\n10.10 Alternative Dispute Resolution………………………………….48
\n10.11 Parties in Interest……………………………………………50
\n10.12 Knowledge Convention…………………………………………..50
\n10.13 Notices………………………………………………………50
\n10.14 Expenses……………………………………………………..51
\n10.15 Remedies; Waiver………………………………………………52
\n10.16 Attorney’s Fees……………………………………………….52
\n10.17 Representation By Counsel; Interpretation………………………..52
\n10.18 Severability………………………………………………….52
\n<\/c><\/c><\/s><\/caption>\n<\/table>\n -iv-
\n 6<\/p>\n
PURCHASE AGREEMENT<\/p>\n
This Purchase Agreement is entered into as of October 20, 1998,
\namong Kaufman and Broad Home Corporation, a Delaware corporation (“Buyer”), and
\nthe individuals and corporations identified on the signature page of this
\nAgreement (individually a “Seller” and collectively, the “Sellers”).<\/p>\n
R E C I T A L S<\/p>\n
WHEREAS, Sellers collectively own (i) all the partnership
\ninterests in Lewis Homes of California, a California general partnership
\n(“LHC”), Lewis Development Co., a California general partnership (“Lewis
\nDevelopment”), Lewis Homes Enterprises, a California general partnership
\n(“LHE”), Lewis Homes of Nevada, a Nevada general partnership (“LHN”), and Lewis
\nProperties, a Nevada general partnership (“Lewis Properties,” and collectively
\nwith LHC, Lewis Development, LHE and LHN, the “Parent Partnerships”), (ii) all
\nof the issued and outstanding capital stock of Lewis Homes Management Corp., a
\nCalifornia corporation (“Management Corp.”), and Branching Tree Corp., a
\nCalifornia corporation (“Branching Tree”), and (iii) all the member interests of
\nMather Housing Company, LLC, a California limited liability company (“Mather”),
\nand Desert Inn Development, L.L.C., a Nevada limited liability company (“Desert
\nInn”). The Parent Partnerships, directly and through their interests in joint
\nventures, general partnerships and limited liability companies, and Management
\nCorp., Branching Tree, Mather and Desert Inn, excluding the Excluded Assets (as
\ndefined below), collectively constitute the homebuilding operations of the
\nmembers of the Lewis Homes group of companies in California and Nevada (the
\n“Homebuilding Business”).<\/p>\n
WHEREAS, certain non-Homebuilding Business and other assets and
\nliabilities of the Homebuilding Entities identified on Exhibit A hereto
\n(collectively, the “Excluded Assets” and “Excluded Liabilities”) will be removed
\nby Sellers prior to the Closing (as defined below) or conveyed to Sellers or
\ntheir designees after the Closing, and certain Homebuilding Business assets and
\nliabilities of Sellers identified on Exhibit A hereto (the “Included Assets” and
\n“Included Liabilities”) will be transferred by Sellers or their non-Homebuilding
\nEntity affiliates to the Homebuilding Entities prior to the Closing; and<\/p>\n
WHEREAS, Sellers desire to sell and Buyer desires to buy the
\npartnership interests in the Parent Partnerships (the “Partnership Interests”),
\nall of the issued and outstanding capital stock of Management Corp. and
\nBranching Tree (the “Stock”) and all the member interests of Mather and Desert
\nInn (the “Member Interests”) for the consideration set forth herein.<\/p>\n
A G R E E M E N T<\/p>\n
In consideration of the mutual promises contained herein and
\nintending to be legally bound the parties agree as follows:<\/p>\n
1
\n 7<\/p>\n
ARTICLE I<\/p>\n
DEFINITIONS\/PURCHASE & SALE\/CLOSING<\/p>\n
1.1 DEFINITIONS.<\/p>\n
For all purposes of this Agreement, except as otherwise expressly
\nprovided,<\/p>\n
(a) the terms defined in this Article I have the meanings assigned to
\nthem in this Article I and include the plural as well as the singular,<\/p>\n
(b) all accounting terms not otherwise defined herein have the meanings
\nassigned under GAAP, <\/p>\n
(c) all references in this Agreement to designated “Articles,”
\n“Sections” and other subdivisions are to the designated Articles, Sections and
\nother subdivisions of the body of this Agreement, <\/p>\n
(d) pronouns of either gender or neuter shall include, as appropriate,
\nthe other pronoun forms, and <\/p>\n
(e) the words “herein,” “hereof” and “hereunder” and other words of
\nsimilar import refer to this Agreement as a whole and not to any particular
\nArticle, Section or other subdivision.<\/p>\n
As used in this Agreement and the Exhibits and Schedules delivered
\npursuant to this Agreement, the following definitions shall apply.<\/p>\n
“Action” means any action, complaint, petition, investigation, suit or
\nother proceeding, whether civil or criminal, in law or in equity, or before any
\narbitrator or Governmental Entity.<\/p>\n
“Affiliate” means a Person that directly, or indirectly through one or
\nmore intermediaries, controls, or is controlled by, or is under common control
\nwith, a specified Person.<\/p>\n
“Agreement” means this Agreement by and among Buyer and Sellers as
\namended or supplemented together with all Exhibits and Schedules attached or
\nincorporated by reference.<\/p>\n
“Approval” means any approval, authorization, consent, consent to
\nassignment or transfer, qualification or registration, or any waiver of any of
\nthe foregoing, required to be obtained from, or any notice, statement or other
\ncommunication required to be filed with or delivered to, any Governmental Entity
\nor any other Person.<\/p>\n
“Associate” of a Person means<\/p>\n
2
\n 8<\/p>\n
(i) a corporation or organization of which such Person is an officer or
\npartner or is, directly or indirectly, the beneficial owner of 10% or more of
\nany class of equity securities;<\/p>\n
(ii) any trust or other estate in which such Person has a substantial
\nbeneficial interest or as to which such person serves as trustee or in a similar
\ncapacity; and<\/p>\n
(iii) any relative or spouse of such Person or any relative of such
\nspouse. <\/p>\n
“Auditors” means Ernst & Young LLP, independent public accountants to
\nManagement Corp., Branching Tree, Mather, Desert Inn, the Parent Partnerships
\nand their respective Subsidiaries.<\/p>\n
“Branching Tree Sellers” means the Sellers identified as such on Exhibit
\nB.<\/p>\n
“Buyer Common Stock” has the meaning set forth in Section 1.2.<\/p>\n
“Closing” means the consummation of the purchase and sale of the
\nPartnership Interests, Member Interests, and Stock under this Agreement.<\/p>\n
“Closing Date” means the date of the Closing.<\/p>\n
“Code” means the Internal Revenue Code of 1986, as amended.<\/p>\n
“Contract” means any agreement, arrangement, bond, commitment,
\nfranchise, indemnity, indenture, instrument, lease, license or understanding,
\nwhether or not in writing.<\/p>\n
“Cost Sharing Agreements” has the meaning set forth in Section 5.12.<\/p>\n
“Desert Inn Sellers” means the Sellers identified as such on Exhibit B.<\/p>\n
“Disclosure Schedule” means the Disclosure Schedules dated the date of
\nthis Agreement and delivered by Sellers to Buyer, or Buyer to Sellers, as the
\ncase may be, as exhibits to this Agreement. The Sections of the Disclosure
\nSchedules shall be numbered to correspond to the applicable Section of this
\nAgreement and, together with all matters under such heading, shall be deemed to
\nqualify only that Section.<\/p>\n
“Encumbrance” means any claim, charge, easement, encumbrance, lease,
\ncovenant, security interest, lien, option, pledge, rights of others, or
\nrestriction (whether on voting, sale, transfer, disposition or otherwise),
\nwhether imposed by agreement, understanding, law, equity or otherwise, except
\nfor any restrictions on transfer generally arising under any applicable federal
\nor state securities law.<\/p>\n
3
\n 9<\/p>\n
“Equity Securities” means any capital stock or other equity interest or
\nany securities convertible into or exchangeable for capital stock or other
\nequity interest or any other rights, warrants or options to acquire any of the
\nforegoing securities.<\/p>\n
“ERISA” means the Employee Retirement Income Security Act of 1974, as
\namended, and the related regulations and published interpretations.<\/p>\n
“Excluded Assets” has the meaning set forth in the Recitals.<\/p>\n
“Excluded Liabilities” has the meaning set forth in the Recitals.<\/p>\n
“GAAP” means generally accepted accounting principles in the United
\nStates, as in effect from time to time.<\/p>\n
“Governmental Entity” means any government or any agency (including any
\nlicensing agency), bureau, board, commission, court, department, official,
\npolitical subdivision, tribunal or other instrumentality of any government,
\nwhether federal, state or local, domestic or foreign.<\/p>\n
“Hart-Scott-Rodino Act” means the Hart-Scott-Rodino Antitrust
\nImprovements Act of 1976, as amended, and the related regulations and published
\ninterpretations.<\/p>\n
“Hazardous Substance” means (but shall not be limited to) substances
\nthat are defined or listed in, or otherwise classified pursuant to, any
\napplicable Laws as “hazardous substances,” “hazardous materials,” “hazardous
\nwastes” or “toxic substances,” or any other formulation intended to define, list
\nor classify substances by reason of deleterious properties such as ignitability,
\ncorrosivity, reactivity, radioactivity or carcinogenicity, and petroleum and
\ndrilling fluids, produced waters and other wastes associated with the
\nexploration, development, or production of crude oil, natural gas or geothermal
\nenergy, derivatives of petroleum products, and asbestos or asbestos-containing
\nmaterials.<\/p>\n
“Homebuilding Business” has the meaning set forth in the Recitals.<\/p>\n
“Homebuilding Entities” means Management Corp., Branching Tree, Mather,
\nDesert Inn, the Parent Partnerships and their respective Subsidiaries.<\/p>\n
“Homebuilding Line of Business Financial Information” means the
\nfinancial information in the column labeled “Homebuilding” in the Combined
\nCompanies (California and Nevada) Line of Business Operations\/Selected Financial
\nInformation as of December 31, 1997 and for the year then ended included in the
\naudited financial statements of the Lewis Homes group of companies referred to
\nin Section 2.5(a).<\/p>\n
“Included Assets” and “Included Liabilities” have the meanings set forth
\nin the Recitals.<\/p>\n
4
\n 10<\/p>\n
“Indemnifiable Claim” means any Loss for or against which any party is
\nentitled to indemnification under Article IX of this Agreement; “Indemnified
\nParty” means the party entitled to indemnity hereunder; and “Indemnifying Party”
\nmeans the party obligated to provide indemnification hereunder.<\/p>\n
“Intangible Property” means any trade secret, secret process or other
\nconfidential information or know-how and any and all Marks.<\/p>\n
“IRS” means the Internal Revenue Service or any successor entity.<\/p>\n
“Law” means any constitutional provision, statute or other law, rule,
\nregulation, or interpretation of any Governmental Entity and any Order.<\/p>\n
“License Agreement” has the meaning set forth in Section 6.7.<\/p>\n
“Loss” means any cost, damage, disbursement, expense, liability, loss,
\ndeficiency, diminution in value, obligation, penalty or settlement of any kind
\nor nature, whether foreseeable or unforeseeable, including but not limited to,
\ninterest or other carrying costs, penalties, reasonable legal, accounting and
\nother professional fees and expenses actually incurred in the investigation,
\ncollection, prosecution and defense of claims, and amounts paid in settlement,
\nthat may be imposed on or otherwise incurred or suffered by the specified
\nperson.<\/p>\n
“Management Corp. Sellers” means the Sellers identified as such on
\nExhibit B.<\/p>\n
“Mark” means any brand name, copyright, patent, service mark, trademark,
\ntrademark, and all registrations or application for registration of any of the
\nforegoing.<\/p>\n
“material adverse change,” “material adverse effect,” “material” or
\nrelated terms herein mean a material adverse effect on the business, financial
\ncondition, results of operations or prospects of the Homebuilding Business of
\nthe Homebuilding Entities, taken as a whole; provided, however, that a decline
\nin general economic conditions or matters generally affecting real estate
\nmarkets or homebuilding companies in California or Nevada (or both) shall not be
\ndeemed to be a material adverse change or material adverse effect; and provided,
\nfurther that solely for the purposes of determining whether a breach of a
\nrepresentation or warranty made in or pursuant to this Agreement by Sellers or
\nthe nonperformance by Sellers of any of the covenants or agreements made
\nhereunder results in Losses that are indemnifiable under Article IX hereof,
\n“material adverse change,” “material adverse effect”, “material” or related
\nterms herein mean a change or effect that results in Losses exceeding $750,000.<\/p>\n
“Material Contract” means any Contract material to the Homebuilding
\nBusiness and includes but is not limited to those Contracts deemed material by
\nSection 2.7.<\/p>\n
“Mather Sellers” means the Sellers identified as such on Exhibit B.<\/p>\n
“Member Interests” means the member interests in Mather and Desert Inn.<\/p>\n
5
\n 11<\/p>\n
“Net Worth” means the stockholders’, members’ and partners’ equity of
\neach of the Homebuilding Entities determined on a combined basis in accordance
\nwith GAAP applied consistently with the audited financial statements referred to
\nin Section 7.2(g); provided, however, that (i) any severance payments payable to
\nofficers or employees of any Homebuilding Entity on or after the Closing Date
\nshall not be considered in determining Net Worth, (ii) any bonuses payable to
\nofficers or employees of any Homebuilding Entity on or after the Closing Date
\n(which shall be limited in accordance with Section 5.3(g)) shall be pro rated
\nover the period from the date the employee was notified of the intent to pay
\nsuch a bonus to the end of such bonus period and only that portion of the bonus
\nallocated to periods prior to the Closing Date shall be considered in
\ndetermining Net Worth (it being understood that all bonuses with respect to the
\nfiscal year ended December 31, 1998 shall be paid prior to the Closing), and
\n(iii) no amount payable by any of the Homebuilding Entities to related parties
\nshall be treated as equity in determining Net Worth.<\/p>\n
“Option Agreement” has the meaning set forth in Section 5.12.<\/p>\n
“Order” means any decree, injunction, judgment, order, ruling,
\nassessment or writ.<\/p>\n
“Partnership Interests” has the meaning set forth in the Recitals.<\/p>\n
“Partnership Sellers” means the Sellers identified as such on Exhibit B.<\/p>\n
“Permit” means any license, permit, franchise, certificate of authority,
\nconsent, variance, development agreement, exemption, or order, or any waiver of
\nthe foregoing, required to be issued by any Governmental Entity.<\/p>\n
“Person” means an association, a corporation, an individual, a
\npartnership, a limited liability company, a trust or any other entity or
\norganization, including a Governmental Entity.<\/p>\n
“Purchase Price” has the meaning set forth in Section 1.2.<\/p>\n
“Registration Rights Agreement” has the meaning set forth in Section
\n5.10.<\/p>\n
“Representative” has the meaning set forth in Section 5.9.<\/p>\n
“Shareholders” means the equity owners of those Sellers that are “S”
\ncorporations under the Code.<\/p>\n
“Shareholders Agreement” has the meaning set forth in Section 5.11.<\/p>\n
“Stock” means all of the outstanding capital stock of Management Corp.
\nand Branching Tree.<\/p>\n
6
\n 12<\/p>\n
“Subsidiary” means any Person in which any Homebuilding Entity has a
\ndirect or indirect equity or ownership interest in excess of 10%, other than
\nPersons included in Excluded Assets.<\/p>\n
“Tax” means any foreign, federal, state, county or local income, sales
\nand use, excise, franchise, real and personal property, transfer, gross receipt,
\ncapital stock, production, business and occupation, disability, employment,
\npayroll, severance or withholding tax or charge imposed by any Governmental
\nEntity, any interest and penalties (civil or criminal) related thereto or to the
\nnonpayment thereof.<\/p>\n
“Tax Return” means a report, return or other information required to be
\nsupplied to a Governmental Entity with respect to Taxes including, where
\npermitted or required, combined or consolidated returns for any group of
\nentities that includes any Homebuilding Entity.<\/p>\n
1.2 PURCHASE PRICE.<\/p>\n
Subject to the terms and conditions of this Agreement, the Buyer agrees
\nto acquire the Stock, Partnership Interests and Member Interests for an
\naggregate purchase price (the “Purchase Price”) of $271,000,000 in cash and
\n7,886,686 shares of the common stock, par value $1.00 per share, of Buyer (the
\n“Buyer Common Stock”), subject to adjustment as set forth in Section 1.6.<\/p>\n
1.3 TRANSFER OF STOCK BY SELLERS.<\/p>\n
Subject to the terms and conditions of this Agreement, the Management
\nCorp. Sellers and the Branching Tree Sellers agree to sell the Stock of
\nManagement Corp. and Branching Tree, respectively, and deliver the certificates
\nevidencing such Stock to Buyer or it nominee(s) at the Closing. The certificates
\nwill be properly endorsed for transfer to or accompanied by a duly executed
\nstock power in favor of Buyer or its nominee(s) as Buyer may have directed prior
\nto the Closing Date and otherwise in a form acceptable for transfer on the books
\nof said corporation.<\/p>\n
1.4 TRANSFER OF MEMBER INTERESTS BY SELLERS.<\/p>\n
Subject to the terms and conditions of this Agreement, the Mather
\nSellers and the Desert Inn Sellers agree to sell the Member Interests of Mather
\nand Desert Inn, respectively, to Buyer or its nominee(s) at the Closing by
\nexecuting and delivering to Buyer or its nominee(s) an assignment, in the form
\nattached hereto as Exhibit C, of all such Seller’s right, title and interest in
\nthe Member Interests.<\/p>\n
1.5 TRANSFER OF PARTNERSHIP INTERESTS.<\/p>\n
Subject to the terms and conditions of this Agreement, Partnership
\nSellers agree to sell the Partnership Interests to Buyer or its nominee(s) at
\nthe Closing by executing and<\/p>\n
7
\n 13<\/p>\n
delivering to Buyer or its nominees(s) at the Closing an assignment, in the form
\nattached hereto as Exhibit D, of all such Partnership Seller’s right, title and
\ninterest in the Parent Partnerships.<\/p>\n
1.6 POST-CLOSING ADJUSTMENTS TO PURCHASE PRICE.<\/p>\n
(a) As soon as practicable after the Closing, and in any event within 45
\ndays following the Closing Date, Sellers shall cause to be delivered to Buyer a
\ncombined balance sheet of the Homebuilding Entities as of December 31, 1998 (if
\nthe Closing occurs on or before January 8, 1999) or the Closing Date (if the
\nClosing occurs after January 8, 1999), prepared in accordance with GAAP (the
\n“Closing Date Balance Sheet”) applied on a basis consistent with that used in
\npreparation of the audited financial statements referred to in Section 7.2(g), a
\ncombined statement of the Net Worth of the Homebuilding Business of the
\nHomebuilding Entities as of December 31, 1998 (if the Closing occurs on or
\nbefore January 8, 1999) or the Closing Date (if the Closing occurs after January
\n8, 1999), and a certificate signed by Sellers’ to the effect that such
\nstatements have been prepared in accordance with GAAP applied on a basis
\nconsistent with that used in the preparation of the audited financial statements
\nreferred to in Section 7.2(g) and the terms of this Agreement (the “Post-Closing
\nCertificate”). Buyer shall cooperate fully with Sellers and shall provide
\nSellers with access to the books and records of the Homebuilding Entities and
\nsuch other assistance as Sellers reasonably request (including, without
\nlimitation, assignment of Buyer’s or Homebuilding Entities’ personnel to this
\nproject). Buyer will reimburse Sellers upon request 50% of all reasonable
\nout-of-pocket costs and expenses actually incurred by Sellers in the preparation
\nof such statement. Within 30 days following the delivery of such information,
\nBuyer shall notify Sellers in writing whether Buyer agrees or disagrees with the
\ndetermination of the Net Worth of the Homebuilding Business of the Homebuilding
\nEntities set forth in the Post-Closing Certificate. If Buyer disagrees with such
\ndetermination, Buyer shall specify in writing in reasonable detail the nature
\nand amount of its disagreement. Unless such disagreement is resolved (or to the
\nextent not resolved) by Buyer and Sellers in writing within 10 days after
\ndelivery of Buyer’s statement of disagreement, the Closing Date Balance Sheet
\nshall be audited, and the Net Worth of the Homebuilding Business of the
\nHomebuilding Entities as of the Closing Date shall be determined, by E & Y
\nKenneth Leventhal Real Estate Group of Ernst & Young LLP or another independent
\npublic accounting firm selected by mutual agreement of the Sellers and Buyer.
