GARZA & STAPLES, P.C
ATTORNIES AT LAW
5420 LBJ FREEWAY
1230 LINCOLN CENTRE
DALLAS , TEXAS 75240
Telephone (214) 373-3300
Fax (972) 404-1300
December 28, 1998
Steven C. Duvall
Assistant Director
Securities and Exchange Commission
450 Fifth Street N. W.
Washington, D. C. 20549
Re: Woodhaven Homes, Inc.
File No. 333-62467
Dear Mr. Duvall:
We transmit herewith Amendment No. 5 to the above
registration statement.
We have been advised by Pamela Long, Esq. that all
comments have been complied with in Amendment No. 4 but
there has been a change in the underwriting which requires
this filing. The only changes in this Amendment are to
reflect the change from Tejas Securities, Inc. as
representative of the underwriters to Capital West
Securities, Inc. and Redstone Securities, Inc. as
co-representatives of the underwriters and to reflect the
consummation of the reorganization. Appropriate exhibits
for these two matters are included.
The Prospectus will be recirculated with these changes and the
underwriters have scheduled an effective date of the week of January 11, 1999.
We will file a new request for acceleration. If you have any comments please
contact the undersigned.
Very
truly
yours,
Joe
B. Garza
As filed with the Securities and Exchange Commission on December 28, 1998
Registration No. 333-62467
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
under the
SECURITIES ACT OF 1933
Woodhaven Homes, Inc.
(Name of issuer in its charter)
Texas 1623 75-2777805
(State or jurisdiction of incorporation or organization)
(Primary Standard Industrial Classification Code Number)
(I.R.S.
Identification Number)
Woodhaven Homes, Inc.
2501 Oaklawn, Suite 550
Dallas, Texas 75219
(214) 599-1999
(Address and telephone number of principal
executive offices and principal place of business)
Richard D. Laxton
Woodhaven Homes, Inc
2501 Oaklawn, Suite 550
Dallas, Texas 75219
(214) 599-1999
(Name, address and telephone number of agent for service)
Copies of all communications to:
Garza & Staples Maurice J. Bates, Esq.
Joe Garza Maurice J. Bates, L.L.C.
1230 Lincoln Center Two 8214 Westchester Suite 500
Dallas, Texas 75240 Dallas, Texas 75225
(800) 442-7040 (214) 692-3566
(972) 404-1300 FAX (214) 987-2091 FAX
Approximate date of proposed sale to public:As soon as practicable
after the effective date of the Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act, please check the following box. X
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
<TABLE>
<CAPTION>
(Registration Statement cover page cont'd)
Calculation of Registration Fee
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price per Share Aggregate Offering Price Registration Fee
(1) (1) (1)
<S> <C> <C> <C> <C>
Units 1,150,00 $10.00 $11,500,000 $3,450
Common Sock, par
value $0.01 (2) 1,150,000 (2) (2) (2)
Redeemable Common Stock
Purchase
Warrants (2) 1,150,000 (2) (2) (2)
Common Stock, par
Value $0.01 (3) 1,150,000 $12.00 $13,800,000 $4,140
Underwriter's Warrants (4) 100,000 $ 0.01 $100.00 $100
Units Underlying the
Underwriter's Warrants 100,000 $12.00 $1,200,000 $360
Common Stock, par
value $0.01 (5) 100,000 (5) (5) (5)
Redeemable Common Stock
Purchase Warrants 100,000 (5) (5) (5)
Common Stock, par
value $0.01 (6) 100,000 $12.00 $1,200,000 $360
Total $27,700,100 $8,310
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee. (2)
Included in the Units. No additional registration fee is required. (3) Issuable
upon the exercise of the Redeemable Common Stock Purchase Warrants. Pursuant to
Rule 416 there are also registered an indeterminate number of shares of Common
Stock which may be issued pursuant to the antidilution provisions applicable to
the Redeemable Common Stock Purchase Warrants, the Underwriter's Warrants and
the Redeemable Common Stock Purchase Warrants issuable under the Underwriters
Warrants. (4) Underwriters' Warrants to purchase up to 100,000 Units, consisting
of an aggregate of 100,000 shares of Common Stock and 100,000 Redeemable Common
Stock Purchase Warrants. (5) Included in the Units underlying the Underwriters'
Warrants. No additional registration fees are required. (6) Issuable upon
exercise of Redeemable Common Stock Purchase Warrants underlying the
Underwriters' Units.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 28, 1998
Woodhaven Homes, Inc.
1,000,000 Units
Consisting of 1,000,000 Shares of Common Stock and
1,000,000 Redeemable Common Stock Purchase Warrants
Woodhaven Homes, Inc. (the "Company") is hereby offering 1,000,000 Units,
each unit (the "Unit") consisting of one share (the "Shares") of common stock,
$0.01 par value (the " Common Stock"),and one Redeemable Common Stock Purchase
Warrant (the "Warrants") . The Units, the Shares and the Warrants offered hereby
are referred to collectively as the "Securities." The Shares and Warrants
included in the Units may not be separately traded until [six months after the
date of this Prospectus], unless earlier separated upon ten days' prior written
notice from Capital West Securities, Inc. or Redstone Securities, Inc. (the
"Representatives") to the Company. Factors which the Representative will
consider in determining whether to separate the Units prior to six months from
the date of this prospectus are expected to be the trading price and volume of
trading in the Units and volatility of the trading price for the Units. Each
Warrant entitles the holder thereof to purchase one share of Common Stock at an
exercise price of $[120% of the offering price] per share, commencing at any
time after the Common Stock and Warrants become separately tradable and until
[five years from the date of this Prospectus]. Commencing on [twelve months from
the date of this Prospectus], the Warrants are subject to redemption by the
Company at $0.05 per Warrant at any time on thirty days prior written notice,
provided that the closing price quotation for the Common Stock has equalled or
exceeded $[200% of the offering price] for ten consecutive trading days. The
Warrant exercise price is subject to adjustment under certain circumstances. See
"Description of Securities."
Prior to this offering, there has been no public market for the Securities,
and there can be no assurance that an active market will develop. It is
currently anticipated that the initial public offering price of the Units will
range from $9.00 to $11.00 per Unit. See "Underwriting" for information relating
to the factors considered in determining the initial public offering price. The
Units , Common Stock and Warrants have been accepted for listing on the American
Stock Exchange under the symbols " WHO.U" , "WHO " and "WHO.WS",
respectively.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE SECTION ENTITLED "RISK
FACTORS" BEGINNING ON PAGE 7 HEREOF CONCERNING THE COMPANY AND THIS OFFERING.
PROSPECTIVE INVESTORS SHOULD ALSO CONSIDER THE FACT THAT THEIR INVESTMENT WILL
RESULT IN IMMEDIATE SUBSTANTIAL DILUTION. SEE "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE. <TABLE> <CAPTION>
Price to Underwriting Proceeds to
Public Discounts and Company(2)
Commissions(1)
<S> <C> <C> <C>
Per Unit $10.00 $1.00 $9.00
Total (2)(3)$10,000,000 $1,000,000 $9,000,000
</TABLE>
(1) In addition, the Company has agreed to pay the Representatives, a 3.00%
nonaccountable expense allowance and to sell to the Underwriters warrants
exercisable for four years commencing one year from the date of this
Prospectus to purchase 100,000 Units at 140% of the public offering price
(the "Underwriter's Warrants"). The Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933 , as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting estimated expenses of $500,000 payable by the Company,
including the Representatives' 3.00% nonaccountable expense allowance.
(3) The Company has granted to the Underwriters an option, exercisable within
45 days from the date of this Prospectus, to purchase up to 150,000 Units,
on the same terms set forth above, solely for the purpose of covering
over-allotments, if any. If the Underwriters' over-allotment option is
exercised in full, the total Price to the Public will be $ , $ , and $ ,
respectively. See "Underwriting"
The Securities are being offered, subject to prior sale, when, as and if
delivered to and accepted by the Underwriters and subject to approval of certain
legal matters by counsel and subject to certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify the offering
without notice and to reject any order, in whole or in part. It is expected that
delivery of Common Stock and Warrant certificates will be made against payment
therefor at the offices of the Underwriters in Oklahoma City, Oklahoma on or
about , 1999.
CAPIAL WEST SECURITIES, INC. REDSTONE SECURITIES, INC.
The date of this Prospectus is , 1999.
2
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1. (including any amendments
thereto, the "Registration Statement") under the Securities Act with respect to
the Securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Securities, reference is made to the Registration Statement and the exhibits and
schedules thereto. Statements made in this Prospectus regarding the contents of
any contract or document filed as an exhibit to the Registration Statement are
not necessarily complete and, in each instance, reference is hereby made to the
copy of such contract or document so filed. Each such statement is qualified in
its entirety by such reference. The Registration Statement and the exhibits and
the schedules thereto filed with the Commission may be inspected, without
charge, at the Commission's public reference facilities located at Room 1024,
Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549, and at the public
reference facilities in the Commission's regional offices located at:
Northwestern Atrium Center, 500 West Madison Street, Room 1400, Chicago,
Illinois 60661; and Suite 1300, Seven World Trade Center, New York, New York
10048. Copies of such materials also may be obtained at prescribed rates by
writing to the Commission, Public Reference Section, 450 Fifth Street, NW,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission at http://www.sec.gov.
As a result of this offering, the Company will become subject to the
reporting requirements of the Exchange Act, and in accordance therewith will
file periodic reports, proxy statements and other information with the
Commission. The Company will furnish its shareholders with annual reports
containing audited consolidated financial statements certified by independent
public accountants following the end of each fiscal year, proxy statements and
quarterly reports containing unaudited consolidated financial information for
the first three quarters of each fiscal year following the end of such fiscal
quarter.
The Company has applied for listing of the Securities on the American
Stock Exchange ("Amex"). There can be no assurance that the Company's securities
will be accepted for listing. Reports, proxy statements and other information
concerning the Company will be available for inspection at the principal office
of the Amex at 86 Trinity Place, New York, New York 10006.
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES,
INCLUDING OVERALLOTMENT, ENTERING STABILIZATION BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS, AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE SECURITIES ON AMEX IN ACCORDANCE WITH
RULE 103 OF REGULATION M. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and must be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto appearing elsewhere in this
Prospectus. Unless otherwise indicated, all information in this Prospectus
assumes no exercise of the Warrants, the Representatives' Over-allotment Option
and the Representatives' Warrants.
- ----------------------------------------------------------
The Company
The Company was organized in August 1998 to acquire all of the assets of
Woodhaven Homes, Ltd. (Woodhaven Ltd.") and all of the outstanding capital stock
of Resland Development Corp. ("Resland") from Richard D. Laxton,
Phillip R. Johns and Mark V. Johns, who will continue as officers and
directors of the Company. Effective December 15, 1998,. The Company acquired all
of the assets of Woodhaven Ltd through a statutory merger and acquired from
Messrs. Laxton, Johns and Johns all of the outstanding capital stock of Resland
and WH Management in exchange for Common Stock of the Company. The Company will
continue the business of Woodhaven Ltd. and Resland
will be operated as a wholly-owned subsidiary of the Company. The Company began
business in 1992 as Woodhaven Homes, LLC, a Texas limited partnership and, under
Texas law, converted to Woodhaven Ltd., a Texas limited partnership in September
1997. All references herein to the "Company" or "Woodhaven" refer to Woodhaven
Homes, Inc., Woodhaven Homes, Ltd. and Woodhaven Homes, LLC. See "The
Reorganization" and "Certain Relationships and Related Transactions."
- ----------------------------------------------------------------------
The Company designs, builds and sells single-family homes in the
Dallas/Fort Worth metropolitan area, with a focus on the "entry level" and
relocation market segments. Typically, homes range in size from 1,186 square
feet to over 3,000 square feet and range in price from $67,950 to $238,000, with
an average sales price of $104,000 for homes closed during 1997. The Dallas/Fort
Worth market has experienced population and job growth above the national
average over the last several years. The Company operated in 17 subdivisions in
the metropolitan area, and had 204 homes under construction at December 31,
1997. The Company is also actively engaged in residential land acquisition and
development, which enables it to provide lots for its homebuilding operations.
At December 31, 1997, the Company owned or had under option contract 1,366 lots
available for future growth.
---------------------------------------------------------------------
The Company's homebuilding operation is positioned to compete with
high-volume builders by offering a broader selection of homes with more
amenities and greater design flexibility than typically offered by volume
builders. The Company offers the homebuyer the ability to select various design
features in accordance with his personal preferences. Through a volume building
approach the Company's custom homes generally offer more value than those
offered by local, lower-volume custom builders, primarily due to the Company's
effective purchasing, construction and marketing programs. While most design
modifications are significant to the homebuyer, they typically involve
relatively minor adjustments that allow the Company to maintain construction
efficiencies and result in greater profitability due to increased sales prices
and margins. The Company believes that its ability to meet the design tastes of
prospective homebuyers at competitive prices distinguishes itself from many of
its competitors.
- --------------------------------------------------------------
Subcontractors perform virtually all of the Company's construction work.
The Company's construction superintendents monitor the construction of each
home, coordinate the activities of subcontractors and suppliers, subject the
work of subcontractors to quality and cost controls and monitor compliance with
zoning and building codes. Subcontractors typically are retained pursuant to a
contract that obligates the subcontractor to complete construction in a
workmanlike manner that provides standard indemnifications and warranties.
Consistent with historical experience, 95% of the homes in backlog at
December 31, 1997 were closed by June 30, 1998. Based upon dollar volume,
contract cancellations were less than 10% of the home sales contracts signed and
started during each of 1995, 1996 and 1997. Although cancellations can disrupt
anticipated home closings, the Company believes that cancellations have not had
a material negative impact on operations or liquidity of the Company during the
last several years. The Company attempts to reduce cancellations by reviewing
each homebuyer's ability to obtain mortgage financing early in the sales process
and by closely monitoring the mortgage approval process. The Company seeks to
maximize its return on capital and limit its exposure to changes in land
valuation by obtaining options to purchase lots whenever feasible. The Company
will also directly acquire, where appropriate, quality residential properties
that are in high demand for use in its homebuilding operations and for sale to
third-party builders.
The Company was organized in 1992 in the state of Texas. The executive
offices of the Company are located at 2501 Oak Lawn, Suite 550, Dallas, Texas
75219, and its telephone number is (214) 599-1999 and its fax number is (214)
599-9205.
The Offering
<TABLE>
<S> <C>
Securities offered hereby................... 1,000,000 Units, each Unit consisting of one share of Common
Stock and one Warrant, each Warrant entitling the holder to
purchase one share of Common Stock at a price of $____per share
(120% of the offering price) until _________,2004. See
"Description of Securities."
Description of the Warrants................. The Warrants are not immediately exercisable and are not
transferable separately from the Shares until _______, 1999.
The Warrants are redeemable by the Company at $0.05 per Warrant
under certain conditions. See "Description of Securities."
Common Stock to be outstanding
after the Offering........................ 3,000,000 shares (1)
Warrants to be outstanding
after the Offering........................ 1,000,000 Warrants (1)(2)
Use of Proceeds............................. Reduction of outstanding indebtedness, lot
acquisition/development and working capital. See "Use of
Proceeds."
Risk Factors................................ The Securities offered hereby are speculative and involve a high
degree of risk and should not be purchased by investors who
cannot afford the loss of their entire investment. See "Risk
Factors."
American Stock Exchange Symbols
Units.................................... "WHO.U"
-----------------------------------------------------
Common Stock............................. "WHO"
--------------------------------------------
Warrants................................. "WHO.WS"
</TABLE>
----------------------
(1) Does not include (i) up to 1,000,000 shares issuable upon exercise of
the Warrants, (ii) 300,000 shares issuable upon exercise of the Underwriters'
Over-allotment Option and the Warrants thereunder, (iii) 200,000 shares issuable
upon exercise of the Underwriters' Warrants and the shares underlying such
Warrants, (iv) 300,000 shares reserved for issuance under the Stock Option Plan,
and (v) 200,000 shares issuable upon exercise of other warrants to be issued at
the closing of this offering. See "Description of Securities-Other Warrants."
---------------------------------------------
(2) Does not include (i) up to 150,000 Warrants issuable upon exercise of
the Over-allotment Option, (ii) 100,000 Warrants underlying the Underwriters'
Warrants, and (iii) 100,000 other warrants to be issued at the closing.
<PAGE>
SUMMARY HISTORICAL AND PROFORMA FINANCIAL INFORMATION
--------------------------------------------------------
(dollars in thousands, except per share data)
- -- ------------------------------------------
The following selected financial data has been derived from the unaudited
balance sheet and income statement of Woodhaven Homes, Inc. for the nine months
ended September 30, 1997, 1998 audited financial statements for each of the
three years in the period ended December 31, 1997 and unaudited financial
statements for each of the two years in the period ended December 31, 1994. This
selected financial data should be read in conjunction with the financial
statements of the Company and the related notes thereto included elsewhere in
this Prospectus. See "Financial Statements."
<TABLE>
<CAPTION>
- ------------------------------------------------------ Nine Months
Fiscal Year Ended December 31, Ended Sept. 30
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
-----
Net Sales $4,339 $8,039 $15,237 $25,253 $32,981 $22,923 $35,154
Cost of sales 3,745 6,671 13,593 22,783 28,540 19,901 30,233
General and administrative 244 924 1,769 1,711 2,649 1,681 2,559
------ ------ -------- ------- ------- ------- -------
Earnings before income tax 351 444 (157) 533 1,465 1,057 2,173
Income tax 9 63 - 22 48 48 ---
------ ------ ------- ------- ------- ------- -------
Net income 342 381 (157) 511 1,417 1,009 2,173
- - Earnings per share $ 0.17 $ 0.19 $ (0.08) $ 0.26 $ 0.71 $ 0.50 $ 1.09
Proforma earnings
(loss) per share (2) $ 0.11 $ 0.13 $ (0.05) $ 0.16 $ 0.46 $ 0.34 $ 0.72
December 31, September 30,
1993 1994 1995 1996 1997 1998 1998
---- ---- ---- ---- ---- ---- ----
As Adjusted (1)
Balance Sheet Data:
- - Working capital $ (37) $ 710 $ 94 $ 496 $1,525$ 2,78 $11,288
Current assets 1,358 2,694 7,331 10,229 16,002 18,403 23,203
- - Current liabilities 1,395 1,984 7,236 9,733 14,478 15,615 12,615
Total assets 1,698 2,839 7,606 10,652 16,455 19,048 23,848
Total liabilities 1,475 2,347 7,536 9,870 14,592 15,680 12,680
Shareholder's equity 223 492 70 781 1,863 3,368 11,868
- - Shares outstanding 2,000 2,000 2,000 2,000 2,000 2,000 3,000
</TABLE>
(1) Adjusted to reflect the sale of the Units offered by this prospectus at
an offering price of $10.00 per Unit and application of the net proceeds of
$8,500,000.
-------------------------------------------
- - -------------------------
(2) Since its inception, the Company has been taxed as a partnership for
federal income tax purposes. Accordingly, in lieu of payment of income taxes at
the corporate level, the stockholders individually reported there pro rata share
of the Company's income, deductions, losses and credits. Pro forma information
reflects results that would have been reported had the Company not been taxed as
a partnership during the applicable periods. In addition pro forma weighted
average shares outstanding is 2,000,000 shares for all applicable periods.
- --------------------------------
THE REORGANIZATION
The Company was organized in August 1998 to acquire from Richard D.
Laxton, Phillip R. Johns and Mark V. Johns all of the assets of Woodhaven Ltd.,
all of the outstanding capital stock of WH Management, Inc. ("WH Management"),
the corporate general partner of Woodhaven Ltd., and all of the outstanding
capital stock of Resland in exchange for 2,000,000 shares of its Common Stock.
Pursuant to Articles of Merger effective December 15, 1998, Woodhaven Ltd. was
merged into the Company with the Company as the surviving corporation. Also on
December 15, 1998, the Company acquired from Messrs, Laxton, Johns and Johns all
of the outstanding capital stock of WH Management and Resland. The transaction
is intended to qualify as a tax-free reorganization (the "Reorganization")
pursuant to Section 351 of the Internal Revenue Code. The Company will succeed
to the business of Woodhaven Ltd. and will operate Resland as a wholly-owned
subsidiary of the Company. In the past, Resland has been used by Woodhaven Ltd.
as an off-balance sheet corporation to buy and sell residential lots for
development. The lots were sold primarily to Woodhaven Ltd., but occasionally to
other home builders. The Company expects to continue to utilize Resland to buy
and hold its lots for development. Richard D. Laxton, Phillip R. Johns and Mark
V. Johns, the limited partners of Woodhaven Ltd. and sole managers of its
business (through ownership of WH Management) will continue as officers and
directors of the Company. The terms of the Reorganization, including the values
assigned to the assets of Woodhaven Ltd., Resland and Common Stock of the
Company to be exchanged were determined in negotiations between the three
principals of Woodhaven Ltd. and the Representatives of the Underwriters.
In connection with the Reorganization, at the closing of this offering, the
Company will distribute $700,000 to the three limited partners of Woodhaven Ltd.
for payment of income taxes applicable to Woodhaven Ltd's. income from
operations. The distribution will be made to allow Richard D. Laxton, Phillip R.
Johns and Mark V. Johns to pay the individual income taxes they owe on their
shares of Woodhaven Ltd's. earnings. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Certain Relationships and Related Transactions."
<PAGE>
RISK FACTORS
An investment in the Securities offered hereby involves a high degree
of risk. Prospective investors should consider the following factors in addition
to other information set forth in the prospectus before purchasing the
securities offered hereby. Prospective investors should note that this
Prospectus contains certain "forward-looking statements," including without
limitation, statements containing the words "believes," "anticipates,"
"expects," "intends," "plans," "should," "seeks to," and similar words.
Prospective investors are cautioned that such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties. Actual
results may differ materially from those in the forward-looking statements as a
result of various factors, including but not limited to, the risk factors set
forth in this Prospectus. The accompanying information contained in this
Prospectus identifies important factors that could cause such differences.
General Real Estate, Economic and Other Conditions
The homebuilding industry is significantly affected by changes in
national and local economic and other conditions, including employment levels,
availability of financing, interest rates, consumer confidence and housing
demand. The homebuilding industry historically has been susceptible to cyclical
economic conditions, and consumer demand for housing generally lessens during
economic downturns. The possibility of reduced consumer demand as a result of
changing general economic conditions, in turn, increases the risks inherent to
homebuilders in purchasing and developing large tracts of land, since they must
purchase and develop land significantly in advance of the sale of any homes. In
addition, homebuilders are subject to various risks, many of them outside the
control of the homebuilder, including competitive overbuilding, availability and
cost of building lots, availability of materials and labor and adverse weather
conditions which can cause delays in construction schedules, cost overruns,
changes in government regulation and increases in real estate taxes and other
local government fees.
Dependence Upon Key Personnel
The Company's success is largely dependent on the skills, experience
and performance of certain key members of its management, including particularly
Richard D. Laxton, the Company's Chief Executive Officer, Phillip R. Johns and
Mark V. Johns, President and Vice President, respectively. The loss of the
services of any of these key employees could have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company has no employment contracts. The Company's future success and plans for
growth also depend on its ability to attract, train and retain skilled personnel
in all areas of its business. Although the Company has agreed to obtain key-man
insurance in the face amount of $3,000,000 on the life of Mr. Laxton, there can
be no assurance that such amount will be sufficient to compensate the Company
for the loss of his services. See "Management."
Competition
Builders of new homes compete not only for home buyers, but also for
desirable properties, financing, raw materials and skilled labor. The Company
competes with other local, regional and national homebuilders, occasionally
within larger subdivisions designed, planned and developed by such homebuilders.
Some of the Company's competitors have greater financial, marketing and sales
resources than the Company.
The Company believes that a competitive challenge facing it in all of
its present markets is locating and acquiring undeveloped land suitable for the
types of communities that it can profitably develop. Although the Company has
been successful in the past in locating and developing such tracts within its
present markets, there can be no assurance that this success will continue. If
the Company expands the geographic scope of its business to new markets, there
can be no assurance that the Company will be successful in acquiring suitable
land for development in such markets. See "Business - Competition."
<PAGE>
Voting Control by Management
Upon completion of this offering, the Company's officers and directors,
will own approximately 66.7% of the outstanding Common Stock of the Company. As
a result, these shareholders will be able to control the vote on all matters
submitted to shareholders, including the election of directors. However, if the
over-allotment option and all warrants and options were exercised, the Company's
officers and directors would own approximately 40% of the outstanding Common
Stock and would not be able to control the vote on all matters submitted to
shareholders. See "Principal Shareholders."
Integration of Acquisitions
A material element of Woodhaven's growth strategy is to expand its
existing business in the Texas area and, in the future, in other geographic
markets. This expansion may be made through internal growth or through strategic
acquisitions. The Company is currently evaluating opportunities to make
strategic acquisitions, although it has no present commitments or agreements
with respect to any material acquisitions. There can be no assurance that the
Company will be able to identify and acquire such companies or that it will be
able to successfully integrate the operations of any companies it acquires.
Further, any acquisition may initially have an adverse effect upon the Company's
operating results while the acquired businesses are adopting the Company's
management and operating practices. The Company may use a portion of the
proceeds of this offering as well as bank borrowing and the issuance of its
stock as consideration for acquisitions. There can be no assurance that the
Company will be able to establish, maintain or increase profitability of an
entity once it has been acquired. Also, if Woodhaven does not have sufficient
cash resources for any acquisition, its growth could be limited. There can be no
assurance that Woodhaven will be able to obtain adequate financing for any
acquisition, or that, if available, such financing will be on terms acceptable
to Woodhaven. The consent of the Company's primary lenders will be required to
be obtained in order to consummate such acquisitions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" and "Business -Strategy."
Effect of Cash Flow on Acquisitions
The Company's lack of positive cash flow may adversely affect its
ability to make any acquisitions. The Company produced cashflow from operations
of ($512,991) for the nine months ended September 30, 1998, and cashflow from
operations of ($3,593,961), ($2,398,955) and ($3,233,672) for the fiscal years
ended December 31, 1997, 1996 and 1995, respectively. However, the Company will
not rely solely upon cash flow for its acquisitions. The Company may use a
portion of the proceeds of this offering as well as bank borrowing and the
issuance of its stock as consideration for acquisitions. There can be no
assurance that the Company will be able to make any acquisitions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and "Business -Strategy."
Offering to Increase Value of Current Shareholders Holdings
The current shareholders of the Company acquired their shares of Common
Stock at a cost per share substantially less than that at which the Company
intends to sell its Common Stock included in the Units. Consummation of the
offering will result in a substantial increase in the value of the current
shareholders' holdings and a resulting dilution in the price paid by the public
shareholders. See "Dilution."
Government Regulations and Environmental Concerns
The housing industry and the Company are subject to increasing local,
state and Federal statutes, ordinances, rules and regulations concerning zoning,
resource protection (preservation of woodlands and hillside areas), building
design, construction and similar matters, including local regulations which
impose restrictive zoning and density requirements in order to limit the number
of residences that can eventually be built within the boundaries of a particular
location. Such regulation affects construction activities, including
construction materials that must be used in certain aspects of building design,
as well as sales activities and other dealings with consumers. The Company must
also obtain certain licenses, permits and approvals from various governmental
agencies for its development activities, the granting of which are beyond the
Company's control. Furthermore, increasingly stringent requirements may be
imposed on homebuilders and developers in the future. Although the Company
cannot predict the impact on the Company of compliance with any such
requirements, such requirements could result in time consuming and expensive
compliance programs. See "Business- Government Regulation and Environmental
Matters."
Representative's Experience.
The Representatives do not have substantial experience in public offerings.
Capital West Securities, Inc. has participated in nine firm-commitment public
offerings of equity securities since its organization as a broker dealer in
1995. Redstone Securities Inc. has managed and completed three public offerings
of equity securities since 1988. Principals of the Representatives, however,
have had substantial experience in connection with public offerings of equity
securities. There can be no assurance that the Representatives' lack of
experience will not adversely affect the offering. See "Underwriting."
Business Concentration
The Company's operations are focused in the North Texas area. The
Company intends to expand operations within this market by entering additional
communities and subdivisions. The Company is continually reviewing potential lot
acquisition and development opportunities, which may take as long as one or two
years to finalize. The Company has allocated $2,000,000 of the proceeds of this
offering to payments for the equity portion of lot acquisition and development
and may expend such amounts within six to nine months from the date hereof. The
Company has operated successfully in its current market, but there can be no
assurance that the stability of this market or the Company's favorable results
will continue. Adverse general economic conditions in this market could have a
material adverse impact upon the operations of the Company. The Company also may
expand into new geographic markets, which could reduce the Company's dependence
on its existing market. The risks for expansion outside the Company's existing
market include significant start-up costs, the hiring of additional personnel
and developing new supplier and subcontractor relationships.
Absence of Prior Public Market - American Stock Exchange Listing
Prior to this offering, there has been no public market for the
Securities. The Securities have been approved for listing on the American Stock
Exchange. Such listing does not imply, however, that a meaningful, sustained
market for the Common Stock or Warrants will develop. There can be no assurance
that an active trading market for the Securities offered hereby will develop or,
if it should develop, will continue.
Risk of Redemption of Warrants
Commencing twelve months from the date of this Prospectus, the Company
may redeem the Warrants for $.05 per Warrant, provided that the closing sale
price of the Common Stock on the American Stock Exchange has been at least $18
per share for ten consecutive trading days ending within fifteen days of the
notice of redemption. Notice of redemption of the Warrants could force the
holders thereof: (i) to exercise the Warrants and pay the exercise price at a
time when it may be disadvantageous or difficult for the holders to do so, (ii)
to sell the Warrants at the current market price when they might otherwise wish
to hold the Warrants, or (iii) to accept the redemption price, which will be
less than the market value of the Warrants at the time of the redemption. See
"Description of Securities - Warrants."
