Representatives
shall promptly meet in a good faith effort to resolve the dispute. If the
Dispute Representatives do not agree upon a decision within thirty (30) calendar
days after reference of the matter to them, Sellers and Buyer shall be free to
exercise the remedies available to them under subsection (b).
(b) Arbitration. Any controversy, dispute or claim (a "Claim") arising
out of or relating in any way to this Agreement or any other agreement or
instrument delivered in connection with this Agreement, or the transactions
arising hereunder or thereunder that cannot be resolved by negotiation pursuant
to subsection (a) shall be settled exclusively by a binding arbitration
("Arbitration"), conducted by a single arbitrator (the "Arbitrator") chosen by
the parties as described below. Any party may initiate the Arbitration by
written notice to the other and to the Arbitration Tribunal (as defined below).
The date on which the notice is given is called the "Arbitration Initiation
Date." The fees and expenses of the Arbitration Tribunal and the Arbitrator
shall be shared equally by the parties and advanced by them from time to time as
required; provided, however, that at the conclusion of the Arbitration, the
Arbitrator may award costs and expenses (including the costs of the Arbitration
previously advanced and the fees and expenses of attorneys, accountants and
other experts) to the prevailing party. Except as expressly modified herein, the
Arbitration shall be conducted in accordance with the provisions of Section 1280
et seq. of the California Code of Civil Procedure or their successor sections
("CCP"), and shall constitute the exclusive remedy for the determination of any
Claim, including whether the Claim is subject to arbitration. The Arbitration
shall be conducted under the procedures of the Arbitration Tribunal, except as
modified herein. The Arbitration Tribunal shall be the Los Angeles Office of
JAMS/ENDISPUTE ("JAMS"), unless the parties to the dispute cannot agree on a
JAMS arbitrator, in which case the Arbitration Tribunal shall be the Los Angeles
Office of the American Arbitration Association ("AAA"). The Arbitrator shall be
a retired judge or other arbitrator employed by JAMS selected by mutual
agreement of the parties to the dispute, and if they cannot so agree within 30
days after the Arbitration Initiation Date, then the Arbitrator shall be
selected from the Large and Complex Case Project ("LCCP") panel of the AAA, by
mutual agreement of the parties to the dispute. If the parties to the dispute
cannot agree on an Arbitrator within 60 days after the Arbitration Initiation
Date, the Arbitrator shall be selected by the AAA, from its LCCP panel, through
such procedures as the AAA regularly follows. In all events, the Arbitrator must
have had not less than 15 years experience as a practitioner or arbitrator of
complex business transactions. If for any reason the AAA does not so act, any
party to the dispute may apply to the Superior Court in and for Los Angeles
County, California, for the appointment of a single arbitrator. No
pre-arbitration discovery shall be permitted, except that the Arbitrator shall
have the power in his or her sole discretion, on application by either party, to
order pre-arbitration examination solely of those witnesses and documents that
the other party intends to introduce in its case-in-chief at the arbitration
hearing. Prior to the commencement of arbitration hearings, the Arbitrator shall
have the power, in his or her discretion, upon either party's motion but not on
his or her own initiative, to order the parties to engage in pre-arbitration
mediation for a period not exceeding 30 days before a mediator mutually
acceptable
49
55
to the parties. The Arbitrator shall try any and all issues of law or fact and
be prepared to make the award within 90 days after the close of evidence in the
Arbitration. When prepared to make the award, the Arbitrator shall first so
inform the parties, who shall have 10 days to attempt to resolve the matter by a
binding agreement between them. If the parties so resolve the matter, the
Arbitrator shall not make any award. If the parties do not so resolve the
matter, the Arbitrator shall make the award on the eleventh day following his
notice of being prepared to make the award. The Arbitrator's award shall dispose
of all of the claims that are the subject of the Arbitration and shall follow
California law and precedent, and shall include written statements of fact and
conclusions of law. The Arbitrator shall be empowered to (i) enter equitable as
well as legal relief, (ii) provide all temporary and/or provisional remedies,
and (iii) enter binding equitable orders. The award rendered by the Arbitrator
shall be final and not subject to judicial review, and judgment thereon may be
entered in any court of competent jurisdiction.
10.11 PARTIES IN INTEREST.
This Agreement shall be binding upon and inure to the benefit of each
party, and nothing in this Agreement, express or implied, is intended to confer
upon any other person any rights or remedies of any nature whatsoever under or
by reason of this Agreement except for Sections 6.6, 9.1 and 10.5 (which are
intended to be for the benefit of the persons provided for therein and may be
enforced by such persons).