\nSuch accounting firm shall resolve the disagreement consistent with the language
\nof this Agreement. The determination of the Net Worth of the Homebuilding
\nBusiness of the Homebuilding Entities as of December 31, 1998 (if the Closing
\noccurs on or before January 8, 1999) or the Closing Date (if the Closing occurs
\nafter January 8, 1999), shall be made by such accounting firm within 30 days of
\nsubmission of the disagreement to it, shall be final and binding on Buyer and
\nthe Sellers (absent manifest error in calculations) and the fees and expenses of
\nsuch accounting firm shall be borne equally by the Sellers, on the one hand, and
\nBuyer, on the other hand. If the Net Worth of the Homebuilding Business of the
\nHomebuilding Entities as of December 31, 1998 (if the Closing occurs on or
\nbefore January 8, 1999) or the Closing Date (if the Closing occurs after January
\n8, 1999), as finally determined pursuant to this Section 1.6, is greater than
\n$215 million, Buyer shall pay to the Sellers the amount of such excess, plus
\ninterest thereon at the rate of interest per annum publicly announced from time
\nto time by Morgan Guaranty Trust Company of New York as its prime commercial
\nlending rate (the “Agreed Rate”) from (and including) the Closing Date to (but<\/p>\n
8
\n 14<\/p>\n
excluding) the date of such payment. If the Net Worth of the Homebuilding
\nBusiness of the Homebuilding Entities as of December 31, 1998 (if the Closing
\noccurs on or before January 8, 1999) or the Closing Date (if the Closing occurs
\nafter January 8, 1999), as finally determined pursuant to this Section 1.6, is
\nless than $215 million, the Sellers shall pay to Buyer the amount of such
\ndeficiency, plus interest thereon at the Agreed Rate from (and including) the
\nClosing Date to (but excluding) the date of such payment. Any payment
\ncontemplated by this Section 1.6 shall be made by wire transfer in federal or
\nother immediately available funds on or before the tenth day following the final
\ndetermination thereof, and any payment by Buyer to Sellers shall be delivered to
\nthe accounts and in the names designated by the Representative prior to the
\nClosing Date unless the Representative gives Buyer other instructions at least
\none day prior to the date of payment.<\/p>\n
(b) Notwithstanding the requirements in Section 1.6(a) of consistency in
\nthe preparation of the Closing Date Balance Sheet and Net Worth statement, and
\nnotwithstanding any other provision of this Agreement, for purposes of the
\npreparation and review of, and any resolution of disagreements regarding, the
\nClosing Date Balance Sheet and Net Worth of the Homebuilding Business of the
\nHomebuilding Entities as of December 31, 1998 (if the Closing occurs on or
\nbefore January 8, 1999) or the Closing Date (if the Closing occurs after January
\n8, 1999), the distribution or transfer of all of the Excluded Assets and
\nExcluded Liabilities by the Homebuilding Entities and transfer of all of the
\nIncluded Assets and Included Liabilities to the Homebuilding Entities shall be
\ndeemed to have occurred prior to December 31, 1998 (if the Closing occurs on or
\nbefore January 8, 1999) or the Closing Date (if the Closing occurs after January
\n8, 1999), even if not all such transfers have been effected as of such date.<\/p>\n
(c) Notwithstanding any other provision of this Agreement, no fractional
\nshares of Buyer Common Stock, or certificates therefore, will be issued in
\npayment of the Purchase Price. Each Seller who would otherwise be entitled to
\nreceive a fractional share of Buyer Common Stock in payment of the Purchase
\nPrice (after aggregating all whole and fractional shares of Buyer Common Stock
\nto which such Seller would be entitled but for this Section in consideration for
\nall Stock, Member Interests and Partnership Interests delivered by such Seller)
\nshall receive, in lieu of such fractional share, cash equal to the product of
\nsuch fraction and the average closing price of Buyer Common Stock for the ten
\ntrading days ending two business days prior to the Closing Date as reported on
\nthe New York Stock Exchange Composite Tape.<\/p>\n
1.7 THE CLOSING.<\/p>\n
The Closing will take place at the offices of O’Melveny & Myers LLP, 400
\nSouth Hope Street, Los Angeles, California 90071. The Closing will take place no
\nearlier than January 7, 1999 or, if later, the fifth business day after the
\nsatisfaction of the conditions set forth in Sections 7.1(b), 7.1(c), 7.2(c),
\n7.2(f), 7.2(g), 7.3(b) and 7.3(d) or such later date as Sellers and Buyer may
\nagree. The parties shall use their best efforts to effectuate the Closing on
\nJanuary 7, 1999. At the Closing, Buyer, in exchange for the Stock, Partnership
\nInterests and Member Interests, shall pay to Sellers the Purchase Price by wire
\ntransfer of the cash portion of the Purchase Price to an account designated by
\nthe Representative at least three business days prior to the Closing and by
\ndelivery to the Representative, on behalf of the Sellers, of stock certificates<\/p>\n
9
\n 15<\/p>\n
in the Sellers’ names as designated by the Representative at least three
\nbusiness days prior to the Closing.<\/p>\n
1.8 PURCHASE PRICE ALLOCATION.<\/p>\n
The Purchase Price shall be allocated among the Stock, the Member
\nInterests and the Partnership Interests in a manner that will facilitate
\nallocations being made in accordance with Section 6.4(c), and that is consistent
\nwith the other provisions of this Agreement. The parties intend that the
\nacquisitions of Stock be taxable purchases, and a sufficient amount of the cash
\nportion of the Purchase Price shall be allocated to each of the acquisitions of
\nthe Stock of Management Corp. and the Stock of Branching Tree so that neither
\nacquisition will qualify as a reorganization within the meaning of Section
\n368(a) of the Code. Subject to the foregoing, Sellers shall direct the manner in
\nwhich the cash and Buyer Common Stock portions of the Purchase Price are
\nallocated among the Sellers.<\/p>\n
ARTICLE II<\/p>\n
REPRESENTATIONS AND WARRANTIES OF SELLERS<\/p>\n
Except as otherwise indicated on the Sellers’ Disclosure Schedule as
\napplying to a particular Section in this Article II, Sellers, jointly and
\nseverally, represent, warrant and agree as follows:<\/p>\n
2.1 MANAGEMENT CORP. AND BRANCHING TREE.<\/p>\n
Each of Management Corp. and Branching Tree is a corporation duly
\norganized, validly existing and in good standing under the laws of the State of
\nCalifornia. Each of Management Corp. and Branching Tree has all necessary
\ncorporate power and authority to own its properties and to carry on its business
\nas now conducted and is duly qualified to do business as a foreign corporation
\nin good standing in all jurisdictions in which the character or the location of
\nits assets owned or leased or the nature of its business requires qualification,
\nexcept where the failure to be so qualified would not have a material adverse
\neffect on the Homebuilding Business. Neither Management Corp. nor Branching Tree
\nhas any Subsidiaries.<\/p>\n
2.2 STOCK.<\/p>\n
Management Corp. Sellers own all of the outstanding shares of the
\ncapital stock of Management Corp. The authorized capital stock of Management
\nCorp. consists of 10,000 shares of common stock, no par value, of which 1,000
\nshares are issued and outstanding. Branching Tree Sellers own all the
\noutstanding shares of the capital stock of Branching Tree. The authorized
\ncapital stock of Branching Tree consists of 10,000 shares of common stock, no
\npar value, of which 480 shares are issued and outstanding. There are no
\noutstanding Contracts or other rights to subscribe for or purchase, or Contracts
\nor other obligations to issue or grant any rights to acquire, any Equity
\nSecurities of Management Corp. or Branching Tree, or to<\/p>\n
10
\n 16<\/p>\n
restructure or recapitalize Management Corp. or Branching Tree. There are no
\noutstanding Contracts of Sellers or Management Corp. or Branching Tree to
\nrepurchase, redeem or otherwise acquire any Equity Securities of Management
\nCorp. or Branching Tree. All Equity Securities of Management Corp. and Branching
\nTree are duly authorized, validly issued and outstanding and are fully paid and
\nnonassessable and were issued in conformity with applicable Laws. There are no,
\nand never have been, preemptive rights in respect of any Equity Securities of
\nManagement Corp. or Branching Tree. Except as described in Schedule 2.2, neither
\nManagement Corp. nor Branching Tree owns any Equity Securities of any Person.<\/p>\n
2.3 MATHER AND DESERT INN.<\/p>\n
Each of Mather and Desert Inn is a limited liability company duly formed
\nand validly existing and in good standing under the laws of the state of its
\norganization. Continuously since its formation, each of Mather and Desert Inn
\nhas been treated as a partnership for purposes of federal, state, and local
\nTaxes. Each of Mather and Desert Inn has all necessary power and authority under
\nits organizational documents to own its properties and carry on its business as
\nnow conducted. Each of Mather and Desert Inn is duly qualified to do business as
\na foreign limited liability company in good standing in all jurisdictions in
\nwhich the character or the location of its assets owned or leased or the nature
\nof its business requires qualification, except where the failure to be so
\nqualified would not have a material adverse effect on the Homebuilding Business.
\nThe Mather Sellers and Desert Inn Sellers own all of the outstanding membership
\ninterests in Mather and Desert Inn, respectively. There are no outstanding
\nContracts or other rights to subscribe for or purchase, or Contracts or other
\nobligations to issue or grant any rights to acquire, any interest in Mather or
\nDesert Inn, or to restructure or recapitalize Mather or Desert Inn. There are no
\noutstanding Contracts of Sellers or Mather or Desert Inn to repurchase, redeem
\nor otherwise acquire any interest in Mather or Desert Inn. All Member Interests
\nwere issued in conformity with all applicable Laws. Schedule 2.3 lists all
\nSubsidiaries of Mather or Desert Inn and correctly sets forth their respective
\nownership interests therein, any other interest of any other Person in such
\nSubsidiary and the jurisdiction in which each such Subsidiary was organized.
\nExcept as set forth on Schedule 2.3, all of the Equity Securities, partnership
\ninterests, membership interests, or other interests owned by Mather or Desert
\nInn in any such Subsidiary are validly issued and outstanding, fully paid and
\nnonassessable, were issued in conformity with applicable Laws and without
\nviolation of, and are free of, any preemptive rights, and are owned by Mather or
\nDesert Inn, as applicable, free and clear of any and all covenants, conditions,
\nor other Encumbrances. Each of such Subsidiaries is duly formed and validly
\nexisting and in good standing under the laws of the jurisdiction of its
\norganization. Each such Subsidiary has all necessary power and authority under
\nits organizational documents to own its properties and to carry on its business
\nas now conducted and is duly qualified to do business in all jurisdictions in
\nwhich the character or the location of the assets owned or leased by it or the
\nnature of the business conducted by it requires qualification, except where the
\nfailure to be so qualified would not have a material adverse effect on the
\nHomebuilding Business. Except for such Subsidiaries or as set forth on Schedule
\n2.3, neither Mather nor Desert Inn own any Equity Securities of any Person.<\/p>\n
11
\n 17<\/p>\n
2.4 PARENT PARTNERSHIPS.<\/p>\n
Each of the Parent Partnerships is a duly formed and validly existing
\ngeneral partnership in good standing under the laws of the state of its
\norganization. Each Parent Partnership has all necessary power and authority
\nunder its partnership agreement to own its property and to carry on its business
\nas now conducted and is duly qualified to do business in all jurisdictions in
\nwhich the character or the location of the assets owned or leased by it or the
\nnature of its business requires qualification, except where the failure to be so
\nqualified would not have a material adverse effect on the Homebuilding Business.
\nThe Partnership Sellers own all the outstanding partnership interests in the
\nParent Partnerships. There are no outstanding Contracts or other rights to
\nsubscribe for or purchase, or Contracts or other obligations to issue or grant
\nany rights to acquire, any interest in the Parent Partnerships, or to
\nrestructure or recapitalize the Parent Partnerships. There are no outstanding
\nContracts of Sellers or the Parent Partnerships to repurchase, redeem or
\notherwise acquire any interest in the Parent Partnerships. All Partnership
\nInterests were issued in conformity with all applicable Laws. Schedule 2.4 lists
\nall Subsidiaries of the Parent Partnerships and correctly sets forth the Parent
\nPartnership’s ownership interest and profit or loss allocation (and any special
\nallocations with priority over the Parent Partnership’s profit or loss
\nallocation) therein, any other interest of any other Person in such Subsidiary
\nand the jurisdiction in which each such Subsidiary was organized. Except as set
\nforth on Schedule 2.4, all of the Equity Securities, partnership interests,
\nmembership interests, or other interests owned by a Parent Partnership in any
\nsuch Subsidiary are validly issued and outstanding, fully paid and
\nnonassessable, were issued in conformity with applicable Laws and without
\nviolation of, and are free of, any preemptive rights, and are owned by such
\nParent Partnership free and clear of any and all covenants, conditions, or other
\nEncumbrances. Each of such Subsidiaries is duly formed and validly existing
\nunder the laws of the jurisdiction of its organization. Each such Subsidiary has
\nall necessary power and authority under its organizational documents to own its
\nproperties and to carry on its business as now conducted and is duly qualified
\nto do business in all jurisdictions in which the character or the location of
\nthe assets owned or leased by it or the nature of the business conducted by it
\nrequires qualification, except where the failure to be so qualified would not
\nhave a material adverse effect on the Homebuilding Business. Except for such
\nSubsidiaries or as set forth on Schedule 2.4, the Parent Partnerships own no
\nEquity Securities of any Person.<\/p>\n
2.5 FINANCIAL STATEMENTS; CHANGES; CONTINGENCIES.<\/p>\n
(a) Audited Financial Statements. Sellers have delivered to Buyer
\ncombined balance sheets for the Lewis Homes group of companies at December 31,
\n1997 (the “Audited Balance Sheet Date”) and 1996 and the related combined
\nstatements of operations, equity and cash flows for the years ended December 31,
\n1997 and 1996. Such balance sheets and statements of operations, equity and cash
\nflows have been examined by the Auditors whose audit report thereon is included
\nwith such statements. All such financial statements have been prepared in
\nconformity with GAAP applied on a consistent basis (except for changes, if any,
\nrequired by GAAP and disclosed therein) and present fairly, in all material
\nrespects, the combined financial position of the Lewis Homes group of companies
\nat December 31, 1997 and 1996 and the combined results of their operations and
\ncash flows for the years then ended.<\/p>\n
12
\n 18
\nSellers have also delivered to Buyer combined Line of Business Operations\/
\nSelected Financial Information for the Homebuilding Business at and for the year
\nended December 31, 1997. Such combined Line of Business Operations\/Selected
\nFinancial Information has been subjected to the auditing procedures applied in
\nthe audit by Auditors of the audited combined financial statements referred to
\nabove, except as noted , and exclude the Excluded Assets (other than the
\nproperties identified on Exhibit A as Sierra Lakes and Fontana (Zee) property)
\nand Excluded Liabilities and include the Included Assets and Included
\nLiabilities.<\/p>\n
(b) Interim Financial Statements Sellers have delivered to Buyer a
\ncombined balance sheet of the Homebuilding Business at June 30, 1998 and a
\nrelated combined income statement for the six months ended June 30, 1998. Such
\nfinancial statements have been prepared in conformity with GAAP on a basis
\nconsistent with the audited financial statements referred to in Section 7.2(g)
\n(except for changes, if any, required by GAAP, the lack of notes thereto and the
\nexclusion of the Excluded Assets (other than the properties identified on
\nExhibit A as Sierra Lakes and Fontana (Zee) property) and Excluded Liabilities
\nand the inclusion of the Included Assets and Included Liabilities) and present
\nfairly, in all material respects, the combined financial position of the
\nHomebuilding Business of the Homebuilding Entities at June 30, 1998 and the
\ncombined results of operations for the six months ended June 30, 1998. <\/p>\n
(c) No Material Adverse Changes. Except as set forth in Schedule 2.5,
\nsince June 30, 1998, the Homebuilding Entities have conducted the Homebuilding
\nBusiness in the ordinary course of business consistent with past practices
\n(except for the exclusion of Excluded Assets and Excluded Liabilities and the
\ninclusion of the Included Assets and Included Liabilities) and, whether or not
\nin the ordinary course of the Homebuilding Business, there has not been,
\noccurred or arisen: <\/p>\n
(i) any change in or event affecting the Homebuilding Business that
\nhas had or is reasonably expected to have a material adverse effect on the
\nHomebuilding Business,<\/p>\n
(ii) any agreement, condition, action or omission which would be
\nproscribed by (or require consent under) subsections (e), (f), (g), (h), (i),
\n(j), (k), (p), (q), (t), (u) or (v) (solely as it relates to subsections (e),
\n(f), (g), (h), (i), (j), (k), (p), (q), (t) and (u)) of Section 5.3 had it
\nexisted, occurred or arisen after the date of this Agreement, <\/p>\n
(iii) any strike or other labor dispute, or <\/p>\n
(iv) any casualty, loss, damage or destruction (whether or not
\ncovered by insurance) of any property of the Homebuilding Entities that
\nconstitutes a material adverse change and that has involved or may involve a
\nloss to any of the Homebuilding Entities in excess of applicable insurance
\ncoverage. <\/p>\n
(d) No Other Liabilities or Contingencies. None of the Homebuilding
\nEntities has any material liabilities of any nature, whether accrued, absolute,
\ncontingent, known, unknown, or otherwise, except liabilities that (i) are
\nreflected or disclosed in the most recent of <\/p>\n
13
\n 19<\/p>\n
the financial statements referred to in subsection (b) above, (ii) were incurred
\nafter June 30, 1998 in the ordinary course of business, or (iii) are set forth
\nin Schedule 2.5 hereto.<\/p>\n
(e) Reserves. At December 31, 1997, the reserves for construction
\ndefects and litigation, but not including any warranty reserves, aggregated $5.5
\nmillion and on the Closing Date will be no less than $2.7 million.<\/p>\n
2.6 TAX AND OTHER RETURNS AND REPORTS.<\/p>\n
The Homebuilding Entities have timely filed (taking into account any
\nextensions) all required Tax Returns required to be filed by them before the
\ndate hereof and have paid all Taxes shown on such Tax Returns to be due. The
\nHomebuilding Entities shall timely file (taking into account any applicable
\nextensions) all Tax Returns that are required to be filed by them on or after
\nthe date hereof and before the Closing Date and shall pay all Taxes shown on any
\nsuch Tax Return to be due. All Tax Returns referred to above in this section
\nwere or shall be complete and correct in all material respects. Adequate
\nprovision has been made in the books and records of the Homebuilding Entities
\nand in the financial statements referred to in Section 2.5 above, for all Taxes
\nrequired to be paid or withheld for the periods covered by such financial
\nstatements, whether or not disputed and whether or not due and payable. Except
\nas listed on Schedule 2.6, there is no audit, examination or similar proceeding
\npending or, to Sellers’ knowledge, threatened, or claim or assessment of
\ndeficiency pending or, to the Sellers’ knowledge, threatened, with respect to
\nany Tax Return of the Homebuilding Entities, and there are no outstanding
\nagreements or waivers extending the statutory period of limitation applicable to
\nany such Tax Return. None of the Sellers is a “foreign person” within the
\nmeaning of Section 1445(b)(2) of the Code. Each of Management Corp. and
\nBranching Tree is, and has for all taxable periods beginning on and after its
\nincorporation, qualified to be, and with all required consents of its
\nshareholders has validly elected to be, taxed as an “S corporation” under the
\nCode and analogous state tax law. Such elections have never been terminated or
\nrevoked, are currently in effect, and will be in effect through such time as
\nthey terminate as a result of the Closing. Since such elections, neither
\nManagement Corp. nor Branching Tree has acquired assets with a carryover basis
\nfrom a C corporation under the Code. The Homebuilding Entities have no liability
\nfor any Taxes of any person or entity other than themselves under Treasury
\nRegulation Section 1.1502.6 (or any similar provision of state, local,
\nterritorial, or foreign law), as transferee or successor, or by contract or
\notherwise. Except as set forth in Schedule 2.6, none of the Homebuilding
\nEntities is a party to any agreement, contract, arrangement, or plan that has
\nresulted or would result, separately or in the aggregate, in the payment of any
\n“excess parachute payments” within the meaning of Section 280G of the Code.<\/p>\n
2.7 MATERIAL CONTRACTS.<\/p>\n
Schedule 2.7 lists each Contract to which any Homebuilding Entity is a
\nparty or to which any Homebuilding Entity or any of their respective properties
\nis subject or by which any thereof is bound that is deemed a Material Contract
\nunder this Agreement. Each Contract that (a) after June 30, 1998, obligates any