Investors May Be Unable to Exercise Warrants
For the life of the Warrants, the Company will use its best efforts to
maintain a current effective registration statement with the Commission relating
to the shares of Common Stock issuable upon exercise of the Warrants. If the
Company is unable to maintain a current registration statement the Warrant
holders would be unable to exercise the Warrants and the Warrants may become
valueless. Although the Underwriters have agreed to not knowingly sell the
Warrants in any jurisdiction in which the shares of Common Stock issuable upon
exercise of the Warrants are not registered, exempt from registration or
otherwise qualified, a purchaser of the Warrants may relocate to a jurisdiction
in which the shares of Common Stock underlying the Warrants are not so
registered or qualified. In addition, a purchaser of the Warrants in the open
market may reside in a jurisdiction in which the shares of Common Stock
underlying the Warrants are not registered, exempt or qualified. If the Company
is unable or chooses not to register or qualify or maintain the registration or
qualification of the shares of Common Stock underlying the Warrants for sale in
all of the states in which the Warrant holders reside, the Company would not
permit such Warrants to be exercised and Warrant holders in those states may
have no choice but to either sell their Warrants or let them expire. Prospective
investors and other interested persons who wish to know whether or not shares of
Common Stock may be issued upon the exercise of Warrants by Warrant holders in a
particular state should consult with the securities department of the state in
question or send a written inquiry to the Company. The Warrants and the
Underlying Common Stock have been accepted for listing on the American Stock
Exchange which provides an exemption from registration in most states. See
"Description of Securities - Warrants."
Arbitrary Determination of Offering Price
The public offering price for the Units offered hereby was determined
by negotiation between the Company and the Representatives, and should not be
assumed to bear any relationship to the Company's asset value, net worth or
other generally accepted criteria of value. Recent history relating to the
market prices of newly public companies indicates that the market price of the
Securities following this offering may be highly volatile. See "Underwriting."
Immediate Substantial Dilution
The Company's current shareholders acquired their shares of Common
Stock at a cost substantially below the price at which such shares are being
offered in this offering. In addition, the initial public offering price of the
shares of Common Stock included in the Units being offered in this offering will
be substantially higher than the current book value per share of Common Stock.
Consequently, investors purchasing shares of Common Stock included in the Units
being offered in this offering will incur an immediate and substantial dilution
of their investment of approximately $6.04 per share or approximately 60.40%
insofar as it relates to the resulting book value of Common Stock after
completion of this offering. See "Dilution."
Payment of Dividends
The Company has never paid cash dividends on the Common Stock, and does
not anticipate that it will pay cash dividends in the foreseeable future.
However, the Company has made cash distributions to partners and members of the
limited liability company for the purpose of paying federal income taxes. The
payment of dividends by the Company will depend on its earnings, financial
condition and such other factors as the Board of Directors of the Company may
consider relevant. The Company currently plans to retain any earnings to provide
for the development and growth of the Company. See "Dividend Policy."
Shares Eligible for Future Sale
Upon completion of this offering, the Company's current shareholders
will own 2,000,000 shares of Common Stock, which will represent 66.7% of the
then issued and outstanding shares of Common Stock (63.5% if the over-allotment
option is exercised in full). The shares held by the current shareholders are
"restricted securities" as that term is defined in the Rules and Regulations
under the Securities Act, and as such, may be publicly sold only if registered
under the Securities Act or sold pursuant to an applicable exemption from
registration, such as that provided by Rule 144 under the Securities Act.
The shares held by the current shareholders, will not be eligible for
sales under Rule 144 for at least one year from the effective date of this
Prospectus. The current shareholders have agreed with the Representative that
they will not sell or otherwise dispose of their shares for a period of one year
after the date of this Prospectus without the prior written consent of the
Representative. Sales of significant amounts of Common Stock by current
shareholders in the public market after this offering could adversely affect the
market price of the Common Stock. See "Shares Eligible for Future Sale" and
"Principal Shareholders."
Use of Proceeds for Unspecified Acquisitions
The Company may utilize a portion of the net proceeds of this offering
for the purpose of acquisitions, joint ventures and other similar business
opportunities. Under Texas law, transactions of this nature do not require
shareholder approval except when accomplished through a merger or consolidation.
Accordingly, purchasers in this offering will necessarily rely to a large degree
upon the judgment of management of the Company in the utilization of the net
proceeds of this offering applied to acquisitions. The Company does not now have
any agreements or commitments with respect to any specific transactions, and
management has not established specific criteria to be used in making the
determination as to how to invest these proceeds. See "Business-Strategy."
Shares of Common Stock Reserved Under Stock Option Plan
The Company has reserved 300,000 shares of Common Stock for issuance to
key employees, officers, directors and consultants pursuant to the Company's
Stock Option Plan. To date no options have been granted under the Stock Option
Plan. The existence of these options and any other options or warrants may prove
to be a hindrance to future equity financing by the Company. Further, the
holders of such options may exercise them at a time when the Company would
otherwise be able to obtain additional equity capital on terms more favorable to
the Company. See "Management - Stock Option Plan."
Effect of Outstanding Warrants and Underwriters' Warrants.
Until the date five years following the date of this Prospectus, the
holders of the Warrants and Underwriters' Warrants are given an opportunity to
profit from a rise in the market price of the Common Stock, with a resulting
dilution in the interests of the other shareholders. Further, the terms on which
the Company might obtain additional financing during that period may be
adversely affected by the existence of the Warrants and Underwriters' Warrants.
The holders of the Warrants and Underwriters' Warrants may exercise the Warrants
and Underwriters' Warrants at a time when the Company might be able to obtain
additional capital through a new offering of securities on terms more favorable
than those provided herein. The Company has agreed that, under certain
circumstances, it will register under federal and state securities laws the
Underwriters' Warrants and/or the securities issuable thereunder. Exercise of
these registration rights could involve substantial expense to the Company at a
time when it could not afford such expenditures and may adversely affect the
terms upon which the Company may obtain financing. See "Description of
Securities" and "Underwriting."
Representatives' Influence on the Market
A significant amount of the Securities offered hereby may be sold to
customers of the Representatives. Such customers subsequently may engage in
transactions for the sale or purchase of such Securities through or with the
Representatives. Although it has no obligation to do so, the Representatives may
otherwise effect transactions in such securities. Such market making activity
may be discontinued at any time. If they participate in the market, the
Representatives may exert a dominating influence on the market, if one develops,
for the Securities described in this Prospectus. The price and the liquidity of
the Securities may be significantly affected by the degree, if any, of the
Representatives' participation in such market.
In addition, the Company has agreed to solicit exercises of the
Warrants solely through the Representatives and to pay the Representatives
certain compensation in connection therewith. Solicitation of the exercise of
the Warrants by the Representatives will not be made during the restricted
periods of Regulation M under the Securities Exchange Act of 1934, as amended.
See "Description of Securities-Warrants" and "Underwriting."
<PAGE>
USE OF PROCEEDS
The net proceeds of this offering to the Company, are expected to be
approximately $8,500,000 ($9,850,000 if the over-allotment option is exercised
in full), assuming an initial public offering price of $10.00 per Unit, after
deducting the Underwriters' discount and $500,000 of expenses relating to the
offering, including the Underwriters' non-accountable expense allowance. No
value has been assigned to the Warrants included in the Units. The Company
intends to use the net proceeds as follows:
Amount Percent
Reduction of existing debt(1) $3,000,000 35.3%
Special distribution to principal shareholders (2) 700,000 8.2
Lot acquisition/development 2,000,000 23.6
Working capital(3) 2,800,000 32.9
- --------- ----
Total $8,500,000 100.0%
========== ======
- ----------
(1) At June 30, 1998 the Company had approximately $13.2 million of short-term
construction and lot loans outstanding to ten banks and other financial
institutions at interest rates ranging from 9% to 10.5% which mature in 12
months or less from issuance. The Company will pay off the loans and
smaller lines of credit that bear the highest interest rates.
(2) The Company intends to pay $700,000 to the Company's shareholders, Richard
D. Laxton, Mark V. Johns and Phillip R. Johns to pay taxes due in
connection with the termination and merger of Woodhaven Homes, Ltd. into
the Company. See "The Reorganization", "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Certain
Relationships and Related Transactions."
(3) The Company may also use as much as $2,000,000 of the net proceeds from
this offering to take advantage of future business opportunities as part of
its expansion plans, although it has not identified any specific businesses
it intends to acquire and has not entered into negotiations with respect to
any acquisitions.
Pending application of the net proceeds of this offering, the Company
may invest such net proceeds in interest-bearing accounts, United States
Government obligations, certificates of deposit or short-term interest-bearing
securities.
DIVIDEND POLICY
The Company has operated as a limited liability company and a limited
partnership and has made cash distributions to the partners of $0 in 1996,
$335,445 in 1997 and $225,000 for the six months ended June 30, 1998. The
Company does not anticipate paying dividends on the Common Stock at any time in
the foreseeable future. The Company's Board of Directors plans to retain
earnings for the development and expansion of the Company's business. The Board
of Directors also plans to regularly review the Company's dividend policy. Any
future determination as to the payment of dividends will be at the discretion of
the Board of Directors of the Company and will depend on a number of factors,
including future earnings, capital requirements, financial condition and such
other factors as the Board of Directors may deem relevant.
<PAGE>
DILUTION
As of September 30, 1998, the net tangible book value of the Company
was $3,367,593 or $1.68 per share of Common Stock. The net tangible book value
of the Company is the aggregate amount of its tangible assets less its total
liabilities. The net tangible book value per share represents the total tangible
assets of the Company, less total liabilities of the Company, divided by the
number of shares of Common Stock outstanding. After giving effect (i) to the
sale of 1,000,000 Units (1,000,000 shares of Common Stock and 1,000,000
Warrants) at an assumed offering price of $10.00 per Unit, or $10.00 per share
of Common Stock (no value assigned to the Warrants), and (ii) the application of
the estimated net proceeds therefrom, the pro forma net tangible book value per
share would increase from $1.68 to $3.96. This represents an immediate increase
in net tangible book value of $2.28 per share to current shareholders and an
immediate dilution of $6.04 per share to new investors or, 60.40% as illustrated
in the following table:
<TABLE>
<S> <C> <C>
Public offering price per Share $10.00
Net tangible book value per Share before this offering $ 1.68
Increase per share attributable to new investors 2.28
------
Adjusted net tangible book value per share after this offering $ 3.96
Dilution per share to new investors $ 6.04
Percentage dilution 60.40%
</TABLE>
The following table sets forth as of June 30, 1998, (i) the number of
shares of Common Stock purchased from the Company, the total consideration paid
to the Company and the average price per share paid by the current shareholders,
and (ii) the number of shares of Common Stock included in the Units to be
purchased from the Company and total consideration to be paid by new investors
(before deducting underwriting discounts and other estimated expenses) at an
assumed offering price of $10.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
Number Percent Amount Percent Per
<S> <C> <C> <C> <C> <C>
Share
Current shareholders 2,000,000 (2) 66.7% $ 3,367,593 25.2% $ 1.68
New investors 1,000,000 (2) 33.3% 10,000,000 74.8% $10.00 (3)
--------- ------ ----------- ------
Total 3,000,000 (1) 100.0% $13,367,593 (2) 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Does not include a total of 2,000,000 shares of Common Stock issuable upon
the exercise of: (i) the Warrants or the Underwriters' Warrants, (ii) the
Over-allotment Option, (iii) employee stock options, or (iv) other warrants
to be issued. To the extent that these options and warrants are exercised,
there will be further share dilution to new investors. As of the date of
this Prospectus, there are no outstanding employee stock options or
warrants which are exercisable.
(2) Upon exercise of the Over-allotment Option, the number of shares held by
new investors would increase to 1,150,000 or 36.5% of the total number of
shares to be outstanding after the offering and the total consideration
paid by new investors will increase to $11,500,000. See "Principal
Shareholders."
(3) This amount assumes the attribution of the Unit purchase price solely to
the Common Stock included in each Unit. See "Use of Proceeds."
<PAGE>
CAPITALIZATION
The following table sets forth the proforma capitalization of the
Company as of September 30, 1998, and as adjusted to give effect to the sale by
the Company of 1,000,000 Units offered hereby at an assumed offering price of
$10.00 per unit and the application of the net proceeds of $8,500,000. The table
should be read in conjunction with the financial statements and notes thereto
appearing elsewhere in this Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
September 30, 1998
(Unaudited) As Adjusted
<S> <C> <C>
Notes payable ...................................... $ 13,863,469$ 10,863,469
------------------------------------
Total short-term debt............................... $ 13,863,469 $ 10,863,469
============= =============
Long-term debt:
Capital lease obligations........................... $ 65,131 $ 65,131
Total long-term debt.......................................................... $ 65,131 $ 65,131
============= =============
Shareholders' equity:
Common Stock, $0.01 par value,
20,000,000 shares authorized,
2,000,000 shares issued and outstanding,
3,000,000 as adjusted (1)......................... 20,000 30,000
Additional paid in capital.......................... 0 8,490,000
Retained earnings................................... 3,347,593 3,347,593
------------- -------------
Total shareholders' equity........................ 3,367,593 11,867,593
------------- -------------
Total capitalization ............................. $ 3,432,724 $ 11,932,724
============= =============
- ------
</TABLE>
(1) Does not include an aggregate of up to 2,000,000 shares issuable upon
exercise of (a) the Company's Stock Option Plan, (b) the Warrants or the
Underwriters' Warrants, (c) the Over-allotment Option, (d) other warrants.
See "Management - Stock Option Plan."
<PAGE>
SELECTED COMBINED FINANCIAL INFORMATION
(dollars in thousands, except per share data)
The following selected financial data has been derived from the
unaudited balance sheet and income statement of Woodhaven Homes, Inc. for the
nine months ended September 30, 1998, audited financial statements for each of
the three years in the period ended December 31, 1997 and unaudited financial
statements for each of the two years in the period ended December 31, 1994. This
selected financial data should be read in conjunction with the financial
statements of the Company and the related notes thereto included elsewhere in
this Prospectus. See "Financial Statements."
<TABLE>
<CAPTION>
Nine Months
Fiscal Year Ended December 31, Ended Sept. 30
---------------------------------------------------- ----------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Net Sales $4,339 $8,039 $15,237 $25,253 $32,981 $22,923 $35,154
Cost of sales 3,745 6,671 13,593 22,783 28,540 19,901 30,233
General and administrative 244 924 1,769 1,711 2,649 1,681 2,559
------ ------ -------- ------- ------- ------- -------
Earnings before income tax 351 444 (157) 533 1,465 1,057 2,173
Income tax 9 63 - 22 48 48 ---
------ ------ ------- ------- ------- ------- -------
Net income 342 381 (157) 511 1,417 1,009 2,173
Earnings per share $ 0.17 $ 0.19 $ (0.08) $ 0.26 $ 0.71 $ 0.50 $ 1.09
December 31, September 30,
--------------------------------------------------- -----------------
1993 1994 1995 1996 1997 1998 1998
---- ---- ---- ---- ---- ---- ----
As Adjusted (1)
Balance Sheet Data:
Working capital $(37) $710 $94 $496 $1,525 2,788 11,288
Current assets 1,358 2,694 7,331 10,229 16,002 18,403 23,203
Current liabilities 1,395 1,984 7,236 9,733 14,478 15,615 12,615
Total assets 1,698 2,839 7,606 10,652 16,455 19,048 23,848
Total liabilities 1,475 2,347 7,536 9,870 14,592 15,680 12,680
Shareholder's equity 223 492 70 781 1,863 3,368 11,868
Shares outstanding 2,000 2,000 2,000 2,000 2,000 2,000 3,000
- -------
</TABLE>
(1) Adjusted to reflect the sale of the Units offered by this prospectus at
an offering price of $10.00 per Unit and application of the net proceeds of
$8,500,000.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in connection with the Company's Combined
Financial Statements, related notes and other financial information included
elsewhere in this Prospectus.
Results of Operations
Over the three years ended December 31, 1997, the Company increased net
sales by 115.9% to $33.0 million from $15.2 million, decreased costs of sales as
a percentage of sales by 2.7% while general and administrative expenses as a
percentage of sales declined from 11.6% to 8.0%. During this period, net income
as a percentage of sales increased from (1.0%) in 1995 to 4.3% in 1997. The
following table presents, as a percentage of net revenues, certain financial
data for the Company for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Year Ended
Nine months Ended 9/30
12/31/97 12/31/96 12/31/95 1998 1997
-------- -------- -------- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of sales 86.5 90.2 89.2 86.8 86.8
Gross profit 13.5 9.8 10.8 14.0 13.2
General and
administrative expenses 8.0 6.8 11.6 7.3 7.3
Operating income 5.4 3.0 (0.8) 6.7 5.8
Interest expense 1.0 0.9 0.2 0.5 1.2
Income taxes 0.1 0.1 -- -- 0.2
Net income 4.3 2.0 (1.0) 6.2 4.4
</TABLE>
Comparison of the Nine months Ended September 30, 1997 and September 30, 1998
Net sales for the nine month period ended September 30, 1998 increased
by 53.4% to $35.2 million from $22.9 million for the nine month period ended
September 30, 1997. The higher level of sales reflects the increased marketing
efforts initiated in 1997 as the Company added new salespeople and sales
centers. These efforts resulted in a higher level of inventory of homes in late
1997 that were subsequently closed during the first half of 1998. Revenues also
benefited from an increase in the average sales price of a home to $109,174 from
$103,257. The majority of the sales increase was due to an increase in the
number of homes sold during the period as the Company sold 322 homes versus 222
in the prior period. The increase in average sales price provided $591,700 of
the sales increase during the period. See "Business-Backlog."
Gross profit for the nine month period ended September 30, 1998
increased to $4.9 million from $3.0 million for the same period in 1997. Gross
margin increased by 0.8% to 14.0% from 13.2%. The increase in gross profit and
gross margin was primarily due to increased sales combined with lower financing
costs. The Company experienced a decrease in its borrowing costs as evidenced by
lower interest rates in its bank agreements. Interest costs incurred on
construction indebtedness (secured by specific real estate inventories) are
capitalized until completion of construction. Interest costs incurred after
completion of construction and interest incurred on non-construction related
indebtedness are expensed.
General and administrative expense increased by 52.2% to $3.2 million
from $1.7 million for the nine month period ended September 30, 1997. The
increase was primarily due to the addition of several management positions to
support the Company's growth. As a percentage of sales, general and
administrative expense was relatively flat reflecting management's strategy to
add personnel in relation to sales growth.
Interest expense decreased to $118,774 for the nine month period ended
September 30,1998 compared to $283,299 for the same period in the prior year.
The decrease in interest expense was primarily due to a lower inventory of homes
waiting to be sold that have to be financed by the Company. In addition, the
Company had previously owned their model homes and financed them with bank debt.
Beginning in 1997, the Company started leasing the model homes from an
unaffiliated third party that eliminated the interest expense associated with
owning them. Leasing expense is recorded on the financial statements under
Selling, General and Administrative Expense.
Net earnings for the nine months ended September 30, 1998 increased to
approximately $2.2 million from $1.0 for the nine month period ended September
30, 1997. The increase in net earnings was primarily due to the increase in
sales, improvement in gross margin and reduction in interest expense as noted
above.
Comparison of the Years Ended December 31, 1996 and December 31, 1997
Net sales for the year ended December 31, 1997 increased by $7.7
million, or 30.6%, to $33.0 million from $25.3 million for the prior year. The
increase was primarily due to increased marketing efforts by the Company and
general improvement in real estate conditions in the Company's markets. During
the year, the Company increased the number of sales centers from eight in 1996
to fifteen in 1997. Further, the number of salespeople was increased to eighteen
from twelve. The majority of the sales increase during the year was due to the
increase in the number of homes sold as the Company closed 320 homes during the
year compared to 270 in the prior year. Revenues also benefited from an increase
in the average sales price of a home to $104,000 from $94,000 in the prior year.
The increase in average sales price per home contributed $500,000 to the overall
increase in sales during the year.
Gross profit for the year ended December 31, 1997 increased by 79.7% to
$4.4 million from $2.5 million in the prior year. Gross margin increased 3.7% to
13.5% from 9.8%. These improvements reflect an increase in the average selling
price of homes sold by the Company combined with a reduction in financing costs.
Selling, general and administrative expenses for the year ended
December 31, 1997 increased by approximately $938,000, or 54.8%, to $2.6 million
from $1.7 million in the prior year. The increase was primarily due to increased
marketing expenses in the form of advertising and maintenance of model homes. In
addition, the Company increased employee benefit expenditures by adding a health
insurance program and retirement plan.
Interest expense for the year ended December 31, 1997 increased to
approximately $326,000 from $226,000 in the prior year. The increase resulted
from differences in the amount of construction interest capitalized during the
periods.
Net income increased to approximately $1.4 million for the fiscal year
end December 31, 1997 from $511,000 in the prior year, an increase of 177.4%.
The increase in net income reflects the increase in sales with correspondingly
lower increases in cost of sales and selling, general and administrative
expenses.
Comparison of the Years Ended December 31, 1995 and December 31, 1996
Net sales for the year ended December 31, 1996 increased by 65.7% to
$25.3 million from $15.2 million for the year ended December 31, 1995. The
majority of the sales increase was due to an increase in the number of homes
sold during the year as the Company sold 270 homes versus 172 in the prior year.
Revenues also benefited from an increase in the average sales price of a home to
$93,000 from $87,000 in the prior year. The increase in average sales price per
home contributed $588,000 to the overall increase in sales during the year.
Gross profit for the year ended December 31, 1996 increased to $2.5
million from $1.6 million from 1995. The increase in gross profit was primarily
due to the higher revenue base. For the year ended December 31, 1996, gross
margin was 9.8% compared to 10.8% for the year ended December 31, 1995. The
decline in gross margin was primarily due to the reclassification of certain
expense items that were not included in cost of sales in the prior year.
General and administrative expense declined to $1.7 million for the
year ended December 31, 1996 from $1.8 million for the year ended December 31,
1995. As a percentage of sales, general and administrative expense was 6.8%
compared to 11.6% in the prior year. The decline in general and administrative
expense was primarily due to the reclassification of certain expense items that
were no longer included in general and administrative expense for the current
year.
Interest expense increased by $194,000 to $226,400 for the year ended
December 31, 1996 from $32,000 in the prior year. The increase was primarily due
to the increase in the number of homes sold by the Company that required funding
before they were closed.
Net earnings for the year ended December 31, 1996 were $511,000
compared to a loss of ($157,000) for the year ended December 31, 1995. The
increase was primarily due to the higher level of sales.
Liquidity and Capital Resources
The Company has financed its working capital requirements through the
use of bank debt, notes payable from shareholders, and capital leases. As of
September 30, 1998, the Company had working capital of $2.8 million and a
working capital ratio of 1.2 times. Current assets consist primarily of
inventories of lots and homes prior to being completed and closed.
Because of the capital intensive nature of the homebuilding business,
borrowings from banks and other financial institutions constitute the primary
financing vehicle for the Company. Such borrowings are typically short term and
are secured by homes and lots. They are repaid as the individual homes are
closed. Bank borrowings contain no significant restrictions and bear interest at
rates of 8.5% to 12.0%.
Cash used in operations for the nine months ended September 30, 1998
was approximately $513,000 compared to $2.6 million for the nine months ended
September 30, 1997. The decrease in cash used in operations was primarily due to
the increase in cash received from customers reflecting the higher revenue base.
This amount was offset by the increase in cash paid to suppliers to support the
increase in sales. The Company also spent $120,000 for the purchase of property
and equipment. The cash used in operations and investing was provided by notes
payable of approximately $900,000 during the year.
Cash used in operations for the fiscal year end December 31, 1997 was
approximately $3.6 million compared to $2.4 million for the same period in the
prior year. The increase in cash used in operations was due primarily to (i) the
internal financing of the growth in sales as reflected by the increase in
accounts receivable and (ii) an increase in inventory to support the higher
revenue base. The cash used in operations was provided by notes payable of
approximately $1.2 million and inventory loans of approximately $4.0 million
during the year.
Cash used in operations for the fiscal year ended December 31, 1996 was
approximately $2.4 million compared to $ 3.2 million for the same period in the
prior year. The reduction in cash used in operations was primarily due to a
reduction in inventory combined with improvement in accounts receivable
collections. The cash used in operations was provided by capital contributions
by management of $200,000 combined with inventory loans and notes payables of
approximately $2.8 million during the year.
The Company believes that the net proceeds from this offering, the use
of bank borrowings and leases, and anticipated revenue from operations should be
adequate for the Company's working capital requirements over the course of the
next twelve months. In the event that the Company's plans or assumptions change
or if its requirements to meet unanticipated changes in business conditions or
the proceeds of this offering prove to be insufficient to fund operations, the
Company could be required to seek additional financing prior to such time.
The Reorganization
The Company was organized in August 1998 to acquire from Richard D.
Laxton, Phillip R. Johns and Mark V. Johns all of the assets of Woodhaven Ltd.,
all of the outstanding capital stock of WH Management and all of the outstanding
capital stock of Resland in exchange for 2,000,000 shares of its Common Stock.
Pursuant to Articles of Merger effective December 15, 1998, Woodhaven Ltd. was
merged into the Company with the Company as the surviving corporation. Also on
December 15, 1998, the Company acquired from Messrs. Laxton, Johns and Johns all
of the outstanding capital stock of WH Management and Resland in a tranaction
designed to be a ta-free reorganization under Section 351 of the Internal
revenue Code. The Reorganization will be accounted for similar to a pooling of
interests with the transferred assets and liabilities being recorded at their
historical cost basis. The only expected impact on operations resulting from the
transaction is expected to be corporate income tax expense attributable to the
Company's earnings. Previously, earnings were taxed under a partnership
structure, and going forward they will be subject to the standard corporate
income tax rate of approximately 35%. In connection with the Reorganization, the
Company will distribute $700,000 to the three partners of Woodhaven Ltd. for
payment of income taxes applicable to Woodhaven Ltd's. income from operations.
The distribution will be made to allow Richard D. Laxton, Phillip R. Johns and
Mark V. Johns to pay the individual income taxes they owe on their shares of
Woodhaven Ltd's. earnings. See "The Reorganization," "Use of Proceeds", "Certain
Relationships and Related Transactions" and Principal Shareholders."
Year 2000
The Company conducted a review of its computerized systems to determine
how its systems would be affected by the Year 2000 issues. Additionally, the
Company is assessing certain third parties with which the Company has material
relationships, particularly lenders, suppliers, sub-contractors and title
companies, to determine their compliance with Year 2000 issues. The Company
intends to obtain confirmation that all such third parties are or will be Year
2000 compliant. The Company believes that such confirmation will be completed by
March 31, 1999. The Company leases its office space and does not own buildings,
equipment or machinery with embedded technology and accordingly, does not
believe that non-information technology is a factor in the Company's Year 2000
compliance.
The Company's primary system hardware and software package have been
reviewed by IBM, Renaissance Systems, Inc.,(an IBM business partner) and Systems
Analyses, Inc., the Company's software developer. As of June 30, 1998, and as a
result of such review, the Company purchased at a cost of $32,000 the latest
upgrade of the "HomeBuilder" software which has been certified by the software
developer to be Year 2000 compliant. Further, the Company has ordered new IBM
hardware (A/S 400) and operating software at a cost of $40,000, including
installation, all of which will be certified as Year 2000 compliant. The
upgraded software and new hardware is expected to be installed and tested for
compliance by December 31, 1998. See "Business-Management Information Systems."
The foregoing costs represent approximately 50% of the Company's 1998
budget for information technology and these costs will be paid out of working
capital and charged to income over a three year period. No additional
significant costs are anticipated and no other information technology projects
have been deferred as a result of Year 2000.
With respect to outside parties which could affect the Company's business
because of Year 2000 issues, the Company believes that the most likely problems
would arise because of isolated instances of shortages of supplies. However, the
Company's suppliers are major businesses which it believes will be Year 2000
compliant. The Company has not developed a formal contingency plan but believes
there are adequate alternative suppliers which the Company could use in the
event that one of its suppliers was unable to provide supplies needed in its
operations. At worst, the Company believes that there would only be a short-term
problem causing a temporary disruption of business.
Accounting Standards
The Financial Accounting Standards Board ("FASB") periodically issues
statements of financial accounting standards. In April 1997, FASB issued
Statement of Financial Accounting Standards (SFAS) No. 128. The new standard
replaces primary and fully diluted earnings per share with basic and diluted
earnings per share. The Company has adopted FASB 128 and has restated all prior
periods presented to comply with this standard. The adoption did not impact
reported earnings per share.
In June 1997, the FASB issued SFAS No. 130 and 131. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components. SFAS No. 131 establishes standards for reporting about operating
segments, products and services, geographic areas, and major customers. The
standards became effective for fiscal years beginning after December 15, 1997.
Management believes that provisions of SFAS No. 130 and 131 will not have a
material effect on its financial condition or reported results of operation.
In February 1998, the Financial Accounting Standards Board issued SFAS
132, Employers' Disclosures about Pensions and Other Postretirement Benefits -
An Amendment of FASB Statements No. 87,88, and 106. This Statement revises
employers' disclosures about pension and other post retirement benefit plans. It
does not change the measurement or recognition of those plans. Rather, it
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer
useful. This Statement became effective for fiscal years beginning after
December 15, 1997 and the Company believes it will not have a material effect on
its financial condition or results of operations.