10.12 KNOWLEDGE CONVENTION.
Whenever any statement herein or in any schedule, exhibit, certificate
or other documents delivered to any party pursuant to this Agreement is made "to
Sellers' knowledge" or words of similar intent or effect, such statement shall
be deemed to mean the actual conscious knowledge of (i) any Seller who is an
individual, (ii) the Shareholders, for any Seller that is a corporation or (iii)
any Seller after inquiry of Kenneth P. Corhan, Leon C. Swails and Leah S. Bryant
as to the subject matter.
10.13 NOTICES.
Any notice or other communication hereunder must be given in writing and
delivered in person or sent by telecopy, by a nationally-recognized overnight
courier service or by certified or registered mail, postage prepaid, receipt
requested, addressed as follows:
IF TO BUYER, ADDRESSED TO:
Kaufman and Broad Home Corporation
10990 Wilshire Boulevard
Los Angeles, California 90024
Attention: Michael Henn
Chief Financial Officer
Barton P. Pachino
General Counsel
Fax No.: 310-231-4280
50
56
with a copy to
Munger, Tolles & Olson LLP
355 South Grand Avenue
Los Angeles, California 90071
Attention: R. Gregory Morgan
Fax No.: 213-687-3702
IF TO SELLERS, ADDRESSED TO:
John M. Goodman
Lewis Homes Management Corp.
11 56 N. Mountain Ave.
Upland, CA 91785
Fax No.: (909) 912-6770
WITH A COPY TO:
O'Melveny & Myers LLP
400 S. Hope Street
Los Angeles, California 90071
Attention: Richard A. Boehmer, Esq.
Fax: No.: (213) 430-6407
or to such other address or to such other person as any party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (i) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
Section 10.13 and an appropriate answer back is received, (ii) if given by
overnight courier, one business day following delivery by sender to such
overnight courier, (iii) if given by mail, three days after such communication
is deposited in the mails with first class postage prepaid, addressed as
aforesaid or (iv) if given by any other means, when actually received at such
address.
10.14 EXPENSES.
Except as set forth in Sections 10.10 and 10.16, Sellers and Buyer shall
each pay their own expenses incident to the negotiation, preparation and
performance of this Agreement and the transactions contemplated hereby,
including but not limited to the fees, expenses and disbursements of their
respective investment bankers, accountants and counsel. Any such expenses of
Company, or any expenses paid by Company on behalf of Sellers, shall be paid by
Sellers prior to or concurrently with the Closing.
51
57
10.15 REMEDIES; WAIVER.
To the extent permitted by Law, all rights and remedies existing under
this Agreement are cumulative to and not exclusive of, any rights or remedies
otherwise available under applicable Law. No failure on the part of any party to
exercise or delay in exercising any right hereunder shall be deemed a waiver
thereof, nor shall any single or partial exercise preclude any further or other
exercise of such or any other right.
10.16 ATTORNEY'S FEES.
In the event of any Action by any party arising under or out of, in
connection with or in respect of, this Agreement or the transactions
contemplated hereby, the prevailing party shall be entitled to reasonable
attorney's fees, costs and expenses incurred in such Action. Attorney's fees
incurred in enforcing any judgement in respect of this Agreement are recoverable
as a separate item. The parties intend that the preceding sentence be severable
from the other provisions of this Agreement, survive any judgment and, to the
maximum extent permitted by law, not be deemed merged into such judgment.
10.17 REPRESENTATION BY COUNSEL; INTERPRETATION.
Sellers and Buyer each acknowledge that each party to this Agreement has
been represented by counsel in connection with this Agreement and the
transactions contemplated by this Agreement. Accordingly, any rule of Law,
including but not limited to Section 1654 of the California Civil Code, or any
legal decision that would require interpretation of any claimed ambiguities in
this Agreement against the party that drafted it has no application and is
expressly waived. The provisions of this Agreement shall be interpreted in a
reasonable manner to effect the intent of Buyer and Sellers.
10.18 SEVERABILITY.
If any provision of this Agreement is determined to be invalid, illegal
or unenforceable by any Governmental Entity, the remaining provisions of this
Agreement shall remain in full force and effect provided that the economic and
legal substance of the transactions contemplated is not affected in any manner
materially adverse to any party. In event of any such determination, the parties
agree to negotiate in good faith to modify this Agreement to fulfill as closely
as possible the original intents and purposes hereof. To the extent permitted by
Law, the parties hereby to the same extent waive any provision of Law that
renders any provision hereof prohibited or unenforceable in any respect.
52
58
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by its duly authorized officers as of the day and year first
above written.