\nHomebuilding Entity to pay an amount of $500,000 or more, (b) represents a
\nContract upon which the Homebuilding Business is substantially dependent, (c)
\nprovides for an extension, assumption, or guarantee of credit to or by a
\nHomebuilding Entity in<\/p>\n
14
\n 20<\/p>\n
an amount of $500,000 or more, (d) limits or restricts the ability of any
\nHomebuilding Entity to compete or otherwise to conduct its business in any
\nmanner or place, (e) provides for a guaranty or indemnity by any Homebuilding
\nEntity, (f) grants a power of attorney, agency or similar authority to another
\nperson or entity, (g) contains a right of first refusal, (h) contains a right or
\nobligation of any Affiliate, officer or director or any Associate of any
\nHomebuilding Entity with respect to any Homebuilding Entity that cannot be
\nterminated by Buyer within 30 days after the Closing without penalty or payment,
\n(i) requires any Homebuilding Entity to buy or sell goods or services with
\nrespect to which there will be material losses or will be costs and expenses
\nmaterially in excess of expected receipts (other than as provided for or
\notherwise reserved against on the most recent of the balance sheet referred to
\nin Section 2.5), (j) provides for the acquisition or disposition of real
\nproperty in an amount of $500,000 or more, (k) provides for a joint venture,
\npartnership, or other profit or loss sharing arrangement, or (l) is a
\ndevelopment, entitlement, or similar agreement with any Governmental Entity,
\nshall be deemed to be a Material Contract and has been identified on such
\nSchedule 2.7. True copies of the agreements appearing on Schedule 2.7, including
\nall amendments and supplements, have been made available to Buyer. Each Material
\nContract is valid and enforceable; each Homebuilding Entity, as applicable, has
\nduly performed all its obligations thereunder to the extent that such
\nobligations to perform have accrued; and no breach or default, alleged breach or
\ndefault, or event which would (with the passage of time, notice or both)
\nconstitute a breach or default thereunder by any Homebuilding Entity, or, to the
\nknowledge of Sellers, any other party or obligor with respect thereto, has
\noccurred or, except as set forth in Schedule 2.7, as a result of this Agreement
\nor the consummation of the transactions contemplated hereby will occur. Except
\nas set forth in Schedule 2.7, consummation of the transactions contemplated by
\nthis Agreement will not (and will not give any person a right to) terminate or
\nmodify any rights of, or accelerate or augment any obligation of, any
\nHomebuilding Entity. The parties agree that special assessment districts need
\nnot be listed on Schedule 2.7.<\/p>\n
2.8 REAL AND PERSONAL PROPERTY; TITLE TO PROPERTY; LEASES.<\/p>\n
(a) The Homebuilding Entities have good and marketable title to, a valid
\nleasehold interest in, or other right to use, all properties and assets material
\nto the conduct of the Homebuilding Business as reflected in the balance sheet as
\nof June 30, 1998 referred to in Section 2.5(b) or acquired since that date,
\nexcept for properties and assets in an aggregate amount that would not
\nconstitute a material adverse change in the Homebuilding Business that were
\ndisposed of since such date in the ordinary course of business consistent with
\npast practice. Except as set forth on Schedule 2.8(a), the Homebuilding Entities
\nhold all such title, interest, or right free and clear of Encumbrances other
\nthan (i) liens securing taxes, assessments, or payments not yet due, (ii) such
\nimperfections or irregularities in title, easements, or other liens as are not
\nsubstantial in character, amount or extent and do not interfere with the
\nHomebuilding Entity’s or Subsidiary’s current use of the property subject
\nthereto or affected thereby or the development of such property in accordance
\nwith current entitlement, development, or similar agreements with Governmental
\nEntities, and (iii) other matters which, individually or in the aggregate, do
\nnot and would not have a material adverse effect with respect to the
\nHomebuilding Entities. The Homebuilding Entities have obtained title insurance
\npolicies covering all real property owned by a Homebuilding Entity with an
\ninitial purchase price in excess of $1 million.<\/p>\n
15
\n 21<\/p>\n
All of such tangible properties and assets are in good operating condition and
\nrepair (ordinary wear and tear excepted and subject to normal scheduled
\nmaintenance). Schedule 2.8(a) lists all of the real property owned or leased by
\nany Homebuilding Entity and with respect to leased property sets forth the
\nlessor, lease term (including any renewal rights), and lease payment amounts and
\nschedule. All leased real property held by any Homebuilding Entity, as lessee or
\nsublessee, as the case may be, under a lease providing for annual lease payments
\nexceeding $25,000 are held under valid, binding and enforceable leases or
\nsubleases, and none of the Homebuilding Entities are in default thereunder. To
\nthe knowledge of Sellers, there is no pending or threatened Action that would
\nmaterially interfere with the quiet enjoyment of any such leased real property
\nby any Homebuilding Entity.<\/p>\n
(b) Except as set forth on Schedule 2.8(b), to the knowledge of Sellers,
\n(i) there are no endangered species or protected natural habitat, flora or fauna
\nlocated on any of the real property owned or leased by any Homebuilding Entity
\nconstituting part of the Homebuilding Business and no such real property is
\ndesignated as wetlands, (ii) none of such real property is located within a
\n100-year flood plain as designated by any United States Governmental Entity or
\nis subject to seismic safety problems that prevent residential development
\nthereon, (iii) none of the Homebuilding Entities has received any notice of any
\ncondemnation or eminent domain proceedings with respect to any of such real
\nproperty, or negotiations for the purchase of any such real property in lieu of
\ncondemnation, and (iv) there are no moratoriums (including utility moratoriums)
\nby Governmental Entities responsible for issuing approvals or according other
\nentitlements with respect to any such real property. <\/p>\n
(c) Schedule 2.8(c) sets forth: (i) a true and complete list of all
\nthose matters for which a file was opened by Management Corp.’s Legal Department
\n(which employs all the in-house lawyers serving the Homebuilding Entities) on
\nbehalf of a Homebuilding Entity on or after January 1, 1997, relating to a claim
\nor complaint by the purchaser (a “Lewis Homeowner”) of a residence (a “Lewis
\nHome”) developed or constructed by a Homebuilding Entity with respect to his\/her
\nLewis Home; (ii) the aggregate net customer service expenditures (excluding any
\noverhead allocation) of the Homebuilding Entities for 1996, 1997, and January 1
\nthrough August 31, 1998 (whether or not such customer service expenditures
\nrelated to requests for customer service from Lewis Homeowners during the
\nHomebuilding Entities’ formal one-year warranty period) by tract; (iii) a true
\nand complete list of all home repurchases by any of the Homebuilding Entities
\nwhich closed escrow between January 1, 1997 and September 30, 1998; and (iv) the
\nnumber of customer service requests by tract with respect to any Lewis Home
\nwhich were open and not resolved as of September 30, 1998. Except as set forth
\non Schedule 2.8(c), to the knowledge of Sellers, there are no warranty claims
\nexceeding $12,000 per individual house pending or settled or which resulted in
\nhome purchases since January 1, 1997 against any Homebuilding Entity.<\/p>\n
2.9 INTANGIBLE PROPERTY.<\/p>\n
Schedule 2.9 lists all Marks and other items of Intangible Property in
\nwhich any Homebuilding Entity has an interest, other than Marks or Intangible
\nProperty the loss of which would not have a material adverse effect on the
\nHomebuilding Entities, and the nature of such interest. Schedule 2.9 also lists
\nall Permits or other rights with respect to any of the foregoing.<\/p>\n
16
\n 22<\/p>\n
The Homebuilding Entities have the rights to and ownership of all Intangible
\nProperty required for use in connection with the Homebuilding Business, the
\nabsence of which would have a material adverse effect on the Homebuilding
\nBusiness. Without limiting the foregoing, Branching Tree owns the exclusive
\nright to the distinctive tree symbol used in the Homebuilding Business. Except
\nas set forth in Schedule 2.9, none of the Homebuilding Entities use any
\nIntangible Property by consent of any other person or are required to and do
\nmake any payments to others with respect thereto. The Homebuilding Entities have
\nin all material respects performed all obligations required to be performed by
\nthem, and none of such entities is in default in any material respect under any
\nContract relating to any of the foregoing. Except as set forth in Schedule 2.9,
\nnone of the Homebuilding Entities has received any notice to the effect that the
\nIntangible Property or any use by any Homebuilding Entity of any such property
\nconflicts with or allegedly conflicts with or infringes the rights of any
\nPerson, and, to the knowledge of Sellers, no other person is infringing upon the
\nrights of any of the Homebuilding Entities with respect to any Marks or other
\nIntangible Property.<\/p>\n
2.10 NO CONFLICTS.<\/p>\n
Except as set forth on Schedule 2.10, the execution, delivery and
\nperformance of this Agreement by Sellers and the performance by Sellers of any
\nof the transactions contemplated hereby will not violate, or constitute a breach
\nor default (whether upon lapse of time or notice or both) under, or give rise to
\na right of termination, cancellation or acceleration of any obligation under,
\nthe charter, partnership, or other operating documents of any Homebuilding
\nEntity or any Material Contract of any of such entities, result in the
\nimposition of any Encumbrance against any material asset or material properties
\nof any Homebuilding Entity, or violate any Law (assuming that the appropriate
\ngovernmental approvals are received as contemplated by Section 7.1(b)), except
\nfor such violations, breaches, defaults, terminations, cancellations,
\naccelerations, or impositions that would not have a material adverse effect on
\nthe Homebuilding Business. Except as set forth in Schedule 2.10, the execution
\nand delivery of this Agreement by Sellers and the performance of this Agreement
\nby Sellers will not require a filing or registration with, or the issuance of
\nany Permit or Approval by, any other third party or Governmental Entity.<\/p>\n
2.11 LEGAL PROCEEDINGS AND CERTAIN LABOR MATTERS.<\/p>\n
Except as set forth in Schedule 2.11, there is no Order or Action
\npending, or, to the knowledge of Sellers, threatened, against or affecting any
\nHomebuilding Entity or any of their respective properties or assets that
\nindividually or when aggregated with one or more other Orders or Actions has or
\nis reasonably expected to have a material adverse effect on the Homebuilding
\nEntities or on Sellers’ ability to perform this Agreement. Schedule 2.l1 sets
\nforth all Orders or Actions pending or, to the knowledge of Sellers, threatened
\nagainst or affecting any Homebuilding Entity or any of their respective
\nproperties or assets involving a claim for more than $100,000 or seeking or
\nimposing injunctive or other equitable relief against any Homebuilding Entity.
\nExcept as set forth in Schedule 2.11, (i) each Homebuilding Entity is in
\ncompliance in all material respects with the terms and requirements of each
\nOrder listed on Schedule 2.11, which it, or any of the assets owned or used by
\nit, is or has been subject and (ii) to Sellers’ knowledge, no Homebuilding
\nEntity has received any notice or other communication<\/p>\n
17
\n 23<\/p>\n
(whether oral or written) from any Governmental Entity or any other person
\nregarding any actual, alleged, possible, or potential violation of, or failure
\nto comply with, any term or requirement of any Order listed on Schedule 2.11,
\nexcept for any such violation that, individually or in the aggregate, will not
\nor could not reasonably be expected to result in a material adverse change to
\nthe Homebuilding Entities. Except as set forth in Schedule 2.11, there is no
\norganized labor strike, dispute, slowdown or stoppage, or collective bargaining
\nor unfair labor practice claim pending or, to the knowledge of Sellers,
\nthreatened against or affecting any Homebuilding Entity or the Homebuilding
\nBusiness. To Sellers’ knowledge, none of the Homebuilding Entities nor any of
\ntheir respective officers, directors, partners, employees or agents has given or
\nmade or agreed to give or make any illegal commissions, payment, gratuity, gift,
\npolitical contribution or similar benefit to any governmental employee who is in
\na position to help or hinder the business of the Homebuilding Entities.<\/p>\n
2.12 MINUTE BOOKS.<\/p>\n
The minute books and similar records of organizational proceedings of
\neach of the Homebuilding Entities, to the extent required, accurately reflect
\nall actions and proceedings taken to date by the shareholders, board of
\ndirectors and committees, partners, or members (to the extent that any consent
\nof partners or members as a class has been required) of the Homebuilding
\nEntities, and such minute books and similar records contain true and complete
\ncopies of the charter documents, partnership agreements, or operating agreement,
\nas applicable, of the Homebuilding Entities, and all related amendments. The
\nstock, partnership interest, or membership interest record books of each of the
\nHomebuilding Entities reflect accurately all transactions in its capital stock,
\npartnership interests, or membership interests of all classes.<\/p>\n
2.13 ACCOUNTING RECORDS.<\/p>\n
The Homebuilding Entities have records that accurately and validly
\nreflect their respective transactions, and accounting controls sufficient to
\ninsure that such transactions are (i) executed in accordance with management’s
\ngeneral or specific authorization and (ii) recorded in conformity with GAAP so
\nas to maintain accountability for assets.<\/p>\n
2.14 INSURANCE.<\/p>\n
Schedule 2.14 lists all insurance policies and bonds held by the
\nHomebuilding Entities as of September 30, 1998. None of the Homebuilding
\nEntities is in default under any policy or bond. None of the Homebuilding
\nEntities has received any notice from any insurer or agent of any intent to
\ncancel or not to renew any insurance policy.<\/p>\n
2.15 PERMITS.<\/p>\n
The Homebuilding Entities hold all Permits that are required by any
\nGovernmental Entity to permit each of them to conduct their respective
\nbusinesses as now conducted, and the Homebuilding Entities are in compliance
\nwith such Permits, except (i) where the failure to hold or be in compliance with
\nsuch Permits would not, individually or in the aggregate, have a material
\nadverse effect on the Homebuilding Entities, and (ii) for Permits and<\/p>\n
18
\n 24<\/p>\n
entitlements for the development of real property which is not yet developed or
\nPermits not yet required in the development process of real property, and all
\nsuch Permits are valid and in full force and effect. To the knowledge of
\nSellers, no suspension, cancellation or termination of any of such Permits is
\nthreatened or imminent and no event has occurred that has resulted or would
\nreasonably be expected to result (with the passage of time, or notice, or both)
\nin a suspension, cancellation or termination of any such Permit.<\/p>\n
2.16 EMPLOYEE BENEFITS.<\/p>\n
(a) Employee Benefit Plans, Collective Bargaining and Employee
\nAgreements, and Similar Arrangements.<\/p>\n
(i) Schedule 2.16 lists all employee benefit plans and collective
\nbargaining, employment or severance agreements or other similar arrangements to
\nwhich any Homebuilding Entity is a party or by which any of them is bound,
\nincluding, without limitation, (a) any profit-sharing, deferred compensation,
\nbonus (including any change-of-control, continuance or stay bonus), stock
\noption, stock purchase, phantom stock, restricted stock, pension, retainer,
\nconsulting, retirement severance, termination, welfare or incentive plan,
\nagreement or arrangement, (b) any plan, agreement or arrangement providing for
\n“fringe benefits” or perquisites to employees, officers, directors or agents,
\nincluding but not limited to benefits relating to automobiles, clubs, vacation,
\nchild care, parenting, sabbatical, sick leave, medical, dental, hospitalization,
\nlife insurance and other types of insurance, (c) any employment agreement, or
\n(d) any other “employee benefit plan” (within the meaning of Section 3(3) or
\nERISA).<\/p>\n
(ii) Sellers have made available to Buyer true and complete copies
\nof all documents and summary plan descriptions with respect to such plans,
\nagreements and arrangements, or summary descriptions of any such plans,
\nagreements or arrangements not otherwise in writing. <\/p>\n
(iii) The Homebuilding Entities are in full compliance with the
\napplicable provisions of ERISA (as amended through the date of this Agreement),
\nthe regulations and published authorities thereunder, and all other Laws
\napplicable with respect to all such employee benefit plans, agreements and
\narrangements, except where the failure to be in compliance would not have a
\nmaterial adverse effect on the Homebuilding Entities. The Homebuilding Entities
\nhave performed all of their obligations under all such plans, agreements and
\narrangements. There are no Actions (other than routine claims for benefits)
\npending or threatened against such plans or their assets, or arising out of such
\nplans, agreements or arrangements, and, to the knowledge of Sellers, no facts
\nexist which could give rise to any such Actions.<\/p>\n
(iv) Except as set forth in Schedule 2.16, each of the plans,
\nagreements or arrangements can be terminated by the Homebuilding Entities within
\na period of 30 days following the Closing Date, without payment of any
\nadditional compensation or amount or the additional vesting or acceleration of
\nany such benefits.<\/p>\n
19
\n 25<\/p>\n
(v) Sellers shall pay or reimburse Buyer, upon request, for (A) any
\nseverance payments made by Buyer or any Homebuilding Entity within the first 12
\nmonths after the Closing Date to Leon C. Swails pursuant to that certain
\nEmployment Agreement dated as of February 27, 1995, as amended February 27,
\n1998, and (B) any “Deferred Salary” and “Special Bonus” under Section 3 of that
\nagreement if Mr. Swails’ employment is terminated in the first 12 months of the
\nClosing Date as if Mr. Swails’ employment was terminated as of the Closing Date.<\/p>\n
(b) Qualified Plans. None of the Homebuilding Entities have a stock
\nbonus, pension or profit-sharing plan within the meaning of Section 401(a) of
\nthe Code.<\/p>\n
(c) Health Plans. All group health plans of the Homebuilding Entities
\nhave been operated in substantial compliance with the group health plan
\ncontinuation coverage requirements of Section 162(k) and Section 4980B of the
\nCode to the extent such requirements are applicable.<\/p>\n
(d) Fines and Penalties. There has been no act or omission by any
\nHomebuilding Entity or any ERISA Affiliate that has given rise to or may give
\nrise to fines, penalties, taxes, or related charges under Section 502(c) or (k)
\nor Section 4071 of ERISA or Chapter 43 of the Code. <\/p>\n
(e) Other Plans. None of the Homebuilding Entities have an employee
\npension benefit plan, a multi-employer plan (as defined in Section 3(37) of
\nERISA) or a voluntary employees’ beneficiary association as defined in Section
\n501(c) of the Code.<\/p>\n
2.17 CERTAIN INTERESTS.<\/p>\n
Except as set forth in Schedule 2.17, no Affiliate of any Seller or
\nHomebuilding Entity nor any officer, director, or partner of any thereof, nor
\nAssociate of any such individual, has any material interest in any property or
\nother asset used in or pertaining to the Homebuilding Business. Except as set
\nforth in Schedule 2.17, the consummation of the transactions contemplated by
\nthis Agreement will not (either alone, or upon the occurrence of any act or
\nevent, or with the lapse of time, or both) result in any benefit or payment
\n(severance or other) arising or becoming due from any Homebuilding Entity or the
\nsuccessor or assign of any thereof to any Person.<\/p>\n
2.18 BANK ACCOUNTS, POWERS, ETC.<\/p>\n
Schedule 2.18 lists each bank, trust company, savings institution,
\nbrokerage firm, mutual fund or other financial institution with which any
\nHomebuilding Entity has an account or safe deposit box and the names and
\nidentification of all Persons authorized to draw thereon or to have access
\nthereto, and lists the names of each Person holding powers of attorney or agency
\nauthority from any Homebuilding Entity.<\/p>\n
20
\n 26<\/p>\n
2.19 NO BROKERS OR FINDERS.<\/p>\n
No agent, broker, finder, or investment or commercial banker, or other
\nPerson or firm engaged by or acting on behalf of Sellers or any Homebuilding
\nEntity or any of their respective Affiliates in connection with the negotiation,
\nexecution or performance of this Agreement or the transactions contemplated by
\nthis Agreement, is or will be entitled to any brokerage or finder’s or similar
\nfee or other commission as a result of this Agreement or such transactions,
\nexcept Salomon Smith Barney, Inc. as to which Sellers shall have full
\nresponsibility and neither Buyer nor any Homebuilding Entity shall have any
\nliability.<\/p>\n
2.20 ENVIRONMENTAL COMPLIANCE.<\/p>\n
Except as set forth in Schedule 2.20, (i) none of the Homebuilding
\nEntities has generated, used, transported, treated, stored, released or disposed
\nof, nor has suffered or permitted anyone else to generate, use, transport,
\ntreat, store, release or dispose of any Hazardous Substance in violation of any
\nLaws, nor is in violation of or liable under any Laws relating to environmental
\nprotection and compliance; (ii) there has not been any generation, use,