In August 1998, the Financial Accounting Standards Board issued SFAS
133, Accounting for Derivative Instruments and Hedging Activities. This
statement, which applies to all entities, requires derivative instruments to be
measured at fair value and recognized as either assets or liabilities on the
balance sheet. The statement is effective for fiscal years beginning after June
15, 1999 with earlier application encouraged but permitted only as of the
beginning of any fiscal quarter beginning after June 1998. Retroactive
application is prohibited. The Company does not believe this statement will be
applicable to its financial condition or its results of operations.
<PAGE>
BUSINESS
General
The Company designs, builds and sells single-family homes in the
Dallas/Fort Worth metropolitan area. This market has experienced population and
job growth above the national average over the last several years. The Company
operated in 17 subdivisions in this metropolitan area, and had 204 homes under
construction at December 31, 1997. The Company is also actively engaged in
residential land acquisition and development, which enables it to provide lots
for its homebuilding operations. At December 31, 1997, the Company owned or had
under option contract 1,366 lots available for future growth.
The Company offers high-quality homes, designed principally for the "entry
level" and relocation market segments. Typically, homes range in size from 1,186
square feet to over 3,000 square feet and range in price from $67,950 to
$238,000, with an average sales price of $104,000 for homes closed during 1997.
The Company's homebuilding operation is positioned to compete with
high-volume builders by offering a broader selection of homes with more
amenities and greater design flexibility than typically offered by volume
builders. The Company gives the homebuyer the ability to select various design
features in accordance with their personal preferences. Through a volume
building approach the Company's custom homes generally offer more value than
those offered by local, lower-volume custom builders, primarily due to the
Company's effective purchasing, construction and marketing programs. While most
design modifications are significant to the homebuyer, they typically involve
relatively minor adjustments that allow the Company to maintain construction
efficiencies and result in greater profitability due to increased sales prices
and margins. The Company believes that its ability to meet the design tastes of
prospective homebuyers at competitive prices distinguishes itself from many of
its competitors.
Strategy
The Company's objective is to provide its customers with homes that offer
both quality and value, while seeking to maximize its return on invested
capital. Management believes that a balanced and disciplined approach to home
construction, land purchases and marketing is essential to the Company's
anticipated growth. To achieve this objective, the Company has developed a
strategy that focuses on the following elements:
Growth Markets. The Company's primary market has experienced population
and job growth in excess of the national average over the past several
years. The Company believes that there are significant growth
opportunities in this market. The Company also continues to evaluate new
markets that have significant "move-up" and relocation segments that would
satisfy the Company's profitability, investment return and other criteria.
While the Company anticipates entering new markets primarily through
start-up operations, it will also consider the acquisition of homebuilding
companies that have complementary management styles. Entry into new
markets is preceded by extensive due diligence and research conducted by
management. The Company currently has no specific markets or acquisitions
under consideration for expansion. Initially, it may be expected that the
Company will expand into new communities and developments adjacent to or
near the Company's current area of operations.
Centralized Purchasing. The Company utilizes centralized purchasing to
leverage its purchasing power into volume discounts, a practice which
reduces costs, ensures timely deliveries and reduces the risk of supply
shortages due to allocations of materials. The Company has negotiated
favorable price arrangements with high quality national and regional
suppliers for appliances, heating and air conditioning, counter tops,
bathroom fixtures, roofing and insulation products, floor coverings, and
other housing components. Major materials, such as lumber, sheet rock,
concrete and brick are also centrally purchased to obtain volume
discounts. There are no minimum purchase requirements for these
arrangements.
Cost Management. The Company controls its overhead costs by centralizing
administrative and accounting functions, eliminating the need for
redundant functions at the community level. The Company controls
construction costs through the efficient design of its homes and by
obtaining favorable pricing, where possible, from subcontractors based on
the high volume of work performed for the Company. The Company also
controls its warranty costs through quality control that ensures that the
home has been totally finished prior to the buyer moving in, thus
enhancing customer satisfaction. The Company controls its advertising
expenses through sophisticated budgeting of expenses with extensive review
of all expenditures. Some of the Company's major suppliers and contractors
also contribute advertising dollars for special promotions of houses and
products. These campaigns feature the key suppliers' products and enhance
the image of the Company's homes through brand recognition. In addition,
the Company seeks to better manage its corporate overhead costs by
utilizing the Homebuilder software package written specifically for
production homebuilders. See "-Management Information Systems."
Limited Real Estate Exposure. The Company seeks to maximize its return on
capital and limit its exposure to changes in land valuation by obtaining
options to purchase lots whenever feasible. The Company will also directly
acquire, where appropriate, quality residential properties that are in
high demand for use in its homebuilding operations and for sale to
third-party builders. The Company's executive management establishes
targeted levels of lot options and land for development based on its
strategic plan for the overall growth of the Company. The Company targets
properties for acquisition that are both suitable for its homebuilding
product and in locations that are anticipated to maintain the homebuyers'
property values. The Company believes this strategy improves inventory
turnover and enables the Company to develop and dispose of the developed
lots typically within two to three years. The Company does not acquire
land that is not suitable for lot development and residential construction
and does not speculate on land values by acquiring and holding land for
resale or for future development.
The Company seeks to limit its exposure to real estate inventory risks
by (i) closely monitoring its unsold inventory of new homes and the stage of
completion of homes under construction on an ongoing basis, (ii) centralizing
control for the start of new homes and (iii) closely monitoring local job market
and demographic trends, housing preferences and related economic developments,
such as new job opportunities, local growth initiatives and trends in work force
median income levels.
Markets
The Company conducts homebuilding activities in the Dallas/Fort Worth
metropolitan area. The Company plans to focus its development activity based on
the following factors, among others: regional economic conditions, job growth,
land availability, the local land development process, consumer tastes,
competition from other builders of new homes and secondary home sales activity.
The statistical information presented below has been compiled by American
Metro/Study Corporation from a number of public sources.
Dallas/Fort Worth, Texas. The combined Dallas/Fort Worth metropolitan area
(the "Metroplex") exceeded 4.5 million in total population in 1997. With
an employment base of more than 2.3 million jobs, the metroplex has added
between 80,000 and 130,000 jobs annually during 1994 to 1997 (a 4.5%
annual growth rate) which ranks it number 1 in the nation. This growth is
partially attributable to the emergence of the "Telecom Corridor," a new
center for high-technology communication companies, Dallas, Ft. Worth
International Airport the worlds busiest, and Alliance Airport region, a
hub for the manufacturing and service industries in Fort Worth. The
Metroplex has positioned itself as an attractive market for corporate
relocations and expansions due to the relatively low cost of living and
ease of accessibility to the Metroplex. The single-family market in
Dallas/ Fort Worth is characterized by rising home values in a market
which has grown to a new homes start annual rate of 25,000 units per year
over the period 1994 to 1997.
The Company has positioned itself to increase its market share in the
Dallas/Fort Worth market, as this area continues its economic expansion.
The Company was first established in 1992 and is achieving the image,
brand awareness and improved lot position, which the Company believes,
will support its continued expansion in this market.
Backlog
At December 31, 1997, the Company's backlog was $19,589,583, which
consisted of 198 homes. At June 30, 1998, the backlog was $31,135,171, which
consisted of 274 homes. Backlog represents home purchase contracts which have
been executed and for which earnest money deposits have been received. Home
sales are not recorded as revenues until the closings occur. Sales value
represents the product of the number of homes for which earnest money contracts
have been received multiplied by the contract sales price for each home. Backlog
does not include speculative homes.
Consistent with historical experience, 95% of the homes in backlog at
December 31, 1997 were closed by June 30, 1998. Based upon dollar volume,
contract cancellations were less than 10% of the home sales contracts signed and
started during each of 1995, 1996 and 1997. Although cancellations can disrupt
anticipated home closings, the Company believes that cancellations have not had
a material negative impact on operations or liquidity of the Company during the
last several years. The Company attempts to reduce cancellations by reviewing
each homebuyer's ability to obtain mortgage financing early in the sales process
and by closely monitoring the mortgage approval process.
Land Policies and Position
The Company provides lot positions for its homebuilding operations by
acquiring lot options and by purchasing land for the development of lots. When
appropriate, developed lots are occasionally sold to third-party builders to
increase inventory turnover and to enhance earnings for the Company.
Design
The Company's home designs and floor plans are prepared by outside
architects in each of the Company's markets to appeal to the local tastes and
preferences of the community. The Company's design department has the capability
to change its standard floor plans to accommodate the individual homebuyer.
While most design modifications are significant to the homebuyer, they typically
involve relatively minor adjustments that allow the Company to maintain
construction efficiencies and result in greater profitability due to increased
margins. The design department also verifies that each floor plan will fit on a
particular lot before construction begins. To contain costs, the design
department periodically alters the Company's most popular floor plans, so that
they remain current with design trends, product updates and consumer tastes.
Construction
Subcontractors perform virtually all of the Company's construction work.
The Company's construction superintendents monitor the construction of each
home, coordinate the activities of subcontractors and suppliers, subject the
work of subcontractors to quality and cost controls and monitor compliance with
zoning and building codes. Subcontractors typically are retained pursuant to a
contract that obligates the subcontractor to complete construction in a
workmanlike manner that provides standard indemnifications and warranties. The
subcontractor is paid on a per unit basis which fluctuates depending on the size
of the home. Typically, the Company works with the same subcontractors in each
city. The Company's subcontractors are not subject to any collective bargaining
agreements. While the Company competes with other homebuilders for qualified
subcontractors, it has established long-standing relationships with many of its
subcontractors. To date, by providing both timely payments and steady work
assignments, the Company has not experienced any inability to obtain qualified
subcontractors.
The Company's purchasing and cost accounting practices are designed to
facilitate construction flexibility. This process permits homebuyers to modify
their designs, while allowing the Company to monitor and maintain its
profitability. Construction time for the Company's homes depends on weather,
availability of labor, materials and supplies and other factors. The Company
typically completes the construction of a home within four to five months.
The Company does not maintain inventories of construction materials.
Typically, the construction materials used in the Company's operations are
readily available from numerous sources. The Company has favorable price
arrangements or contracts with suppliers of certain of its building materials,
but it is not under any specific purchasing requirements. In recent years, the
Company has not experienced any significant delays in construction due to
shortages of materials or labor.
<PAGE>
Marketing and Sales
The Company markets and sells its homes through commissioned employees.
Approximately forty percent (40%) of such sales are made in cooperation with
independent real estate brokers. The Company targets both first-time home buyers
and the relocation market segments and employs sophisticated marketing
techniques to attract potential home buyers through its Internet website, as
well as print and radio advertising. Home sales are typically conducted from
sales offices located in furnished model homes used in each sub-division. At
December 31, 1997, the Company owned and/or leased 15 model homes. The Company
sales personnel assist prospective buyers by providing them with floor plans,
pricing information, tours of model homes and the selection of option and other
custom features. These sales and marketing personnel are kept informed as to the
availability of financing, construction schedules, and marketing and advertising
plans. In addition to using model homes, the speculative homes built in each
home division enhance the Company's marketing and sales activities. Speculative
homes are attractive to real estate brokers who need homes to show to
prospective buyers and to buyers who do not want to wait for completion of a
contract home. Construction of these speculative homes is also necessary to
satisfy the requirements of relocated personnel, some move-up buyers and
independent brokers, who often represent homebuyers requiring a completed home
within sixty days. Approximately eighty percent (80%) of the speculative homes
were sold while under construction in 1997. The number of speculative homes the
Company builds in any given subdivision is influenced by local market factors,
such as new employment opportunities, significant job relocations, growing
housing demand and the length of time the Company has built in the market. At
December 31, 1997, the Company was operating in seventeen subdivisions. The
ratio of pre-sold homes to speculative homes under construction is typically
approximately 75% pre-sold to 25% speculative. The Company advertises in
newspapers and in real estate and mortgage broker company publications,
brochures, newsletter and billboards. Because real estate brokers are important
to sales, the Company sponsors realtor luncheons and other events to increase
awareness of the Company's subdivisions and products.
Sales of the Company's homes generally are made pursuant to a standard
sales contract. The contract includes a financing contingency, which permits the
customer to cancel in the event mortgage financing at prevailing rates is
unattainable within a specified period, typically four to six weeks, and may
include other contingencies such as the sale of an existing home. The Company
includes a home sale in its backlog upon execution of the sales contract and
receipt of the initial down payment. The Company does not recognize revenue
until the home is closed and title passes to the homebuyer. The Company
estimates that the average period between execution of the sales contract for a
home and closing is approximately five months for pre-sold homes.
Customer Financing
In February 1998, WH Management entered into a participation agreement
styled as a joint venture named Trendsetters Mortgage with The GM Group, Inc.
Trendsetters Mortgage underwrites, originates and sells mortgages for homebuyers
referred by the Company. The mortgages are funded by Trendsetters Mortgage and
the Company's capital is not at risk in connection with this agreement. The
agreement was entered into to provide Woodhaven Ltd. with a source of mortgage
financing for buyers of its homes, a practice customary in the homebuilding
industry. WH Management contributed $510 and The GM Group contributed $490,
establishing a 51-49% division of "profits." Under the agreement, Woohaven Ltd.
refers home buyers seeking mortgaging financing to The GM Group, which provides
all services and funding for the mortgage loan, including screening, paperwork
and closing. WH Management provides no capital, no personnel and has no assets
at risk. The agreement is non-exclusive and either party may deal with other
lenders and builders. WH Management receives 51% of the net fees and discount
points on each loan after deducting a $400 loan officer expense. Since the
agreement became effective in February, it was several months before it could be
implemented. At September 30, 1998, WH Management had received approximately
$24,000 under the agreement. The Company will succeed to WH Management's
position in the reorganization.
Management Information Systems
The primary application software for the Company is the HomeBuilder
software package from Systems Analysis, Inc. This package was written
specifically for production homebuilders and operates on an IBM AS/400 computer.
The HomeBuilder software package is a fully integrated accounting package, which
has general ledger, accounts payable, job costs, purchasing, payroll, warranty
and production status modules. The Company is currently in the process of
upgrading the software so that it will integrate central office lot pricing
and/or discounts to sales contracts that are generated by the sales associate.
Locally attached devices such as personal computers, printers, and terminals
communicate with the AS/400 over an Ethernet network. Data is protected on the
AS/400 using a D.L.T. data protection system and daily tape backups. A weekly
tape backup is maintained off sight as a contingency backup in the case of fire
or other disaster.
Year 2000
The Company conducted a review of its computer systems to identify how
its computer systems could be affected by the "Year 2000" issues. As a result of
this review, during the six months ended June 30, 1998, the Company purchased at
a cost of approximately $32,000 the latest upgrade of the "HomeBuilder" software
to be Year 2000 compliant. In addition, the Company has ordered new hardware and
operating software at a cost of $40,000 which will be certified as Year 2000
compliant. When the new software and hardware are installed and other steps
being taken by management are completed, the Company believes that it will be in
compliance with the Year 2000 issues. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Year 2000."
Customer Service and Quality Control
The Company's operating divisions are responsible for pre-closing, quality
control inspections and responding to customer's post-closing needs. The Company
believes that the prompt, courteous response to homebuyers' needs during and
after construction reduces post-closing repair costs, enhances the Company's
reputation for quality and service, and ultimately leads to significant repeat
and referral business. The Company conducts pre-closing inspections with
homebuyers immediately prior to closing. In conjunction with the inspections, a
list of items for home completion is created. It is the Company's policy that
the sale is not closed until all items are completed to the homebuyer's
satisfaction.
All warranty requests are processed through the central customer service
department located in the corporate office. In most instances, a customer
service manager inspects the warranty request within 48 hours of receipt. The
repair work is approved by the homeowner upon satisfactory completion. A
post-closing interview involves an analysis of the homebuyer's experiences with
the sales counselor, the title company, the mortgage company and the
construction department as well as their satisfaction with the product.
Typically, after a year, another interview is conducted with the homeowner to
determine their continued satisfaction. The subsequent interview provides
management a direct link to the customer's perception of the entire buying
experience as well as valuable feedback on the quality of the product.
Warranty Program
The Company provides a two-year limited warranty of workmanship and
materials with each of its homes. The first year of such warranty, the Company
provides coverage on workmanship and materials, plumbing, electrical, heating,
cooling, ventilation systems and major structural defects. The second year the
Company is responsible for major structural defects and specific types of
defects in plumbing, electrical, heating, cooling and ventilation systems
exclusive of effects in appliances, fixtures and equipment. The Company
subcontracts its homebuilding work to subcontractors who provide the Company
with an indemnity and a certificate of insurance prior to receiving payments for
their work and, therefore, claims relating to workmanship and materials are
generally the primary responsibility of the Company's subcontractors. The next
eight years the Company provides a limited homeowners' warranty covering major
structural defects through a single national agreement with the Residential
Warranty Corporation ("RWC"). A reserve of approximately 0.5% of the sale price
of a home is established to cover warranty expenses, although this reserve is
subject to adjustment in special circumstances. The Company's historical
experience is that such warranty expenses generally fall within the amount
established for such reserve. The Company does not currently have any material
litigation or claims regarding warranties or latent defects with respect to
construction of homes. Current claims and litigation are expected to be
substantially covered by the Company's reserve or insurance. Generally, warranty
claims are handled by the construction superintendent who built the particular
home to ensure that prompt and appropriate corrective action is taken by the
appropriate subcontractor.
<PAGE>
Competition
The development and sale of residential properties is highly competitive
and fragmented. The Company competes for residential sales on the basis of a
number of interrelated factors, including location, reputation, amenities,
design, quality and price, with numerous large and small homebuilders, including
some homebuilders with nationwide operations and greater financial resources
and/or lower costs than the Company. The Company also competes for residential
sales with individual resales of existing homes, available rental housing and,
to a lesser extent, resales of condominiums. The Company believes that it
compares favorably to other builders in the markets in which it operates, due
primarily to: (i) its experience within its geographic markets, which allows it
to vary its product offerings to reflect changing market conditions; (ii) its
responsiveness to market conditions, enabling it to capitalize on the
opportunities for advantageous land acquisitions in desirable locations; and
(iii) its reputation for service and quality. There can be no assurance that the
Company will be able to continue to compete successfully in any of its markets.
The inability of the Company to continue to compete successfully in any of its
markets could have a material adverse effect on the Company's business,
financial condition or results of operations.
Government Regulation and Environmental Matters
All of the Company's land is purchased with the right to obtain building
permits upon compliance with specified conditions, which generally are within
the Company's control. Upon compliance with such conditions, the Company seeks
building permits. The length of time necessary to obtain such permits and
approvals affects the carrying costs of unimproved property acquired for the
purpose of development and construction. In addition, the continued
effectiveness of permits already granted is subject to several factors, such as
changes in policies, rules and regulations and their interpretation and
application. To date, the governmental approval processes discussed above have
not had a material adverse effect on the Company's development activities. There
can be no assurance, however, that these and other restrictions will not
adversely affect the Company in the future.
Local and state governments also have broad discretion regarding the
imposition of development fees for projects in their jurisdiction. These are
normally established, however, when the Company receives recorded final maps and
building permits. The Company is also subject to a variety of local, state and
federal statutes, ordinances, rules and regulations concerning the protection of
health, zoning and the environment. These laws may result in delays, cause the
Company to incur compliance and other costs, and prohibit or restrict
development in certain environmentally sensitive markets.
Employees
At December 31, 1997, the Company employed 56 persons on a full and
part-time basis, of whom 28 were sales and marketing personnel, 14 were
executive, administrative and clerical personnel, and 14 were involved with
construction. None of the Company's employees are covered by collective
bargaining agreements. The Company believes its relations with its employees are
good.
Properties
The Company leases a 10,000 square foot facility in Dallas, Texas, which
serves as the Company's headquarters and primary residential homebuilding office
at an annual rental of $132,000. The lease expires in August 2000. The Company
believes this facility is adequate for its needs for the foreseeable future.
Litigation
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of the Company's management, the
ultimate disposition of these matters is not expected to have a material adverse
effect on the financial condition or results of operations of the Company.
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information regarding the
Company's directors and executive officers:
Name Age Position
Richard D. Laxton 60 Chief Executive Officer, Director
Phillip R. Johns 38 President, Director
Mark V. Johns 40 Vice President, Director
Lynda M. Presley 47 Secretary
Richard D. Laxton joined the Company in 1996 as Chief Executive
Officer. Mr. Laxton has spent the majority of his professional career in
executive management positions within the construction industry. Prior to
joining the Company from 1994 to 1996, Mr. Laxton was employed as Chief Lending
Officer of First American Savings Bank where he was responsible for construction
and mortgage lending. He also served as a consultant to a retailer of lumber and
building materials. From 1984 to 1994, Mr. Laxton was President and General
Manager of Hurst Lumber Company. Under Mr. Laxton's tenure, Hurst Lumber Company
achieved annual sales of $19,000,000. During this time, he was also active real
estate developer in the Dallas area. He received an accounting degree from St.
Mary's University and is a Certified Public Accountant.
Phillip R. Johns has been President of the Company since its inception
in 1992. He has been involved in the construction business for his entire career
beginning in 1982. Before starting the Company, Mr. Johns owned and operated
Prestique Construction, a builder offering services from renovation to full
construction of single family homes and office and retail buildings. He was
involved in all aspects of the business from administrative duties to design and
craftsmanship. From 1978 to 1981, he attended North Texas State University as an
accounting major.
Mark V. Johns has been Vice President of the Company since its
inception in 1992. His management duties with the Company have been focused on
sales management, site selection, product design, pricing and development of
advertising and marketing. He has been employed in the real estate sales,
development and/or construction business since 1980. Prior to joining the
Company, Mr. Johns worked for several homebuilders in the Dallas area in
management, sales and marketing.
Lynda M. Presely has been secretary of the Company and its predecessor
limited partnership since October 1, 1997, and has been office and accounting
manager of the Company since July 1995. Prior to that time, she worked in a
supervisory capacity in the accounting department of Goodman Homes, Inc., a
privately owned, high volume homebuilder in the Dallas/Ft. Worth area for more
than five years.
Directors of the Company are elected at each annual meeting of
shareholders. The officers of the Company are elected annually by the Board of
Directors. Officers and directors hold office until their respective successors
are elected and qualified or until they're earlier resignation or removal.
Outside Directors
The Company has agreed to appoint two directors who are not officers,
employees or 5% shareholders or related to an officer, employee or 5%
shareholder upon conclusion of the offering. One director nominee, designated by
the Representatives of the Underwriters, is Robert A. Shuey, III. Mr. Shuey is
Managing Director, Investment Banking, of Redstone Securities, Inc., one of the
Representatives of the Underwriters in this offering. Mr. Shuey has been
associated with Redstone since January 1, 1999, Prior thereto, he was Chief
Executive Officer of Tejas Securities Group, Inc. since September 1997. He has
been in the investment banking business for more than the past five years, with
National Securities Corporation from September 1996 until August 1997; with La
Jolla Securities Corporation from April 1995 until August 1996, with Dillon Gage
Securities Corporation from January 1994 until April 1995 and Dickinson & Co.
from March 1993 to December 1993. Mr. Shuey is a member of the Board of
Directors of EuroMed, Inc., AutoBond Corporation, Westower Corporation and
Transnational Financial Corporation. Mr. Shuey is a graduate of Babson with a
degree in Economics and Finance. The other director has not been selected but
will be appointed by the current board as permitted by the by-laws. Shareholders
will not vote on the appointment of either of these proposed directors. The
Company will form an audit and compensation committee composed of the outside
directors and a member of management.
Compensation of Directors
Directors who are employees of the Company will not receive any
remuneration in their capacity as directors. Outside directors will receive
$12,000 annually, and $500 per meeting attended and related travel expenses.
Indemnification and Limitation on Liability
If available at reasonable cost, the Company intends to maintain
insurance against any liability incurred by its officers and directors in
defense of any actions to which they are made parties by any reason of their
positions as officers and directors.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to its Articles of Incorporation and By-laws, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
Executive Compensation
The following table sets forth the compensation awarded to, earned by,
or paid to all executive officers (the "Named Executive Officers") for services
rendered to the Company in all capacities for the fiscal years ended December
31, 1997, 1996, and 1995.
Summary Compensation Table
<TABLE>
<CAPTION>
Name and Annual Compensation All Other
Principal Position Fiscal Year Salary Bonus Compensation
<S> <C> <C> <C> <C>
Richard D. Laxton December 31, 1997 $100,681 - -
Chief Executive Officer December 31, 1996 53,600 - -
December 31, 1995 - - -
Phillip Johns December 31, 1997 $ 100,681 - -
President December 31, 1996 101,800 - -
December 31, 1995 103,000 - -
Mark Johns December 31, 1997 $ 96,600 - -
Vice President December 31, 1996 78,554 - -
December 31, 1995 27,000 - -
</TABLE>
Prior to this offering, the Company was a privately held partnership and
distributed a portion of its income to the partners for income tax payment. In
the future, the Company intends to compensate its officers in accordance with
the recommendations of a compensation committee, a majority of which will be
outside directors.
Employment Agreements
The Company has no employment agreements.
Stock Option Plan
The 1998 Stock Option Plan, (the "Stock Option Plan") provides for the
grant to employees, officers, directors, and consultants to the Company or any
parent, subsidiary or affiliate of the Company of up to 300,000 shares of the
Company's Common Stock, subject to adjustment in the event of any subdivision,
combination, or reclassification of shares. The Stock Option Plan will terminate
in 2008. The Stock Option Plan will be administered by the Board of Directors or
a committee of the Board of Directors (the "Committee") which will be composed
solely of two or more directors who are "non-employee directors" as defined in
Rule 16b-3 of the Securities Exchange Act of 1934, as amended. The Stock Option
Plan provides for the grant of incentive stock options ("ISO's") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and
non-qualified options at the discretion of the Board of Directors The exercise
price of any option will not be less than the fair market value of the shares at
the time the option is granted. The options granted are exercisable within the
times or upon the events determined by the Board or Committee set forth in the
grant, but no option is exercisable beyond ten years from the date of the grant.
The Board of Directors or Committee administering the Stock Option Plan will
determine whether each option is to be an ISO or non-qualified stock option, the
number of shares, the exercise price, the period during which the option may be
exercised, and any other terms and conditions of the option. The holder of an
option may pay the option price in (1) cash, (2) check, (3) other shares of the
Company, (4) authorization for the Company to retain from the total number of
shares to be issued that number of shares having a fair market value on the date
of exercise equal to the exercise price for the total number of shares, (5)
irrevocable instructions to a broker to deliver to the Company the amount of
sale or loan proceeds required to pay the exercise price, (6) delivery of an
irrevocable subscription agreement for the shares which irrevocably obligates
the option holder to take and pay for shares not more than 12 months after the
date of the delivery of the subscription agreement, (7) any combination of the
foregoing methods of payment, or (8) other consideration or method of payment
for the issuance of shares as may be permitted under applicable law. The options
are nontransferable except by will or by the laws of descent and distribution.
Upon dissolution, liquidation, merger, sale of stock or sale of substantially
all assets, outstanding options, notwithstanding the terms of the grant, will
become exercisable in full at least 10 days prior to the transaction. The Stock
Option Plan is subject to amendment or termination at any time and from time to
time, subject to certain limitations. As of the date of this Prospectus, no
options had been granted. Any future options to be granted will be determined by
the Board of Directors or the Committee.
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership as of June 30, 1998 of the Common Stock by (a) each person
known by the Company to be a beneficial owner of more than 5% of the outstanding
shares of Common Stock, (b) each director of the Company, (c) each Named
Executive Officer, and (d) all directors and executive officers of the Company
as a group. Unless otherwise noted, each beneficial owner named below has sole
investment and voting power with respect to the Common Stock shown below as
beneficially owned by him.
<TABLE>
<CAPTION>
Shares Owned Shares Owned
Prior to Offering After Offering
Name and Address of Number of Percent Number of Percent
Beneficial Owner Shares Owned Owned Shares Owned Owned
<S> <C> <C> <C> <C>
Richard D. Laxton (1) 666,667 33.34 666,667 22.23%
Phillip R. Johns (1) 666,666 33.33 666,666 22.22
Mark V. Johns (1) 666,666 33.33 666,666 22.22
All Executive Officers and Directors
as a group (3 persons) 2,000,000 100.00% 2,000,000 66.67%
- -----------
</TABLE>
(1) The address of each of the shareholders is 2501 Oaklawn Suite 550
Dallas, Texas 75219.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was incorporated in August 1998, to acquire all of the assets
of Woodhaven Ltd. and all of the outstanding capital stock of WH Management and
Resland from Richard D. Laxton, Phillip R. Johns and Mark V. Johns, officers and
directors of the Company, in exchange for 2,000,000 shares of the Company's
Common Stock. Messrs. Laxton, Phillip R. Johns and Mark V. Johns will continue
as officers and directors of the Company. See "The Reorganization," "Management"
and "Principal Shareholders."
In 1996 Mr. Laxton loaned Woodhaven Ltd. $75,000 for working capital,
evidenced by an unsecured demand note bearing interest at 12.5% per year and
$90,000 to Resland, evidenced by a note bearing interest at 12% per year for the
purchase of land. The note was secured by a second deed of trust on the land
purchased by the Company. At June 30, 1998, the outstanding balance was $49,000
on the Woodhaven Ltd. note and $70,000 on the Resland note. Subsequent to June
30, 1998, the Resland note was repaid in full and the proceeds loaned to the
Company. During 1998, Mr. Laxton made total advances to the Company of $178,503
and has been repaid $83,500. The advances were evidenced by unsecured demand
notes bearing interest at 12.5% per year which were used for working capital. At
September 30, 1998 the outstanding balance of the advances owed to Mr. Laxton
was $144,004.