BUYER
KAUFMAN AND BROAD HOME CORPORATION
By: /s/ MICHAEL F. HENN
------------------------------------
Its: Senior Vice President & Chief
Financial Officer
SELLERS
/s/ RALPH M. LEWIS
------------------------------------
Ralph M. Lewis
By: /s/ GOLDY S. LEWIS
------------------------------------
Goldy S. Lewis, his attorney-in-fact
/s/ GOLDY S. LEWIS
------------------------------------
Goldy S. Lewis
/s/ RICHARD A. LEWIS
------------------------------------
Richard A. Lewis
/s/ ROBERT E. LEWIS
------------------------------------
Robert E. Lewis
/s/ ROGER G. LEWIS
------------------------------------
Roger G. Lewis
/s/ RANDALL W. LEWIS
------------------------------------
Randall W. Lewis
/s/ JOHN M. GOODMAN
------------------------------------
John M. Goodman
S-1
59
ROSEBUD CONSTRUCTION, INC.
By: /s/ RICHARD A. LEWIS
------------------------------------
Name: Richard A. Lewis
Title: President
WESTERN SUPPLY CORP.
By: /s/ RICHARD A. LEWIS
------------------------------------
Name: Richard A. Lewis
Title: President
KIMMEL ENTERPRISES, INC.
By: /s/ ROBERT E. LEWIS
------------------------------------
Name: Robert E. Lewis
Title: President
REPUBLIC SALES CO., INC.
By: /s/ RANDALL W. LEWIS
------------------------------------
Name: Randall W. Lewis
Title: President
HILLSIDE CONSTRUCTION CO., INC.
By: /s/ RICHARD A. LEWIS
------------------------------------
Name: Richard A. Lewis
Title: President
S-2
60
PARKSIDE CONSTRUCTION CO., INC.
By: /s/ ROBERT E. LEWIS
------------------------------------
Name: Robert E. Lewis
Title: President
REGAL CONSTRUCTION CO., INC.
By: /s/ RANDALL W. LEWIS
------------------------------------
Name: Randall W. Lewis
Title: President
ORCHARD CONSTRUCTION CO., INC.
By: /s/ ROGER G. LEWIS
------------------------------------
Name: Roger G. Lewis
Title: President
SOUTH STAR DEVELOPMENT CORP.
By: /s/ RICHARD A. LEWIS
------------------------------------
Name: Richard A. Lewis
Title: President
FOREHAND DEVELOPMENT CORP.
By: /s/ JOHN M. GOODMAN
------------------------------------
Name: John M. Goodman
Title: President
S-3
61
COLLINE ENTERPRISES, INC.
By: /s/ RICHARD A. LEWIS
------------------------------------
Name: Richard A. Lewis
Title: President
TERRAIN ENTERPRISES, INC.
By: /s/ ROBERT E. LEWIS
------------------------------------
Name: Robert E. Lewis
Title: President
MARMOT ENTERPRISES, INC.
By: /s/ ROGER G. LEWIS
------------------------------------
Name: Roger G. Lewis
Title: President
GITAN ENTERPRISES, INC.
By: /s/ RANDALL W. LEWIS
------------------------------------
Name: Randall W. Lewis
Title: President
TOPSPIN ENTERPRISES, INC.
By: /s/ JOHN M. GOODMAN
------------------------------------
Name: John M. Goodman
Title: President
S-4
62
REVERS ENTERPRISES, INC.
By: /s/ RANDALL W. LEWIS
------------------------------------
Name: Randall W. Lewis
Title: President
EMPIRE BUILDING CORP.
By: /s/ ROBERT E. LEWIS
------------------------------------
Name: Robert E. Lewis
Title: President
ROSEMONT OF NEVADA, INC.
By: /s/ ROBERT E. LEWIS
------------------------------------
Name: Robert E. Lewis
Title: President
LARKWOOD DEVELOPMENT OF NEVADA, INC.
By: /s/ RICHARD A. LEWIS
------------------------------------
Name: Richard A. Lewis
Title: President
FLAGSTONE DEVELOPMENT OF NEVADA, INC.
By: /s/ RICHARD A. LEWIS
------------------------------------
Name: Richard A. Lewis
Title: President
S-5
63
CRESTVIEW CONSTRUCTION OF NEVADA, INC.
By: /s/ ROBERT E. LEWIS
------------------------------------
Name: Robert E. Lewis
Title: President
CORONET CONSTRUCTION OF NEVADA, INC.
By: /s/ RANDALL W. LEWIS
------------------------------------
Name: Randall W. Lewis
Title: President
COSMIC CONSTRUCTION OF NEVADA, INC.
By: /s/ ROGER G. LEWIS
------------------------------------
Name: Roger G. Lewis
Title: President
BACKHAND DEVELOPMENT CORP.
By: /s/ JOHN M. GOODMAN
------------------------------------
Name: John M. Goodman
Title: President
SOUTH STAR DEVELOPMENT OF NEVADA, CORP.
By: /s/ ROBERT E. LEWIS
------------------------------------
Name: Robert E. Lewis
Title: President
S-6