\ntransportation, treatment, storage, release or disposal of any Hazardous
\nSubstance in connection with the conduct of the Homebuilding Business or on or
\nin connection with the use of any property or facility of any Homebuilding
\nEntity or, to the knowledge of Sellers, any nearby or adjacent properties or
\nfacilities, which has created or might reasonably be expected to create any
\nliability under any Laws or which would require reporting to or notification of
\nany Governmental Entity; (iii) no asbestos or polychlorinated biphenyl or
\nunderground storage tank is contained in or located at any facility of any
\nHomebuilding Entity; and (iv) any Hazardous Substance handled or dealt with in
\nany way in connection with the businesses of any Homebuilding Entity has been
\nand is being handled or dealt with in all respects in compliance with applicable
\nLaws, in each case of clauses (i) through (iv) except where such action would
\nnot have a material adverse effect on the Homebuilding Business. Sellers have
\nmade available to Buyer true and complete copies of all reports, studies,
\nanalyses, tests, or monitoring prepared or made by or on behalf of Sellers or
\nthe Homebuilding Entities pertaining to Hazardous Materials in, on, or under
\nproperty now or previously owned or operated by any Homebuilding Entity,
\nincluding without limitation any Phase I or Phase II assessments referred to in
\nSchedule 2.20 of Sellers’ Disclosure Schedule. With respect to properties that
\nare the subject of any such Phase I or Phase II assessments, Sellers’ have no
\nknowledge of facts or circumstances inconsistent with the assessments therein.<\/p>\n
ARTICLE III<\/p>\n
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SELLERS<\/p>\n
Except as otherwise indicated on the Sellers’ Disclosure Schedule as
\napplying to a particular Section of this Article III, each Seller individually
\nrepresents, warrants and agrees as follows:<\/p>\n
21
\n 27<\/p>\n
3.1 OWNERSHIP BY SELLERS; NO CONFLICTS.<\/p>\n
(a) Seller owns the number of shares of Stock, the Member Interests or
\nthe Partnership Interests, as the case may be, set forth opposite his, her or
\nits name on Exhibit B hereto.<\/p>\n
(b) Seller has good and marketable title to, and sole record and
\nbeneficial ownership of, the shares of the Stock, the Member Interests or the
\nPartnership Interests, as the case may be, which are to be transferred to Buyer
\nby Seller pursuant hereto, free and clear of any and all covenants, conditions,
\nmarital property rights, or other Encumbrances.<\/p>\n
(c) If Seller is a entity, it has been duly incorporated or formed and
\nis validly existing in good standing under the laws of its state of
\nincorporation or formation. Whether an individual or an entity, Seller has the
\nright, power and authority to enter into this Agreement and any ancillary
\nagreements hereto, to transfer, convey and sell to Buyer at the Closing the
\nStock, the Member Interests or the Partnership Interests, as the case may be, to
\nbe sold to Buyer by such Seller, and otherwise to perform its obligations under
\nthis Agreement and any ancillary agreements. Upon consummation of the Closing,
\nBuyer will acquire from such Seller legal and beneficial ownership of, and all
\nright to vote and other rights (including the right to admission as a partner or
\nmember of the pertinent partnership or limited liability company) inhering in
\nthe Stock, the Member Interests or the Partnership Interests, as the case may
\nbe, to be sold to Buyer by such Seller, free and clear of all covenants,
\nconditions, marital property rights, or other Encumbrances. <\/p>\n
(d) Seller is not a party to, subject to or bound by any Law or Order,
\nand no Action is pending against Seller or any Homebuilding Entity or, to such
\nSeller’s knowledge, threatened, that would prevent the execution, delivery or
\nperformance of this Agreement by Seller or the transfer, conveyance and sale of
\nthe Stock, Member Interests, or Partnership Interests, as the case may be, to be
\nsold by Seller to Buyer pursuant to the terms hereof.<\/p>\n
(e) This Agreement has been duly authorized by all necessary corporate,
\npartnership, or limited liability company action on the part of Seller, if
\nSeller is a corporation, partnership or limited liability company, has been
\nexecuted and delivered by Seller and is a valid and binding obligation of
\nSeller, enforceable against Seller in accordance with its terms, except as may
\nbe limited by bankruptcy, insolvency, reorganization, moratorium and other
\nsimilar laws limiting creditors’ rights generally and equitable principles.<\/p>\n
(f) Neither the execution and delivery of this Agreement, nor the
\nconsummation of the transactions contemplated hereby by Seller violates or will
\nviolate or results or will result in a breach of any of the terms and provisions
\nof, or constitutes or will constitute a default under, or results or will result
\nin any augmentation or acceleration of rights, benefits or obligations of any
\nparty under, any Contract to which Seller is a party or is bound or which
\napplies to the Stock, Member Interests, or Partnership Interests being sold, or
\nany Order applicable to Seller or to the Stock, Member Interests, or Partnership
\nInterests being sold.<\/p>\n
22
\n 28<\/p>\n
(g) If and to the extent required, Seller hereby consents to the
\nexecution, delivery, and performance of this Agreement by each other Seller and
\nconsents to the admission of Buyer as a stockholder, partner, or member of each
\nHomebuilding Entity, as applicable.<\/p>\n
3.2 SECURITIES ACT MATTERS.<\/p>\n
(a) Seller will acquire the shares of Buyer Common Stock comprising the
\nstock portion of the Purchase Price for investment for Seller’s own accounts and
\nnot with a view to or for offer or sale in connection with any distribution
\nthereof. Seller understands that the shares of Buyer Common Stock delivered
\npursuant to this Agreement will not have been registered under the Securities
\nAct of 1933, as amended (the “Securities Act”) or any applicable state
\nsecurities laws by reason of a specific exemption or exception from the
\nregistration requirements thereof which depend upon, among other things, the
\naccuracy of Seller’s representations and warranties in this Section. Seller
\nunderstands that, until such time as a registration statement covering the
\nresale of such shares of Buyer Common Stock is effective under the Securities
\nAct, or such shares may otherwise be freely traded by Seller without
\nregistration under the Securities Act, each stock certificate evidencing such
\nshares may bear a legend substantially to the effect that the shares represented
\nby such certificate have not been registered under the Securities Act or any
\napplicable state securities laws and may be offered and sold only if so
\nregistered or upon delivery to Buyer of an opinion of counsel that an exemption
\nor exception from such registration is applicable.<\/p>\n
(b) Seller acknowledges receipt, either directly or through the
\nRepresentative, of all information requested from Buyer and considered by Seller
\nto be necessary or appropriate for deciding whether to acquire the shares of
\nBuyer Common Stock to be delivered pursuant to this Agreement, including,
\nwithout limitation, the Buyer SEC Reports referred to in Section 4.9. Seller is
\nan “accredited investor” within the meaning of Rule 501(a) under the Securities
\nAct or has such knowledge and experience in financial and business matters that
\nSeller is capable of evaluating the merits and risks of, and Seller is able to
\nbear the economic risk of, acquiring such shares of Buyer Common Stock. Seller
\nhas had the opportunity to ask questions and receive answers regarding the terms
\nand conditions of the acquisition of Buyer Common Stock pursuant to this
\nAgreement.<\/p>\n
(c) Seller does not currently own, beneficially or of record, any shares
\nof Buyer Common Stock.<\/p>\n
ARTICLE IV<\/p>\n
REPRESENTATIONS AND WARRANTIES OF BUYER<\/p>\n
Except as otherwise indicated on the Buyer’s Disclosure Schedule as
\napplying to a particular Section in this Article IV, Buyer represents, warrants
\nand agrees as follows:<\/p>\n
23
\n 29<\/p>\n
4.1 ORGANIZATION AND RELATED MATTERS.<\/p>\n
Buyer is a corporation duly organized, validly existing and in good
\nstanding under the laws of the State of Delaware. Buyer has all necessary
\ncorporate power and authority to carry on its business as now being conducted.
\nBuyer has the necessary corporate power and authority to execute, deliver and
\nperform this Agreement.<\/p>\n
4.2 AUTHORIZATION.<\/p>\n
The execution, delivery and performance of this Agreement by Buyer have
\nbeen duly and validly authorized by the Board of Directors of Buyer and by all
\nother necessary corporate action on the part of Buyer. This Agreement has been
\nduly executed and delivered by Buyer and constitutes the legal, valid and
\nbinding obligation of Buyer, enforceable against Buyer in accordance with its
\nterms except as may be limited by bankruptcy, insolvency, reorganization,
\nmoratorium and other similar laws relating to or limiting creditors’ rights
\ngenerally and equitable principles.<\/p>\n
4.3 NO CONFLICTS.<\/p>\n
The execution, delivery and performance of this Agreement by Buyer will
\nnot violate the provisions of, or constitute a breach or default (whether upon
\nlapse of time and\/or the occurrence of any act or event or otherwise) under (a)
\nthe certificate of incorporation or bylaws of Buyer, (b) any Law or Order to
\nwhich Buyer is subject or (c) any Contract to which Buyer is a party that is
\nmaterial to the financial condition, results of operations or conduct of the
\nbusiness of Buyer, provided (as to clauses (b) and (c) respectively) that the
\nappropriate regulatory approvals set forth on Schedule 4.3 are received as
\ncontemplated by Section 7.1(b). Except as set forth in Schedule 4.3, the
\nexecution and delivery of this Agreement by Buyer and the performance of this
\nAgreement by Buyer will not require a filing or registration with, or the
\nissuance of any Permit or Approval by, any other third party or Governmental
\nEntity.<\/p>\n
4.4 NO BROKERS OR FINDERS.<\/p>\n
No agent, broker, finder or investment or commercial banker, or other
\nPerson or firms engaged by or acting on behalf of Buyer or its Affiliates in
\nconnection with the negotiation, execution or performance of this Agreement or
\nthe transactions contemplated by this Agreement, is or will be entitled to any
\nbroker’s or finder’s or similar fees or other commissions as a result of this
\nAgreement or such transactions, except Warburg Dillon Read LLC, as to which
\nBuyer shall have full responsibility and none of the Sellers or the Homebuilding
\nEntities shall have any liability.<\/p>\n
4.5 LEGAL PROCEEDINGS.<\/p>\n
Except as set forth in Schedule 4.5, there is no Order or Action pending
\nor to the knowledge of Buyer, threatened against or affecting Buyer that
\nindividually or when aggregated with one or more other Actions has or might
\nreasonably be expected to have a material adverse effect on Buyer’s ability to
\nperform this Agreement.<\/p>\n
24
\n 30<\/p>\n
4.6 INVESTMENT REPRESENTATION.<\/p>\n
Buyer is acquiring the Stock and Partnership Interests from Sellers for
\nBuyer’s own accounts for investment purposes only and not with a view to or for
\nsale in connection with the public distribution thereof. Buyer is knowledgeable
\nand experienced in the purchase of businesses and securities of the type
\ncontemplated by this Agreement and has the capacity to protect its own interest
\nin connection with the transactions contemplated hereby. Buyer acknowledges that
\nneither the Shares nor the Partnership Interests have been registered under the
\nSecurities Act of 1933, as amended, or qualified under any state securities or
\nblue sky laws.<\/p>\n
4.7 FINANCING.<\/p>\n
The Buyer has available sufficient funds to enable it to consummate the
\ntransactions contemplated hereby.<\/p>\n
4.8 CAPITAL STOCK.<\/p>\n
The shares of Buyer Common Stock to be issued as the stock portion of
\nthe Purchase Price have been duly authorized by all necessary corporate action
\non the part of the Buyer and, when issued pursuant to this Agreement, will be
\nvalidly issued, fully paid and nonassessable, and such shares will be issued
\nwithout any violation of preemptive rights.<\/p>\n
4.9 SEC FILINGS; FINANCIAL STATEMENTS.<\/p>\n
Buyer has delivered to the Sellers, in the form filed with the SEC, (i)
\nits Annual Report to Shareholders and Annual Report on Form 10-K for the fiscal
\nyear ended November 30, 1997, (ii) its Proxy Statement for Annual Meeting of
\nShareholders on April 2, 1998, (iii) its Quarterly Reports on Form 10-Q for the
\nquarters ended February 28, 1998, May 30, 1998, and August 30, 1998, (iv) its
\nCurrent Reports on Form 8-K, dated June 23, 1998 and August 14, 1998, and (v)
\nany amendments and supplements to any such reports filed by Buyer with the SEC
\n(collectively, the “Buyer SEC Reports”). The Buyer SEC Reports did not at the
\ntime they were filed (or if amended or superseded by a filing prior to the date
\nhereof, then on the date of such filing) contain any untrue statement of a
\nmaterial fact or omit to state a material fact necessary in order to make the
\nstatements therein, in the light of the circumstances under which they were
\nmade, not misleading. The consolidated financial statements of Buyer included in
\nthe Buyer SEC Reports comply as to form in all material respects with applicable
\naccounting requirements and the published rules and regulations of the SEC with
\nrespect thereto, have been prepared in accordance with GAAP (except, in the case
\nof unaudited consolidated quarterly statements, as permitted by Form 10-Q of the
\nSEC) applied on a consistent basis during the periods involved (except as may be
\nindicated in the notes thereto) and fairly present the consolidated financial
\nposition of Buyer and its consolidated subsidiaries as of the dates thereof and
\nthe consolidated results of their operations and cash flows for the periods then
\nended (subject, in the case of unaudited quarterly statements, to normal
\nyear-end audit adjustments). Neither Buyer nor any of its subsidiaries has any
\nmaterial liability of any nature, whether accrued, absolute, contingent or
\notherwise, except liabilities that (i) are reflected or disclosed in the most
\nrecent financial<\/p>\n
25
\n 31<\/p>\n
statements included in the Buyer SEC Reports, (ii) were incurred after August
\n30, 1998 in the ordinary course of business, or (iii) are set forth in Schedule
\n4.5 hereto. Since August 30, 1998, there has not been, occurred or arisen any
\nchange in or event affecting Buyer or any of its subsidiaries that has or is
\nreasonably expected to have a material adverse effect on Buyer, except as set
\nforth in Schedule 4.5.<\/p>\n
ARTICLE V<\/p>\n
COVENANTS PRIOR TO CLOSING<\/p>\n
5.1 ACCESS.<\/p>\n
Seller shall cause the Homebuilding Entities to authorize and permit
\nBuyer and its representatives (which term shall be deemed to include its
\nindependent accountants and counsel) to have reasonable access during normal
\nbusiness hours, upon reasonable notice and in such manner as will not
\nunreasonably interfere with the conduct of their respective businesses, to all
\nof their respective properties, books, records, operating instructions and
\nprocedures, Tax Returns and all other information with respect to the
\nHomebuilding Business as Buyer may from time to time reasonably request, and to
\nmake copies of such books, records and other documents and to discuss their
\nrespective businesses with such other Persons, including, without limitation,
\ntheir respective directors, officers, employees, accountants, counsel,
\nsuppliers, customers, and creditors, as Buyer considers necessary or appropriate
\nfor the purposes of familiarizing itself with the Homebuilding Business,
\nobtaining any necessary Approvals of or Permits for the transactions
\ncontemplated by this Agreement and conducting an evaluation of the organization
\nand Homebuilding Business. Without limiting the generality of the foregoing,
\nBuyer shall be entitled to conduct or cause to be conducted (at its expense) on
\nany real property of the Homebuilding Entities such soils and geological tests
\nand environmental inspections, audits and tests (including the taking of soils
\nand ground water samples) and such structural and other physical inspections as
\nBuyer shall deem necessary or useful in connection with the transactions
\ncontemplated by this Agreement. Buyer shall cause any damages resulting from any
\nsuch testing, inspection or audit to be repaired at Buyer’s sole cost, and Buyer
\nagrees to indemnify and hold the Sellers and the Homebuilding Entities harmless
\nfrom any loss, cost, expense or liability incurred by any Seller or Homebuilding
\nEntity relating to or arising out of the conduct of any such tests, inspections
\nor audits. Neither Buyer’s making nor omitting to make any such test,
\ninspection, or audit shall affect the representations and warranties of Sellers
\nor the conditions to Buyer’s obligations hereunder, or Seller’s indemnification
\nobligations.<\/p>\n
5.2 MATERIAL ADVERSE CHANGES.<\/p>\n
Sellers will promptly notify Buyer of any event of which such Seller
\nobtains knowledge which has had or is reasonably expected to have a material
\nadverse effect on the Homebuilding Business or which if known as of the date
\nhereof would have been required to be included on a Schedule to this Agreement.
\nNo such notification shall affect the representations <\/p>\n
26
\n 32<\/p>\n
or warranties of Sellers or the conditions to Buyer’s obligations hereunder, or
\nSeller’s indemnification obligations. Sellers will promptly notify Buyer of any
\nAction that commences or is threatened on or after the date hereof and before
\nthe Closing Date that involves a claim for damages in excess of $50,000 or seeks
\ninjunctive relief, specific performance, or other equitable remedies.<\/p>\n
5.3 CONDUCT OF BUSINESS.<\/p>\n
Sellers shall cause the Homebuilding Entities not to take, any of the
\nfollowing actions without the prior consent in writing of Buyer (which consent
\nshall not be unreasonably withheld, except that Buyer may give or withhold its
\nconsent in its sole discretion with respect to the matters specified in clauses
\n(f), (h), (i), (k), (l), (m), (n), (s) and (u)):<\/p>\n
(a) conduct the Homebuilding Business in any manner except in the
\nordinary course substantially as now conducted; or<\/p>\n
(b) amend, terminate, renew, fail to renew or renegotiate any Material
\nContract or default (or take or omit to take any action that, with or without
\nthe giving of notice or passage of time, would constitute a default) in any of
\nits obligations under any Material Contract or enter into any new Material
\nContract; or <\/p>\n
(c) terminate, amend or fail to renew any existing insurance coverage;
\nor <\/p>\n
(d) terminate or fail to renew or preserve any Permits; or <\/p>\n
(e) create, incur, assume or guarantee any long-term debt or capitalized
\nlease obligation of more than $250,000 in any specific case or $1,000,000 in the
\naggregate; or<\/p>\n
(f) create, incur, assume or guarantee any long-term debt or capitalized
\nlease obligation of more than $500,000 in any specific case or $2,000,000 in the
\naggregate, or assume or guarantee any debt or obligation of any person that is
\nnot one of the Homebuilding Entities; or<\/p>\n
(g) make any loan, guaranty or other extension of credit, or enter into
\nany commitment to make any loan, guaranty or other extension of credit, to or
\nfor the benefit of, or enter into any agreement for the acquisition or
\ndisposition of property from or to, any director, officer, employee,
\nstockholder, partner or any of their respective Associates or Affiliates of less
\nthan or equal to $500,000 in any specific case or $1,000,000 in the aggregate;
\nor <\/p>\n
(h) make any loan, guaranty or other extension of credit, or enter into
\nany commitment to make any loan, guaranty or other extension of credit, to or
\nfor the benefit of, or enter into any agreement for the acquisition or
\ndisposition of property from or to, any director, officer, employee,
\nstockholder, partner or any of their respective Associates or Affiliates of more
\nthan $500,000 in any specific case or $1,000,000 in the aggregate. <\/p>\n
(i) grant any general or uniform increase in the rates of pay or
\nbenefits to officers, directors or employees (or a class thereof) or any
\nincrease in salary or benefits of or pay <\/p>\n
27
\n 33<\/p>\n
any bonus to any officer, director, employee or agent, or enter into any new, or
\namend, supplement, or renew any existing, employment, collective bargaining,
\nseverance, change in control, bonus, profit sharing, deferred compensation,
\nfringe benefit, consultancy, or other employee benefit agreement or plan, or
\nincrease or accelerate any benefits payable under any of the foregoing; or <\/p>\n
(j) sell, transfer, mortgage, encumber or otherwise dispose of any
\nassets, except (i) for dispositions of property not greater than $250,000 in any
\nspecific case or $1,500,000 in the aggregate, (ii) the disposition of Excluded
\nAssets or (iii) in the ordinary course of business consistent with past
\npractice; or <\/p>\n
(k) sell, transfer, mortgage, encumber or otherwise dispose of any
\nassets, except (i) for dispositions of property not greater than $500,000 in any
\nspecific case or $3,000,000 in the aggregate, (ii) the disposition of Excluded
\nAssets or (iii) in the ordinary course of business consistent with past
\npractice; or <\/p>\n
(l) issue, sell, redeem or acquire for value, or agree to do so, any
\ndebt obligations or Equity Securities of any Homebuilding Entity; or <\/p>\n
(m) split, combine, dividend, distribute or reclassify any shares of the
\nEquity Securities of Management Corp., Branching Tree, Mather, Desert Inn or the
\nParent Partnerships; or declare, issue, make or pay any dividend or other
\ndistribution of assets, whether consisting of money, other personal property,
\nreal property or other thing of value, to the shareholders of Management Corp.