Through October 1, 1997, Dimensional Sales & Marketing, Inc.,
("Dimensional"), conducted the Company's marketing and sales activities. The
outstanding capital stock of Dimensional is owned 49% by a sister of Phillip R.
Johns and Mark V. Johns, 26% by a trust for Mark V. John's children and 25% by
Mr. Johns' mother. During the fiscal year ended December 31, 1997, the Company
paid Dimensional sales commissions of $423,889 and advertising fees of $356,705.
Upon the conversion of the Company to a limited partnership in October 1997,
Dimensional became inactive and the sales and marketing activities were assumed
by the Company. It is not intended that such activities will be resumed by
Dimensional.
In 1994, the Company paid $75,000 each to Dimensional, Affordable
Lifestyle Housing, Inc. ("Affordable") and Brio Builders, Inc. ("Brio") for
management fees for tax planning purposes. The companies loaned the funds back
to the Company and the Company then advanced the companies funds to pay federal
and state income and franchise taxes. During the fiscal years ended December 31,
1997 and 1996, the Company made unsecured, non interest bearing advances due on
demand to Dimensional of $92,748, and $49,991 for working capital and was repaid
$142,143 and 0, respectively. At December 31, 1997, the amount outstanding was
$1,131 from Dimensional, $17,135 from Affordable and $7,785 from Brio.
Affordable and Brio were established for tax purposes and never conducted any
business. They are currently inactive and there are no plans to reactivate them
Affordable is a non-profit corporation which has no members (shareholders). None
of the Company's officers, directors or members of their families have any
interest in Affordable or received anything of value as a result of the
Company's payment to Affordable. Brio is owned 25% by Phillip R. Johns and 75%
by a trust for the benefit of his children. The trustee is a family friend. None
of the companies are active or have a source of income and it is unlikely that
the outstanding loans to Affordable, Brio and Dimensional will be repaid.
During the fiscal years ended December 31, 1997 and 1996, the Company
made unsecured, demand, non interest bearing advances totaling $42,391 and
$57,850 respectively, to Phillip R. Johns and Mark V. Johns.
These advances were repaid at September 30, 1998.
The Company does not intend to make loans to or from affiliates in the
future.
<PAGE>
DESCRIPTION OF SECURITIES
Units
Each Unit consists of one share of Common Stock and one Warrant. The
Shares and the Warrants included in the Units may not be separately traded until
six months after the date of this prospectus unless earlier separated upon ten
day's written notice from the Representatives to the Company. Separation of the
Units is in the sole discretion of the Representatives and the Company is unable
to state whether the Units will be separated prior to six months from the date
of this Prospectus. Factors which the Representatives will consider in
determining whether to separate the Units prior to six months from the date of
this Prospectus are expected to be the trading price and volume of trading in
the Units and the volatility of the trading price for the Units. Common Stock
The Company is authorized to issue 20,000,000 shares of Common Stock,
$0.01 par value. As of September 30, 1998 there were 2,000,000 shares of Common
Stock issued. There were three holders of record of the Common Stock. The
holders of the Common Stock are entitled to share ratably in any dividends paid
on the Common Stock when, as and if declared by the Board of Directors out of
legally available funds. Each holder of Common Stock is entitled to one vote for
each share held of record. The Common Stock is not entitled to cumulative voting
or preemptive rights and is not subject to redemption. Upon liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in the net assets legally available for distribution.
All outstanding shares of Common Stock are fully paid and non-assessable.
Warrants
The Warrants will be issued in registered form under, governed by, and
subject to the terms of a warrant agreement (the "Warrant Agreement") between
the Company and Securities Transfer Corporation as warrant agent (the "Warrant
Agent"). The following statements are brief summaries of certain provisions of
the Warrant Agreement. Copies of the Warrant Agreement may be obtained from the
Company or the Warrant Agent and have been filed with the Commission as an
exhibit to the Registration Statement of which this Prospectus is a part.
Each Warrant entitles the holder thereof to purchase at any time one
share of Common Stock at an exercise price of $_____ per share (120% of the
offering price) at any time after the Common Stock and Warrants become
separately tradable until _______, 2004. The right to exercise the Warrants will
terminate at the close of business on _______, 2004. The Warrants contain
provisions that protect the Warrant holders against dilution by adjustment of
the exercise price in certain events, including but not limited to stock
dividends, stock splits, reclassification or mergers. A Warrant holder will not
possess any rights as a shareholder of the Company. Shares of Common Stock, when
issued upon the exercise of the Warrants in accordance with the terms thereof,
will be fully paid and non-assessable.
Commencing twelve months after the date of this Prospectus, the Company
may redeem some or all of the Warrants at a call price of $0.05 per Warrant,
upon thirty (30) day's prior written notice if the closing sale price of the
Common Stock on the American Stock Exchange has equaled or exceeded $______ per
share (200% of the offering price) for ten (10) consecutive days.
The Warrants may be exercised only if a current prospectus relating to
the underlying Common Stock is then in effect and only if the shares are
qualified for sale or exempt from registration under the securities laws of the
state or states in which the purchaser resides. So long as the Warrants are
outstanding, the Company has undertaken to file all post-effective amendments to
the Registration Statement required to be filed under the Securities Act, and to
take appropriate action under federal law and the securities laws of those
states where the Warrants were initially offered to permit the issuance and
resale of the Common Stock issuable upon exercise of the Warrants. However,
there can be no assurance that the Company will be in a position to effect such
action, and the failure to do so may cause the exercise of the Warrants and the
resale or other disposition of the Common Stock issued upon such exercise to
become unlawful. The Company may amend the terms of the Warrants, but only by
extending the termination date or lowering the exercise price thereof. The
Company has no present intention of amending such terms. However, there can be
no assurance that the Company will not alter its position in the future with
respect to this matter.
Other Warrants
At the closing of this offering, the Company will grant to its counsel
warrants to purchase 100,000 Units. The warrants will have the same terms as the
Underwriters Warrants, except that they will be exercisable at 100% of the
offering price of the Units in this offering. The exercise price of the warrants
included in the Units will be the same exercise price as the public Warrants,
120% of the offering price of the Units in this offering. The warrants will be
exercisable for a period of four years, beginning one year from the date of this
Prospectus. See "Underwriting-Underwriters' Warrants." Preferred Stock
The Board of Directors, without further action by the shareholders, is
authorized to issue up to 3,000,000 shares of preferred stock, $1.00 par value,
in one or more series and to fix and determine as to any series, any and all of
the relative rights and preferences of shares in each series, including without
limitation, preferences, limitations or relative rights with respect to
redemption rights, conversation rights, voting rights, dividend rights and
preferences on liquidation. The issuance of preferred stock with voting and
conversion rights could have an adverse affect on the voting power of the
holders of the Common Stock. The issuance of preferred stock could also decrease
the amount of earnings and assets available for distribution to holders of the
Common Stock. In addition, the issuance of preferred stock may have the effect
of delaying, deferring or preventing a change in control of the Company. The
Company has no plans or commitments to issue any shares of preferred stock.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Units, the Common Stock and
the Warrants is American Stock Transfer & Trust Company, 40 Wall Street, New
York, New York , 10005.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 3,000,000
shares of Common Stock issued and outstanding. Of these shares, the 1,000,000
shares sold in this offering (1,150,000 if the over-allotment option is
exercised in full) will be freely tradable in the public market without
restriction under the Securities Act, except shares purchased by an "affiliate"
(as defined in the Securities Act) of the Company. The remaining 2,000,000
shares, (the "Restricted Shares"), will be "restricted shares" within the
meaning of the Securities Act and may be publicly sold only if registered under
the Securities Act or sold in accordance with an applicable exemption from
registration, such as those provided by Rule 144 under the Securities Act.
In general, under Rule 144, as currently in effect, a person (or
persons whose shares are aggregated) is entitled to sell Restricted Shares if at
least one year has passed since the later of the date such shares were acquired
from the Company or any affiliate of the Company. Rule 144 provides, however
that within any three-month period such person may only sell up to the greater
of 1% of the then outstanding shares of the Company's Common Stock
(approximately 30,000 shares following the completion of this offering) or the
average weekly trading volume in the Company's Common Stock during the four
calendar weeks immediately preceding the date on which the notice of the sale is
filed with the Commission. Sales pursuant to Rule 144 also are subject to
certain other requirements relating to manner of sale, notice of sale and
availability of current public information. Any person who has not been an
affiliate of the Company for a period of 90 days preceding a sale of Restricted
Shares is entitled to sell such shares under Rule 144 without regard to such
limitations if at least two years have passed since the later of the date such
shares were acquired from the Company or any affiliate of the Company. Shares
held by persons who are deemed to be affiliated with the Company are subject to
such volume limitations regardless of how long they have been owned or how they
were acquired.
After this offering, executive officers, directors and senior
management will own 2,000,000 shares of the Common Stock. The Company's
shareholders and directors and the Sellers will enter into an agreement with the
Representatives providing that they will not sell or otherwise dispose of any
shares of Common Stock held by them for a period of one year after the date of
this Prospectus without the prior written consent of the Representatives.
The Company can make no prediction as to the effect, if any, that offer
or sale of these shares would have on the market price of the Common Stock.
Nevertheless, sales of significant amounts of Restricted Shares in the public
markets could adversely affect the fair market price of Common Stock, as well as
impair the ability of the Company to raise capital through the issuance of
additional equity securities.
<PAGE>
UNDERWRITING
Pursuant to the terms and subject to the conditions contained in the
Underwriting Agreement, the Company has agreed to sell to the Underwriters named
below, and each of the Underwriters, for whom Capital West Securities, Inc. and
Redstone Securities, Inc. (the "Representatives") are acting as Representatives,
have severally agreed to purchase the number of Units set forth opposite its
name in the following table.
Underwriters Number of Units
Capital West Securities, Inc.
Redstone Securities, Inc.
Total........................................... 1,000,000
=========
The Representatives have advised the Company that the Underwriters
propose to offer the Units to the public at the initial public offering price
per share set forth on the cover page of this Prospectus and to certain dealers
at such price less a concession of not more than $___ per Unit, of which $____
may be reallowed to other dealers. The public offering price, concession and
reallowance to dealers will not be reduced by the Representatives until after
the offering is completed. No such reduction shall change the amount of proceeds
to be received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable
during the 45-day period after the date of this Prospectus, to purchase up to
150,000 additional Units to cover over-allotments, if any, at the same price per
share as the Company will receive for the 1,000,000 Units that the Underwriters
have agreed to purchase. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage of such additional Units that the number of
Units to be purchased by it shown in the above table represents as a percentage
of the 1,000,000 Units offered hereby. If purchased, such additional Units will
be sold by the Underwriters on the same terms as those on which the 1,000,000
Units are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act.
The holders of approximately 2,000,000 shares of the Common Stock after
the offering have agreed with the Representatives that, until one year after the
date of this Prospectus, subject to certain limited exceptions, they will not
sell, contract to sell, or otherwise dispose of any shares of Common Stock, any
options to purchase shares of Common Stock, or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock, owned directly by
such holders or with respect to which they have the power of disposition,
without the prior written consent of the Representatives. Substantially all of
such shares will be eligible for immediate public sale following expiration of
the lock-up periods, subject to the provisions of Rule 144. In addition, the
Company has agreed that until 365 days after the date of this Prospectus, the
Company will not, without the prior written consent of the Representatives,
subject to certain limited exceptions, issue, sell, contract to sell, or
otherwise dispose of, any shares of Common Stock, any options to purchase any
shares of Common Stock or any securities convertible into, exercisable for or
exchangeable for shares of Common Stock other than the Company's sales of shares
in this offering, the issuance of Common Stock upon the exercise of outstanding
options or warrants or the issuance of options under its employee stock option
plan. See "Shares Eligible for Future Sale."
The Underwriters have the right to offer the Securities offered hereby
only through licensed securities dealers in the United States who are members of
the National Association of Securities Dealers, Inc. and may allow such dealers
such portion of its ten (10%) percent commission as the Underwriters may
determine.
The Underwriters will not confirm sales to any discretionary accounts
without the prior written consent of their customers.
The Company has agreed to pay the Representatives a non-accountable
expense allowance of 3.00% of the gross amount of the Units sold ($300,000 on
the sale of the Units offered) at the closing of the offering. The Underwriters'
expenses in excess thereof will be paid by the Representatives. To the extent
that the expenses of the underwriting are less than that amount, such excess
shall be deemed to be additional compensation to the Underwriters. In the event
this offering is terminated before its successful completion, the Company may be
obligated to pay the Representatives a maximum of $50,000 on an accountable
basis for expenses incurred by the Underwriters in connection with this
offering.
The Company has agreed that for a period of five years from the closing
of the sale of the Units offered hereby, it will nominate for election as a
director a person designated by the Representatives, and during such time as the
Representatives have not exercised such right, the Representatives shall have
the right to designate an observer, who shall be entitled to attend all meetings
of the Board and receive all correspondence and communications sent by the
Company to the members of the Board. The Representatives have designated Robert
A.
Shuey, III as the director-designee. See "Management-Outside Directors."
The Underwriting Agreement provides for indemnification among the
Company and the Underwriters against certain civil liabilities, including
liabilities under the Securities Act. In addition, the Underwriters' Warrants
provide for indemnification among the Company and the holders of the
Underwriters' Warrants and underlying shares against certain civil liabilities,
including liabilities under the Securities Act, and the Exchange Act.
Underwriters' Warrants
Upon the closing of this offering, the Company has agreed to sell to
the Underwriters for nominal consideration, the Underwriters' Warrants. The
Underwriters' Warrants are exercisable at 140% of the public offering price for
a four-year period commencing one year from the effective date of this offering.
The underlying warrants are exercisable at $____ per share (150% of the offering
price). The Underwriters' Warrants may not be sold, transferred, assigned or
hypothecated for a period of one year from the date of this offering except to
the officers of the Underwriters and their successors and dealers participating
in the offering and/or their partners or officers. The Underwriters' Warrants
will contain antidilution provisions providing for appropriate adjustment of the
number of shares subject to the Warrants under certain circumstances. The
holders of the Underwriters' Warrants have no voting, dividend or other rights
as shareholders of the Company with respect to shares underlying the
Underwriters' Warrants until the Underwriters' Warrants have been exercised.
The Company has agreed, during the four year period commencing one year
from the date of this offering, to give advance notice to the holders of the
Underwriters' Warrants or underlying securities of its intention to file a
registration statement, other than in connection with employee stock options,
mergers, or acquisitions, and in such case the holders of the Underwriters'
Warrants and underlying securities shall have the right to require the Company
to include their securities in such registration statement at the Company's
expense.
For the term of the Underwriters' Warrants, the holders thereof will be
given the opportunity to profit from a rise in the market value of the Company's
shares, with a resulting dilution in the interest of other shareholders. The
holders of the Underwriters' Warrants can be expected to exercise the
Underwriters' Warrants at a time when the Company would, in all likelihood, be
able to obtain needed capital by an offering of its unissued shares on terms
more favorable to the Company than those provided by the Underwriters' Warrants.
Such facts may adversely affect the terms on which the Company can obtain
additional financing. Any profit realized by the Underwriters on the sale of the
Underwriters' Warrants or shares issuable upon exercise of the Underwriters'
Warrants may be deemed additional underwriting compensation.
If the Representatives, at their election, at any time one year after
the date of this Prospectus, solicit the exercise of the Warrants, the Company
will be obligated, subject to certain conditions, to pay the Representatives a
solicitation fee equal to 5% of the aggregate proceeds received by the Company
as a result of the solicitation. No warrant solicitation fees will be paid
within one year after the date of this Prospectus. No solicitation fee will be
paid if the market price of the Common Stock is lower than the then exercise
price of the Warrants, no solicitation fee will be paid if the Warrants being
exercised are held in a discretionary account at the time of exercise, except
where prior specific approval for exercise is received from the customer
exercising the Warrants, and no solicitation fee will be paid unless the
customer exercising the Warrants states in writing that the exercise was
solicited and designates in writing the Representatives or other broker-dealer
to receive compensation in connection with the exercise. The Representatives may
reallow a portion of the fee to soliciting broker-dealers.
Determination of Offering Price
The initial public offering price was determined by negotiations
between the Company and the Representatives. The factors considered in
determining the public offering price include the Company's revenue growth since
its organization, the industry in which it operates, the Company's business
potential and earning prospects and the general condition of the securities
markets at the time of the offering. The offering price does not bear any
relationship to the Company's assets, book value, net worth or other recognized
objective criteria of value.
Prior to this offering, there has been no public market for the
Securities, and there can be no assurance than an active market will develop.
American Stock Exchange
The Units, Common Stock and Warrants have been approved for listing on
the American Stock Exchange under the trading symbols "WHO.U," "WHO" and
"WHO.WS," respectively. The listing is contingent, among other things, upon the
Company obtaining 400 shareholders.
LEGAL MATTERS
The validity of the issuance of the Securities offered hereby will be
passed upon for the Company by Garza & Staples, P.C. , Dallas, Texas. Joseph B.
Garza Esq., an officer of that firm owns 100,000 warrants. Certain legal matters
in connection with the sale of the Securities offered hereby will be passed upon
for the Underwriters by Maurice J. Bates, L.L.C., Dallas, Texas.
EXPERTS
The financial statements for each of the years in the three-year period
ended December 31, 1997, have been included herein and in the registration
statement in reliance upon the report of Turner Stone & Company, LLP,
independent certified accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
<PAGE>
C O N T E N T S
AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
COMBINED BALANCE SHEETS. . . . . . . . . . . . . . . . . . . . . . . . . F-2
COMBINED STATEMENTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . F-4
COMBINED STATEMENTS OF STOCKHOLDERS'/PARTNERS' EQUITY. . F-5
COMBINED STATEMENTS OF CASH FLOWS . . . . . . . . . . . . . . . . . . . . . .F-6
NOTES TO COMBINED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . F-8
<PAGE>
Independent Auditor's Report
The Stockholders/Partners
Woodhaven Homes, Inc.
and Related Companies
We have audited the accompanying combined balance sheets of Woodhaven Homes,
Inc. and related companies as of December 31, 1997 and 1996, and the related
combined statements of operations, stockholders'/partners' equity and cash flows
for the three year period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Woodhaven
Homes, Inc. and related companies as of December 31, 1997 and 1996, and the
combined results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
Turner, Stone & Company, L.L.P.
Certified Public Accountants
Dallas, Texas
August 11, 1998
F-1
<PAGE>
WOODHAVEN HOMES, INC.AND RELATED COMPANIES
COMBINED BALANCE SHEETS
NINE MONTHS ENDED SEPTEMBER 30, 1998
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
September 30, December 31,
-------------
1998 1997 1996
------- ---- ----
(unaudited)
Assets
Current assets:
<S> <C> <C> <C>
Cash $ 333,363 $ 637,468 $ 230,125
Accounts receivable 645,663 215,579 102,925
Inventories 17,203,090 14,959,290 9,749,642
Due from partners - 100,241 57,850
Due from affiliates 27,752 26,051 75,446
Prepaid expenses 192,878 63,737 13,273
-------------- --------------- ---------------
Total current assets 18,402,746 16,002,366 10,229,261
-------------- --------------- ---------------
Property and equipment, at cost:
Transportation equipment 124,198 124,198 175,664
Furniture and fixtures 271,560 203,139 41,676
Computer and office equipment 342,530 290,592 281,677
-------------- --------------- ---------------
738,288 617,929 499,017
Less accumulated depreciation ( 371,033) ( 243,846) ( 166,631)
-------------- -------------- ---------------
367,255 374,083 332,386
-------------- --------------- ---------------
Other assets 277,908 78,651 89,913
-------------- --------------- ---------------
$ 19,047,909 $ 16,455,100 $ 10,651,560
=============== ================ ================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-2
<PAGE>
WOODHAVEN HOMES, INC. AND RELATED COMPANIES
COMBINED BALANCE SHEETS
NINE MONTHS ENDED SEPTEMBER 30, 1998
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997 1996
---- ----
(unaudited)
Liabilities and Stockholders'/Partners' Equity
Current liabilities:
<S> <C> <C> <C>
Accounts payable, trade $ 1,159,916 $ 1,072,571 $ 1,044,374
Accrued expenses 296,300 294,925 200,178
Customer deposits 295,500 195,125 116,420
Construction loans payable 10,924,748 11,662,566 7,669,882
Note payable, partner 195,404 139,000 165,000
Notes payable, other 2,644,895 1,052,761 386,763
Current portion of long-term notes payable 98,422 60,831 150,323
-------- -------- ----------
Total current liabilities 15,615,185 14,477,779 9,732,940
-------------- ---------------- ---------------
Long-term notes payable, net of current portion 65,131 114,666 137,392
-------------- ---------------- ---------------
Commitments and contingencies - - -
Stockholders'/partners' equity:
Common stock, $1.00 stated
value, 10,000 shares
authorized 1,000 shares
issued and outstanding 1,000 1,000 1,000
Retained earnings 122,917 9,673 ( 1,957)
Partners' equity 3,243,676 1,851,982 782,185
-------------- ---------------- ---------------
3,367,593 1,862,655 781,228
-------------- ---------------- ---------------
$ 19,047,909 $ 16,455,100 $ 10,651,560
=============== ================= ================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-3
<PAGE>
WOODHAVEN HOMES, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Nine Months Ended Years ended
September December 31,
1998 1997 1997 1996 1995
---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ 35,154,046 $ 22,922,986 $ 32,980,580 $ 25,253,378 $ 15,237,339
Costs of sales 30,233,228 19,901,001 28,540,221 22,782,948 13,592,674
-------------- --------------- -------------- ---------------- -----------------
Gross profit 4,920,818 3,021,985 4,440,359 2,470,430 1,644,665
Selling, general
and administrative 2,559,035 1,681,344 2,649,282 1,711,254 1,769,197
-------------- --------------- -------------- ---------------- ---------------
Income (loss)
from operations 2,361,783 1,340,641 1,791,077 759,176 ( 124,532)
Interest expense 188,774 283,299 325,977 226,404 32,399
--------------- --------------- -------------- ---------------- -----------------
Income loss before income taxes 2,173,009 1,057,342 1,465,100 532,772 ( 156,931)
Provision for income taxes - 48,228 48,228 21,944 -
--------------- --------------- -------------- ---------------- -----------------
Net income (loss) $ 2,173,009 $ 1,009,114 $ 1,416,872 $ 510,828 $( 156,931)
================ ================ =============== ================= ==================
Pro forma net income
(loss) per share $ 0.72 $ .34 $ .46 $ .16 $ ( .05)
======================
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-4
<PAGE>
WOODHAVEN HOMES, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS'/PARTNERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock Retained Partners'
Shares Amounts Earnings Equity Total
<S> <C> <C> <C> <C> <C>
Balance December 31, 1994 1,000 $ 1,000 $( 1,000) $ 318,779 $ 318,779
Distributions to partners ( 91,448) ( 91,448)
Net loss ________ ______ _________ ( 156,931) ( 156,931)
Balance December 31, 1995 1,000 1,000 ( 1,000) 70,400 70,400
Capital contributed 200,000 200,000
Net income (loss) ( 957) 511,785 510,828
Balance December 31, 1996 1,000 1,000 ( 1,957) 782,185 781,228
Distributions to partners ( 335,445) (335,445)
Net income 11,630 1,405,242 1,416,872
Balance December 31, 1997 1,000 1,000 9,673 1,851,982 1,862,655
Distributions to partners ( 668,071) ( 668,071)
Net income (unaudited) 113,244 2,059,765 2,173,009
----------- -------- ----------- ------------
Balance September 30, 1998
(unaudited) 1,000 $ 1,000 $ 122,917 $ 3,243,676 $ 3,367,593
=========== ========= ==== ======= =============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-5
<PAGE>
WOODHAVEN HOMES, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Nine Months Ended Years ended
September December 31,
1998 1997 1997 1996 1995
---- ----
<S> <C> <C> <C> <C> <C>
(Unaudited)
Cash flow from operating activities:
Cash received from customers $ 34,824,337 $ 22,828,325 $ 32,946,631 $ 25,313,625 $ 15,154,177
Cash paid to employees ( 1,922,118) ( 850,624) ( 1,459,530) ( 1,629,165) ( 364,657)
Cash paid to suppliers (32,873,788) (23,975,574) ( 33,959,343) ( 25,204,348) ( 17,779,818)
Interest paid ( 541,422) ( 543,934) ( 1,055,490) ( 879,067) ( 243,374)
Income taxes paid - ( 48,228) ( 66,229) - -
-------------- -------------- -------------- --------------------
Net cash used in operating activities ( 512,991) ( 2,590,035) ( 3,593,961) ( 2,398,955) ( 3,233,672)
-------------- -------------- ---------------- ----------------
Cash flows from investing activities:
Purchase of property and equipment (120,359) (57,040) (190,719) ( 175,643) (145,819)
Advances paid to affiliates ( 1,701) ( 10,033) ( 92,748) ( 49,991) ( 246,223)
Repayments from affiliates - - 142,143 - 62,508
Advances paid to owners - ( 24,037) ( 42,391) ( 57,850) -
Repayments from owners 100,241 - - - -
-------------- - ---- ---------------- ----------------
Net cash provided by (used in)
investing activities ( 21,819) ( 91,110) ( 183,715) ( 283,484) (329,534)
- -------
Cash flows from financing activities:
Capital contributed by partners - - - 200,000 -
Distributions to partners ( 668,071) ( 335,445) ( 335,445) - ( 91,448)
Net proceeds (payments) from
inventory loans ( 737,818) 2,938,643 3,992,684 2,138,888 3,836,941
Proceeds from notes payable 2,503,157 831,615 1,247,626 633,591 604,551
Repayments of notes payable ( 922,967) ( 648,055) ( 693,846) ( 509,524) ( 273,518)
Proceeds from note payable, partner 229,904 24,000 24,000 165,000
Repayments of note payable, partner ( 173,500) ( 50,000) ( 50,000) - -
-------------- -------------- -------------- - --------
Net cash provided by
financing activities 230,705 2,760,758 4,185,019 2,627,955 4,076,526
- ----------- ---------------- ----------------
Net increase (decrease) in cash ( 304,105) 79,613 407,343 ( 54,484) 513,320
Cash at beginning of period 637,468 230,125 230,125 284,609 ( 228,711)
---------- -------------- -------------- ----------------
Cash at end of period $ 333,363 $ 309,738 $ 637,468 $ 230,125 $ 284,609
=============== =============== ===============
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-6
<PAGE>
WOODHAVEN HOMES, INC. AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Reconciliation of Net Income to Net Cash
Provided by (Used in) Operating Activities
<TABLE>
<CAPTION>
Nine MonthsEnded Years ended
September 30, December 31,
1998 1997 1997 1996 1995
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 2,173,009 $1,009,114 $1,416,872 $ 510,828 $( 156,931)
--------------- -- ------------------ ----------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 127,187 70,903 125,520 89,498 44,431
Less on disposal of assets - - 23,502 -
(Increase) decrease in accounts receivable ( 430,084) (196,482) ( 112,654) 35,608 ( 124,553)
(Increase) decrease in inventory (2,243,800) (3,323,276) ( 5,209,648) ( 2,867,622) ( 4,342,794)
(Increase) decrease in prepaid expenses ( 129,141) ( 43,184) ( 50,464) ( 13,273) -
(Increase) decrease in other assets ( 199,257) 22,287 11,262 ( 60,313) 45,900
Increase (decrease) in accounts payable, trade 87,345 ( 179,985) 28,197 ( 187,215) 1,127,601
Increase (decrease) in accrued expenses 1,375 ( 51,233) 94,747 68,895 131,283
Increase (decrease) in customer deposits 100,375 101,821 78,705 24,639 41,391
Increase (decrease) in income taxes payable:
Currently - - - - -
Deferred ( - - - - -
--- -------------- ----------------- -----------
Total adjustments (2,686,000) ( 3,599,149) (5,010,833) ( 2,909,783) ( 3,076,741)
-------------- --- ----------------- ----------------
Net cash provided by (used in) operating activities $(512,991) $ 2,590,035) $ 3,593,961) $( 2,398,955) $( 3,233,672)
============== ====== ================= ============
</TABLE>
The accompanying notes are an
integral part of these financial statements.
F-7
<PAGE>
WOODHAVEN HOMES, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations and business
Woodhaven Homes, Ltd., a limited partnership, was originally organized in the
state of Texas as Woodhaven Homes, L.L.C., a limited liability company,
(collectively hereinafter referred to as the Company) on October 21, 1992. On
September 30, 1997, the Company was reorganized as a limited partnership with
the assets and liabilities of the limited liability company transferred to the
limited partnership at their historical cost bases. The Company is engaged in
the construction and sale of single-family homes in the Dallas, Texas
metropolitan area.
Principles of combination
The accompanying combined financial statements include the general accounts of
the Company and the following companies wholly owned by the same individuals.
They are collectively referred to as "the Company."
<TABLE>
<CAPTION>
Company Type of Entity Date Incorporated
<S> <C> <C>
Woodhaven Homes, Inc. (WHI) C corporation August 7, 1998
Resland Development Corporation (RDC) C corporation December 20, 1993
</TABLE>
All intercompany accounts and balances have been eliminated in the combination.
Each of the companies have a fiscal year end of December 31 except for RDC which
has a fiscal year end of November 30. There have been no intervening events or
transactions that would have a material effect on the combined financial
position or results of operations. Net income (loss) has been allocated to
retained earnings and partners' equity of each combined company based on their
respective earnings.