\nor Branching Tree, the members of Mather or Desert Inn or the partners of the
\nParent Partnerships, other (i) than the distribution of the Excluded Assets,
\n(ii) pursuant to those agreements existing on the date of this Agreement and
\nidentified on Schedules 2.3 or 2.4 and (iii) cash on hand so long as the Net
\nWorth of the Homebuilding Business of the Homebuilding Entities as of the
\nClosing Date is not less than $215 million; or <\/p>\n
(n) change or amend the charter documents or bylaws of Management Corp.
\nor Branching Tree or the governing agreements of Mather, Desert Inn or the
\nParent Partnerships or any of their Subsidiaries or merge, consolidate, transfer
\nsubstantially all the assets of (other than Excluded Assets), liquidate, or
\ndissolve any of the Homebuilding Entities; or <\/p>\n
(o) make any investment, by purchase, contributions to capital, property
\ntransfers, loan, or otherwise, in any other Person; or <\/p>\n
(p) make any Tax election or make any change in any method or period of
\naccounting or in any accounting policy, practice or procedure; or<\/p>\n
(q) introduce any new method of management or operation in respect of
\nthe Homebuilding Business; or <\/p>\n
(r) acquire or agree to acquire any assets the consideration for which
\nwould exceed $250,000 individually or $1,000,000 in the aggregate; or<\/p>\n
28
\n 34<\/p>\n
(s) acquire or agree to acquire any assets the consideration for which
\nwould exceed $500,000 individually or $2,000,000 in the aggregate; or<\/p>\n
(t) settle or compromise any Action; or <\/p>\n
(u) settle or consent to the entry in any Action of any Order that would
\nhave or reasonably be expected to have a material adverse effect on the
\nHomebuilding Business; or <\/p>\n
(v) agree to or make any commitment to take any actions prohibited by
\nthis Section 5.3.<\/p>\n
5.4 NOTIFICATION OF CERTAIN MATTERS.<\/p>\n
Each Seller shall give prompt written notice to Buyer, and Buyer shall
\ngive prompt written notice to Sellers, of (i) the occurrence, or failure to
\noccur, of any event that is reasonably likely to cause any representation or
\nwarranty contained in this Agreement to be untrue or inaccurate in any material
\nrespect (or with respect to those representations and warranties that are
\nqualified by reference to materiality or a material adverse effect, to be untrue
\nor inaccurate in any respect taking into account such qualification) at any time
\nfrom the date of this Agreement to the Closing Date and (ii) any failure of
\nBuyer or Sellers, as the case may be, to comply with or satisfy, in any material
\nrespect, any covenant, condition or agreement to be complied with or satisfied
\nby it under this Agreement.<\/p>\n
No such notification shall affect the representations or warranties of
\nthe parties or the conditions to their respective obligations hereunder, or
\ntheir respective indemnification obligations.<\/p>\n
5.5 PERMITS AND APPROVALS.<\/p>\n
(a) Sellers and Buyer each agree to cooperate and use their commercially
\nreasonable efforts to obtain (and will promptly prepare all registrations,
\nfilings and applications, requests and notices preliminary to all) Approvals and
\nPermits that may be necessary to consummate the transactions contemplated by
\nthis Agreement.<\/p>\n
(b) To the extent that the Approval of a third party with respect to any
\nMaterial Contract is required in connection with the transactions contemplated
\nby this Agreement, Sellers shall use its commercially reasonable efforts to
\nobtain such Approval prior to the Closing Date and in the event that any such
\nApproval is not obtained (but without limitation on Buyer’s rights under Section
\n7.2), Sellers shall cooperate with Buyer to ensure that Buyer obtains the
\nbenefits of each such Contract.<\/p>\n
5.6 PRESERVATION OF BUSINESS PRIOR TO CLOSING DATE.<\/p>\n
During the period beginning on the date hereof and ending on the Closing
\nDate, (a) Sellers will use their commercially reasonable efforts to preserve the
\nHomebuilding Business and to preserve the goodwill of employees, customers,
\nsuppliers and others having business relations with the Homebuilding Entities
\nand (b) Sellers and Buyer will consult with each other<\/p>\n
29
\n 35<\/p>\n
concerning, and Sellers will cooperate to keep available to Buyer, the services
\nof the officers and employees of the Homebuilding Entities that Buyer may wish
\nto have any Homebuilding Entity retain. <\/p>\n
5.7 GOVERNMENT FILINGS.<\/p>\n
Buyer will make and Sellers will make, and will cause the Homebuilding
\nEntities to make, any and all filings required under the Hart-Scott-Rodino Act.
\nSellers and Buyer shall furnish each other such necessary information and
\nreasonable assistance as the other may reasonably request in connection with its
\npreparation of necessary filings or submissions under the provisions of such
\nlaw, and shall provide each other a reasonable opportunity to review, prior to
\nfiling, any filing with a Governmental Entity related to this Agreement. Sellers
\nand Buyer will supply to each other copies of all correspondence, filings or
\ncommunications, including file memoranda evidencing telephonic conferences, by
\nsuch party or its affiliates with any Governmental Entity or members of its
\nstaff, with respect to the transactions contemplated by this Agreement and any
\nrelated or contemplated transactions, except for documents filed pursuant to
\nItem 4(c) of the Hart-Scott Rodino Notification and Report Form or
\ncommunications regarding the same.<\/p>\n
5.8 ELIMINATION OF INTERCOMPANY AND AFFILIATE LIABILITIES.<\/p>\n
No later than the Closing Date, Sellers shall purchase, cause to be
\nrepaid or (with respect to guarantees) assume liability for any and all loans or
\nother extensions of credit made or guaranteed by any Homebuilding Entity to or
\nfor the benefit of a Seller or any of such Seller’s Associates. At the Closing
\nDate, neither Buyer nor any Homebuilding Entity shall have any continuing
\ncommitment, obligation or liability of any kind with respect to any Seller or
\nany Associates of any Seller, except as set forth in Schedule 5.8.<\/p>\n
5.9 REPRESENTATIVE.<\/p>\n
Each Seller hereby appoints John M. Goodman as representative (the
\n“Representative”) to represent such Seller in connection with the transactions
\ncontemplated by this Agreement, and to take any and all action, and to receive
\nany and all notices, on Seller’s behalf hereunder that may be taken or received
\nby Seller under the terms hereof. Without giving notice to the Sellers, the
\nRepresentative shall have full and irrevocable authority on behalf of the
\nSellers to (i) deal with Buyer, (ii) accept and give notices and other
\ncommunications relating to this Agreement, (iii) settle any disputes relating to
\nthis Agreement, (iv) waive any condition to the obligations of the Sellers
\nincluded in this Agreement, (v) execute any document or instrument that the
\nRepresentative may deem necessary or desirable in the exercise of the authority
\ngranted under this Section, and (vi) act in connection with all matters arising
\nout of, based upon, or in connection with, this Agreement and the transactions
\ncontemplated hereby. Each Seller understands and agrees that the Representative
\nhas been appointed as the Representative by each of the other Sellers. Buyer
\nshall be entitled to rely on the advice, information and decisions of the
\nRepresentative evidenced by a writing signed by him without any obligation
\nindependently to verify, authenticate or seek the confirmation or approval of
\nthe Representative’s advice, information or decisions or any other facts from
\nSellers or any other Person. Any certificate or other document to be delivered
\nby Sellers at the Closing may be executed and delivered by the<\/p>\n
30
\n 36<\/p>\n
Representative on behalf of all Sellers and shall constitute a reaffirmation of
\nany representations herein as of the Closing by such Seller unless he, she or it
\notherwise notifies Buyer in writing on or prior to the Closing of any exceptions
\nthereto.<\/p>\n
5.10 EXCHANGE LISTING; REGISTRATION RIGHTS.<\/p>\n
Buyer will use its best efforts to cause the shares of Buyer Common
\nStock comprising the stock portion of the Purchase Price to be authorized for
\nlisting on the New York Stock Exchange, upon notice of issuance, prior to the
\nClosing Date. On the Closing Date, Buyer will enter into an agreement in
\nsubstantially the form of Exhibit E providing for registration rights upon the
\nterms and conditions set forth therein (the “Registration Rights Agreement”).<\/p>\n
5.11 SHAREHOLDERS AGREEMENT.<\/p>\n
On the Closing Date, Buyer and Sellers shall enter into a shareholders
\nagreement in substantially the form of Exhibit F hereto (the “Shareholder
\nAgreement”).<\/p>\n
5.12 COST SHARING AGREEMENTS AND OPTION AGREEMENT.<\/p>\n
On the Closing Date, Buyer and Sellers (or their designee(s)) shall
\nenter into cost sharing agreements with respect to the Highland\/Lytle Creek and
\nTerra Vista projects in substantially the forms of Exhibit G and H,
\nrespectively, hereto (collectively, the “Cost Sharing Agreements”), and an
\noption agreement with respect to the Sierra Lakes project in substantially the
\nform of Exhibit I hereto (the “Option Agreement”).<\/p>\n
5.13 EMPLOYEES.<\/p>\n
The parties agree to consult in good faith with each other prior to the
\nClosing and prior to soliciting Homebuilding Entities’ employees to determine
\nwhich employees of the Homebuilding Entities will remain with the Homebuilding
\nBusiness of the Homebuilding Entities and which employees of the Homebuilding
\nEntities will become employees of the non-Homebuilding Business of Sellers.
\nSellers shall provide to Buyer such information regarding the employees of the
\nHomebuilding Entities as Buyer may reasonably request. The parties agree to
\nconsult in good faith with each other prior to the Closing to determine which
\nemployees, if any, of the Homebuilding Entities need to be loaned on a
\nshort-term basis between them and the reasonable expense charges for any loaned
\nemployees.<\/p>\n
31
\n 37<\/p>\n
ARTICLE VI<\/p>\n
ADDITIONAL CONTINUING COVENANTS<\/p>\n
6.1 NONCOMPETITION.<\/p>\n
(a) Restrictions on Competitive Activities. Subject to the provisions of
\nSection 6.10, each Seller agrees that after the Closing, Buyer and the
\nHomebuilding Entities shall be entitled to the goodwill and going concern value
\nof the Homebuilding Business and to protect and preserve the same to the maximum
\nextent permitted by law. For these and other reasons and as an inducement to
\nBuyer to enter into this Agreement, each Seller, other than John M. Goodman,
\nagrees that for a period of four years after the Closing Date or one year after
\ntermination of that Seller’s employment or consulting agreement with Buyer or
\nany of the Homebuilding Entities, whichever is later, and in the case of John M.
\nGoodman, for a period of two years after the Closing Date, such Seller will not,
\nin the States of California or Nevada, directly or indirectly, for its own
\nbenefit or as agent for another carry on or participate in the ownership,
\nmanagement or control of, or be employed by, or consult for, or serve as a
\ndirector of, or otherwise render services to, the business of constructing or
\nselling single family homes of any business entity.<\/p>\n
(b) Exceptions. Nothing contained herein shall limit the right of a
\nSeller as an investor to hold and make investments in securities of any
\ncorporation or limited partnership that is registered on a national securities
\nexchange or admitted to trading privileges thereon or actively traded in a
\ngenerally recognized over-the-counter market, provided such Seller’s equity
\ninterest therein does not exceed 5% of the outstanding shares or interests in
\nsuch corporation or partnership.<\/p>\n
(c) Nonsolicitation. During the period of one year after the Closing
\nDate, Sellers and their affiliates (excluding the Homebuilding Entities after
\nthe Closing Date) shall refrain from soliciting for employment, directly or
\nindirectly, any then employees of the Homebuilding Entities. This prohibition
\nshall not extend to employing any such person who contacts Sellers or their
\naffiliates on his or her own initiative without any direct or indirect
\nsolicitation or encouragement from any Seller or its affiliates or employees (it
\nbeing understood that placing a general advertisement does not constitute
\nsolicitation). <\/p>\n
(d) Special Remedies and Enforcement. Each Seller recognizes and agrees
\nthat a breach by such Seller of any of the covenants set forth in this Section
\n6.1 could cause irreparable harm to Buyer, that Buyer’s remedies at law in the
\nevent of such breach would be inadequate, and that, accordingly, in the event of
\nsuch breach a restraining order or injunction or both may be issued against such
\nSeller, in addition to any other rights and remedies which are available to
\nBuyer. If this Section 6.1 is more restrictive than permitted by the Laws of the
\njurisdiction in which Buyer seeks enforcement hereof, this Section 6.1 shall be
\nlimited to the extent required to permit enforcement under such Laws. Without
\nlimiting the generality of the foregoing, the parties intend that the covenants
\ncontained in the preceding portions of this Section 6.1 shall be construed as a
\nseries of separate covenants, one for each state. Except for<\/p>\n
32
\n 38<\/p>\n
geographic coverage, each such separate covenant shall be deemed identical in
\nterms. If, in any judicial proceeding, a court shall refuse to enforce any of
\nthe separate covenants deemed included in this Section 6.1, then such
\nunenforceable covenant shall be deemed eliminated from these provisions for the
\npurpose of those proceedings to the extent necessary to permit the remaining
\nseparate covenants to be enforced. <\/p>\n
6.2 NON-DISCLOSURE OF PROPRIETARY DATA.<\/p>\n
Each Seller agrees that such Seller will not, at any time, make use of,
\ndivulge or otherwise disclose, directly or indirectly, any trade secret or other
\nproprietary data concerning the business or policies of any Homebuilding Entity
\nas they relate to the Homebuilding Business, other than form documents used by
\nany Homebuilding Entity, or of Buyer obtained in connection with the
\nnegotiation, execution, or performance of this Agreement. In addition, each
\nSeller agrees not to make use of, divulge or otherwise disclose, directly or
\nindirectly, to persons other than Buyer, any confidential information concerning
\nthe business or policies of any Homebuilding Entity as they relate to the
\nHomebuilding Business which may have been learned in any such capacity or of
\nBuyer which may have been learned in connection with the negotiation, execution,
\nor performance of this Agreement. The Seller’s obligations under this Section
\nwith respect to any trade secret, other proprietary data, or confidential
\ninformation of Buyer shall survive the termination of this Agreement if this
\nAgreement is terminated prior to the Closing.<\/p>\n
6.3 TAX RETURNS.<\/p>\n
(a) The Sellers shall cause to be prepared and timely filed (or provided
\nto Buyer for execution and filing, if applicable) when due (taking into account
\nall extensions properly obtained) all income and franchise Tax Returns of the
\nHomebuilding Entities for taxable periods ending on or before the Closing Date,
\nand all other Tax Returns required to be filed by or on behalf of such entities
\non or before the Closing Date. All Tax Returns described in this Section 6.3(a)
\nshall be prepared and filed in a manner consistent with past practice and, on
\nsuch Tax Returns, no position shall be taken, election made or method adopted
\nwithout Buyer’s written consent (which shall not be unreasonably withheld) that
\nis inconsistent with positions taken, elections made or methods used in
\npreparing and filing similar Tax Returns in prior periods (including, but not
\nlimited to, positions, elections or methods which would have the effect of
\ndeferring income to periods after the Closing Date).<\/p>\n
(b) Buyer shall cause to be prepared and timely filed all Tax Returns of
\nthe Homebuilding Entities that are not described in Section 6.3(a) above. If any
\nsuch Tax Return covers a period beginning before the Closing Date, Sellers shall
\nhave the right to review and approve (which approval shall not be unreasonably
\nwithheld) such Tax Return before it is filed if it could affect the Sellers’ or
\nShareholders’ liability for Taxes to any taxing authority or their
\nindemnification obligations to Buyer under this Agreement. Any Tax Return
\ndescribed in the preceding sentence shall be provided to the Sellers not less
\nthan 14 days prior to the proposed filing date together with any underlying
\ninformation or records requested by the Sellers to assist their review.<\/p>\n
33
\n 39<\/p>\n
6.4 TAX COOPERATION.<\/p>\n
(a) After the Closing, the Sellers and the Buyer shall, and shall cause
\ntheir respective Affiliates to, cooperate fully with each other in the
\npreparation and filing of all Tax Returns and any Tax investigation, audit or
\nother proceeding respecting the Homebuilding Business (a “Tax Proceeding”) and
\nshall provide, or cause to be provided, any records and other information in
\ntheir possession or control or in the control of their agents reasonably
\nrequested by such other party in connection therewith as well as access to, and
\nthe cooperation of, their respective auditors. Buyer shall notify Sellers in
\nwriting promptly upon receipt by Buyer or any Affiliate of any notice of any
\npending or threatened audits or assessments relating to Taxes with respect to
\nany Homebuilding Entity other than Taxes as to which Sellers or the Shareholders
\nhave no indemnification obligation or other liability relating to Taxes. Sellers
\nshall have the right to control the handling and disposition of such audit and
\nany administrative or court proceeding relating thereto (and to employ counsel
\nof their choice at their expense) to the extent that such audit or proceeding
\nmight result in increased Tax liabilities of the Sellers or the Shareholders for
\nthe period covered by the Tax Proceeding or an increase in their indemnification
\nobligations to Buyer under this Agreement; provided, however, that Buyer may
\nmonitor the Tax Proceeding. Sellers shall not agree to any settlement concerning
\nTaxes of any Homebuilding Entity for any taxable period which would result in an
\nincrease in Taxes of Buyer or any Homebuilding Entity for any taxable period
\nending after the Closing Date, without the prior written consent of the Buyer
\n(which consent shall not be unreasonably withheld). The Buyer and the Sellers
\nshall bear their respective costs and expenses in connection with any Tax
\nProceeding. Any information obtained pursuant to this Section 6.4 or pursuant to
\nany other Section hereof providing for the sharing of information or the review
\nof any Tax Return or other information relating to Taxes shall be subject to
\nSection 10.9.<\/p>\n
(b) At Buyer’s election, made not less than 60 days before any such
\nelection must be made, (i) the Management Corp. Sellers and Branching Tree
\nSellers, jointly with Buyer, shall make timely and irrevocable elections under
\nSection 338(h)(10) of the Code and similar elections under any applicable state
\nor local Tax laws for Management Corp. and Branching Tree (the “Section
\n338(h)(10) Elections”), (ii) the Partnership Sellers shall cause the Parent
\nPartnerships and their Subsidiaries to make, timely and irrevocable elections
\nunder Section 754 of the Code and similar elections under any applicable state
\nor local Tax laws for the Parent Partnerships and their Subsidiaries, and (iii)
\nthe Mather Sellers and Desert Inn Sellers shall cause Mather, Desert Inn, and
\ntheir Subsidiaries to make timely and irrevocable elections under Section 754 of
\nthe Code and similar elections under any applicable state or local Tax laws for
\nMather, Desert Inn, and their Subsidiaries (collectively with the elections for
\nthe Parent Partnerships and their Subsidiaries, the “Section 754 Elections” and
\ncollectively with the Section 338(h)(10) Elections, the “Tax Elections”). If the
\nTax Elections are made, Buyer, Sellers, and the Homebuilding Entities shall
\nreport the transactions contemplated herein consistently with the Tax Elections
\nand shall take no position contrary thereto unless and to the extent required to
\ndo so pursuant to a final determination of liability in respect of a Tax that,
\nunder applicable law, is not subject to further appeal, review, or modification
\nthrough proceedings or otherwise). To the extent possible, Buyer, Sellers, and
\nthe Homebuilding Entities, as applicable, shall execute at the Closing any and
\nall documents, statements, and other forms that are required to be submitted to<\/p>\n
34
\n 40<\/p>\n
any Taxing authority in connection with the Tax Elections (the “Tax Election
\nForms”). If any Tax Election Forms are not executed at the Closing, Buyer,
\nSellers, and the Homebuilding Entities, as applicable, shall prepare and
\ncomplete each such Tax Election Form no later than 30 days before the date such
\nTax Election Form is required to be filed, shall cause such Tax Election Forms
\nto be duly executed by their respective authorized persons, and shall timely
\nfile such Tax Election Forms in accordance with applicable Tax laws.<\/p>\n
(c) Buyer and Sellers agree to use their best efforts to agree upon a
\nschedule and supporting sub-allocation schedules, in substantially the form of
\n(but without regard to the specific numbers on) Schedule 6.4(c) hereto
\n(collectively the “Allocation Agreement”), and Sellers and Buyer agree to cause
\neach of the Homebuilding Entities to agree to the Allocation Agreement insofar
\nas the Allocation Agreement addresses them, (i) to allocate the Management Corp.
\nStock Purchase Price and the liabilities of Management Corp. (and other relevant
\nitems) to the assets of Management Corp. and the Branching Tree Stock Purchase
\nPrice and liabilities of Branching Tree (and other relevant items) to the assets
\nof Branching Tree, in both cases for all applicable Tax purposes, including the
\nSection 338(h)(10) Elections, and (ii) to make and allocate the basis
\nadjustments to the assets of Mather, the assets of Desert Inn and its
\nSubsidiary, and the assets of the Parent Partnerships and their respective
\nSubsidiaries, in each case for all applicable Tax purposes, including the
\nSection 754 Elections and the allocation of inside basis adjustments resulting
\nfrom the Section 754 Elections. Sellers shall initially prepare the schedules
\nsetting forth the allocations described above and submit the proposed
\nallocations to Buyer within the later of (x) 30 days after the date of delivery
\nto Buyer of the 1998 audited financial statements referred to in Section 6.8
\nhereof, and (y) 30 days after the final determination of the adjustment to the
\nPurchase Price pursuant to Section 1.6 hereof, but in no event later than 120
\ndays after the Closing Date. If, within 30 days after Sellers’ submission, Buyer
\nhas not objected in writing to such allocation, specifying in reasonable detail
\nthe nature and amount of the disagreement, Sellers’ proposed allocation shall
\nbecome the Allocation Agreement. If Buyer objects, then unless Buyer and Sellers
\nresolve such disagreement within 10 days after delivery of Buyer’s notice of
\ndisagreement, the disagreement shall be resolved by an accounting firm chosen as
\nstated in Section 1.6. Such accounting firm shall resolve such disagreement
\nwithin 30 days of submission of the disagreement to it. The determination of
\nsuch accounting firm shall be final and binding on Buyer and Sellers (absent
\nmanifest error in calculations) and the fees and expenses of such accounting
\nfirm shall be borne equally by Sellers, on the one hand, and Buyer, on the other
\nhand. Notwithstanding the foregoing, Buyer and Sellers hereby agree that (A)
\nsubject to any adjustment imposed by clause (E) below to avoid suspended basis,
\n(1) unless either the “Goodwill Cap” imposed by (B) below or the “Goodwill
\nFloor” imposed by clause (C) below applies, an amount equal to 75% of the Basis
\nIncrease (defined below) shall be allocated on the Allocation Agreement to
\ngoodwill, and 25% of the Basis Increase shall be allocated on the Allocation
\nAgreement to real property inventory, and (2) if either the Goodwill Cap or the
\nGoodwill Floor applies, then the amount of the Basis Increase allocated to
\ngoodwill shall be equal to the Goodwill Cap or the Goodwill Floor, as
\napplicable, and the amount of the Basis Increase allocated to real property
\ninventory shall be increased (if the Goodwill Cap applies) or decreased (if the
\nGoodwill Floor applies) accordingly from the 25% amount otherwise allocable; (B)
\nthe aggregate amount of the Basis Increase that is allocated on the Allocation
\nAgreement to goodwill and all other assets that would be Class IV or Class V
\nassets within the meaning of the<\/p>\n
35
\n 41<\/p>\n
Treasury Regulations under Section 338 of the Code (collectively, “Goodwill”)
\nshall not exceed an amount (the “Goodwill Cap”) equal to 36% of the Purchase
\nPrice (as adjusted pursuant to Section 1.6); (C) the aggregate amount of the
\nBasis Increase that is allocated to Goodwill shall not be less than an amount
\n(the “Goodwill Floor”) equal to the lesser of (1) 30% of the Purchase Price (as
\nadjusted pursuant to Section 1.6) and (2) the Basis Increase; (D) 65% of the
\namount allocated to real property inventory pursuant to clause (A) shall be
\nallocated on the Allocation Agreement to real property inventory located in
\nCalifornia; and (E) the parties will use their best efforts to cause the
\nallocations to be made such that no suspended basis adjustments result, but
\nnotwithstanding clauses (A) through (D) above any amount otherwise allocable to
\ninventory under clause (A) that would result in a suspended basis will instead
\nbe allocated to goodwill. “Basis Increase” means the aggregate net increase to
\nthe tax basis of the assets of the Homebuilding Entities resulting from the
\nSection 754 Elections and the Section 338(h)(10) Elections.<\/p>\n
6.5 OTHER COOPERATION.<\/p>\n
After the Closing, the Buyer will afford the Sellers, and their
\nrespective accountants, counsel and other representatives, reasonable access
\nduring normal business hours to the books and records of the Homebuilding
\nEntities for the periods prior to the Closing. Sellers, or their respective
\nrepresentatives may, at such Seller’s own expense, make copies of such books and
\nrecords.<\/p>\n
6.6 EMPLOYEES AND EMPLOYEE BENEFITS. <\/p>\n
Buyer shall provide, or cause the Homebuilding Entities to provide,
\nemployee benefits to the Homebuilding Entities employees who are retained after
\nthe Closing Date that are at least as favorable to such employees in the
\naggregate as the benefits provided by the Homebuilding Entities to their
\nemployees as of the date of this Agreement.<\/p>\n
6.7 LEWIS NAME AND MARK LICENSE.<\/p>\n
Upon the Closing, Buyer, Branching Tree and Sellers will enter into an
\nagreement in substantially the form of Exhibit J hereto (the “License
\nAgreement”). Nothing in this Agreement shall prohibit Sellers or their
\naffiliates from using the name “Lewis” alone or in combination with any of the
\nfollowing words: Industrial, Commercial, Retail, Apartment Communities,
\nRetirement, Asset Management, Family Asset Management, Holdings, Family Holdings
\nand any name consisting of initials, and in each case such names may include the
\nwords “Company,” “Inc.,” “LLC,” or similar words.<\/p>\n
6.8 FISCAL 1998 AUDITED FINANCIAL STATEMENTS.<\/p>\n
As soon as practicable after the Closing, and in any event within 60
\ndays following the Closing Date, Sellers shall cause to be delivered to Buyer a
\ncombined balance sheet for the Homebuilding Business of the Homebuilding
\nEntities as of December 31, 1998 and related combined statements of operations,
\nequity and cash flows of the Homebuilding Business of the Homebuilding Entities
\nfor the year then ended, all examined by Ernst & Young LLP (or<\/p>\n
36
\n 42<\/p>\n
another independent public accounting firm selected by mutual agreement of the
\nSellers and Buyer) whose audit report thereon shall be included with such
\nstatements, prepared in conformity with GAAP applied on a basis consistent with
\nthe audited financial statements referred to in Section 7.2(g). Buyer shall
\ncooperate fully with Sellers and shall provide Sellers with access to the books
\nand records of the Homebuilding Entities and such other assistance as Sellers
\nreasonably request (including, without limitation, assignment of Buyer’s or
\nHomebuilding Entities’ personnel to the project). Buyer will reimburse Sellers
\nupon request 50% of all reasonable out-of-pocket costs and expenses actually
\nincurred by Sellers in the preparation of such statements.<\/p>\n
6.9 TENANT LISTS.<\/p>\n
At the Closing, Sellers shall deliver to Buyer a list of the then
\ncurrent tenants of apartment buildings owned by Sellers or their Affiliates who
\nare entitled to participate in Sellers or their Affiliates “Rent to Own”
\nprogram. For so long as both Buyer and Sellers, in their respective sole
\ndiscretion, determine to continue to participate in the “Rent to Own” program,
\nSellers will provide to Buyer at least semiannually a list of tenants of
\napartment buildings owned by Sellers or their Affiliates who are entitled to
\nparticipate in such program.<\/p>\n
6.10 BUYER’S RIGHT OF FIRST OFFER.<\/p>\n
(a) Right of First Offer. Restricted Party agrees that during the period
\nfrom the Closing Date to the fourth anniversary of the Closing Date (the “Right
\nof First Offer Period”), the Restricted Party shall not, and the Restricted
\nParty shall cause any Controlled Entity not to, offer to sell or sell, or
\npropose to enter into any joint venture with respect to, any Covered Properties
\nwithout first offering such Covered Properties for sale or joint venture to
\nBuyer pursuant to the procedures described below (the “Right of First Offer”).
\nNotwithstanding the foregoing, neither the Restricted Party nor the Controlled
\nEntity shall be required to offer any Covered Properties to Buyer hereunder if
\nsuch Covered Properties (i) are being transferred to another Controlled Entity
\nor to any other Seller, or (ii) if such Covered Properties consists of 20 or
\nfewer lots (provided that not more than 40 lots may be excluded from the Right
\nof First Offer pursuant to this clause (ii) during any calendar year) or (iii)
\nthe project in which the Covered Lots is located consists of 20 or fewer lots.
\nFor the purposes of this Section 6.10, (A) “Restricted Party” means the Seller
\nwhich is developing the Covered Property in question; (B) “Covered Properties”
\nmeans any for sale residential lots that are developed by a Restricted Party or
\nany Controlled Entity in California or Nevada, whether for attached or detached
\nhousing, other than lots to be sold for $300,000 or more or to a governmental
\nentity; and (C) “Controlled Entity” means any entity in which direct or indirect
\nbeneficial ownership (as described in Rule 13d-3 under the Securities Exchange
\nAct of 1934) of voting securities represents at least 51% of the outstanding
\nvoting power of a Person is held by one or more Restricted Parties. In the event
\nthat a Restricted Party or a Controlled Entity is developing a mixed use
\nproject, only the lots included therein that would constitute Covered Properties
\nas defined above shall be deemed Covered Properties.<\/p>\n
(b) Offer. Prior to offering for sale or joint venture any Covered
\nProperties, the Restricted Party shall (or the Restricted Party shall cause the
\nControlled Entity to) provide <\/p>\n
37
\n 43<\/p>\n
written notice to Buyer describing such Covered Properties (the “Offered
\nProperties”) and stating the lot prices or joint venture terms, whether such
\nOffered Properties are being offered as finished lots, mapped lots or in another
\nentitlement state, and other material terms at which the Restricted Party (or
\nthe Controlled Entity) offers to sell or joint venture the Offered Properties to
\nBuyer (the “Offer”).<\/p>\n
(c) Evaluation Notice. Within ten (10) days following receipt of the
\nInitial Offer, Buyer shall notify the Restricted Party in writing whether or not
\nBuyer intends to evaluate the Offered Properties (an “Evaluation Notice”). If
\nthe Evaluation Notice indicates that Buyer does not wish to evaluate the Offered
\nProperties or if Buyer fails to deliver an Evaluation Notice to the Restricted
\nParty within such ten (10) day period, the Restricted Party (or the Controlled
\nEntity) shall be free to negotiate and conclude a sale or joint venture, as
\nspecified in the Offer, of the Offered Properties with other Persons for a
\nperiod of one (1) year following receipt by the Buyer of the Offer. If the
\nEvaluation Notice is received by the Restricted Party within such ten (10) day
\nperiod and it indicates that Buyer wishes to evaluate the Offered Properties,
\nthen for thirty (30) days following receipt by the Restricted Party of the
\nEvaluation Notice, Buyer shall have the right to evaluate the Offered Properties
\n(the “Evaluation Period”) and the remainder of this Section 6.10 shall apply.<\/p>\n
(d) Certain Information. During the first ten (10) days of the
\nEvaluation Period, the Restricted Party shall, or shall cause the Controlled
\nEntity to, promptly provide Buyer with such documents and information concerning
\nthe Offered Properties as Buyer shall reasonably request to the extent such
\ndocuments and information are possessed by or reasonably available (without cost
\nor expense) to the Restricted Party and the Controlled Entity. The type of
\ninformation to be provided shall include the square footage minimums applicable
\nto such lots and other restrictions (including deed restrictions, if applicable)
\nrelating to such lots. Neither the Restricted Party nor the Controlled Entity
\nmakes or shall be deemed to make any representation or warranty as to the
\naccuracy or completeness of such documents and information. Buyer will maintain
\nthe confidentiality of such documents and information, provided that this will
\nnot prevent disclosure by Buyer to the extent that such disclosure is required
\nby law or court order. <\/p>\n
(e) Acceptance; Rejection; Matching. Prior to the end of the Evaluation
\nPeriod, Buyer shall either accept or reject the Offer. If Buyer accepts the
\nOffer, the Restricted Party and Buyer shall use their, and the Restricted Party
\nshall cause the Controlled Entity to use its, good faith efforts to conclude the
\nsale or joint venture, as the case may be, of such Offered Properties on the
\nterms contained in the Offer as expeditiously as practicable. If Buyer rejects
\nthe Offer, the Restricted Party (or the Controlled Party) shall be free to
\nnegotiate with, and sell or joint venture, as specified in the Offer, the
\nOffered Properties to, other Persons provided that: <\/p>\n
(i) the Restricted Party may not (or the Restricted Party shall
\n cause the Controlled Entity not to) accept any offer to purchase or
\n joint venture, as the case may be, the Offered Properties from any other
\n Person during the Right of First Offer Period without first re-offering
\n the Offered Properties on the same terms to Buyer if (a) the other offer
\n contains a closing sales price for the Offered Properties that is less
\n than the closing sales price contained in the Offer or, if the Offer
\n relates to a joint venture, contains terms in the aggregate less
\n favorable to the Restricted Party (or the Controlled Entity), (b) the<\/p>\n
38
\n 44<\/p>\n
Restricted Party (or the Controlled Entity) changes the entitlement
\n state of the Offered Properties, or (c) the other offer is for the
\n purchase of the Offered Properties and the Offer was for a joint venture
\n of the Offered Properties, or vice versa. For this purpose, if the price
\n contained in either the Offer or in the other offer is payable over time
\n in whole or in part (the “financed portion”), then the present value of
\n the financed portion shall be calculated using an 8% discount rate, and
\n such present value shall be deemed to be included in the “price” for
\n comparison purposes; and<\/p>\n
(ii) the Restricted Party shall be required to give (or the
\n Restricted Party shall cause the Controlled Entity to give) to Buyer ten
\n (10) days to match any offer described in Section 6.10(e)(i) above.<\/p>\n
(f) Reoffer in Certain Circumstance. Subject to the terms of Section
\n6.10(g), the Restricted Party shall be required to (and the Restricted Party
\nshall cause the Controlled Entity to) offer Buyer another Evaluation Period in
\naccordance with this Section 6.10 with respect to any Offered Properties which
\nthe Restricted Party or a Controlled Entity, as the case may be, is continuing
\nto offer for sale or propose to joint venture if such Offered Properties have
\nnot been sold or joint ventured by the later of one (1) year after the
\nexpiration of (i) the previous Evaluation Period with respect to such Offered
\nProperties or (ii) if applicable, to such Offered Properties, the ten (10) day
\nmatch period described in Section 6.10(e)(ii).<\/p>\n
(g) Termination of Right of First Offer. In the event of a breach or
\ndefault by Buyer under (i) an agreement for purchase and sale or joint venture
\nfor any of the Offered Properties or (ii) any obligations or restrictions
\nimposed by the documents of conveyance of any Offered Properties to Buyer (the
\nOffered Properties described in (i) or (ii) being the “Subject Offered
\nProperties”) and such breach or default is not cured within any applicable cure
\nperiod provided in the applicable agreement or document and after any notice
\nrequired by any such agreement or document has been given, the provisions of
\nthis Section 6.10 shall automatically terminate and be of no further force and
\neffect with respect to all Subject Offered Properties and with respect to all
\nother Covered Properties located in the project(s) in which the Subject Offered
\nProperties are located. <\/p>\n
(h) No Obligation to Sell. It is understood that neither the Restricted
\nParty nor any Controlled Entity has an obligation to market or sell any Covered
\nProperties (provided that the foregoing shall not relieve the Restricted Party
\nfrom complying with this Section 6.10 if it decides to offer for sale any
\nCovered Properties) or to accept any offer made by Buyer. <\/p>\n
(i) Sierra Lakes Adjacent Property. Without Buyer’s consent in its sole
\ndiscretion, Sellers will not enter into any joint venture, partnership, or
\nsimilar agreement with a third party with respect to the approximately 135-acre
\nproperty adjacent to the Sierra Lakes property, if such agreement would prevent
\nSellers from offering such property to Buyer in accordance with this Section
\n6.10.<\/p>\n
39
\n 45<\/p>\n
ARTICLE VII<\/p>\n
CONDITIONS OF PURCHASE<\/p>\n
7.1 GENERAL CONDITIONS.<\/p>\n
The obligations of the parties to effect the Closing shall be subject to
\nthe following conditions unless waived in writing by all parties:<\/p>\n
(a) No Orders, Legal Proceedings. No Law or Order shall have been
\nenacted, entered, issued, promulgated or enforced by any Governmental Entity,
\nnor shall any Action by a Governmental Entity have been instituted and remain
\npending at what would otherwise be the Closing Date, which prohibits or
\nrestricts the transactions contemplated by this Agreement.<\/p>\n
(b) Approvals. All Permits and Approvals required to be obtained from
\nany Governmental Entity shall have been received or obtained on or prior to the
\nClosing Date and any applicable waiting period under the Hart-Scott-Rodino Act
\nshall have expired or been terminated.<\/p>\n
(c) Removal and Inclusion of Assets and Liabilities. The Excluded Assets
\nshall have been distributed and the Excluded Liabilities shall have been assumed
\nby Sellers, and the Included Assets and Included Liabilities shall have been
\ntransferred to and assumed by the Homebuilding Entities, all in form and
\nsubstance reasonably satisfactory to Sellers and Buyer, without the imposition
\nor any tax or other adverse tax consequences to the Homebuilding Entities;
\nprovided, however, that if Sellers are unable to distribute any of the Excluded
\nAssets or assume the Excluded Liabilities or transfer the Included Assets and
\nIncluded Liabilities prior to the Closing Date, Buyer will, and will cause the
\nHomebuilding Entities to, cooperate with Sellers after the Closing to ensure
\nthat any such transfers and assumptions are effected as soon as practicable. <\/p>\n
(d) Execution and Delivery of Agreements. Each of the Cost Sharing
\nAgreements, License Agreement, Option Agreement, Registration Rights Agreement,
\nShareholders Agreement and Consulting and Noncompetition Agreement between Buyer
\nand John M. Goodman, in the form of Exhibit O (it being understood, however,
\nthat only Exhibit A to such Consulting and Noncompetition Agreement is subject
\nto completion, which Buyer and Mr. Goodman shall proceed to do reasonably and in
\ngood faith), shall have been executed and delivered by the parties thereto and
\nthe employment agreements, dated the date of this Agreement, and executed by
\nBuyer or a Homebuilding Entity and the persons named on Schedule 7.1(d) shall be
\nin full force and effect.<\/p>\n
7.2 CONDITIONS TO OBLIGATIONS OF BUYER.<\/p>\n
The obligations of Buyer to effect the Closing shall be subject to the
\nfollowing conditions except to the extent waived in writing by Buyer:<\/p>\n
40
\n 46<\/p>\n
(a) Representations and Warranties and Covenants of Sellers. The
\nrepresentations and warranties of Sellers herein contained (as qualified by
\nmatters set forth as exceptions thereto in the Disclosure Schedule of Sellers)
\nshall be true in all material respects (except for such representations and
\nwarranties as are qualified by their terms by reference to materiality, a
\nmaterial adverse change or a material adverse effect, which representations and
\nwarranties as so qualified shall be true in all respects) at the Closing Date
\nwith the same effect as though made at such time; Sellers shall have performed
\nall obligations and complied with all covenants and conditions required by this
\nAgreement to be performed or complied with by it at or prior to the Closing Date
\n(except for such failures to perform as have not had and are not reasonably
\nexpected to have, individually or in the aggregate, a material adverse effect
\nwith respect to the Homebuilding Entities or to adversely affect the ability of
\nSellers to consummate the transactions contemplated by this Agreement); and
\nSellers shall have delivered to Buyer a certificate of Sellers in form and
\nsubstance satisfactory to Buyer, dated the Closing Date, and signed by the
\nRepresentative, to such effect; provided, however, that if any exceptions are
\nnoted on the certificate of the Sellers, which would otherwise have entitled
\nBuyer to elect not to close, and Buyer elects to close notwithstanding the
\nexceptions noted, Buyer shall have irrevocably waived any indemnification rights
\nunder Article IX with respect to any reasonably forseeable Losses arising from
\nor relating to any of the noted exceptions. Sellers shall use their reasonable
\nefforts to provide a draft of such certificate, with any exceptions known to
\nSellers at that time, to Buyer at least ten business days prior to the Closing
\nDate.<\/p>\n
(b) Opinion of Counsel. Buyer shall receive at the Closing from
\nO’Melveny & Myers LLP and Kenneth P. Corhan, Esq., General Counsel to Management
\nCorp., opinions dated the Closing Date, in form and substance substantially as
\nset forth in Exhibits K and L, respectively.<\/p>\n
(c) Consents. Sellers shall have obtained and provided to Buyer the
\nApprovals of third parties set forth on Schedule 2.10 in form and substance
\nreasonably acceptable to Buyer.<\/p>\n
(d) Resignation of Directors and Certain Officers. The directors and
\nofficers of Management Corp., Branching Tree, Mather and Desert Inn listed in a
\nletter to be delivered by Buyer to Sellers not less than 10 days prior to the
\nClosing Date, shall have submitted their resignations in writing to Management
\nCorp., Branching Tree, Mather, and Desert Inn, as the case may be. Such
\nresignations shall be effective as of the Closing.<\/p>\n
(e) Delivery of Stock, Member Interests and Partnership Interests and
\nOther Deliveries. All Sellers shall have delivered for sale to Buyer on or
\nbefore the Closing, stock certificates representing all shares of Stock as
\ncontemplated hereby and Bills of Sale representing all Member Interests and
\nPartnership Interests as contemplated hereby, and such other customary closing
\ndocuments as Buyer may reasonably request for the consummation of the
\ntransactions contemplated hereby. <\/p>\n
(f) Release from Obligations. Buyer and each of the Homebuilding
\nEntities shall have been released from any liability with respect to the