The accompanying financial statements include the financial activities of
Woodhaven Homes, L.L.C. for the period January 1, 1995 through September 30,
1997, and the financial activities of Woodhaven Homes, Ltd. for the period
October 1, 1997 through September 30, 1998. There were no significant changes in
the operations or financial activities of the Company as a result of the above
mentioned reorganization.
Stockholder's equity
In connection with a proposed public offering, the Company incorporated in the
state of Texas on August 7, 1998 as Woodhaven Homes, Inc. with 20,000,000
authorized common stock shares with a par value of $.01 and 3,000,000 authorized
preferred stock shares with a par value of $1.00 in one or more series of
issuance with preferences and rights to be determined by the Board of Directors
at the time such series of preferred stock shares are issued.
Upon completion of the public offering, 2,000,000 common stock shares of the
Company will be issued to its current partners in exchange for all of the net
assets of Woodhaven Homes, Ltd. and the related companies. This transaction will
be accounted similar to a pooling of interest with the transferred assets and
liabilities being recorded at their historical cost bases. The exchange is
intended to qualify as a tax free reorganization under Section 351 of the
Internal Revenue Code of 1986.
F-8
<PAGE>
WOODHAVEN HOMES, LTD.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
Interim financial information
The notes to the interim unaudited financial statements do not present all
disclosures required under generally accepted accounting principles but instead,
as permitted by Securities and Exchange Commission regulations, presume that
users of the interim unaudited financial statements have read or have access to
the December 31, 1997 audited financial statements and that the adequacy of
additional disclosure needed for a fair presentation may be determined in that
context.
The interim unaudited financial statements included herein reflect all
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary to a fair presentation of the results for
interim periods. The results of operations for the nine month periods ended
September 30, 1998 and 1997 are not necessarily indicative of the results to be
expected for the full year.
Revenue and recognition
The Company recognizes revenue from the sale of its homes at the time of closing
when title, possession and other attributes of ownership have been transferred
to the buyer and after which the Company is not obligated to perform significant
additional activities.
Management estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash flows
For purposes of the statement of cash flows, cash includes demand deposits and
time deposits with maturities of less than three months.
Inventories
Inventories are carried at the lower of cost or net realizable value and include
original land and lot costs, construction costs and related expenditures. In
addition, interest on construction indebtedness (secured by specific real estate
inventories) and real estate taxes are capitalized until the completion of
construction. The costs of inventories are based upon specific identification of
direct construction costs, interest, taxes, closing costs and allocable costs of
labor and other indirect costs.
F-9
<PAGE>
WOODHAVEN HOMES, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
Property and equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation of property and equipment is currently being provided by straight
line methods for financial and tax reporting purposes over estimated useful
lives of three to ten years. For the years ended December 31, 1997, 1996 and
1995 depreciation expense totaled $125,520, $89,498 and $44,431, respectively.
Advertising
The Company's advertising costs, which consist primarily of radio, magazine and
newspaper advertising, are charged to expense as incurred. For the years ended
December 31, 1997, 1996 and 1995, advertising expense totaled $374,360, $267,137
and $162,340.
Pro forma net earnings per share
For the nine months ended September 30, 1998 and 1997 and the years ended
December 31, 1997, 1996 and 1995, the net earnings per share is based on
2,000,000 weighted average shares of common stock outstanding. No effect has
been given to the assumed exercise of stock options or warrants as the effect
would be antidilutive.
In February 1997, the Financial Standards Accounting Board (FASB) issued
Statement of Financial Accounting Standards No. 128 Earnings Per Share effective
for financial statement periods ending after December 15, 1997. Earnings per
share information for all prior periods presented are restated to comply with
the requirements of this pronouncement and reflect the issuance of the shares
referred to above as of January 1, 1995, the beginning of the earliest period
presented.
For pro forma earnings per share purposes, net income has also been adjusted by
the federal income taxes attributable to the Company's earnings which would have
been incurred if the Company had been operating as a C corporation (Note 6).
2. INVENTORIES
At December 31, 1997 and 1996, inventories consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Lot option deposits (Note 7) $ 290,250 $ 238,650
Finished lots 2,083,347 612,848
Model homes 869,547 1,247,335
Completed houses and houses under construction 11,716,146 7,650,809
--------------- ----------------
$ 14,959,290 $ 9,749,642
================ =================
</TABLE>
F-10
<PAGE>
WOODHAVEN HOMES, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS
Partners
The Company has two notes payable to one of its partners with an aggregate
outstanding balance of $139,000 and $165,000 at December 31, 1997 and 1996,
respectively. One note is due on demand and unsecured with interest payable
monthly at 12.5%. The other note is due September 30, 1998, bears interest at
12.0% and is secured by a second deed of trust on land and lots.
During the years ended December 31, 1997 and 1996, the Company also made
non-interest bearing advances to its two other partners of $42,391 and $57,850,
respectively. These advances are unsecured and due on demand. At December 31,
1997 and 1996, the amount of these advances due to the Company totaled $100,241
and $57,850, respectively.
Corporations
The Company is also affiliated with the following corporations through common
ownership and/or management control.
Dimensional Sales & Marketing, Inc.
Affordable Lifestyle Housing, Inc.
Brio Builders, Inc.
During the years ended December 31, 1997, 1996 and 1995, the Company made non
interest bearing advances to these corporations of $92,748, $49,991 and
$246,223, respectively, and received repayments of these advances of $142,143,
$0 and $62,508, respectively. These advances are unsecured and due upon demand.
At December 31, 1997 and 1996, the amount of these advances due to the Company
totaled $26,051 and $75,446, respectively.
During the years ended December 31, 1997, 1996 and 1995, the Company also paid
Dimensional Sales & Marketing, Inc. sales commissions of $423,889, $412,083 and
$51,905, respectively, and advertising fees of $356,705, $267,127 and $14,991,
respectively.
4. NOTES PAYABLE
The Company's notes payable consist of interim construction loans and loans from
banks and other financial institutions financing lots and items of property and
equipment. The notes, which contain no significant restrictions, bear interest
at rates of 8.5% to 12.0% and are secured by homes, lots and the items of
property and equipment which they are financing. Interim construction loans are
repaid as individual houses are closed. Lot loans are generally repaid with the
proceeds of construction loans when construction of new houses has commenced.
During the years ended December 31, 1997, 1996 and 1995, total interest expense
incurred approximated $1,082,000, $872,600 and $243,400, of which approximately
$756,000, $646,200 and $211,000 was capitalized, respectively. At December 31,
1997 and 1996, the weighted average interest rates on outstanding short-term
borrowings were 10.45 and 10.74, respectively.
F-11
<PAGE>
WOODHAVEN HOMES, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
At December 31, 1997 and 1996, an analysis of these notes and construction loans
payable are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Interim construction loans payable to financial institutions, due on various
date through 1998, bearing interest at 9.5% to 11.5% based on the prime rate;
collateralized by model homes, completed houses and houses under
construction,
guaranteed by a Partner $ 11,662,566 $7,669,882
Notes payable to financial institutions, due on various dates through 1998;
interest payable monthly at 8.9% to 11.5% based on the prime
rate; collateralized by lots 1,052,761 386,763
Other notes payable, due on various dates from March 1999 through February 2000;
payable in monthly installments including interest of 8.5% to 11.5%;
collateralized by vehicles
and equipment 175,497 287,715
--------------- ----------------
$ 12,890,824 $ 8,344,360
============= =================
</TABLE>
Future maturities required under the terms of the above notes and construction
loans payable are as follows:
Year Ended
December 31, Amount
1998 $ 12,838,552
1999 41,040
2000 11,232
------------
$ 12,890,824
5. COMMITMENTS AND CONTINGENIES
Leases
The Company conducts its operations from leased facilities located in Dallas,
Texas under a noncancellable operating lease agreement, which expires in August
2000. In addition, the Company also leases two vehicles under operating leases
which expire in September 2000.
F-12
<PAGE>
WOODHAVEN HOMES, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
For the years ended December 31, 1997, 1996 and 1995, rent expense under these
leases totaled $98,712, $57,620 and $18,268, respectively. Future minimum rental
payments required under these operating leases are as follows:
Year Ended
December 31, Amount
1998 $ 109,000
1999 113,000
2000 and
thereafter 92,000
$ 314,000
The Company has also acquired various items of equipment under capital lease
obligations. However the amounts of these capital lease obligations are not
material and have been included with notes payable for financial reporting and
disclosure purposes.
Lot options
In the normal course of business, the Company enters into option contracts to
purchase improved lots which generally require an initial option payment of less
than 5% of the stated purchase price. The option deposits and any other costs
incurred on the optioned properties are included in inventories. As of December
31, 1997 and 1996, the Company has forfeitable option deposits and other costs
of $290,250 and $238,650, respectively, on contracts to purchase lots with a
total purchase price of $14,478,290 and $8,663,300. The option contracts
generally include a provision that requires the Company to purchase a certain
number of lots by a specific date. Loss of the option deposit could result if
the Company fails to comply with the option contract provisions and certain
contracts specifically require the Company to purchase a minimum number of lots.
At December 31, 1997 and 1996, the total of such minimum commitments under these
provisions were approximately $108,000 and $481,500, respectively.
Year 2000 computer compliance
The Company is currently using computer hardware and the software it is
currently using is not in compliance with the year 2000 dating issues. However,
new software and hardware components have been ordered that will enable the
Company to be in compliance prior to December 31, 1998. During the nine months
ended September 30, 1998, the Company incurred approximately $32,000 of costs
related to this effort. Management does not believe any additional significant
cost will be incurred and the accompanying financial statements do not contain
any reserve for this contingency.
F-13
<PAGE>
WOODHAVEN HOMES, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
6. INCOME TAXES
As a limited liability company and as a limited partnership, the Company files a
U.S. partnership tax return and pays no federal income tax. Rather, its income,
deductions and credits are allocated to its individual partners who then report
these amounts on their respective tax returns. As a result, there are no
deferred tax assets or liabilities.
On September 30, 1997, the Company filed its final state franchise tax return
upon reorganization from a limited liability corporation to a limited
partnership. The limited liability corporation was subject to a state franchise
tax based on the greater of 4.5% of taxable income or .25% of members' equity.
These amounts are reflected in the accompanying financial statements as income
tax expense.
A reconciliation of income tax expense at the statutory federal rate to income
tax expense at the Company's effective tax rate for the years ended December 31,
1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax computed at statutory federal rate $ 498,134 $ 181,142 $( 53,357)
Tax attributable to earnings of
partnership ( 498,134) ( 181,142) 53,357
State income taxes 48,228 21,944 -
---------- ---------- -----------
Income tax expense $ 48,228 $ 21,944 $ -
=========== =========== ============
</TABLE>
7. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of its cash, accounts receivable,
advances to affiliates and notes payable.
Cash
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. At December 31, 1997 and 1996, $471,575 and $
96,289, respectively, of the Company's cash was in excess of FDIC insurance
coverage. The Company has not experienced any losses in such accounts and it
believes it is not exposed to any significant credit risks affecting cash. None
of the Company's cash is restricted.
F-14
<PAGE>
WOODHAVEN HOMES, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
Accounts receivable
Accounts receivable consist primarily of amounts in escrow remitted to the
Company from title companies shortly after year end for houses sold and closed
on or before year end. Management believes it is not exposed to any significant
credit risks affecting accounts receivable and that these receivables are fairly
stated at estimated net realizable amounts.
Advances to affiliates
Advances to affiliates are unsecured and non interest bearing but management
believes these advances are fairly stated at estimated net realizable amounts.
Management believes the carrying value of these advances represent the fair
value of these financial instruments because of the short term nature of these
advances.
Construction loans and notes payable
Management believes the carrying value of these construction loans and notes
represent the fair value of these financial instruments because their terms are
similar to those in the lending market for comparable loans with comparable
risks.
8. EMPLOYEE BENEFIT PLAN
On October 1, 1997, the Company established an Employee Profit Sharing Plan
qualifying under Section 401(k) of the Internal Revenue Code covering all
employees meeting general eligibility requirements. Contributions to the plan,
which are discretionary, are used to provide various retirement, death and
disability benefits. During the year ended December 31, 1997, the Company
contributed approximately $27,000 to the plan.
9. STOCK OPTIONS AND WARRANTS
On August 10, 1998 the Company adopted a qualified stock option plan and
reserved 300,000 common stock shares to be issued to executive management and
other employees and adopted the intrinsic value method of accounting for these
stock options. The exercise price of the options issued will be at 110% of the
fair market value of the common stock shares on the date of grant. The options
will be exercisable at a rate of 20% per year and will expire upon termination
of employment or within ten years.
F-15
<PAGE>
WOODHAVEN HOMES, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
For pro forma disclosure purposes, there are no differences in net income and
earnings per share amounts assuming the Company accounted for stock options
granted using the fair value method pursuant to Statement of Financial
Accounting Standards No. 123.
As part of a proposed public offering, the Company may issue separately up to
1,350,000 redeemable common stock purchase warrants which will be separately
transferable. Each warrant will entitle the holder to purchase one share of
common stock at a price of 120% of the public offering price and will expire in
five years.
F-16
<PAGE>
No person has been authorized to give any information or to make any
representation in connection with this offering other than those contained in
this Prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company or any Underwriter.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the securities to which it relates or an
offer to sell or the solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstance, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information herein is
correct as of any time subsequent to the date hereof.
TABLE OF CONTENTS
PAGE
Additional Information.................... 2
Prospectus Summary........................ 3
Risk Factors.............................. 7
Use of Proceeds........................... 12
Dividend Policy........................... 12
Dilution.................................. 13
Capitalization............................ 14
Selected Combined
Financial Information..................... 15
Management's Discussion and
Analysis of Financial Condition
and Results of Operation................. 16
Business.................................. 20
Management................................ 25
Principal Shareholders.................... 27
Certain Relationships
and Related Transactions............... 28
Description of Securities................. 29
Shares Eligible For
Future Sale............................ 30
Underwriting.............................. 31
Legal Matters............................. 33
Experts................................... 33
Index to Financial Statements............. 34
Until ____ , 1999 (25 days from the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
1,000,000 UNITS
Each Unit Consisting of
One Share of Common Stock
and
One Redeemable Common
Stock Purchase Warrant
OFFERING PRICE
$
PER UNIT
CAPITAL WEST SECURITIES, INC
REDSTONE SECURITIES, INC.
<PAGE>
II - 1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Estimated expenses in connection with the public offering by the Company of the
securities offered hereunder are as follows:
Securities and Exchange Commission Filing Fee $8,310
Nasd Filing Fee 3,270
Blue Sky Fees and Expenses* 5,000
American Stock Exchange Application and Listing Fee 20,000
Accounting Fees and Expenses* 40,000
Legal Fees and Expenses 175,000
Printing* 30,000
Fees of Transfer Agents and Registrar* 5,000
Underwriters' Non-Accountable Expense Allowance 200,000
Miscellaneous* 13,420
--------
Total* $500,000
- ----------------
* Estimated.
Item 14. Indemnification of Directors and Officers.
Pursuant to Section 2.02-1 of the Texas Business Corporation Act, a corporation
may indemnify an individual made a party to a proceeding because the individual
is or was a director against liability incurred in his official capacity with
the corporation including expenses and attorneys fees.
Article Nine of the Articles of Incorporation provides that a director
of the Corporation shall not be liable to the corporation or the shareholders
for any act or omission in such capacity as a director to the fullest extent
permitted by Texas statutory or decisional law.
Item 15. Recent Sales of Unregistered Securities
The Registrant has not issued any unregistered securities during the
last three years but intends to issue 2,000,000 shares of its common stock to
Richard D. Laxton, Phillip R. Johns and Mark V. Johns, the three principals of
Woodhaven Homes, Ltd., a Texas limited partnership (the "Partnership") in
exchange for all of the assets of the Partnership, all of the outstanding
capital stock of the corporate general partner, W. H. Management, Inc. and all
of the outstanding capital stock of Resland Development Company, Inc.
("Resland") prior to the effective date of this offering. The three principals
are the registrant's officers and directors and have been the managers of the
Partnership and its predecessor limited liability company and Resland and have
access to all corporate information. The exchange of stock for assets is
designed to qualify as a tax free exchange under section 351 of the Internal
Revenue Code of 1986 and will be exempt from registration under the Securities
Act provided by Section 4(2) thereunder as a transaction not involving a public
offering. No underwriter was involved in the transaction
Item 16. Exhibits and Financial Statement Schedules
<TABLE>
<S> <C> <C>
(a). Exhibits:
Exhibit No Item
Exhibit 1.1 Revised Form of Underwriting Agreement.(1)
Exhibit 1.2 Revised Form of Underwriters' Warrant Agreement.(1)
Exhibit 3.1 Articles of Incorporation of the Registrant. (3)
Exhibit 3.2 Bylaws of the Registrant (3)
Exhibit 3.3 Articles of Merger (1)
Exhibit 4.1 Revised Form of Warrant Agreement between Company and American Stock Transfer & Trust Company (1)
Exhibit 4.3 Specimen of Warrant Certificate. (3) Contained in Exhibit 4.1
Exhibit 4.4 Form of Warrant of Joe B. Garza (3)
Exhibit 5.1 Opinion of Garza & Staples.(3)
Exhibit 10.1 Stock Option Plan (3)
Exhibit 10.2 Lease between the Registrant and Gaedeke Holdings, Ltd. (3)
Exhibit 10.3 Form of Bank Loan Agreement between the Registrant and its lenders.(3)
Exhibit 10.4 Joint Venture Agreement with The GM Group, Inc. (3)
Exhibit 23.1 Consent of Turner , Stone & Company, L.L.P., Certified Public Accountants.(3)
Exhibit 23.2 Consent of Garza & Staples is contained in their opinion filed as Exhibit 5.1 to
this registration statement.(3)
Exhibit 23.3 Consent of American Metro/Study Corporation (3)
Exhibit 23.4 Consent of Robert A. Shuey (3)
Exhibit 27.1 Financial Data Schedule (3)
-----------------------
(1) Filed herewith
(2) To be filed by amendment (3) Previously filed
(b) Financial Statement Schedules: Not applicable
</TABLE>
Item 17. Undertakings
The undersigned registrant hereby undertakes as follows:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(2) To file, during any period in which it offers or sells
securities, a post-effective amendment to this Registration
Statement to:
(a) Include any Prospectus required by Section 10(a)(3)
of the Securities Act;
(b) Reflect in the Prospectus any facts or events which,
individually or together, represent a fundamental
change in the Registration Statement; and
(c) Include any additional or changed material information on
the plan of distribution.
(3) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
persons controlling the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised
that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy, as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
shares of the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
(5) For the purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of a registration statement in
reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was
declared effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Dallas, State
of Texas, on December 28, 1998.
WOODHAVEN HOMES, INC.
By: /s/ Richard D. Laxton
Richard D. Laxton, Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints RICHARD D.
LAXTON and PHILLIP R. JOHNS and each of them, his true and
lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and
all amendments to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in
connection therewith with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents
full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitutes
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
Richard D. Laxton December 28 , 1998
Richard D. Laxton Chief Executive Officer,
Director (Principal Executive
Officer and Principal Financial
and Accounting Officer)
Phillip R. Johns December 28, 1998
Phillip R. Johns President, Director
/s/ Mark V. Johns December 28, 1998
Mark V. Johns Vice President, Director
</TABLE>
Underwriting Agreement Page 2
Underwriting Agreement Page 1
1,000,000 Units
WOODHAVEN HOMES, INC.
Each Unit Consisting of
One Share of Common Stock and
One Redeemable Common Stock Purchase Warrant
______________, 1999
UNDERWRITING AGREEMENT
Dear Sirs:
Woodhaven Homes, Inc., a Texas corporation (together with its
subsidiaries, the "Company"), proposes to sell to you and the other underwriters
named in Schedule I hereto (collectively, the "Underwriters"), for whom Capital
West Securities, Inc. and Redstone Securities, Inc. are acting as managing
underwriters and representatives (the "Representatives"), in the respective
amounts set forth opposite each Underwriter's name in Schedule I hereto, an
aggregate of 1,000,000 units (the "Units"), each consisting of one share of the
Company's Common Stock, $.01 par value (the "Common Stock"), and one redeemable
common stock purchase warrant (the "Warrants"), which entitles the holder
thereof to purchase one share of Common Stock at a price of $_______ per share.
The Units, together with (a) the shares of Common Stock and Warrants comprising
the Units and (b) the shares of Common Stock issuable upon exercise of the
Warrants are collectively referred to herein as the "Underwritten Securities".
The Company also proposes to grant to the Underwriters the Underwriters' Option
(described in Section 2(b) hereof) to purchase up to an aggregate of 150,000
additional Units solely to cover over-allotments in the sale of the Underwritten
Securities (such additional Units, together with (a) the shares of Common Stock
and Warrants comprising such additional Units and (b) the shares of Common Stock
issuable upon exercise of the Warrants, are collectively referred to herein as
the "Option Securities"); and to issue to the Representatives the
Representatives's Warrants (described in Section 7 hereof) to purchase 100,000
additional Units, which additional Units are identical to the Units described
above (individually, the Representatives's Warrants and additional Units,
together with (a) the shares of Common Stock and Warrants comprising such
additional Units and (b) the shares of Common Stock issuable upon exercise of
such Warrants, are collectively referred to herein as the "Representatives's
Securities"). The Underwritten Securities, the Option Securities and the
Representatives's Securities are collectively referred to herein as the
"Securities."
The terms which follow, when used in this Agreement, shall
have the meanings indicated. The term "Effective Date" shall mean each
date that the Registration Statement (as defined below) and any
post-effective amendment or amendments thereto became or become
effective. "Execution Time" shall mean the date and time that this
Agreement is executed and delivered by the parties hereto. The term
"Preliminary Prospectus" shall mean any preliminary prospectus referred
to in Section 1(a) below with respect to the offering of the
Securities, and any preliminary prospectus included in the Registration
Statement on the Effective Date that omits Rule 430A Information (as
defined below). Capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the most recent Preliminary
Prospectus which predates or coincides with the Execution Time.
"Prospectus" shall mean the final prospectus with respect to the
offering of the Securities that contains the Rule 430A Information.
"Registration Statement" shall mean (a) the registration statement
referred to in Section 1(a) below, including Exhibits and Financial
Statements, in the form in which it has or shall become effective, (b)
in the event any post-effective amendment thereto becomes effective
prior to the Closing Date (as defined in Section 3(a) hereof) or any
settlement date pursuant to Section 3(b) hereof, such registration
statement as so amended on such date, and (c) in the event of the
filing of any abbreviated registration statement increasing the size of
the offering (a "Rule 462 Registration Statement"), pursuant to Rule
462(b) (as defined below), which registration statement became
effective upon filing the Rule 462 Registration Statement. Such term
shall include Rule 430A Information (as defined below) deemed to be
included therein at the Effective Date as provided by Rule 430A. "Rule
424," "Rule 462(b)" and "Rule 430A" refer to such rules promulgated
under the Securities Act of 1933, as amended (the "Act"). "Rule 430A
Information" means information with respect to the Securities and the
offering thereof permitted to be omitted from the Registration
Statement when it becomes effective pursuant to Rule 430A.
<PAGE>
Underwriting Agreement Page 20
1. Representations and Warranties of the Company.
(i) The Company represents and warrants to, and agrees with, each
Underwriter that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, including a
related preliminary prospectus ("Preliminary Prospectus"), on Form S-1
(Commission File No.333-62467) (the "Registration Statement") for the
registration under the Act of the Securities. The Company may have
filed one or more amendments thereto, including related Preliminary
Prospectuses, each of which has previously been furnished to you. The
Company will next file with the Commission either prior to
effectiveness of such Registration Statement, a further amendment
thereto (including the form of Prospectus) or, after effectiveness of
such Registration Statement, a Prospectus in accordance with Rules 430A
and 424(b)(1) or (4). As filed, such amendment and form of Prospectus,
or such Prospectus, shall include all Rule 430A Information and, except
to the extent the Representatives shall agree in writing to a
modification, shall be in all substantive respects in the form
furnished to you prior to the Execution Time or, to the extent not
completed at the Execution Time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company has advised you in
writing, prior to the Execution Time, will be included or made therein.
(b) The Preliminary Prospectus, at the time of filing,
conformed in all material respects with the applicable requirements of
the Act and the rules and regulations thereunder and did not include
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein not misleading. If the Effective Date is prior to or
simultaneous with the Execution Time, (i) on the Effective Date, the
Registration Statement conformed in all material respects to the
requirements of the Act and the rules and regulations thereunder and
did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading, and (ii) at the
Execution Time, the Registration Statement conforms, and at the time of
filing of the Prospectus pursuant to Rule 424(b), the Registration
Statement and the Prospectus will conform, in all material respects to
the requirements of the Act and the rules and regulations thereunder,
and neither of such documents includes, or will include, any untrue
statement of a material fact or omits, or will omit, to state a
material fact required to be stated therein or necessary in order to
make the statements therein (and, in the case of the Prospectus, in the
light of the circumstances under which they were made) not misleading.
If the Effective Date is subsequent to the Execution Time, on the
Effective Date, the Registration Statement and the Prospectus will
conform in all material respects to the requirements of the Act and the
rules and regulations thereunder, and neither of such documents will
contain any untrue statement of any material fact or will omit to state
any material fact required to be stated therein or necessary to make
the statements therein (and, in the case of the Prospectus, in the
light of the circumstances under which they were made) not misleading.
The two preceding sentences do not apply to statements in or omissions
from the Registration Statement or the Prospectus (or any supplements
thereto) based upon and in conformity with information furnished in
writing to the Company by or on behalf of any Underwriter through the
Representatives specifically for use in connection with the preparation
of the Registration Statement or the Prospectus (or any supplements
thereto).
(c) The Company does not own or control, directly or
indirectly, any corporation, partnership, association or other entity.
(d) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction in which it is chartered or organized, with full corporate
power and corporate authority to own its properties and conduct its
business as described in the Prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing under the
laws of each jurisdiction in which it conducts its business or owns
property and in which the failure, individually or in the aggregate, to
be so qualified would have a material adverse effect on the properties,
assets, operations, business, condition (financial or otherwise) or
prospects of the Company ("Material Adverse Effect"). The Company has
all necessary authorizations, approvals, orders, licenses, certificates
and permits of and from all government regulatory officials and bodies,
to own its properties and conduct its business as described in the
Prospectus except where the absence of any such authorization,
approval, order, license, certificate or permit would not have a
Material Adverse Effect.
(e) The Company does not own any shares of capital stock or
any other securities of any corporation or any equity interest in any
firm, partnership, association or other entity other than as described
in the Registration Statement and ownership interests that would not
have a Material Adverse Effect.
(f) The Company's equity capitalization is as set forth in the
Prospectus; the capital stock of the Company conforms in all material
respects to the description thereof contained in the Prospectus; all
outstanding shares of Common Stock (including, without limitation, the
shares of Common Stock underlying (i) the Units to be sold by the
Company hereunder, (ii) the Warrants, and (iii) the Representatives's
Warrants) have been duly and validly authorized and issued and are
fully paid and nonassessable, and the certificates therefor are in
valid and sufficient form; there are, and, on the Effective Date, the
Closing Date (and any settlement date pursuant to Section 3(b) hereof),
there will be, no other classes of stock outstanding except Common
Stock; all outstanding options to purchase shares of Common Stock have
been duly and validly authorized and issued; except as described in the
Registration Statement, there are, and, on the Closing Date (and any
settlement date pursuant to Section 3(b) hereof), there will be, no
options, warrant or rights to acquire, or debt instruments convertible
into or exchangeable for, or other agreements or understandings to
which the Company is a party, outstanding or in existence, entitling
any person to purchase or otherwise acquire shares of capital stock of
the Company; the issuance and sale of the Securities have been duly and
validly authorized and, when issued and delivered and paid for, the
Securities will be fully paid and nonassessable and free from
preemptive rights, and will conform in all respects to the description
thereof contained in the Prospectus; the Warrants and Representatives's
Warrants will, when issued, constitute valid and binding obligations of
the Company enforceable in accordance with their terms and the Company
has reserved a sufficient number of shares of Common Stock for issuance
upon exercise thereunder; the Securities will, when issued, possess the
rights, privileges and characteristics as described in the Prospectus;
and the certificates for the Securities are in valid and sufficient
form. Each offer and sale of securities of the Company referred to in
Item 15 of Part II of the Registration Statement was effected in
compliance with the Act and the rules and regulations thereunder.
(g) The Securities (other than the Representatives's Warrants)
have been approved for listing on the American Stock Exchange ("AMEX"),
upon official notice of issuance.
(h) Other than as described in the Prospectus, there is no
pending or, to the best knowledge of the Company, threatened action,
suit or proceeding before any court or governmental agency, authority
or body, domestic or foreign, or any arbitrator involving the Company
of a character required to be disclosed in the Registration Statement
or the Prospectus. There is no contract or other document of a
character required to be described in the Registration Statement or
Prospectus or to be filed as an exhibit that is not described or filed
as required.
(i) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding
agreement of the Company, enforceable against the Company in accordance
with its terms, except as rights of indemnity and contribution
hereunder may be limited by public policy and except as the
enforceability hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally and general principles of equity.
(j) The Company has full corporate power and corporate
authority to enter into and perform its obligations under this
Agreement and to issue, sell and deliver the Securities in the manner
provided in this Agreement. The Company has taken all necessary
corporate action to authorize the execution and delivery of, and the
performance of its obligations under, this Agreement.