\nobligations identified in Schedule 7.2(f) by instruments reasonably acceptable
\nto Buyer.<\/p>\n
41
\n 47<\/p>\n
(g) Audited Financial Statements. Sellers shall have delivered to Buyer
\naudited combined balance sheets for the Homebuilding Business of the
\nHomebuilding Entities as of December 31, 1996 and 1997, and related audited
\ncombined statements of operations, equity, and cash flows of the Homebuilding
\nBusiness of the Homebuilding Entities for the years ended December 31, 1996 and
\n1997, along with the Auditor’s audit report thereon (collectively, the “Audited
\nHomebuilding Financial Statements”), prepared in conformity with GAAP applied on
\na consistent basis for the periods reflected therein, and such Audited
\nHomebuilding Financial Statements shall not reflect any material adverse change
\nin the financial position or results of operations of the Homebuilding Entities
\nas of or for the year ended December 31, 1997 from the financial position and
\nresults of operations of the Homebuilding Entities reflected in the Homebuilding
\nLine of Business Financial Information as of and for the year ended December 31,
\n1997. <\/p>\n
7.3 CONDITIONS TO OBLIGATIONS OF SELLERS.<\/p>\n
The obligations of Sellers to effect the Closing shall be subject to the
\nfollowing conditions, except to the extent waived in writing by Sellers:<\/p>\n
(a) Representations and Warranties and Covenants of Buyer. The
\nrepresentations and warranties of Buyer herein contained (as qualified by
\nmatters set forth as exceptions thereto in the Disclosure Schedule of Buyer)
\nshall be true in all material respects (except for such representations and
\nwarranties as are qualified by their terms by reference to materiality, a
\nmaterial adverse change, or a material adverse effect, which representations and
\nwarranties as so qualified shall be true in all respects) at the Closing Date
\nwith the same effect as though made at such time; Buyer shall have in performed
\nall obligations and complied with all covenants and conditions required by this
\nAgreement to be performed or complied with by it at or prior to the Closing Date
\n(except for such failures to perform as have not had and are not reasonably
\nexpected to have, individually or in the aggregate, a material adverse effect
\nwith respect to Buyer or to adversely affect the ability of Buyer to consummate
\nthe transactions contemplated by this Agreement); and Buyer shall have delivered
\nto Sellers a certificate of Buyer in form and substance satisfactory to Sellers,
\ndated the Closing Date and signed by its chief executive officer and chief
\nfinancial officer, to such effect; provided, however, that if any exceptions are
\nnoted on the certificate of Buyer, which would otherwise have entitled Sellers
\nto elect not to close, and Sellers elect to close notwithstanding the exceptions
\nnoted, Sellers shall have irrevocably waived any indemnification rights under
\nArticle IX with respect to any reasonably forseeable Losses arising from or
\nrelating to any of the noted exceptions. Buyer shall use its reasonable efforts
\nto provide a draft of such certificate, with any exceptions known to Buyer at
\nthat time, to Sellers at least ten business days prior to the Closing Date.<\/p>\n
(b) Consents. Buyer shall have obtained all Approvals of third parties
\nset forth on Schedule 4.3 in form and substance reasonably acceptable to
\nSellers.<\/p>\n
(c) Opinion of Counsel. Seller shall receive at the Closing from Munger,
\nTolles & Olson LLP and Barton P. Pachino, Senior Vice President, General Counsel
\nof Buyer, opinions dated the Closing Date, in form and substance substantially
\nas set forth in Exhibits M and N, respectively. <\/p>\n
42
\n 48<\/p>\n
(d) Assumption of Guarantees; Other Deliveries. Buyer shall have assumed
\nthe guarantees identified in Schedule 7.3(d) by instruments reasonably
\nacceptable to Sellers that fully and completely release each Seller and
\nShareholder from any liability under said guarantees, and shall have delivered
\nto Sellers such other customary closing documents as Sellers may reasonably
\nrequest for the consummation of the transactions contemplated hereby.<\/p>\n
ARTICLE VIII<\/p>\n
TERMINATION OF OBLIGATIONS; SURVIVAL<\/p>\n
8.1 TERMINATION OF AGREEMENT.<\/p>\n
Anything herein to the contrary notwithstanding, this Agreement and the
\ntransactions contemplated by this Agreement shall terminate upon written notice
\nby Buyer or Sellers if the Closing does not occur on or before the close of
\nbusiness on February 15, 1999 and otherwise may be terminated at any time before
\nthe Closing as follows and in no other manner:<\/p>\n
(a) Mutual Consent. By mutual consent in writing of Buyer and Sellers.<\/p>\n
(b) Conditions to Buyer’s Performance Not Met. By Buyer by written
\nnotice to Sellers if any event occurs or condition exists which would render
\nimpossible the satisfaction of one or more conditions to the obligations of
\nBuyer to consummate the transactions contemplated by this Agreement as set forth
\nin Section 7.1 or 7.2. <\/p>\n
(c) Conditions to Sellers’ Performance Not Met. By Sellers by written
\nnotice to Buyer if any event occurs or condition exists which would render
\nimpossible the satisfaction of one or more conditions to the obligation of
\nSeller to consummate the transactions contemplated by this Agreement as set
\nforth in Section 7.1 or 7.3. <\/p>\n
(d) Material Breach. By Buyer or Sellers if there has been a
\nmisrepresentation or other breach by the other party in its representations,
\nwarranties, or covenants set forth in or pursuant to this Agreement sufficient
\nto result in a material adverse change; provided, however, that if such breach
\nis susceptible to cure, the breaching party shall have ten business days after
\nreceipt of notice from the other party of its intention to terminate this
\nAgreement if such breach continues in which to cure such breach. <\/p>\n
8.2 EFFECT OF TERMINATION.<\/p>\n
In the event that this Agreement shall be terminated pursuant to Section
\n8.1, all further obligations of the parties under this Agreement shall terminate
\nwithout further liability of any party to another; provided that the obligations
\nof the parties contained in Section 6.2, Section 10.9 and Section 10.14 shall
\nsurvive any such termination. A termination under Section 8.1 shall not relieve
\nany party of any liability for a breach of, or for any misrepresentation under,
\nthis <\/p>\n
43
\n 49
\nAgreement, or be deemed to constitute a waiver of any available remedy
\n(including specific performance if available) for any such breach or
\nmisrepresentation. <\/p>\n
8.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.<\/p>\n
The representations and warranties contained in or made pursuant to this
\nAgreement shall survive the Closing and shall remain in full force and effect
\nuntil March 31, 2001, except that (i) the representations and warranties in
\nSections 2.2, 2.3, 2.4, 2.5(d), and 2.20 shall remain in full force and effect
\nuntil March 31, 2002 and (ii) the representation and warranty in the second
\nsentence of Section 2.8(a) shall terminate upon the Closing. The parties
\nacknowledge and agree that the only representations and warranties regarding
\nproduct or construction warranties, construction defects and product defects are
\nthe representations and warranties contained in Section 2.8(c) and shall not be
\ndeemed to be covered by Section 2.5(d).<\/p>\n
ARTICLE IX<\/p>\n
INDEMNIFICATION<\/p>\n
9.1 OBLIGATIONS OF SELLERS.<\/p>\n
Sellers, jointly and severally, agree to indemnify and hold harmless
\nBuyer (including with respect to claims for indemnification by its officers,
\ndirectors and agents) and, after the Closing, the Homebuilding Entities, from
\nand against any and all Losses of such an Indemnified Party as a result of, or
\nbased upon or arising from, (i) any breach of any of the representations or
\nwarranties made by Sellers in or pursuant to this Agreement (other than the
\nsecond sentence of Section 2.8(a)) or any nonperformance of any of the covenants
\nor agreements of Sellers hereunder, in each case except for any exceptions noted
\nin the certificate referred to in Section 7.2(a), (ii) the litigation identified
\non Schedule 9.1, (iii) the severance payments referred to in Section 2.16(a)
\n(v), or (iv) any Excluded Assets or Excluded Liabilities (including without
\nlimitation any non-Homebuilding Business conducted by the Homebuilding Entities
\nprior to the Closing Date and any non-Homebuilding Business conducted by
\nentities in the Lewis group of companies other than the Homebuilding Entities at
\nany time).<\/p>\n
9.2 OBLIGATIONS OF BUYER.<\/p>\n
Buyer agrees to indemnify and hold harmless Sellers (including with
\nrespect to claims for indemnification by its officers, directors and agents) and
\nShareholders from and against any Losses of such an Indemnified Party as a
\nresult of, or based upon or arising from, (i) any breach of any of the
\nrepresentations or warranties made by Buyer in or pursuant to this Agreement or
\nany nonperformance of any of the covenants or agreement of Buyer hereunder, in
\neach case except for any exceptions noted in the certificate referred to in
\nSection 7.3(a) or (ii) the Included Liabilities and the Homebuilding Business of
\nthe Homebuilding Entities after the Closing Date (including, without limitation,
\nall litigation existing on the Closing Date or<\/p>\n
44
\n 50<\/p>\n
instituted thereafter relating to the Homebuilding Business of the Homebuilding
\nEntities, except for litigation referred to in Schedule 9.1).<\/p>\n
9.3 PROCEDURE.<\/p>\n
(a) Notice. Any party seeking indemnification with respect to any Loss
\nshall give notice to the Indemnifying Party on or before the applicable date
\nspecified in Section 9.4.<\/p>\n
(b) Defense. If any claim, demand or liability is asserted by any third
\nparty against any Indemnified Party, the Indemnifying Party shall have the
\nright, if requested by the Indemnifying Party, and shall upon the written
\nrequest of the Indemnified Party, defend any actions or proceedings brought
\nagainst the Indemnified Party in respect of matters embraced by the indemnity.
\nIn any such action or proceeding, the Indemnified Party shall have the right to
\nretain its own counsel, but the fees and expenses of such counsel shall be at
\nits own expense unless (i) the Indemnifying Party and the Indemnified Party
\nmutually agree to the retention of such counsel or (ii) the named parties to any
\nsuch suit, action or proceeding (including any impleaded parties) include both
\nthe Indemnifying Party and the Indemnified Party, and in the reasonable judgment
\nof the Indemnified Party, representation of the Indemnifying Party and the
\nIndemnified Party by the same counsel would be inadvisable due to potential
\nconflicts of interests between them. The parties shall cooperate in the defense
\nof all third party claims which may give rise to Indemnifiable Claims hereunder.
\nIn connection with the defense of any claim, each party shall make available to
\nthe party controlling such defense, any books, records or other documents within
\nits control that are reasonably requested in the course of or necessary or
\nappropriate for such defense. Neither the Indemnifying Party nor the Indemnified
\nParty (a “Settling Party”) will, without the written consent of the other, (i)
\nsettle or compromise any third party claim or consent to the entry of any
\njudgment with respect to a third party claim that does not include as an
\nunconditional term thereof the delivery by the third party claimant to the other
\nof a written release from all liability in respect of such third party claim or
\n(ii) settle or compromise any third party claim in any manner or consent to the
\nentry of any judgment or order that may adversely affect the other, except for
\nor as a result of money damages or other money payments for which the
\nIndemnifying Party has acknowledged in writing its obligation and ability to
\nindemnify the Indemnified Party in full. <\/p>\n
(c) Calculation of Loss. The amount of any Loss for which
\nindemnification is provided under Section 9.1 or 9.2 shall be net of any
\ninsurance proceeds received by the Indemnified Party. If such insurance proceeds
\nare received after payment by the Indemnifying Party of any amount otherwise
\nrequired to be paid to an Indemnified Party pursuant to Section 9.1 or 9.2, the
\nIndemnified Party shall repay to the Indemnifying Party promptly after such
\nreceipt any amount the Indemnifying Party would not have had to pay pursuant to
\nSection 9.1 or 9.2 had such receipt occurred at the time of such payment. <\/p>\n
(d) Tax Treatment of Indemnification Payments; Reduction for Tax
\nBenefits. Any payment under this Article IX shall be treated by the parties as
\nan adjustment to the Purchase Price. Any payment under Section 9.1 otherwise due
\nand payable hereunder shall be decreased to the extent of any net reduction in
\nTaxes payable by the Buyer and\/or any affiliate thereof resulting from the Loss
\n(whether such reduction is realized with respect to the year in<\/p>\n
45
\n 51<\/p>\n
which the Loss occurs or with respect to an earlier or later year), such net
\nreduction to be determined at an assumed marginal tax rate equal to 40%. <\/p>\n
9.4 SURVIVAL.<\/p>\n
This indemnification shall survive the Closing and shall remain
\nin effect until March 31, 2001, except that this indemnification shall remain in
\neffect until March 31, 2002 with respect to the representations and warranties
\nin Sections 2.2, 2.3, 2.4, 2.5(d), and 2.20 and until the expiration according
\nto its terms of any covenant herein contemplating performance for a longer
\nperiod. Any matter as to which a claim has been asserted by notice to the other
\nparty that is pending or unresolved at March 31, 2001 or 2002, as applicable,
\nshall continue to be covered by this Article IX until such matter is finally
\nterminated or otherwise resolved by the parties under this Agreement and any
\namounts payable hereunder are finally determined and paid.<\/p>\n
9.5 LIMITATION OF REMEDIES.<\/p>\n
The remedies provided in this Article IX shall constitute the sole and
\nexclusive remedy with respect to matters set forth in this Article IX. The
\nindemnification obligations of Sellers set forth in clauses (ii), (iii) and (iv)
\nof Section 9.1 and the indemnification obligations of Buyer set forth in Section
\n9.2(ii) shall be unlimited as to time or amount. With respect to the
\nindemnification obligations of Sellers set forth in Section 9.1(i) and the
\nindemnification obligations of Buyer set forth in Section 9.2(i), neither Buyer
\nor Sellers shall be obligated to indemnify the Indemnified Parties until the
\naggregate amount of Losses for which indemnity would otherwise be available is
\nin excess of $750,000, in which event the Indemnifying Party shall be obligated
\nto indemnify for Losses in excess of such amount; provided, however, that
\nSellers, in the aggregate, and Buyer shall be obligated to indemnify for Losses
\nup to $25 million and, for Losses in excess of $25 million and less than or
\nequal to $51.5 million, one-half of such Losses, it being understood that
\nneither Sellers, in the aggregate, or Buyer shall have any obligation to
\nindemnify with respect to Losses in excess of $51.5 million.<\/p>\n
ARTICLE X<\/p>\n
GENERAL<\/p>\n
10.1 AMENDMENTS; WAIVERS.<\/p>\n
This Agreement and any schedule or exhibit attached hereto may be
\namended only by agreement in writing of all parties. No waiver of any provision
\nnor consent to any exception to the terms of this Agreement shall be effective
\nunless in writing and signed by the party to be bound and then only to the
\nspecific purpose, extent and instance so provided.<\/p>\n
46
\n 52<\/p>\n
10.2 SCHEDULES, EXHIBITS, INTEGRATION.<\/p>\n
Each schedule and exhibit delivered pursuant to the terms of this
\nAgreement shall be in writing and shall constitute a part of this Agreement,
\nalthough schedules need not be attached to each copy of this Agreement. This
\nAgreement, together with such schedules and exhibits, constitutes the entire
\nagreement among the parties pertaining to the subject matter hereof and
\nsupersedes all prior agreements and understandings of the parties in connection
\ntherewith.<\/p>\n
10.3 EFFORTS; FURTHER ASSURANCES.<\/p>\n
Each party will use its commercially reasonable efforts to cause all
\nconditions to its obligations hereunder to be timely satisfied and to perform
\nand fulfill all obligations on its part to be performed and fulfilled under this
\nAgreement, to the end that the transactions contemplated by this Agreement shall
\nbe effected substantially in accordance with its terms as soon as reasonably
\npracticable. The parties shall cooperate with each other in such actions and in
\nsecuring requisite Approvals. Each party shall execute and deliver both before
\nand after the Closing such further certificates, agreements and other documents
\nand take such other actions as the other party may reasonably request to
\nconsummate or implement the transactions contemplated hereby or to evidence such
\nevents or matters.<\/p>\n
10.4 GOVERNING LAW.<\/p>\n
This Agreement, the legal relations between the parties and any Action,
\nwhether contractual or non-contractual, instituted by any party with respect to
\nmatters arising under or growing out of OR in connection with or in respect of
\nthis Agreement, including but not limited to the negotiation, execution,
\ninterpretation, coverage, scope, performance, breach, termination, validity, or
\nenforceability of this Agreement, shall be governed by and construed in
\naccordance with the laws of the State of California applicable to contracts made
\nand performed in such State and without regard to conflicts of law doctrines.<\/p>\n
10.5 NO ASSIGNMENT.<\/p>\n
Neither this Agreement nor any rights or obligations under it are
\nassignable except that (i) Buyer may assign its rights hereunder (including but
\nnot limited to its rights under Article IX) to any Affiliates of Buyer, in which
\nevent Buyer shall remain liable to Sellers for the payment of the Purchase Price
\nand other obligations of Buyer hereunder notwithstanding a permitted assignment,
\nand (ii) Sellers may assign their rights hereunder to any Affiliates of Sellers,
\nin which event Sellers shall remain liable to Buyer for the delivery of the
\nStock, Partnership Interests and Member Interests and other obligations of
\nSellers hereunder notwithstanding a permitted assignment.<\/p>\n
10.6 HEADINGS.<\/p>\n
The descriptive headings of the Articles, Sections and subsections of
\nthis Agreement are for convenience only and do not constitute a part of this
\nAgreement.<\/p>\n
47
\n 53<\/p>\n
10.7 COUNTERPARTS.<\/p>\n
This Agreement may be executed in any number of identical counterparts,
\neach of which when executed and delivered shall be an original, but all such
\ncounterparts shall constitute but one and the same instrument. Any signature
\npage of this instrument may be detached from any counterpart without impairing
\nthe legal effect of any signatures thereof, and may be attached to another
\ncounterpart, identical in form thereto, but having attached to it one or more
\nadditional signature pages. Delivery by any party or its respective
\nrepresentatives of telecopied (counterpart) signature pages shall be as binding
\nan execution and delivery of this Agreement by such party as if the other party
\nhad received the actual physical copy of the entire Agreement with an ink
\nsignature from such party.<\/p>\n
10.8 PUBLICITY AND REPORTS.<\/p>\n
Sellers and Buyer shall coordinate all publicity relating to the
\ntransactions contemplated by this Agreement and no party shall issue any press
\nrelease, publicity statement or other public notice relating to this Agreement,
\nor the transactions contemplated by this Agreement, without consulting with the
\nother party except to the extent that a particular action is required by
\napplicable law or rule of or listing agreement with a securities exchange on
\nwhich such party’s securities are listed for trading or quotation.<\/p>\n
10.9 CONFIDENTIALITY.<\/p>\n
All information disclosed by any party (or its representatives) whether
\nbefore or after the date hereof, in connection with the transactions
\ncontemplated by, or the discussions and negotiations preceding, this Agreement
\nto any other party (or its representatives) shall be kept confidential by such
\nother party and its representatives and shall not be used by any such Persons
\nother than as contemplated by this Agreement, except to the extent that such
\ninformation (i) was known by the recipient when received, (ii) it is or
\nhereafter becomes lawfully obtainable from other sources, (iii) is necessary or
\nappropriate to disclose to a Governmental Entity having jurisdiction over the
\nparties, (iv) as may otherwise be required by law or (v) to the extent such duty
\nas to confidentiality is waived in writing by the other party; provided,
\nhowever, that following the Closing Date nothing in this section shall apply to
\nor restrict the use of information by Buyer or the Homebuilding Entities in
\ntheir businesses. If this Agreement is terminated in accordance with its terms,
\neach party shall use all reasonable efforts to return upon written request from
\nthe other party all documents (and reproductions thereof) received by it or its
\nrepresentatives from such other party (and, in the case of reproductions, all
\nsuch reproductions made by the receiving party) that include information not
\nwithin the exceptions contained in the first sentence of this Section 10.9,
\nunless the recipients provide assurances reasonably satisfactory to the
\nrequesting party that such documents have been destroyed.<\/p>\n
10.10 ALTERNATIVE DISPUTE RESOLUTION.<\/p>\n
(a) Negotiation. In the event of any dispute or disagreement between
\nSellers and Buyer as to the interpretation of any provision of this Agreement or
\nany other agreement or<\/p>\n
48
\n 54<\/p>\n
instrument delivered in connection with this Agreement, or the performance of
\nobligations hereunder or thereunder, the matter, upon written request of either
\nparty, shall be referred to representatives of the parties for decision, each
\nparty being represented by a senior executive officer of the party or a
\ncontrolling affiliate (a “Dispute Representative”). The Dispute Representatives
\nshall promptly meet in a good faith effort to resolve the dispute. If the
\nDispute Representatives do not agree upon a decision within thirty (30) calendar
\ndays after reference of the matter to them, Sellers and Buyer shall be free to
\nexercise the remedies available to them under subsection (b).<\/p>\n
(b) Arbitration. Any controversy, dispute or claim (a “Claim”) arising
\nout of or relating in any way to this Agreement or any other agreement or
\ninstrument delivered in connection with this Agreement, or the transactions
\narising hereunder or thereunder that cannot be resolved by negotiation pursuant
\nto subsection (a) shall be settled exclusively by a binding arbitration
\n(“Arbitration”), conducted by a single arbitrator (the “Arbitrator”) chosen by
\nthe parties as described below. Any party may initiate the Arbitration by
\nwritten notice to the other and to the Arbitration Tribunal (as defined below).
\nThe date on which the notice is given is called the “Arbitration Initiation
\nDate.” The fees and expenses of the Arbitration Tribunal and the Arbitrator
\nshall be shared equally by the parties and advanced by them from time to time as
\nrequired; provided, however, that at the conclusion of the Arbitration, the
\nArbitrator may award costs and expenses (including the costs of the Arbitration
\npreviously advanced and the fees and expenses of attorneys, accountants and
\nother experts) to the prevailing party. Except as expressly modified herein, the
\nArbitration shall be conducted in accordance with the provisions of Section 1280
\net seq. of the California Code of Civil Procedure or their successor sections
\n(“CCP”), and shall constitute the exclusive remedy for the determination of any
\nClaim, including whether the Claim is subject to arbitration. The Arbitration
\nshall be conducted under the procedures of the Arbitration Tribunal, except as
\nmodified herein. The Arbitration Tribunal shall be the Los Angeles Office of
\nJAMS\/ENDISPUTE (“JAMS”), unless the parties to the dispute cannot agree on a
\nJAMS arbitrator, in which case the Arbitration Tribunal shall be the Los Angeles
\nOffice of the American Arbitration Association (“AAA”). The Arbitrator shall be
\na retired judge or other arbitrator employed by JAMS selected by mutual
\nagreement of the parties to the dispute, and if they cannot so agree within 30
\ndays after the Arbitration Initiation Date, then the Arbitrator shall be
\nselected from the Large and Complex Case Project (“LCCP”) panel of the AAA, by
\nmutual agreement of the parties to the dispute. If the parties to the dispute
\ncannot agree on an Arbitrator within 60 days after the Arbitration Initiation
\nDate, the Arbitrator shall be selected by the AAA, from its LCCP panel, through
\nsuch procedures as the AAA regularly follows. In all events, the Arbitrator must
\nhave had not less than 15 years experience as a practitioner or arbitrator of
\ncomplex business transactions. If for any reason the AAA does not so act, any
\nparty to the dispute may apply to the Superior Court in and for Los Angeles
\nCounty, California, for the appointment of a single arbitrator. No
\npre-arbitration discovery shall be permitted, except that the Arbitrator shall
\nhave the power in his or her sole discretion, on application by either party, to
\norder pre-arbitration examination solely of those witnesses and documents that
\nthe other party intends to introduce in its case-in-chief at the arbitration
\nhearing. Prior to the commencement of arbitration hearings, the Arbitrator shall
\nhave the power, in his or her discretion, upon either party’s motion but not on
\nhis or her own initiative, to order the parties to engage in pre-arbitration
\nmediation for a period not exceeding 30 days before a mediator mutually
\nacceptable <\/p>\n
49
\n 55<\/p>\n
to the parties. The Arbitrator shall try any and all issues of law or fact and
\nbe prepared to make the award within 90 days after the close of evidence in the
\nArbitration. When prepared to make the award, the Arbitrator shall first so
\ninform the parties, who shall have 10 days to attempt to resolve the matter by a
\nbinding agreement between them. If the parties so resolve the matter, the
\nArbitrator shall not make any award. If the parties do not so resolve the
\nmatter, the Arbitrator shall make the award on the eleventh day following his
\nnotice of being prepared to make the award. The Arbitrator’s award shall dispose
\nof all of the claims that are the subject of the Arbitration and shall follow
\nCalifornia law and precedent, and shall include written statements of fact and
\nconclusions of law. The Arbitrator shall be empowered to (i) enter equitable as
\nwell as legal relief, (ii) provide all temporary and\/or provisional remedies,
\nand (iii) enter binding equitable orders. The award rendered by the Arbitrator
\nshall be final and not subject to judicial review, and judgment thereon may be
\nentered in any court of competent jurisdiction.<\/p>\n
10.11 PARTIES IN INTEREST.<\/p>\n
This Agreement shall be binding upon and inure to the benefit of each
\nparty, and nothing in this Agreement, express or implied, is intended to confer
\nupon any other person any rights or remedies of any nature whatsoever under or
\nby reason of this Agreement except for Sections 6.6, 9.1 and 10.5 (which are
\nintended to be for the benefit of the persons provided for therein and may be
\nenforced by such persons).<\/p>\n
10.12 KNOWLEDGE CONVENTION.<\/p>\n
Whenever any statement herein or in any schedule, exhibit, certificate
\nor other documents delivered to any party pursuant to this Agreement is made “to
\nSellers’ knowledge” or words of similar intent or effect, such statement shall
\nbe deemed to mean the actual conscious knowledge of (i) any Seller who is an
\nindividual, (ii) the Shareholders, for any Seller that is a corporation or (iii)
\nany Seller after inquiry of Kenneth P. Corhan, Leon C. Swails and Leah S. Bryant
\nas to the subject matter.<\/p>\n
10.13 NOTICES.<\/p>\n
Any notice or other communication hereunder must be given in writing and
\ndelivered in person or sent by telecopy, by a nationally-recognized overnight
\ncourier service or by certified or registered mail, postage prepaid, receipt
\nrequested, addressed as follows:<\/p>\n
IF TO BUYER, ADDRESSED TO:<\/p>\n
Kaufman and Broad Home Corporation
\n 10990 Wilshire Boulevard
\n Los Angeles, California 90024
\n Attention: Michael Henn
\n Chief Financial Officer
\n Barton P. Pachino
\n General Counsel
\n Fax No.: 310-231-4280<\/p>\n
50
\n 56<\/p>\n
with a copy to<\/p>\n
Munger, Tolles & Olson LLP
\n 355 South Grand Avenue
\n Los Angeles, California 90071
\n Attention: R. Gregory Morgan
\n Fax No.: 213-687-3702<\/p>\n
IF TO SELLERS, ADDRESSED TO:<\/p>\n
John M. Goodman
\n Lewis Homes Management Corp.
\n 11 56 N. Mountain Ave.
\n Upland, CA 91785
\n Fax No.: (909) 912-6770<\/p>\n
WITH A COPY TO:<\/p>\n
O’Melveny & Myers LLP
\n 400 S. Hope Street
\n Los Angeles, California 90071
\n Attention: Richard A. Boehmer, Esq.
\n Fax: No.: (213) 430-6407<\/p>\n
or to such other address or to such other person as any party shall have last
\ndesignated by such notice to the other party. Each such notice or other
\ncommunication shall be effective (i) if given by telecommunication, when
\ntransmitted to the applicable number so specified in (or pursuant to) this
\nSection 10.13 and an appropriate answer back is received, (ii) if given by
\novernight courier, one business day following delivery by sender to such
\novernight courier, (iii) if given by mail, three days after such communication
\nis deposited in the mails with first class postage prepaid, addressed as
\naforesaid or (iv) if given by any other means, when actually received at such
\naddress.<\/p>\n
10.14 EXPENSES.<\/p>\n
Except as set forth in Sections 10.10 and 10.16, Sellers and Buyer shall
\neach pay their own expenses incident to the negotiation, preparation and
\nperformance of this Agreement and the transactions contemplated hereby,
\nincluding but not limited to the fees, expenses and disbursements of their
\nrespective investment bankers, accountants and counsel. Any such expenses of
\nCompany, or any expenses paid by Company on behalf of Sellers, shall be paid by
\nSellers prior to or concurrently with the Closing.<\/p>\n
51
\n 57<\/p>\n
10.15 REMEDIES; WAIVER.<\/p>\n
To the extent permitted by Law, all rights and remedies existing under
\nthis Agreement are cumulative to and not exclusive of, any rights or remedies
\notherwise available under applicable Law. No failure on the part of any party to
\nexercise or delay in exercising any right hereunder shall be deemed a waiver
\nthereof, nor shall any single or partial exercise preclude any further or other
\nexercise of such or any other right.<\/p>\n
10.16 ATTORNEY’S FEES.<\/p>\n
In the event of any Action by any party arising under or out of, in
\nconnection with or in respect of, this Agreement or the transactions
\ncontemplated hereby, the prevailing party shall be entitled to reasonable
\nattorney’s fees, costs and expenses incurred in such Action. Attorney’s fees
\nincurred in enforcing any judgement in respect of this Agreement are recoverable
\nas a separate item. The parties intend that the preceding sentence be severable
\nfrom the other provisions of this Agreement, survive any judgment and, to the
\nmaximum extent permitted by law, not be deemed merged into such judgment.<\/p>\n
10.17 REPRESENTATION BY COUNSEL; INTERPRETATION.<\/p>\n
Sellers and Buyer each acknowledge that each party to this Agreement has
\nbeen represented by counsel in connection with this Agreement and the
\ntransactions contemplated by this Agreement. Accordingly, any rule of Law,
\nincluding but not limited to Section 1654 of the California Civil Code, or any
\nlegal decision that would require interpretation of any claimed ambiguities in
\nthis Agreement against the party that drafted it has no application and is
\nexpressly waived. The provisions of this Agreement shall be interpreted in a
\nreasonable manner to effect the intent of Buyer and Sellers.<\/p>\n
10.18 SEVERABILITY.<\/p>\n
If any provision of this Agreement is determined to be invalid, illegal
\nor unenforceable by any Governmental Entity, the remaining provisions of this
\nAgreement shall remain in full force and effect provided that the economic and
\nlegal substance of the transactions contemplated is not affected in any manner
\nmaterially adverse to any party. In event of any such determination, the parties
\nagree to negotiate in good faith to modify this Agreement to fulfill as closely
\nas possible the original intents and purposes hereof. To the extent permitted by
\nLaw, the parties hereby to the same extent waive any provision of Law that
\nrenders any provision hereof prohibited or unenforceable in any respect.<\/p>\n
52
\n 58<\/p>\n
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
\nto be executed by its duly authorized officers as of the day and year first
\nabove written.<\/p>\n
BUYER<\/p>\n
KAUFMAN AND BROAD HOME CORPORATION<\/p>\n
By: \/s\/ MICHAEL F. HENN
\n ————————————
\n Its: Senior Vice President & Chief
\n Financial Officer<\/p>\n
SELLERS<\/p>\n
\/s\/ RALPH M. LEWIS
\n ————————————
\n Ralph M. Lewis<\/p>\n
By: \/s\/ GOLDY S. LEWIS
\n ————————————
\n Goldy S. Lewis, his attorney-in-fact<\/p>\n
\/s\/ GOLDY S. LEWIS
\n ————————————
\n Goldy S. Lewis<\/p>\n
\/s\/ RICHARD A. LEWIS
\n ————————————
\n Richard A. Lewis<\/p>\n
\/s\/ ROBERT E. LEWIS
\n ————————————
\n Robert E. Lewis<\/p>\n
\/s\/ ROGER G. LEWIS
\n ————————————
\n Roger G. Lewis<\/p>\n
\/s\/ RANDALL W. LEWIS
\n ————————————
\n Randall W. Lewis<\/p>\n
\/s\/ JOHN M. GOODMAN
\n ————————————
\n John M. Goodman<\/p>\n
S-1
\n 59<\/p>\n
ROSEBUD CONSTRUCTION, INC.<\/p>\n
By: \/s\/ RICHARD A. LEWIS
\n ————————————
\n Name: Richard A. Lewis
\n Title: President<\/p>\n
WESTERN SUPPLY CORP.<\/p>\n
By: \/s\/ RICHARD A. LEWIS
\n ————————————
\n Name: Richard A. Lewis
\n Title: President<\/p>\n
KIMMEL ENTERPRISES, INC.<\/p>\n
By: \/s\/ ROBERT E. LEWIS
\n ————————————
\n Name: Robert E. Lewis
\n Title: President<\/p>\n
REPUBLIC SALES CO., INC.<\/p>\n
By: \/s\/ RANDALL W. LEWIS
\n ————————————
\n Name: Randall W. Lewis
\n Title: President<\/p>\n
HILLSIDE CONSTRUCTION CO., INC.<\/p>\n
By: \/s\/ RICHARD A. LEWIS
\n ————————————
\n Name: Richard A. Lewis
\n Title: President<\/p>\n
S-2
\n 60<\/p>\n
PARKSIDE CONSTRUCTION CO., INC.<\/p>\n
By: \/s\/ ROBERT E. LEWIS
\n ————————————
\n Name: Robert E. Lewis
\n Title: President<\/p>\n
REGAL CONSTRUCTION CO., INC.<\/p>\n
By: \/s\/ RANDALL W. LEWIS
\n ————————————
\n Name: Randall W. Lewis
\n Title: President<\/p>\n
ORCHARD CONSTRUCTION CO., INC.<\/p>\n
By: \/s\/ ROGER G. LEWIS
\n ————————————
\n Name: Roger G. Lewis
\n Title: President<\/p>\n
SOUTH STAR DEVELOPMENT CORP.<\/p>\n
By: \/s\/ RICHARD A. LEWIS
\n ————————————
\n Name: Richard A. Lewis
\n Title: President<\/p>\n
FOREHAND DEVELOPMENT CORP.<\/p>\n
By: \/s\/ JOHN M. GOODMAN
\n ————————————
\n Name: John M. Goodman
\n Title: President<\/p>\n
S-3
\n 61<\/p>\n
COLLINE ENTERPRISES, INC.<\/p>\n
By: \/s\/ RICHARD A. LEWIS
\n ————————————
\n Name: Richard A. Lewis
\n Title: President<\/p>\n
TERRAIN ENTERPRISES, INC.<\/p>\n
By: \/s\/ ROBERT E. LEWIS
\n ————————————
\n Name: Robert E. Lewis
\n Title: President<\/p>\n
MARMOT ENTERPRISES, INC.<\/p>\n
By: \/s\/ ROGER G. LEWIS
\n ————————————
\n Name: Roger G. Lewis
\n Title: President<\/p>\n
GITAN ENTERPRISES, INC.<\/p>\n
By: \/s\/ RANDALL W. LEWIS
\n ————————————
\n Name: Randall W. Lewis
\n Title: President<\/p>\n
TOPSPIN ENTERPRISES, INC.<\/p>\n
By: \/s\/ JOHN M. GOODMAN
\n ————————————
\n Name: John M. Goodman
\n Title: President<\/p>\n
S-4
\n 62<\/p>\n
REVERS ENTERPRISES, INC.<\/p>\n
By: \/s\/ RANDALL W. LEWIS
\n ————————————
\n Name: Randall W. Lewis
\n Title: President<\/p>\n
EMPIRE BUILDING CORP.<\/p>\n
By: \/s\/ ROBERT E. LEWIS
\n ————————————
\n Name: Robert E. Lewis
\n Title: President<\/p>\n
ROSEMONT OF NEVADA, INC.<\/p>\n
By: \/s\/ ROBERT E. LEWIS
\n ————————————
\n Name: Robert E. Lewis
\n Title: President<\/p>\n
LARKWOOD DEVELOPMENT OF NEVADA, INC.<\/p>\n
By: \/s\/ RICHARD A. LEWIS
\n ————————————
\n Name: Richard A. Lewis
\n Title: President<\/p>\n
FLAGSTONE DEVELOPMENT OF NEVADA, INC.<\/p>\n
By: \/s\/ RICHARD A. LEWIS
\n ————————————
\n Name: Richard A. Lewis
\n Title: President<\/p>\n
S-5
\n 63<\/p>\n
CRESTVIEW CONSTRUCTION OF NEVADA, INC.<\/p>\n
By: \/s\/ ROBERT E. LEWIS
\n ————————————
\n Name: Robert E. Lewis
\n Title: President<\/p>\n
CORONET CONSTRUCTION OF NEVADA, INC.<\/p>\n
By: \/s\/ RANDALL W. LEWIS
\n ————————————
\n Name: Randall W. Lewis
\n Title: President<\/p>\n
COSMIC CONSTRUCTION OF NEVADA, INC.<\/p>\n
By: \/s\/ ROGER G. LEWIS
\n ————————————
\n Name: Roger G. Lewis
\n Title: President<\/p>\n
BACKHAND DEVELOPMENT CORP.<\/p>\n
By: \/s\/ JOHN M. GOODMAN
\n ————————————
\n Name: John M. Goodman
\n Title: President<\/p>\n
SOUTH STAR DEVELOPMENT OF NEVADA, CORP.<\/p>\n
By: \/s\/ ROBERT E. LEWIS
\n ————————————
\n Name: Robert E. Lewis
\n Title: President<\/p>\n
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