(k) Neither the offering, issuance and sale of the Securities,
nor the consummation of any other of the transactions contemplated
herein, nor the fulfillment of the terms hereof, will conflict with or
result in a breach or violation of, or constitute a default under, or
result in the imposition of a lien on any properties of the Company or
an acceleration of indebtedness pursuant to, the Articles of
Incorporation or bylaws of the Company, as currently in effect, or any
of the terms of any indenture or other agreement or instrument to which
the Company is a party or by which the Company or any of its properties
are bound, or any law, order, judgment, decree, rule or regulation
applicable to the Company of any court, regulatory body, administrative
agency, governmental body, stock exchange or arbitrator having
jurisdiction over the Company. The Company is not in violation of its
Articles of Incorporation or bylaws, as currently in effect, or, except
as described in the Prospectus, in breach of or default under any of
the terms of any indenture or other agreement or instrument to which it
is a party or by which it or its properties are bound, which breach or
default would, individually or in the aggregate, have a Material
Adverse Effect.
(l) Except as disclosed in the Prospectus, no person has the
right, contractual or otherwise, to cause the Company to issue to it
any shares of capital stock in consequence of the issue and sale of the
Securities, nor does any person have preemptive rights, or rights of
first refusal or other rights to purchase any of the Securities. Except
as referred to in the Prospectus, no person holds a right to require or
participate in a registration under the Act of Common Stock, Preferred
Stock or any other equity securities of the Company.
(m) The Company has not (i) taken and will not take, directly
or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to cause or result
in, under the Exchange Act, or otherwise, stabilization or manipulation
of the price of any security of the Company to facilitate the sale or
resale of the Securities (other than those actions permitted by
applicable law) or (ii) effected any sales of shares of securities that
are required to be disclosed in response to Item 16of Part II of the
Registration Statement (other than transactions disclosed in the
Registration Statement or the Prospectus).
(n) No consent, approval, authorization or order of, or
declaration or filing with, any court or governmental agency or body is
required to be obtained or filed by or on behalf of the Company in
connection with the transactions contemplated herein, except such as
may have been obtained or made and registration of the Securities under
the Act, and such as may be required under the Blue Sky laws of any
jurisdiction in connection with the purchase and distribution of the
Securities by the Underwriters.
(o) The accountants who have certified the Financial
Statements filed or to be filed with the Commission as part of the
Registration Statement are independent accountants as required by the
Act.
(p) No stop order preventing or suspending the use of any
Preliminary Prospectus has been issued, and no proceedings for that
purpose are pending or, to the best knowledge of the Company,
threatened or contemplated by the Commission; no stop order suspending
the sale of the Securities in any jurisdiction has been issued and no
proceedings for that purpose have been instituted or, to the best
knowledge of the Company, threatened or are contemplated; and any
request of the Commission for additional information (to be included in
the Registration Statement or the Prospectus or otherwise) has been
complied with.
(q) The Company has not sustained, since January 1, 1998 any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree,
and, since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there have not been any
changes in the capital stock or long-term debt of the Company, or any
material adverse change, or a development known to the Company that
could reasonably be expected to cause or result in a material adverse
change, in the general affairs, management, financial position,
stockholders' equity, results of operations or prospects of the
Company, otherwise than as set forth in the Prospectus. Except as set
forth in the Prospectus, there exists no present condition or state of
facts or circumstances known to the Company involving its customers
which the Company can now reasonably foresee would have a Material
Adverse Effect or which would result in a termination or cancellation
of any agreement with any customer whose purchases, individually or in
the aggregate, are material to the business of the Company, or which
would result in any material decrease in sales to any such customer or
purchases from any supplier, or which would prevent the Company from
conducting its business as described in the Prospectus in essentially
the same manner in which it has heretofore been conducted.
(r) The Financial Statements and the related notes of the
Company's subsidiaries, included in the Registration Statement and the
Prospectus present fairly the financial position, results of
operations, cash flow and changes in shareholders' equity of the
Company at the dates and for the periods indicated, subject in the case
of the Financial Statements for interim periods, to normal and
recurring year-end adjustments. The unaudited pro forma combined
condensed statements of the Company present fairly the financial
position and the results of operations at the dates and for the periods
indicated. Such Financial Statements and the unaudited pro forma
combined financial information of the Company were prepared in
conformity with the Commission's rules and regulations and in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved. The financial
information of the Company set forth in the Prospectus under the
captions "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" fairly present, on the
basis stated in the Prospectus, the information included therein.
(s) The Company owns or possesses, or has the right to use
pursuant to licenses, sublicenses, agreements, permissions or
otherwise, adequate patents, copyrights, trade names, trademarks,
service marks, licenses and other intellectual property rights
necessary to carry on its business as described in the Prospectus, and,
except as set forth in the Prospectus, the Company has not received any
notice of either (i) default under any of the foregoing or (ii)
infringement of or conflict with asserted rights of others with respect
to, or challenge to the validity of, any of the foregoing which, in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, could have a Material Adverse Effect, and the Company knows of
no fact which could reasonably be anticipated to serve as the basis for
any such notice.
(t) Subject to such exceptions as are not likely to result in
a Material Adverse Effect, (A) the Company owns all properties and
assets described in the Registration Statement and the Prospectus as
being owned by it and (B) the Company has good title to all properties
and assets owned by it, free and clear of all liens, charges,
encumbrances and restrictions, except as otherwise disclosed in the
Prospectus and except for (i) liens for taxes not yet due, (ii)
mortgages and liens securing debt reflected on the Financial Statements
included in the Prospectus, (iii) materialmen's, workmen's, vendor's
and other similar liens incurred in the ordinary course of business
that are not delinquent, individually or in the aggregate, and do not
have a material adverse effect on the value of such properties or
assets of the Company, or on the use of such properties or assets by
the Company, in its respective business, and (iv) any other liens that,
individually or in the aggregate, are not likely to result in a
Material Adverse Effect. All leases to which the Company is a party and
which are material to the conduct of the business of the Company are
valid and binding and no material default by the Company has occurred
and is continuing thereunder; and the Company enjoys peaceful and
undisturbed possession under all such material leases to which it is a
party as lessee.
(u) The books, records and accounts of the Company accurately
and fairly reflect, in reasonable detail, the transactions in and
dispositions of the assets of the Company. The system of internal
accounting controls maintained by the Company is sufficient to provide
reasonable assurances that (i) transactions are executed in accordance
with management's general or specific authorization; (ii) transactions
are recorded as necessary to permit preparation of financial statements
in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management's general or specific authorization;
and (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(v) Except as set forth in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration
Statement and the Prospectus, the Company has not incurred any
liabilities or obligations, direct or contingent, or entered into any
transactions, in each case, which are likely to result in a Material
Adverse Effect, and there has not been any payment of or declaration to
pay any dividends or any other distribution with respect to the shares
of the capital stock of the Company.
(w) The Company has obtained and delivered to the
Representatives the written agreements, substantially in the form
attached hereto as Exhibit B, of the principal shareholders of the
Company restricting dispositions of equity securities of the Company.
(x) The Company is in compliance in all material respects with
all applicable laws, rules and regulations, including, without
limitation, employment and employment practices, immigration, terms and
conditions of employment, health and safety of workers, customs and
wages and hours, and is not engaged in any unfair labor practice. No
property of the Company has been seized by any governmental agency or
authority as a result of any violation by the Company or any
independent contractor of the Company of any provisions of law. There
is no pending unfair labor practice complaint or charge filed with any
governmental agency against the Company. There is no labor strike,
material dispute, slow down or work stoppage actually pending or, to
the best knowledge of the Company, threatened against or affecting the
Company; no grievance or arbitration arising out of or under any
collective bargaining agreements is pending against the Company no
collective bargaining agreement which is binding on the Company
restricts the Company from relocating or closing any of its operations
and none of the Company has experienced any work stoppage or other
labor dispute at any time.
(y) The Company has accurately, properly and timely (giving
effect to any valid extensions of time) filed all federal, state, local
and foreign tax returns (including all schedules thereto) that are
required to be filed, and has paid all taxes and assessments shown
thereon. Any and all tax deficiencies asserted or assessed against the
Company by the Internal Revenue Service ("IRS") or any other foreign or
domestic taxing authority have been paid or finally settled with no
remaining amounts owed. Neither the IRS nor any other foreign or
domestic taxing authority has examined any tax returns of the Company
nor has the IRS or any foreign or domestic taxing authority asserted a
position which conflicts with any tax position taken by the Company.
The charges, accruals and reserves shown in the Financial Statements
included in the Prospectus in respect of taxes for all fiscal periods
to date are adequate, and nothing has occurred subsequent to the date
of such Financial Statements that makes such charges, accruals or
reserves inadequate. The Company is not aware of any proposal (whether
oral or written) by any taxing authority to adjust any tax return filed
by the Company.
(z) Except as set forth in the Prospectus, there are no
outstanding loans, advances or guaranties of indebtedness by the
Company to or for the benefit of its affiliates, or any of its officers
or directors, or any of the members of the families of any of them,
which are required to be disclosed in the Registration Statement or the
Prospectus.
(aa) The Company is not an investment company subject to
registration under the Investment Company Act of 1940, as amended.
(bb) Except as set forth in the Prospectus, the Company has
insurance of the types and in the amounts that it reasonably believes
is adequate for its business, including, but not limited to, casualty
and general liability insurance covering all real and personal property
owned or leased by the Company, as applicable, against theft, damage,
destruction, acts of vandalism and all other risks customarily insured
against.
(cc) The Company has not at any time (i) made any
contributions to any candidate for political office, or failed to
disclose fully any such contribution, in violation of law; (ii) made
any payment to any state, federal or foreign governmental officer or
official, or other person charged with similar public or quasi-public
duties, other than payments required or allowed by all applicable laws;
or (iii) violated, nor is it in violation of, any provision of the
Foreign Corrupt Practices Act of 1977.
(dd) The preparation and the filing of the Registration
Statement with the Commission have been duly authorized by and on
behalf of the Company, and the Registration Statement has been duly
executed pursuant to such authorization by and on behalf of the
Company.
(ee) All documents delivered or to be delivered by the Company
or any of its directors or officers to the Underwriters, the Commission
or any state securities law administrator in connection with the
issuance and sale of the Securities were, on the dates on which they
were delivered, and will be, on the dates on which they are to be
delivered, true, complete and correct in all material respects.
(ff) With such exceptions as are not likely to result in a
Material Adverse Effect, the Company is in compliance with all Federal,
state, foreign and local laws and regulations relating to pollution or
protection of human health or the environment ("Environmental Laws"),
there are no circumstances that may prevent or interfere with such
compliance other than as set forth in the Prospectus, and the Company
has not received any notice or other communication alleging a currently
pending violation of any Environmental Laws. With such exceptions as
are not likely to result in a Material Adverse Effect, other than as
set forth in the Prospectus, there are no past or present actions,
activities, circumstances, conditions, events or incidents, including,
without limitation, the release, emission, discharge or disposal of any
chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum and petroleum products, that may result in the imposition of
liability on the Company or any claim against the Company or, to the
Company's best knowledge, against any person or entity whose liability
for any claim the Company has or may have assumed either contractually
or by operation of law, and the Company has not received any notice or
other communication concerning any such claim against the Company or
such person or entity.
(gg) Except as described in the Prospectus, the Company does
not maintain, nor does any other person maintain on behalf of the
Company, any retirement, pension (whether deferred or non-deferred,
defined contribution or defined benefit) or money purchase plan or
trust. There are no unfunded liabilities of the Company with respect to
any such plans or trusts that are not accrued or otherwise reserved for
on the Financial Statements.
(hh) Any certificates signed by an officer of the Company and
delivered to the Representatives or the Underwriters or to counsel for
the Underwriters shall also be deemed a representation and warranty of
the Company to the Underwriters as to the matters covered thereby. Any
certificate delivered by the Company to its counsel for purposes of
enabling such counsel to render the opinions referred to in Section
6(b) will also be furnished to the Representatives and counsel for the
Underwriters and shall be deemed to be additional representations and
warranties by the Company to the Underwriters as to the matters covered
thereby.
2. Purchase and Sale.
(a) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company agrees to issue and
sell to the Underwriters an aggregate of 1,000,000 Units. Each of the
Underwriters agrees, severally and not jointly, to purchase from the Company the
number of Units set forth opposite its name in Schedule I hereto. The purchase
price per Unit to be paid by the several Underwriters to the Company shall be
$______ per Unit. No value shall be attributable to the Warrants.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants an
option (the "Underwriters' Option") to the several Underwriters to purchase,
severally and not jointly, up to an aggregate of 150,000 Units at the same
purchase price for use solely in covering any over-allotments made by the
Representatives for the account of the Underwriters in the sale and distribution
of the Underwritten Securities. The Underwriters' Option may be exercised in
whole or in part at any time on or before the 45th day after the Effective Date
upon written or telegraphic notice by the Representatives to the Company setting
forth the number of Units which the several Underwriters are electing to
purchase pursuant to the Underwriters' Option and the settlement date. Delivery
of certificates for such Units by the Company and payment therefor to the
Company shall be made as provided in Section 3 hereof. The number of Units
purchased by each Underwriter pursuant to the Underwriters' Option shall be
determined by multiplying the number of Units to be sold by the Company pursuant
to the Underwriters' Option, as exercised, by a fraction, the numerator of which
is the number of Units to be purchased by such Underwriter as set forth opposite
its name in Schedule I and the denominator of which is the total number of Units
to be purchased by all of the Underwriters as set forth on Schedule I (subject
to such adjustments to eliminate any fractional Unit purchases as the
Representatives in its discretion may make).
3. Delivery and Payment.
(a) If the Underwriters' Option described in Section 2(b) hereof is
exercised on or before the third business day prior to the Closing Date (as
defined below), delivery of the certificates for the Common Stock and Warrants
comprising the Units described in Sections 2(a) and 2(b) hereof shall be made by
the Company through the facilities of the Depository Trust Company ("DTC"), and
payment therefor shall be made at 9:00 a.m. local time, on __________________,
1998 or such later date (not later than _______________, 1998) as the
Representatives shall designate, which date and time may be postponed by
agreement among the Representatives and the Company or as provided in Section 9
hereof (such date, time of delivery and payment for such Securities being herein
called the "Closing Date"). Delivery of the certificates for such Securities to
be purchased on the Closing Date shall be made as provided in the preceding
sentence for the respective accounts of the several Underwriters against payment
by the several Underwriters through the Representatives of the aggregate
purchase price of such Underwritten Securities by wire transfer in same day
funds. Certificates for such Underwritten Securities shall be registered in such
names and in such denominations as the Representatives may request not less than
one full business day in advance of the Closing Date. The Company agrees to have
the certificates for the Underwritten Securities to be purchased on the Closing
Date available at the office of the DTC, not later than 9:00 a.m. local time, at
least one business day prior to the Closing Date.
(b) If the Underwriters' Option is exercised after the third business
day prior to the Closing Date, (i) delivery of the certificates for the Units
described in Section 2(a) hereof and payment therefor will be governed by the
provisions of Section 3(a) hereof and (ii) the Company will deliver (at the
expense of the Company) on the date specified by the Representatives (which
shall not be less than one nor more than five business days after exercise of
the Underwriters' Option), certificates for the Common Stock and Warrants
comprising the Units described in Section 2(b) hereof in such names and
denominations as the Representatives shall have requested against payment at the
office of Capital West Securities, Inc. of the purchase price by wire transfer
in same day funds. If settlement for such Securities occurs after the Closing
Date, the Company will deliver to the Representatives on the settlement date for
such Securities, and the obligation of the Underwriters to purchase such
Securities shall be conditions upon receipt of, supplemental opinions,
certificates and letters confirming as of such date the opinions, certificates
and letters delivered on the Closing Date pursuant to Section 6 hereof. The
Company agrees to have the certificates for the Securities to be purchased after
the Closing Date available at the office of the DTC, not later than 9:00 a.m.
local time at least one business day prior to the settlement date.
4. Offering by Underwriters. It is understood that the several Underwriters
propose to offer the Securities for sale to the public as set forth in the
Prospectus.
5. Agreements. The Company agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, and any amendment thereof, if not effective at the Execution Time, to
become effective as promptly as possible. If the Registration Statement has
become or becomes effective pursuant to Rule 430A, or filing of the Prospectus
is otherwise required under Rule 424(b), the Company will file the Prospectus,
properly completed, pursuant to Rule 424(b) within the time period prescribed
and will provide evidence satisfactory to the Representatives of such timely
filing. The Company will promptly advise the Representatives (i) when the
Registration Statement shall have become effective, (ii) when any post-effective
amendment thereto shall have become effective, (iii) of any request by the
Commission for any amendment or supplement of the Registration Statement or the
Prospectus or for any additional information with respect thereto, (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the receipt by the Company of any notification with
respect to the institution or threatening of any proceeding for that purpose and
(v) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose. The Company
will use its best efforts to prevent the issuance of any such stop order or
suspension and, if issued, to obtain as soon as possible the withdrawal thereof.
The Company will not file any amendment to the Registration Statement or
supplement to the Prospectus without the prior consent of the Representatives.
The Company will prepare and file with the Commission, promptly upon your
request, any amendment to the Registration Statement or supplement to the
Prospectus that you reasonably determine to be necessary or advisable in
connection with the distribution of the Securities by you, and will use its best
efforts to cause the same to become effective as promptly as possible.
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus as then supplemented would include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it otherwise shall be necessary to supplement the
Prospectus to comply with the Act or the rules or regulations thereunder, the
Company will promptly prepare and file with the Commission, subject to Section
5(a) hereof, a supplement that will correct such statement or omission or a
supplement that will effect such compliance.
(c) As soon as practicable (but not later than eighteen months after
the effective date of the Registration Statement), the Company will make
generally available to its security holders and to the Representatives an
earnings statement or statements (which need not be audited) of the Company
covering a period of at least twelve months after the Effective Date (but in no
event commencing later than 90 days after such date), which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 promulgated thereunder.
(d) The Company will furnish to each of you and counsel for the
Underwriters, without charge, one signed copy of the Registration Statement and
any amendments thereto (including exhibits thereto) and to each other
Underwriter a conformed copy of the Registration Statement and any amendments
thereto (without exhibits thereto) and, so long as delivery of a prospectus by
an Underwriter or dealer may be required by the Act, as many copies of the
Prospectus and each Preliminary Prospectus and any supplements thereto as the
Representatives may reasonably request.
(e) The Company will take all actions necessary for the registration or
qualification of the Securities for sale under the laws of such jurisdictions
within the United States and its territories as the Representatives may
designate, will maintain such qualifications in effect so long as required for
the distribution of the Securities and will pay the fee of the National
Association of Securities Dealers, Inc. (the "NASD") in connection with its
review of the offering, provided that the Company shall not be required to
qualify as a foreign corporation or to consent to service of process under the
laws of any such jurisdiction (except service of process with respect to the
offering and sale of the Securities). Without limiting the foregoing, the
Company will use its best efforts to register or qualify the shares of Common
Stock underlying the Warrants in any jurisdiction where the registered holders
of 5% or more of such Warrants reside, and will use its best efforts to keep
such registrations or qualifications in effect during the term of the Warrants.
(f) The Company will apply the net proceeds from the offering received
by it in the manner set forth under the caption "Use of Proceeds" in the
Prospectus.
(g) The Company will (i) cause the Securities (other than the
Representatives' Warrants) to be listed on AMEX and (ii) comply with all
registration, filing and reporting requirements of the Exchange Act, and AMEX
which may from time to time be applicable to the Company.
(h) During the five-year period commencing on the date hereof, the
Company will furnish to its shareholders, as soon as practicable after the end
of each respective period, annual reports (including financial statements
audited by independent certified public accountants) and unaudited quarterly
reports of earnings and will furnish to you and, upon request, to the other
Underwriters hereunder (i) concurrent with furnishing such quarterly reports to
its shareholders, statements of income and other information of the Company for
such quarter in the form furnished to the Company's shareholders; (ii)
concurrent with furnishing such annual reports to its shareholders, a balance
sheet of the Company as at the end of such fiscal year, together with statements
of income and surplus and of cash flow of the Company for such fiscal year, all
in reasonable detail and accompanied by a copy of the certificate or report
thereon of its independent certified public accountants; (iii) as soon as they
are available, copies of all reports and financial statements furnished to or
filed with the Commission, the NASD, AMEX or any other securities exchange on
which any of the Company's securities may be listed; (iv) every press release
and every material news item or article in respect of the Company or its affairs
which was released or prepared by the Company; and (v) any additional
information of a public nature concerning the Company or its business that you
may reasonably request. During such five-year period, if the Company shall have
active subsidiaries, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the Company and its
subsidiaries are consolidated, and shall be accompanied by similar financial
statements for any significant subsidiary that is not so consolidated.
(i) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar (which may be the
same entity as the transfer agent) for the Securities.
(j) The Company will not, for a period of 365 days following the
Effective Date, without the prior written consent of the Representatives, offer,
sell, contract to sell (including, without limitation, any short sale),
transfer, assign, pledge, encumber, hypothecate or grant any option to purchase
or otherwise dispose of, any capital stock, or any options, rights or warrants
to purchase any capital stock of the Company, or any securities or indebtedness
convertible into or exchangeable for shares of capital stock of the Company,
except for (i) sales of Securities as contemplated by this Agreement and (ii)
sales of Common Stock upon the exercise of the Warrants or outstanding options
described in the Prospectus.
(k) The Company has reserved and shall continue to reserve a sufficient
number of shares of Common Stock for issuance upon exercise of the
Representatives' Warrants and the Warrants.
(l) If the Company elects to rely on Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance with
Rule 462(b) by 10:00 p.m., Washington D.C. time, on the date of this Agreement,
and the Company shall at the time of filing either pay to the Commission the
filing fee for the Rule 462(b) Registration Statement or give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
(m) For the five year period from the Closing Date, the Company will
nominate for election as a director a person designated by the Representatives,
and during such time as the Representatives shall not have exercised such right,
the Representatives shall have the right to designate an observer, who shall be
entitled to attend all meetings of the Board of Directors and receive all
correspondence and communications sent by the Company to the members of the
Board of Directors.
(n) The Company shall solicit the exercise of the Warrants solely
through the Representatives, at the Representatives' election, and shall pay to
the Representatives the compensation set forth in Section 7 hereof for such
services.
6. Conditions to the Obligations of the Underwriters. The obligations of the
Underwriters to purchase the Units described in Sections 2(a) and 2(b) hereof
shall be subject to (i) the accuracy of the representations and warranties on
the part of the Company contained herein as of the Execution Time, the Closing
Date and (in the case of any Units delivered after the Closing Date, any
settlement date pursuant to Section 3(b) hereof), (ii) the accuracy of the
statements of the Company made in any certificates delivered pursuant to the
provisions hereof, (iii) the performance by the Company of its obligations
hereunder, and (iv) the following additional conditions:
(a) The Registration Statement shall have become effective (or, if a
post-effective amendment is required to be filed pursuant to Rule 430A under the
Act, such post-effective amendment shall become effective) not later than 5:00
p.m. Eastern Standard Time, on the execution date hereof or at such later date
and time as the Representatives may approve in writing and, at the Closing Date
(and any settlement date pursuant to Section 3(b) hereof), no stop order
suspending the effectiveness of the Registration Statement or any qualification
in any jurisdiction shall have been issued and no proceedings for that purpose
shall have been initiated or, to the best knowledge of the Company, threatened
by the Commission.
(b) The Company shall have furnished to the Representatives the opinion
of Garza & Staples, P. C., counsel for the Company, addressed to the
Underwriters and dated the Closing Date (and any settlement date pursuant to
Section 3(b) hereof), or other evidence satisfactory to the Representatives to
the effect that:
(i) The Registration Statement has become effective under the
Act; any required filing of the Prospectus or any supplements thereto
pursuant to Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); to the best knowledge of such counsel,
no stop order suspending the effectiveness of the Registration
Statement or any qualification in any jurisdiction has been issued and
no proceedings for that purpose have been instituted or threatened; any
request from the Commission for additional information has been
complied with; the Registration Statement and the Prospectus (and any
supplements thereto) comply as to form in all material respects with
the applicable requirements of the Act and the rules and regulations
thereunder (except that such counsel need express no opinion with
respect to the Financial Statements and schedules included in the
Registration Statement and Prospectus).
(ii) Except as stated in the Prospectus, the Company does not
own or control, directly or indirectly, any corporation, partnership,
association or other entity.
(iii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction in which it is chartered or organized, with full corporate
power and corporate authority to own its properties and conduct its
business as described in the Prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing under the
laws of each jurisdiction in which it conducts its business or owns
property and in which the failure, individually or in the aggregate, to
be so qualified would have a Material Adverse Effect. The Company has
all necessary and material authorizations, approvals, orders, licenses,
certificates and permits of and from all government regulatory
officials and bodies, to own its properties and conduct its business as
described in the Prospectus, except where failure to obtain such
authorizations, approvals, orders, licenses, certificates or permits
would not have a Material Adverse Effect.
(iv) The Company does not own any shares of capital stock or
any other equity securities of any corporation or any equity interest
in any firm, partnership, association or other entity other than as
described in the Prospectus, except for ownership interests that would
not have a Material Adverse Effect.
(v) The Company has an authorized share capitalization as set
forth in the Prospectus; the capital stock of the Company conforms in
all material respects to the description thereof contained in the
Prospectus; all outstanding shares of Common Stock have been duly and
validly authorized and issued and are fully paid and nonassessable and
the certificates therefor are in valid and sufficient form in
accordance with applicable state law; there are no other classes of
stock outstanding except Common Stock; all outstanding options to
purchase shares of Common Stock have been duly and validly authorized
and issued; except as described in the Prospectus, there are no
options, warrants or rights to acquire, or debt instruments convertible
into or exchangeable for, or other agreements or understandings to
which the Company is a party, outstanding or in existence, entitling
any person to purchase or otherwise acquire any shares of capital stock
of the Company; the issuance and sale of the Securities have been duly
and validly authorized and, when issued and delivered and paid for, the
Securities will be fully paid and nonassessable and free from
preemptive rights, and will conform in all respects to the description
thereof contained in the Prospectus; the Warrants and the
Representatives' Warrants constitute valid and binding obligations of
the Company enforceable in accordance with their terms and the Company
has reserved a sufficient number of shares of Common Stock for issuance
upon exercise thereof; the Warrants and the Representatives' Warrants
possess the rights, privileges and characteristics as represented in
the forms filed as exhibits to the Registration Statement and as
described in the Prospectus; the Securities (other than the
Representatives' Warrants) have been approved for listing on AMEX upon
notice of issuance thereof; the certificates for the Securities are in
valid and sufficient form. Each offer and sale of securities of the
Company described in Item 15 of Part II of the Registration Statement
was effected in compliance with the Act and the rules and regulations
thereunder.
(vi) Other than as described in the Prospectus, there is no
pending or, to the best knowledge of such counsel after reasonable
investigation, threatened action, suit or proceeding before any court
or governmental agency, authority or body, domestic or foreign, or any
arbitrator involving the Company of a character required to be
disclosed in the Registration Statement or the Prospectus that is not
adequately disclosed in the Prospectus, and, to the best knowledge of
such counsel, there is no contract or other document of a character
required to be described in the Registration Statement or the
Prospectus, or to be filed as an exhibit, which is not described or
filed as required.
(vii) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding
agreement and obligation of the Company enforceable against it in
accordance with its terms (subject to standard bankruptcy and equitable
remedy exceptions, and limitations under the Act as to the
enforceability of indemnification provisions).
(viii) The Company has full corporate power and corporate
authority to enter into and perform its obligations under this
Agreement and to issue, sell and deliver the Securities in the manner
provided in this Agreement; and the Company has taken all necessary
corporate action to authorize the execution and delivery of, and the
performance of its obligations under, this Agreement.
(ix) Neither the offering, issue and sale of the Securities
nor the consummation of any other of the transactions contemplated
herein, nor the fulfillment of the terms hereof, will conflict with or
result in a breach or violation of, or constitute a default under, or
result in the imposition of a lien on any properties of the Company, or
an acceleration of indebtedness pursuant to, the Articles of
Incorporation (or other charter document) or bylaws of the Company, or
any of the terms of any indenture or other agreement or instrument to
which the Company is a party or by which its properties are bound, or
any law, order, judgment, decree, rule or regulation applicable to the
Company of any court, regulatory body, administrative agency,
governmental body, stock exchange or arbitrator having jurisdiction
over the Company. The Company is not in violation of its Articles of
Incorporation or bylaws or, to the best knowledge of such counsel after
reasonable investigation, in breach of or default under any of the
terms of any indenture or other agreement or instrument to which it is
a party or by which it or its properties are bound, which breach or
default would, individually or in the aggregate, have a Material
Adverse Effect.
(x) Except as disclosed in the Prospectus, no person has the
right, contractual or otherwise, to cause the Company to issue to it
any shares of capital stock in consequence of the issue and sale of the
Securities to be sold by the Company hereunder nor does any person have
preemptive rights, or rights of first refusal or other rights to
purchase any of the Securities. Except as referred to in the
Prospectus, no person holds a right to require or participate in a
registration under the Act of Common Stock or any other equity
securities of the Company.
(xi) No consent, approval, authorization or order of, or
declaration or filing with, any court or governmental agency or body is
required to be obtained or filed by or on behalf of the Company in
connection with the transactions contemplated herein, except such as
may have been obtained or made and registration of the Securities under
the Act, and such as may be required under the Blue Sky laws of any
jurisdiction.
(xii) To the best knowledge of such counsel after reasonable
investigation, the Company is not in violation of or default under any
judgment, ruling, decree or order or any statute, rule or regulation of
any court or other United States governmental agency or body, including
any applicable laws respecting employment, immigration and wages and
hours, in each case, where such violation or default could have a
Material Adverse Effect. The Company is not involved in any labor
dispute, nor, to the best knowledge of such counsel, is any labor
dispute threatened.
(xiii) The Company is not an investment company subject to
registration under the Investment Company Act of 1940, as amended.
(xiv) The preparation and the filing of the Registration
Statement with the Commission have been duly authorized by and on
behalf of the Company, and the Registration Statement has been duly
executed pursuant to such authorization by and on behalf of the
Company.
(xv) The Company owns or possesses, or has the right to use
pursuant to licenses, sublicenses, agreements, permissions or
otherwise, adequate patents, copyrights, trade names, trademarks,
service marks, licenses and other intellectual property rights
necessary to carry on its business as described in the Prospectus, and,
except as set forth in the Prospectus, neither such counsel nor, to the
knowledge of such counsel, the Company has received any notice of
either (i) default under any of the foregoing or (ii) infringement of
or conflict with asserted rights of others with respect to, or
challenge to the validity of, any of the foregoing which, in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, could have a Material Adverse Effect, and counsel knows of no
facts which could reasonably be anticipated to serve as the basis for
any such notice.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the independent public accountants of the Company
and representatives of the Underwriters at which the contents of the
Registration Statement and Prospectus were discussed and, although such counsel
is not passing upon and does not assume responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or Prospectus (except as and to the extent stated in subparagraphs (i)
and (v) above), on the basis of the foregoing and on such counsel's
participation in the preparation of the Registration Statement and the
Prospectus, nothing has come to the attention of such counsel that causes such
counsel to believe that the Registration Statement, at the Effective Date and at
the Closing Date (and any settlement date pursuant to Section 3(b) hereof),
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus, at the date
of such Prospectus or at the Closing Date (or any settlement date pursuant to
Section 3(b) hereof), contained or contains any untrue statement of a material
fact or omitted or omits to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading (it being understood that such
counsel need express no comment with respect to the Financial Statements and
schedules and other financial or statistical data derived therefrom included in
the Registration Statement or Prospectus).
References to the Prospectus in this Section 6(b) shall include any
supplements thereto.
(c) The Representatives shall have received from Maurice J. Bates, LLC,
counsel for the Underwriters, an opinion dated the Closing Date (and any
settlement date pursuant to Section 3(b) hereof), with respect to the issuance
and sale of the Securities, and with respect to the Registration Statement, the
Prospectus and other related matters as the Representatives may reasonably
require, and the Company shall have furnished to such counsel such documents as
they may reasonably request for the purpose of enabling them to pass upon such
matters.
(d) The Company shall have furnished to the Representatives a
certificate of the Company, signed by its Chief Executive Officer and its Chief
Financial Officer, dated the Closing Date (and any settlement date pursuant to
Section 3(b) hereof), to the effect that each has carefully examined the
Registration Statement, the Prospectus (and any supplements thereto) and this
Agreement, and, after due inquiry, that:
(i) As of the Closing Date (and any settlement date pursuant
to Section 3(b) hereof), the statements made in the Registration
Statement and the Prospectus are true and correct and the Registration
Statement and the Prospectus do not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(ii) No order suspending the effectiveness of the Registration
Statement or the qualification or registration of the Securities under
the securities or Blue Sky laws of any jurisdiction is in effect and no
proceeding for such purpose is pending before or, to the knowledge of
such officers, threatened or contemplated by the Commission or the
authorities of any such jurisdiction; and any request for additional
information with respect to the Registration Statement or the
Prospectus on the part of the staff of the Commission or any such
authorities brought to the attention of such officers has been complied
with to the satisfaction of the staff of the Commission or such
authorities.
(iii) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any change in the capital stock or long-term debt of the Company,
except as set forth in or contemplated by the Registration Statement
and the Prospectus, (y) there has not been any material adverse change
in the general affairs, business, prospects, properties, management,
results of operations or condition (financial or otherwise) of the
Company, whether or not arising from transactions in the ordinary
course of business, in each case, other than as set forth in or
contemplated by the Registration Statement and the Prospectus, and (z)
the Company has not sustained any material interference with its
business or properties from fire, explosion, flood or other casualty,
whether or not covered by insurance, or from any labor dispute or any
court or legislative or other governmental action, order or decree,
which is not set forth in the Registration Statement and the
Prospectus.
(iv) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has been
no litigation instituted against the Company, any of its respective
officers or directors, or, to the best knowledge of such officers, any
affiliate or promoter of the Company, and since such dates there has
been no proceeding instituted or, to the best knowledge of such
officers, threatened against the Company, any of its officers or
directors, or, to the best knowledge of such officers, any affiliate or
promoter of the Company, before any federal, state or county court,
commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, in which litigation or
proceeding an unfavorable ruling, decision or finding could have a
Material Adverse Effect.
(v) Each of the representations and warranties of the Company
in this Agreement is true and correct in all material respects on and
as of the Execution Time and the Closing Date (and any settlement date
pursuant to Section 3(b) hereof) with the same effect as if made on and
as of the Closing Date (and any settlement date pursuant to Section
3(b) hereof).
(vi) Each of the covenants required in this Agreement to be
performed by the Company on or prior to the Closing Date (and any
settlement date pursuant to Section 3(b) hereof) has been duly, timely
and fully performed, and each condition required herein to be complied
with by the Company on or prior to the Closing Date (and any settlement
date pursuant to Section 3(b) hereof) has been duly, timely and fully
complied with.
(e) At the Execution Time and on the Closing Date (and any settlement
date pursuant to Section 3(b) hereof), Turner Stone & company, LLP shall have
furnished to the Representatives letters, dated as of such dates, in form and
substance satisfactory to the Representatives, confirming that they are
independent accountants within the meaning of the Act and the applicable rules
and regulations thereunder and stating in effect that:
(i) In their opinion, the audited Financial Statements of the
Company for the fiscal years ended December 31, 1995, 1996 and 1997,
and the notes to the Financial Statements for those periods included in
the Registration Statement and the Prospectus, comply in all material
respects with generally accepted accounting principles and the
applicable accounting requirements of the Act and the applicable rules
and regulations thereunder.
(ii) On the basis of a reading of the latest unaudited
Financial Statements made available by the Company, carrying out
certain specified procedures (but not an examination in accordance with
generally accepted auditing standards), a reading of the minutes of the
meetings of the shareholders, directors and committees of the Company,
and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters of the Company,
nothing came to their attention that caused them to believe that: (i)
the unaudited Financial Statements of the Company for the six months
ended June 30, 1998, and the notes to the Financial Statements for the
period then ended included in the Registration Statement and Prospectus
do not comply in all material respects with generally accepted
accounting principles or the applicable accounting requirements of the
Act and the applicable rules and regulations thereunder; and (ii) with
respect to the period subsequent to September 30, 1998, at a specified
date not more than five business days prior to the date of the letter,
(y) there were any changes in the long-term debt or capital stock of
the Company, or decreases in net current assets, net assets or
stockholders' equity of the Company as compared with the amounts shown
on the September 30, 1998 balance sheets included in the Registration
Statement and the Prospectus or (z) there were any decreases in
reserves, sales, net income or income from operations, of the Company,
as compared with the corresponding period in the preceding year, except
for changes or decreases which the Registration Statement discloses
have occurred or may occur and except for changes or decreases, set
forth in such letter, in which case (A) the letter shall be accompanied
by an explanation by the Company as to the significance thereof unless
said explanation is not deemed necessary by the Representatives and (B)
such changes or decreases and the explanation thereof shall be
acceptable to the Representatives, in their sole discretion.
(iii) They have performed certain other specified procedures
as a result of which they determined that all information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company) set forth in the
Registration Statement and the Prospectus and specified by you prior to
the Execution Time, agrees with the accounting records of the Company.
(iv) On the basis of a reading of the unaudited pro forma
combined condensed balance sheet as of September 30, 1998 and the
related unaudited pro forma combined condensed statement of income and
retained earnings for the nine months ended September 30, 1998, and the
summary unaudited pro forma combined financial information as of
December 31, 1997 and the year then ended and September 30, 1998 and
the nine months then ended, nothing came to their attention that caused
them to believe that the above described pro forma balance sheet and
statements of income had not been properly compiled on the pro forma
bases described in the notes thereto.
The Representatives shall also have also received from Turner
Stone & Company, LLP, a letter stating that the Company's system of internal
accounting controls taken as a whole are sufficient to meet the broad objectives
of internal accounting control insofar as those objectives pertain to the
prevention or detection of errors or irregularities in amounts that would be
material to the Financial Statements of the Company.
References to the Prospectus in this Section 6(f) shall
include any supplements thereto.
(f) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, there shall not have been (i)
any changes or decreases from that specified in the letters referred to in
Section 6(f) hereof or (ii) any change, or any development involving a
prospective change, in or affecting the properties, assets, results of
operations, business, capitalization, net worth, prospects, general affairs or
condition (financial or otherwise) of the Company, the effect of which is, in
the sole judgment of the Representatives, so material and adverse as to make it
impractical or inadvisable to proceed with the public offering or delivery of
the Securities as contemplated by the Registration Statement and the Prospectus.
(g) On or prior to the Effective Date, the Securities shall have been
approved for listing on AMEX.
(h) The Company shall not have sustained any uninsured substantial loss
as a result of fire, flood, accident or other calamity.
(i) The Company shall have furnished to the Representatives a
certificate of the Secretary of the Company certifying as to certain information
and other matters as the Representatives may reasonably request.
(j) The Company shall have furnished to the Representatives such
further information, certificates and documents as the Representatives may
reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in any respect when and as provided in this Agreement, or if any
of the opinions and certificates mentioned above or elsewhere in this Agreement
shall not be in all respects reasonably satisfactory in form and substance to
the Representatives and its counsel, this Agreement and all obligations of the
Underwriters hereunder may be canceled at, or at any time prior to, the Closing
Date (or any settlement date, pursuant to Section 3(b) hereof), by the
Representatives. Notice of such cancellation shall be given to the Company in
writing or by telephone, facsimile or telegraph confirmed in writing.
7. Fees and Expenses and the Representatives' Warrants. The Company agrees to
pay or cause to be paid and issue the following:
(a) the fees, disbursements and expenses of its own counsel and counsel
for the Company and accountants in connection with the registration of the
Securities under the Act and all other expenses in connection with the
preparation, printing and filing of the Registration Statement, any Preliminary
Prospectus, any Prospectus, and any drafts thereof, and amendments and
supplements thereto, and the mailing and delivery of copies thereof to the
Underwriters and dealers;
(b) all expenses in connection with the qualification of the Securities
for offering under state securities laws, including the fees and disbursements
of counsel for the Underwriters in connection with such qualification and in
connection with the Blue Sky Memorandum;
(c) all filing and other fees in connection with filing with the NASD,
and complying with applicable review requirements thereof;
(d) the cost of preparing and printing certificates for the Securities;
(e) all expenses, taxes, fees and commissions, including, without
limitation, any and all fixed transfer duties sellers' and buyers' stamp taxes
or duties on the purchase and sale of the Securities and stock exchange
brokerage and transaction levies with respect to the purchase and, if
applicable, the sale of the Securities (the latter to the extent paid and not
reimbursed) (i) incident to the sale and delivery by the Company of the
Securities to the Underwriters and (ii) incident to the sale and delivery of the
Securities by the Underwriters to the initial purchasers thereof;
(f) the costs and charges of any transfer agent and registrar;
(g) the fees and expenses in connection with qualification of the
Securities for listing on the AMEX;
(h) a nonaccountable expense allowance of 2.0% of the proceeds derived
from the offering (including the Units described in Section 2(b) hereof) payable
to the Representatives;
(i) a solicitation fee to the Representatives equal to 5.0% of the
aggregate proceeds received by the Company as a result of the
solicitation of the exercise of the Warrants, provided that no fee
shall be payable (i) within one year after the date of this prospectus,
(ii) if the market price of the Common Stock is lower than the exercise
price of the Warrants, (iii) if the Warrants are held in a
discretionary account at the time of exercise, unless prior written
approval of the exercise of such Warrants is received from the
beneficial owner of the Warrants, or (iv) unless the beneficial owner
of such Warrants states in writing that the exercise was solicited by
the Representatives and designates in writing the Representatives to
receive the solicitation fee with respect to the exercise of such
Warrants;
(j) all other costs and expenses incident to the performance of the
Company's obligations hereunder which are not otherwise specifically provided
for in this Section 7; and
(k) in addition to the sums payable to the Representatives provided
elsewhere herein and in addition to the Underwriters' Option, the
Representatives shall be entitled to receive on the Closing Date, as partial
compensation for its services, warrants (the "Representatives' Warrants") for
the purchase of an additional 100,000 Units. The Representatives' Warrants shall
be issued pursuant to the Representatives' Warrant Agreement in the form of
Exhibit A attached hereto and shall be exercisable, in whole or in part, for a
period of four years commencing from the one year anniversary of the date
hereof, at 140% of the initial public offering price of the Units. The
Representatives' Warrants, including the Warrants issuable upon exercise
thereof, shall be non-transferable for one year from the date of issuance of the
Representatives' Warrants, except for (i) transfers to officers or partners of
the Underwriters, (ii) in connection with a merger, consolidation or
reorganization of the Company, or (iii) transfers occurring by operation of law.
The terms of the Units subject to the Representatives' Warrants shall be the
same as the Units sold to the public.
Without limiting in any respect the foregoing obligations of the
Company, which obligations shall survive any termination of this Agreement, if
the sale of the Securities provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth in Section 6 hereof
is not satisfied, because of any termination pursuant to Section 10 hereof, or
because of any refusal, inability or failure on the part of the Company or the
Company to perform any agreement herein or comply with any provision hereof to
be performed or complied with by the Company or the Company other than by reason
of a default by any of the Underwriters, the Company agrees to reimburse the
Underwriters, upon demand, for all out-of-pocket expenses (including reasonable
fees and disbursements of counsel) that shall have been incurred by them in
connection with the proposed purchase and sale of the Securities to the extent
the amounts paid pursuant to Section 7(h) hereof are insufficient therefor.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person who controls any Underwriter within the meaning of the Act or
the Exchange Act against any and all losses, claims, damages or liabilities,
joint or several, to which they or any of them may become subject under the Act,
the Exchange Act or other federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in Section
1(i) of this Agreement, the Registration Statement, any Preliminary Prospectus
or the Prospectus, or in any amendment thereof or supplement thereto, or (ii)
any application or other document, or any amendment or supplement thereto,
executed by the Company or based upon written information furnished by or on
behalf of the Company filed in any jurisdiction in order to qualify the
Securities under the securities or Blue Sky laws thereof or filed with the
Commission or any securities association or securities exchange, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and agrees to reimburse each such indemnified party, as
incurred, for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any Underwriter through the Representatives specifically for use in the
Registration Statement or Prospectus; provided further, that with respect to any
untrue statement or omission, or any alleged untrue statement or omission, made
in any Preliminary Prospectus, the indemnity agreement contained in this
subsection (a) shall not inure to the benefit of any Underwriter (or to the
benefit of any person controlling any such Underwriter) from whom the person
asserting any such losses, claims, damages, liabilities or expenses purchased
the Securities concerned to the extent that such untrue statement or omission,
or alleged untrue statement or omission, has been corrected in the Prospectus
and the failure to deliver the Prospectus was not a result of the Company's
failure to comply with its obligations under Section 5(d) hereof. The indemnity
agreement will be in addition to any liability which the Company may otherwise
have. The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding), unless the settlement or compromise or consent includes an
unconditional release of such Underwriter and each such controlling person from
all liability arising out of such claim, action, suit or proceeding,
satisfactory in form and substance to the Representatives.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its directors, each of the Company's officers who signs the
Registration Statement, and each person who controls the Company or the Company,
as the case may be, within the meaning of the Act or the Exchange Act to the
same extent as the foregoing indemnity from the Company or the Company to each
Underwriter, but only with reference to written information relating to such
Underwriter furnished to the Company by or on behalf of such Underwriter through
the Representatives specifically for use in the Registration Statement or
Prospectus. The Company acknowledges that the corporate names of the
Underwriters, the stabilization legend on page 2 and the information under the
heading "Underwriting" in the Prospectus and in any Preliminary Prospectus
constitute the only information furnished in writing by or on behalf of the
several Underwriters. The obligations of each Underwriter under this subsection
(c) shall be in addition to any liability which the Underwriters may otherwise
have.
(c) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, suit or proceeding, such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof and the indemnifying party shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the indemnified party and the payment of all expenses; but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party, unless such omission results in the
forfeiture of substantive rights or defenses by the indemnifying party. All such
expenses shall be paid by the indemnifying party as incurred by an indemnified
party. Any such indemnified party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party has agreed to pay such fees and expenses
or (ii) the indemnifying party shall have failed promptly after notice by such
indemnified party to assume the defense of such action or proceeding and employ
counsel reasonably satisfactory to the indemnified party in any such action,
suit or proceeding or (iii) the named parties in any such action or proceeding
(including any impleaded parties) include both such indemnified party and the
indemnifying party, and such indemnified party shall have been advised by
counsel that there may be one or more legal defenses available to such
indemnified party which are different from or additional to those available to
the indemnifying party (in which case, if such indemnified party notifies the
indemnifying party in writing that it elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such action or proceeding on behalf of the
indemnified party or parties, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys (together with appropriate local counsel) at any
time for all such indemnified parties, which firm shall be designated in writing
to the indemnifying party). Any such fees and expenses payable by the
indemnifying party shall be paid to or on behalf of the indemnified party
entitled thereto as incurred. An indemnifying party shall not be liable for any
settlement of any action or claim effected without its consent, which consent
shall not be unreasonably withheld.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Section 8(a), 8(b) or
8(c) is applicable in accordance with its terms but is for any reason held by a
court to be unavailable from the indemnifying party on grounds of policy or
otherwise, the Company, the Company and the Underwriters shall contribute to the
aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating or defending same)
to which the Company, the Company and one or more of the Underwriters may be
subject in such proportion so that the Underwriters are responsible in the
aggregate for that portion represented by the total underwriting compensation in
respect of the Securities bears to the public offering price appearing thereon
and the Company is responsible for the balance; provided, however, that (i) in
no case shall any Underwriter (except as may be provided in the Agreement Among
Underwriters relating to the offering of the Securities) be responsible for any
amount in excess of the total underwriting compensation applicable to the
Securities to be purchased by such Underwriter hereunder and (ii) no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this Section 8, each person
who controls an Underwriter within the meaning of the Act shall have the same
rights to contribution as such Underwriter, and each person who controls the
Company or the Company within the meaning of the Act, each officer of the
Company who shall have signed the Registration Statement and each director of
the Company shall have the same rights to contribution as the Company, subject
in each case to clause (ii) of this Section 8(e). Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section
8(e), notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any other obligation it or
they may have hereunder or otherwise.
9. Default by an Underwriter. If any one or more Underwriters shall fail to
purchase and pay for any of the Securities agreed to be purchased by such
Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the number of Units set forth
opposite their names in Schedule I hereto bears to the aggregate number of Units
set forth opposite the names of all the remaining Underwriters) the Units which
the defaulting Underwriter or Underwriters agreed but failed to purchase;
provided, however, that if the aggregate number of Units which the defaulting
Underwriter or Underwriters agreed but failed to purchase shall exceed 10% of
the aggregate number of Units set forth in Schedule I hereto, the remaining
Underwriters shall have the right to purchase all, but shall not be under any
obligation to purchase any, of such Units, and if such nondefaulting
Underwriters do not purchase all of such Units, this Agreement will terminate
without liability to any non-defaulting Underwriter or the Company except as
otherwise provided in Section 7. In the event of a default by any Underwriter as
set forth in this Section 9, the Closing Date shall be postponed for such
period, not exceeding seven days, as the Representatives shall determine in
order that the required changes in the Registration Statement and the Prospectus
or in any other documents or arrangements may be effected. Nothing contained in
this Agreement shall relieve any defaulting Underwriter of its liability, if
any, to the Company or any nondefaulting Underwriter for damages occasioned by
its default hereunder.
10. Termination. This Agreement shall be subject to termination in the absolute
discretion of the Representatives, by notice given to the Company prior to
delivery of and payment for the Securities, if prior to such time (a) a
suspension or material limitation in trading in securities generally on the New
York or American Stock Exchange, the Nasdaq National Market or any relevant
over-the-counter market, the Chicago Board Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade shall have occurred, (b) a
banking moratorium shall have been declared by federal, New York or Texas state
authorities, (c) the United States shall have engaged in hostilities which shall
have resulted in the declaration, on or after the date hereof, of a national
emergency or war, or (d) a change in national or international political,
financial or economic conditions or national or international equity markets or
currency exchange rates shall have occurred, if the effect of any such event
specified above is, in the sole judgment of the Representatives, so material and
adverse as to make it impractical or inadvisable to proceed with the public
offering or delivery of the Securities as contemplated by the Registration
Statement and the Prospectus.
11. Representations and Indemnities to Survive. The respective agreements,
representations, warranties, indemnities and other statements of the Company,
its officers and the Underwriters set forth in, referred to in, or made pursuant
to this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
the officers, directors or controlling persons referred to in Section 8 hereof,
and will survive delivery of and payment for the Securities. The provisions of
Sections 7 and 8 hereof shall survive the termination or cancellation of this
Agreement.
12. Notices. All communications hereunder will be in writing and effective only
on receipt, and will be mailed, delivered, telegraphed or sent by facsimile
transmission and confirmed:
to the Representatives at:
Capital West Securities, Inc.
One Leadership Square
Suite 200 North
211 North Robinson
Oklahoma City, Oklahoma 73102
Attention: Gregory M. Jones
Facsimilie: (405)-235-5747
and
Redstone Securities, Inc.
8214 Westchester, Suite 500
Dallas, Texas 75225
Attention: Robert A. Shuey, III
Facsimilie: (214) 987-2091
to the Company at:
Woodhaven Homes, Inc.
2501 Oak Lawn, Suite 550
Dallas, Texas 75219
Attention: President
Facsimile: (214) 599-9205
13. Successors. This Agreement will inure to the benefit of and be binding upon
the parties hereto and their respective successors and the officers, directors
and controlling persons referred to in Section 8 hereof, and no other person
will have any right or obligation hereunder.
14. Counterparts. This Agreement may be signed in two or more counterparts, each
of which shall be an original, with the same effect as if the signatures thereon
and hereon were on the same instrument.
15. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Texas.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company and the several Underwriters.
<PAGE>
Underwriting Agreement
28325_1 - 75205/00003
Very truly yours,
WOODHAVEN HOMES, INC.
By:
Richard D. Laxton, Chief Executive Officer
<PAGE>
Underwriting Agreement
28325_1 - 75205/00003
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
<PAGE>
28325_1 - 75205/00003
SCHEDULE I
Number of Units
Underwriters
To Be Purchased
-----------
Total 1,000,000
<PAGE>
28325_1 - 75205/00003
EXHIBIT A
FORM OF WARRANT AGREEMENT
<PAGE>
28325_1 - 75205/00003
EXHIBIT B
FORM OF LOCK-UP AGREEMENT
Capital West Securities, Inc.
Redstone Securities, Inc.
One Leadership Square 8214
Westchester,
Suite
500
211 North Robinson Dallas,
Texas 75225
Oklahoma City, Oklahoma 73102
Ladies and Gentlemen:
The undersigned understands that you, as the Representatives of the
several underwriters (the "Underwriters"), propose to enter into an Underwriting
Agreement (the "Underwriting Agreement") with Woodhaven Homes, Inc., a Texas
corporation (the "Company"), providing for the initial public offering by the
Underwriters of an aggregate of 1,000,000 units (the "Units"), each consisting
of one share of the Company's Common Stock, $.01 par value (the "Common Stock"),
and one redeemable common stock purchase warrant (the "Warrants"), pursuant to
the Company's Registration Statement on Form S-1 (the "Registration Statement")
filed with the Securities and Exchange Commission.
In consideration of the Underwriters' agreement to purchase the Units,
and for other good and valuable consideration, receipt of which is hereby
acknowledged, the undersigned hereby agrees that during the period beginning on
the date of this letter and ending one (1) year (the "Lock-Up Period") after the
date of the final prospectus relating to the offer and sale of the Units, the
undersigned will not, directly or indirectly, offer, sell, contract to sell,
grant any option for the sale of, pledge, or otherwise dispose of (individually,
a "Disposition") any Common Stock, or securities exercisable, convertible, or
exchangeable for or into Common Stock (collectively, the "Securities"), that the
undersigned now owns or will own in the future (beneficially or of record),
except (i) as a bona fide gift or gifts, provided the donee or donees thereof
agree in writing to be bound by this Lock-Up Agreement, or (ii) with the prior
written consent of the Representatives. The foregoing restriction is expressly
agreed to preclude the holder of Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a disposition of Securities during the Lock-Up Period, even if such
Securities would be disposed of by someone other than the undersigned. Such
prohibited hedging or other transactions would include, without limitation, any
short sale or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any security (other than a
broad-based market basket or index) that includes, relates to or derives any
significant part of its value from Securities.
Sincerely,
Date: _________ ___, 1999
Print Name
Warrant Agreement
28331_1 - 75205/00003
REPRESENTATIVES'
WARRANT AGREEMENT
___________, 1999
CAPITAL WEST SECURITIES, INC.
REDSTONE SECURITIES, INC.
As Representatives of the Several Underwriters
c/o Redstone Securities, Inc.
8214 Westchester, Suite 500
Dallas, Texas 75225
Gentlemen:
Woodhaven Homes, Inc., a Texas corporation (the "Company"), hereby
agrees to sell to you, and you hereby agree to purchase from the Company at an
aggregate purchase price of $100 warrants (the "Representatives' Warrants") to
purchase 100,000 Units (the "Units"), each consisting of one share of the
Company's Common Stock, no par value (the "Common Stock"), and one Redeemable
Common Stock Purchase Warrant (the "Warrants") of the Company, or the underlying
Common Stock and Warrants, if separately transferable, issued in accordance with
the terms of the Warrant Agreement (the "Warrant Agreement"), dated as of
_____________, 1999, between the Company and American Stock Transfer & Trust
Company, New York, New York as warrant agent (the "Warrant Agent"). The
Representatives' Warrants will be exercisable by you as to all or any lesser
number of Units, or the underlying Common Stock and Warrants, if separately
transferable, at the Purchase Price per Unit as defined below, at any time and
from time to time on and after the first anniversary of the date hereof and
ending at 5:00 p.m. on the fifth anniversary of the date hereof.
1.Definitions.
As used herein, the following terms, unless the context otherwise
requires, shall have for all purposes hereof the following meanings:
The term "Act" refers to the Securities Act of 1933, as amended.
The term "Affiliate" of any Person refers to any Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with, such other Person. A Person shall be deemed to control a corporation if
such Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation, whether through
the ownership of voting securities, by contract or otherwise.
The term "Commission" refers to the Securities and Exchange Commission.
The term "Common Stock" refers to all stock of any class or classes
(however designated) of the Company, now or hereafter authorized, the holders of
which shall have the right without limitation as to amount, either to all or to
a part of the balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to preference, and
the holders of which shall ordinarily, in the absence of contingency, be
entitled to vote for the election of a majority of the directors of the Company
(even though the right so to vote has been suspended by the occurrence of such a
contingency).
The term "Current Market Price" on any date refers to the average of
the daily Market Price per share for the 30 consecutive Trading Days commencing
45 Trading Days before the date in question.
The term "Exchange Act" refers to the Securities Exchange Act of 1934,
as amended.
<PAGE>
Warrant Agreement
Page 11
The term "Market Price" refers to the closing sale price on the
American Stock Exchange ("AMEX") or, if no closing sale price is reported, the
closing bid price of the Common Stock, as quoted on the Nasdaq National Market,
or, if the Common Stock is not quoted on the Nasdaq National Market, as reported
by the National Quotation Bureau Incorporated. If Market Price cannot be
established as described above, Market Price shall be the fair market value of
the Common Stock as determined in good faith by the Board of Directors whose
determination shall be conclusive.
The term "Other Securities" refers to any securities of the Company
(other than the Units, Common Stock or Warrants) or any other person (corporate
or otherwise) which the holders of the Representatives' Warrants at any time
shall be entitled to receive, or shall have received, upon the exercise of the
Representatives' Warrants, in lieu of or in addition to the Units, Common Stock
or Warrants, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Units, Common Stock, Warrants or Other
Securities pursuant to Section 6 below or otherwise.
The term "Person" refers to an individual, a partnership, a
corporation, a trust, a joint venture, an unincorporated organization and a
government or any department or agency thereof.
The term "Prospectus" shall mean the final prospectus of the Company,
dated the date hereof, relating to the offer and sale of 1,000,000 Units.
The term "Purchase Price" refers to the purchase price of the Units and
the Warrant Stock subject to this Agreement. The Purchase Price of the Units
shall equal 140% of the initial offering price to public per Unit as set forth
in the Prospectus and the Purchase Price of the Warrant Stock shall be 150% of
the initial public offering price to the public of the Units, both subject to
adjustment as provided in Section 6 below.
The term "Registration Statement" refers to a Registration Statement
filed with the Commission pursuant to the Rules and Regulations of the
Commission promulgated under the Act.
The term "Trading Day" shall mean a day on which the American Stock
Exchange or the principal national securities exchange on which the Common Stock
is listed or admitted to trading is open for the transaction of business.
The term "Underlying Securities" refers to the Units, Common Stock and
Warrants (or Other Securities) issuable under this Warrant Agreement, pursuant
to the exercise, in whole or in part, of the Representatives' Warrants.
The term "Warrant Stock" refers to shares of Common Stock issuable upon
the exercise of the Warrants or the Representatives' Warrants.
The purchase and sale of the Representatives' Warrants shall take
place, and the purchase price therefore shall be paid by delivery of your check,
simultaneously with the purchase of and payment for 1,000,000 Units, as provided
in the Underwriting Agreement between the Company and you, dated the date
hereof.
2. Representations and Warranties.
The Company represents and warrants to you as follows:
(a)Corporate Action. The Company has all requisite corporate power and
authority, and has taken all necessary corporate action, to execute and deliver
this Agreement, to issue and deliver the Representatives' Warrants and
certificates evidencing same, and to authorize and reserve for issuance, and
upon payment from time to time of the Purchase Price to issue and deliver, the
Units, including the Common Stock and the Warrants and shares of Common Stock
underlying the Warrants.
(b)No Violation. Neither the execution nor delivery of this Agreement,
the consummation of the actions herein contemplated nor compliance with the
terms and provisions hereof will conflict with, or result in a breach of, or
constitute a default or an event permitting acceleration under, any of the
terms, provisions or conditions of the Articles of Incorporation or Bylaws of
the Company or any indenture, mortgage, deed of trust, note, bank loan, credit
agreement, franchise, license, lease, permit, judgment, decree, order, statute,
rule or regulation or any other agreement, understanding or instrument to which
the Company is a party or by which it is bound.
3.Compliance with the Act.
(a) Transferability of Representatives' Warrants. You agree that the
Representatives' Warrants may not be transferred, sold, assigned or hypothecated
for a period of one (1) year from the date hereof, except to (i) persons who are
officers of you; (ii) a successor to you in a merger or consolidation; (iii) a
purchaser of all or substantially all of your assets; (iv) your shareholders in
the event you are liquidated or dissolved; and (v) persons who are officers of
participating broker-dealers.
(b) Registration of Underlying Securities. The Underlying Securities
issuable upon the exercise of the Representatives' Warrants have not been
registered under the Act. You agree not to make any sale or other disposition of
the Underlying Securities, except pursuant to a Registration Statement which has
become effective under the Act, setting forth the terms of such offering, the
underwriting discount and the commissions and any other pertinent data with
respect thereto, unless you have provided the Company with an opinion of counsel
reasonably acceptable to the Company that such registration is not required.
(c) Inclusion in Registration of Other Securities. If at any time
commencing one year after the date hereof but prior to the fifth anniversary of
the date hereof, the Company shall propose the registration on an appropriate
form under the Act of any shares of Common Stock or Other Securities, the
Company shall at least 30 days prior to the filing of such Registration
Statement give you written notice, or telegraphic or telephonic notice followed
as soon as practicable by written confirmation thereof, of such proposed
registration and, upon written notice, or telegraphic or telephonic notice
followed as soon as practicable by written confirmation thereof, given to the
Company within five business days after the giving of such notice by the
Company, shall include or cause to be included in any such Registration
Statement all or such portion of the Underlying Securities as you may request,
provided, however, that the Company may at any time withdraw or cease proceeding
with any such registration if it shall at the same time withdraw or cease
proceeding with the registration of such Common Stock or such Other Securities
originally proposed to be registered.
Notwithstanding any provision of this Agreement to the contrary, if any
holder of the Representatives' Warrants exercises such Representatives' Warrants
but shall not have included all the Underlying Securities in a Registration
Statement which complies with Section 10(a)(3) of the Act, which has been
effective for at least 30 calendar days following the exercise of the
Representatives' Warrants, the registration rights set forth in this Section
3(c) shall be extended until such time as (i) such a Registration Statement
including such Underlying Securities has been effective for at least 30 calendar
days, or (ii) in the opinion of counsel satisfactory to you and the Company,
registration is not required under the Act or under applicable state laws for
resale of the Underlying Securities in the manner proposed.
(d) Company's Obligations in Registration. In connection with any
offering of Subject Stock pursuant to Section 3(c) above, the Company shall:
(i) Notify you as to the filing thereof and of all amendments
or supplements thereto filed prior to the effective date thereof;
(ii) Comply with all applicable rules and regulations of the
Commission;
(iii) Notify you immediately, and confirm the notice in
writing, (1) when the Registration Statement becomes effective, (2) of
the issuance by the Commission of any stop order or of the initiation,
or the threatening, of any proceedings for that purpose, (3) of the
receipt by the Company of any notification with respect to the
suspension of qualification of the Subject Stock for sale in any
jurisdiction or of the initiation, or the threatening, of any
proceedings for that purpose and (4) of the receipt of any comments, or
requests for additional information, from the Commission or any state
regulatory authority. If the Commission or any state regulatory
authority shall enter such a stop order or order suspending
qualification at any time, the Company will make every reasonable
effort to obtain the lifting of such order as promptly as practicable.
(iv) During the time when a Prospectus is required to be
delivered under the Act during the period required for the distribution
of the Subject Stock, comply so far as it is able with all requirements
imposed upon it by the Act, as hereafter amended, and by the Rules and
Regulations promulgated thereunder, as from time to time in force, so
far as necessary to permit the continuance of sales of or dealings in
the Subject Stock. If at any time when a Prospectus relating to the
Subject Stock is required to be delivered under the Act any event shall
have occurred as a result of which, in the opinion of counsel for the
Company or your counsel, the Prospectus relating to the Subject Stock
as then amended or supplemented includes an untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or if it
is necessary at any time to amend such Prospectus to comply with the
Act, the Company will promptly prepare and file with the Commission an
appropriate amendment or supplement (in form satisfactory to you).
(v) Endeavor in good faith, in cooperation with you, at or
prior to the time the Registration Statement becomes effective, to
qualify the Subject Stock for offering and sale under the securities
laws relating to the offering or sale of the Subject Stock of such
jurisdictions as you may reasonably designate and to continue the
qualifications in effect so long as required for purposes of the sale
of the Subject Stock; provided that no such qualification shall be
required in any jurisdiction where, as a result thereof, the Company
would be subject to service of general process, or to taxation as a
foreign corporation doing business in such jurisdiction. In each
jurisdiction where such qualification shall be effected, the Company
will, unless you agree that such action is not at the time necessary or
advisable, file and make such statements or reports at such times as
are or may reasonably be required by the laws of such jurisdiction. For
the purposes of this paragraph, "good faith" is defined as the same
standard of care and degree of effort as the Company will use to
qualify its securities other than the Subject Stock.
(vi) Make generally available to its security holders as soon
as practicable, but not later than the first day of the eighteenth full
calendar month following the effective date of the Registration
Statement, an earnings statement (which need not be certified by
independent public or independent certified public accountants unless
required by the Act or the rules and regulations promulgated
thereunder, but which shall satisfy the provisions of Section 11(a) of
the Act) covering a period of at least twelve months beginning after
the effective date of the Registration Statement.
(vii) After the effective date of such Registration Statement,
prepare, and promptly notify you of the proposed filing of, and
promptly file with the Commission, each and every amendment or
supplement thereto or to any Prospectus forming a part thereof as may
be necessary to make any statements therein not misleading; provided
that no such amendment or supplement shall be filed if you shall object
thereto in writing promptly after being furnished a copy thereof.
(viii) Furnish to you, as soon as available, copies of any
such Registration Statement and each preliminary or final Prospectus,
or supplement or amendment prepared pursuant thereto, all in such
quantities as you may from time to time reasonably request;
(ix) Make such representations and warranties to any
underwriter of the Subject Stock, and use your best efforts to cause
Company counsel to render such opinions to such underwriter, as such
underwriter may reasonably request; and
(x) Pay all costs and expenses incident to the performance of
the Company's obligations under Sections 3(c) and (d), including,
without limitation, the fees and disbursements of the Company's
auditors and legal counsel, fees and disbursements of legal counsel for
you, registration, listing and filing fees, printing expenses and
expenses in connection with the transfer and delivery of the Underlying
Securities; provided, however, that the Company shall not be
responsible for compensation and reimbursement of expenses to
underwriters or selling agents for the included Subject Stock.
(e) Agreements by Warrant Holder. In connection with the filing of a
Registration Statement pursuant to Section 3(c) above, if you participate in the
offering of the Subject Stock by including shares owned by you, you agree:
(i) To furnish the Company all material information requested
by the Company concerning yourself and your holdings of securities of
the Company and the proposed method of sale or other disposition of the
Subject Stock and such other information and undertakings as shall be
reasonably required in connection with the preparation and filing of
any such Registration Statement covering all or a part of the Subject
Stock and in order to ensure full compliance with the Act; and
(ii) To cooperate in good faith with the Company and its
underwriters, if any, in connection with such registration, including
placing the shares of Subject Stock to be included in such Registration
Statement in escrow or custody to facilitate the sale and distribution
thereof.
(f) Indemnification. The Company shall indemnify and hold harmless you
and any underwriter (as defined in the Act) for you, and each person, if any,
who respectively controls you or such underwriter within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against any loss, liability,
claim, damage and expense whatsoever (including but not limited to any and all
expense whatsoever reasonably incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever), joint
or several, to which any of you or such underwriter or such controlling person
becomes subject, under the Act or otherwise, insofar as such loss, liability,
claim, damage and expense (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in (i) a Registration Statement covering the Subject Stock, in the
prospectus contained therein, or in an amendment or supplement thereto or (ii)
in any application or other document or communication (in this Section
collectively called "application") executed by or on behalf of the Company or
based upon written information furnished by or on behalf of the Company filed in
any jurisdiction in order to qualify the Subject Stock under the securities laws
thereof or filed with the Commission, or arise out of or based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that the Company shall not be obligated to indemnify in any such case
to the extent that any such loss, claim, damage, expense or liability arises out
of or is based upon any untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon, and in conformity with, written
information respectively furnished by you or such underwriter or such
controlling person for use in the Registration Statement, or any amendment or
supplement thereto, or any application, as the case may be.
If any action is brought against a person in respect of which indemnity may be
sought against, the Company pursuant to the foregoing paragraph, such person
shall promptly notify the Company in writing of the institution of such action
and the Company shall assume the defense of the action, including the employment
of counsel (satisfactory to the indemnified person in its reasonable judgment)
and payment of expenses. The indemnified person shall have the right to employ
its or their own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of such indemnified person or unless the
employment of such counsel shall have been authorized in writing by the Company
in connection with the defense of the action or the Company shall not have
employed counsel to have charge of the defense of the action or the indemnified
person shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to the
Company (in which case the Company shall not have the right to direct the
defense of the action on behalf of the indemnified person), in any of which
events these fees and expenses shall be borne by the Company. Anything in this
paragraph to the contrary notwithstanding, the Company shall not be liable for
any settlement of any claim or action effected without its written consent. The
Company's indemnity agreements contained in this Section shall remain in full
force and effect regardless of any investigation made by or on behalf of any
indemnified person, and shall survive any termination of this Agreement. The
Company agrees promptly to notify you of the commencement of any litigation or
proceedings against the Company or any of its officers or directors in
connection with the Registration Statement pursuant to Section 3(c) above.
If you choose to include any Subject Stock in a public offering
pursuant to Section 3(c) above, then you agree to indemnify and hold harmless
the Company and each of its directors and officers who have signed any such
Registration Statement, and any underwriter for the Company (as defined in the
Act), and each person, if any, who controls the Company or such underwriter
within the meaning of the Act, to the same extent as the indemnity by the
Company in this Section 3(f) but only with respect to statements or omissions,
if any, made in such Registration Statement, or any amendment or supplement
thereto, or in any application in reliance upon, and in conformity with, written
information furnished by you to the Company for use in the Registration
Statement, or any amendment or supplement thereto, or any application, as the
case may be. In case any action shall be brought in respect of which indemnity
may be sought against you, you shall have the rights and duties given to the
Company, and the persons so indemnified shall have the rights and duties given
to you by the provisions of the first paragraph of this Section.
The Company further agrees that, if the indemnity provisions of the
foregoing paragraphs are held to be unenforceable, any holder of the
Representatives' Warrants or controlling person of such a holder may recover
contribution from the Company in an amount which, when added to contributions
such holder or controlling person has theretofore received or concurrently
receives from officers and directors of the Company or controlling persons of
the Company, will reimburse such holder or controlling person for all losses,
claims, damages or liabilities and legal or other expenses; provided, however,
that if the full amount of the contribution specified in this Section 3(f) is
not permitted by law, then such holder or controlling person shall be entitled
to contribution from the Company and its officers, directors and controlling
persons to the full extent permitted by law.
4.Exercise of Representatives' Warrants.
(a) Cash Exercise. Each Representatives' Warrant may be exercised in
full or in part (but not as to a fractional share of Common Stock) by the holder
thereof by surrender of the Warrant Certificate, with the form of subscription
at the end thereof duly executed by such holder, to the Company at its principal
office, accompanied by payment, in cash or by certified or bank cashier's check
payable to the order of the Company, in the respective amount obtained by
multiplying the number of shares of the Underlying Securities to be purchased by
the Purchase Price per share.
(b) Net Exercise. Notwithstanding anything to the contrary contained in
Section 4(a), any holder of the Representatives' Warrants may elect to exercise
the Representatives' Warrants in full or in part and receive shares on a "net
exercise" basis in an amount equal to the value of the Representatives' Warrants
by delivery of the form of subscription attached to the Warrant Certificate and
surrender of the Representatives' Warrants at the principal office of the
Company, in which event the Company shall issue to the holder a number of shares
computed using the following formula:
X=(P)(Y)(A-B)
A
Where:X=the number of shares of Common Stock to be issued to holder.
P=the portion of the Representatives' Warrants being exercised
(expressed as a fraction).
Y=the total number of shares of Common Stock issuable upon exercise of
the Representatives' Warrants.
A=the Current Market Price of one share of Common Stock.
B=Purchase Price.
(c) Partial Exercise. Prior to the expiration of the Representatives'
Warrants, upon any partial exercise, the Company at its expense will forthwith
issue and deliver to or upon the order of the purchasing holder, a new Warrant
Certificate or Certificates of like tenor, in the name of the holder thereof or
as such holder (upon payment by such holder of any applicable transfer taxes)
may request calling in the aggregate for the purchase of the number of shares of
the Underlying Securities equal to the number of such shares called for on the
face of the Warrant Certificate (after giving effect to any adjustment therein
as provided in Section 6 below) minus the number of such shares (after giving
effect to such adjustment) designated by the holder in the aforementioned form
of subscription.
(d) Company to Reaffirm Obligations. The Company will, at the time of
any exercise of the Representatives' Warrants, upon the request of the holder
thereof, acknowledge in writing its continuing obligation to afford to such
holder any rights (including without limitation any right to registration of the
shares of the Underlying Securities issued upon such exercise) to which such
holder shall continue to be entitled after such exercise in accordance with the
provisions of this Agreement; provided, however, that if the holder of the
Representatives' Warrants shall fail to make any such request, such failure
shall not affect the continuing obligation of the Company to afford to such
holder any such rights.
5.Delivery of Certificates on Exercise.
As soon as practicable after any exercise of the Representatives'
Warrants in full or in part, and in any event within twenty days thereafter, the
Company at its expense (including the payment by it of any applicable issue
taxes) will cause to be issued in the name of and delivered to the purchasing
holder thereof, a certificate or certificates for the number of fully paid and
nonassessable Common Stock and Warrants to which such holder shall be entitled
upon such exercise, plus in lieu of any fractional share to which such holder
would otherwise be entitled, cash in an amount determined pursuant to Section
7(g), together with any other stock or other securities and property (including
cash, where applicable) to which such holder is entitled upon such exercise
pursuant to Section 6 below or otherwise.
6.Anti-Dilution Provisions.
The Representatives' Warrants are subject to the following terms and
conditions during the term thereof:
(a) Stock Distributions and Splits. In case (i) the outstanding shares
of Common Stock (or Other Securities) shall be subdivided into a greater number
of shares or (ii) a dividend in Common Stock (or Other Securities) shall be paid
in respect of Common Stock (or Other Securities), the Purchase Price per share
in effect immediately prior to such subdivision or at the record date of such
dividend or distribution shall simultaneously with the effectiveness of such
subdivision or immediately after the record date of such dividend or
distribution be proportionately reduced; and if outstanding shares of Common
Stock (or Other Securities) shall be combined into a smaller number of shares
thereof, the Purchase Price per share in effect immediately prior to such
combination shall simultaneously with the effectiveness of such combination be
proportionately increased. Any dividend paid or distributed on the Common Stock
(or Other Securities) in stock or any other securities convertible into shares
of Common Stock (or Other Securities) shall be treated as a dividend paid in
Common Stock (or Other Securities) to the extent that shares of Common Stock (or
Other Securities) are issuable upon the conversion thereof.
(b) Adjustments. Whenever the Purchase Price per share is adjusted as
provided in Section 6(a) above, the number of shares of the Underlying
Securities purchasable upon exercise of the Representatives' Warrants
immediately prior to such Purchase Price adjustment shall be adjusted, effective
simultaneously with such Purchase Price adjustment, to equal the product
obtained (calculated to the nearest full share) by multiplying such number of
shares of the Underlying Securities by a fraction, the numerator of which is the
Purchase Price per share in effect immediately prior to such Purchase Price
adjustment and the denominator of which is the Purchase Price per share in
effect upon such Purchase Price adjustment, which adjusted number of shares of
the Underlying Securities shall thereupon be the number of shares of the
Underlying Securities purchasable upon exercise of the Representatives' Warrants
until further adjusted as provided herein.
(c) Reorganizations. In case the Company shall be recapitalized by
reclassifying its outstanding Common Stock (or Other Securities) into a stock
with a different par value or by changing its outstanding Common Stock (or Other
Securities) with par value to stock without par value, then, as a condition of
such reorganization, lawful and adequate provision shall be made whereby each
holder of the Representatives' Warrants shall thereafter have the right to
purchase, upon the terms and conditions specified herein, in lieu of the shares
of Common Stock (or Other Securities) theretofore purchasable upon the exercise
of the Representatives' Warrants, the kind and amount of shares of stock and
other securities receivable upon such recapitalization by a holder of the number
of shares of Common Stock (or Other Securities) which the holder of the
Representatives' Warrants might have purchased immediately prior to such
recapitalization. If any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation, shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such consolidation, merger or
sale, lawful and adequate provisions shall be made whereby the holder hereof
shall thereafter have the right to purchase and receive upon the basis and upon
the terms and conditions specified in this Warrant Agreement and in lieu of the
shares of the Common Stock of the Company immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby, such shares
of stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby had such
consolidation, merger or sale not taken place, and in any such case, appropriate
provision shall be made with respect to the rights and interests of the holders
of the Representatives' Warrants to the end that the provisions hereof
(including without limitation provisions for adjustments of the Purchase Price
and of the number of shares purchasable and receivable upon the exercise of the
Representatives' Warrants) shall thereafter be applicable, as nearly as may be,
in relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise hereof (including an immediate adjustment, by reason of such
consolidation or merger, of the Purchase Price to the value for the Common Stock
reflected by the terms of such consolidation or merger if the value so reflected
is less than the Purchase Price in effect immediately prior to such
consolidation or merger). In the event of a merger or consolidation of the
Company with or into another corporation as a result of which a number of shares
of Common Stock of the surviving corporation greater or lesser than the number
of shares of Common Stock of the Company outstanding immediately prior to such
merger or consolidation are issuable to holders of Common Stock of the Company,
then the Purchase Price in effect immediately prior to such merger or
consolidation shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of Common Stock of the
Company. The Company will not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation (if other
than the Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and mailed or
delivered to the registered holder hereof at the last address of such holder
appearing on the books of the Company, the obligation to deliver to such holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to purchase. If a purchase, tender or
exchange offer is made to and accepted by the holders of more than of the
outstanding shares of Common Stock of the Company, the Company shall not effect
any consolidation, merger or sale with the Person having made such offer or with
any Affiliate of such Person, unless prior to the consummation of such
consolidation, merger or sale the holders of the Representatives' Warrants shall
have been given a reasonable opportunity to then elect to receive upon the
exercise of the Representatives' Warrants either the stock, securities or assets
then issuable with respect to the Common Stock of the Company or the stock,
securities or assets, or the equivalent issued to previous holders of the Common
Stock in accordance with such offer.
(d) Effect of Dissolution or Liquidation. In case the Company shall
dissolve or liquidate all or substantially all of its assets, all rights under
this Agreement shall terminate as of the date upon which a certificate of
dissolution or liquidation shall be filed with the Secretary of the State of
Texas (or, if the Company theretofore shall have been merged or consolidated
with a corporation incorporated under the laws of another state, the date upon
which action of equivalent effect shall have been taken); provided, however,
that (i) no dissolution or liquidation shall affect the rights under Section
6(c) of any holder of the Representatives' Warrants and (ii) if the Company's
Board of Directors shall propose to dissolve or liquidate the Company, each
holder of the Representatives' Warrants shall be given written notice of such
proposal at the earlier of (x) the time when the Company's shareholders are
first given notice of the proposal or (y) the time when notice to the Company's
shareholders is first required.
(e) Notice of Change of Purchase Price. Whenever the Purchase Price per
share or the kind or amount of securities purchasable under the Representatives'
Warrants shall be adjusted pursuant to any of the provisions of this Agreement,
the Company shall forthwith thereafter cause to be sent to each holder of the
Representatives' Warrants, a certificate setting forth the adjustments in the
Purchase Price per share and/or in such number of shares, and also setting forth
in detail the facts requiring, such adjustments, including without limitation a
statement of the consideration received or deemed to have been received by the
Company for any additional shares of stock issued by it requiring such
adjustment. In addition, the Company at its expense shall within 90 days
following the end of each of its fiscal years during the term of this Agreement,
and promptly upon the reasonable request of any holder of the Representatives'
Warrants in connection with any exercise from time to time of all or any portion
of the Representatives' Warrants, cause independent certified public accountants
of recognized standing selected by the Company to compute any such adjustment in
accordance with the terms of the Representatives' Warrants and prepare a
certificate setting forth such adjustment and showing in detail the facts upon
which such adjustment is based.
(f) Notice of a Record Date. In the event of (i) any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend payable out of earned surplus of the Company) or other
distribution, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, (ii) any capital reorganization of the Company, or any
reclassification or recapitalization of the capital stock of the Company, or any
transfer of all or substantially all of the assets of the Company to, or
consolidation or merger of the Company with or into, any other person or (iii)
any voluntary or involuntary dissolution or liquidation of the Company, then and
in each such event the Company will mail or cause to be mailed to each holder of
the Representatives' Warrants a notice specifying not only the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right and stating the amount and character of such dividend, distribution or
right, but also the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or other Securities) for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the proposed record date
therein specified.
7.Further Covenants of the Company.
(a) Reservation of Stock. The Company shall at all times reserve and
keep available, solely for issuance and delivery upon the exercise of the
Representatives' Warrants, all shares of the Underlying Securities from time to
time issuable upon the exercise of the Representatives' Warrants and shall take
all necessary actions to ensure that the par value per share, if any, of the
Underlying Securities is, at all times equal to or less than the then effective
Purchase Price per share.
(b)Title to Units. All of the Underlying Securities delivered upon the
exercise of the Representatives' Warrants shall be validly issued, fully paid
and nonassessable; each holder of the Representatives' Warrants shall receive
good and marketable title to the Underlying Securities, free and clear of all
voting and other trust arrangements, liens, encumbrances, equities and adverse
claims whatsoever; and the Company shall have paid all taxes, if any, in respect
of the issuance thereof.
(c) Listing on Securities Exchanges; Registration. If the Company at
any time shall list any Units, Common Stock or Warrants on any national
securities exchange, the Company will, at its expense, simultaneously list on
such exchange, upon official notice of issuance upon the exercise of the
Representatives' Warrants, and maintain such listing of, all of the Underlying
Securities from time to time issuable upon the exercise of the Representatives'
Warrants; and the Company will so list on any national securities exchange, will
so register and will maintain such listing of, any Other Securities if and at
the time that any securities of like class or similar type shall be listed on
such national securities exchange by the Company.
(d) Exchange of Representatives' Warrants. Subject to Section 3(a)
hereof, upon surrender for exchange of any Warrant Certificate to the Company,
the Company at its expense will promptly issue and deliver to or upon the order
of the holder thereof a new Warrant Certificate or certificates of like tenor,
in the name of such holder or as such holder (upon payment by such holder of any
applicable transfer taxes) may direct, calling in the aggregate for the purchase
of the number of shares of the Underlying Securities called for on the face or
faces of the Warrant Certificate or Certificates so surrendered.
(e) Replacement of Representatives' Warrants. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant Certificate and, in the case of any such loss, theft
or destruction, upon delivery of an indemnity agreement reasonably satisfactory
in form and amount to the Company or, in the case of any such mutilation, upon
surrender and cancellation of such Warrant Certificate, the Company, at the
expense of the warrant holder will execute and deliver, in lieu thereof, a new
Warrant Certificate of like tenor.
(f) Reporting by the Company. The Company agrees that, if it files a
Registration Statement during the term of the Representatives' Warrants, it will
use its best efforts to keep current in the filing of all forms and other
materials which it may be required to file with the appropriate regulatory
authority pursuant to the Exchange Act, and all other forms and reports required
to be filed with any regulatory authority having jurisdiction over the Company.
(g) Fractional Shares. No fractional shares of Underlying Securities
are to be issued upon any exercise of the Representatives' Warrants, but the
Company shall pay a cash adjustment in respect of any fraction of a share which
would otherwise be issuable in an amount equal to the same fraction of the
highest market price per share of Underlying Securities on the day of exercise,
as determined by the Company.
8.Other Holders.
The Representatives' Warrants are issued upon the following terms, to
all of which each holder or owner thereof by the taking thereof consents and
agrees as follows: (a) any person who shall become a transferee, within the
limitations on transfer imposed by Section 3(a) hereof, of the Representatives'
Warrants properly endorsed shall take such Representatives' Warrants subject to
the provisions of Section 3(a) hereof and thereupon shall be authorized to
represent himself as absolute owner thereof and, subject to the restrictions
contained in this Agreement, shall be empowered to transfer absolute title by
endorsement and delivery thereof to a permitted bona fide purchaser for value;
(b) each prior taker or owner waives and renounces all of his equities or rights
in such Representatives' Warrants in favor of each such permitted bona fide
purchaser, and each such permitted bona fide purchaser shall acquire absolute
title thereto and to all rights presented thereby; (c) until such time as the
respective Representatives' Warrants is transferred on the books of the Company,
the Company may treat the registered holder thereof as the absolute owner
thereof for all purposes, notwithstanding any notice to the contrary and (d) all
references to the word "you" in this Warrant Agreement shall be deemed to apply
with equal effect to any person to whom a Warrant Certificate or Certificates
have been transferred in accordance with the terms hereof, and where
appropriate, to any person holding the Underlying Securities.
9.Miscellaneous.
All notices, certificates and other communications from or at the
request of the Company to the holder of the Representatives' Warrants shall be
mailed by first class, registered or certified mail, postage prepaid, to such
address as may have been furnished to the Company in writing by such holder, or,
until an address is so furnished, to the address of the last holder of such
Representatives' Warrants who has so furnished an address to the Company, except
as otherwise provided herein. This Agreement and any of the terms hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Texas. The headings in
this Agreement are for reference only and shall not limit or otherwise affect
any of the terms hereof. This Agreement, together with the forms of instruments
annexed hereto as Exhibit A, constitutes the full and complete agreement of the
parties hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed on the date
hereof.
WOODHAVEN HOMES, INC.
By:__________________________________
Richard D. Laxton, Chief Executive Officer
<PAGE>
28331_1 - 75205/00003
<PAGE>
EXHIBIT A
WOODHAVEN HOMES, INC.
COMMON STOCK PURCHASE WARRANT
to Purchase 100,000 Units
This is to certify that______________ (the "Representative") or
assigns, is entitled to purchase at any time or from time to time after 9 A.M.,
on ___________, 1999 and until 9:00 A.M., on ___________, 2004 up to the above
referenced number of Units ("Units"), each consisting of one share of Common
Stock, no par value ("Common Stock"), and one Common Stock Purchase Warrant
("Warrants") of Woodhaven Homes, Inc., a Texas corporation (the "Company"), or
the underlying shares of Common Stock and Warrants if separately transferable,
for the consideration specified in Section 4 of the Warrant Agreement, dated the
date hereof, between the Company and the Representative (the "Warrant
Agreement"), pursuant to which this Warrant is issued. All rights of the holder
of this Warrant are subject to the terms and provisions of the Warrant
Agreement, copies of which are available for inspection at the office of the
Company. Capitalized terms used but not defined herein shall have the respective
meanings set forth in the Warrant Agreement.
The Underlying Securities issuable upon the exercise of this Warrant
have not been registered under the Securities Act of 1933, as amended (the
"Act"), and no distribution of such Underlying Securities may be made until the
effectiveness of a Registration Statement under the Act covering such Underlying
Securities. Transfer of this Warrant is restricted as provided in Section 3(a)
of the Warrant Agreement.
This Warrant has been issued to the registered owner in reliance upon
written representations necessary to ensure that this Warrant was issued in
accordance with an appropriate exemption from registration under any applicable
state and federal securities laws, rules and regulations. This Warrant may not
be sold, transferred, or assigned unless, in the opinion of the Company and its
legal counsel, such sale, transfer or assignment will not be in violation of the
Act, applicable rules and regulations of the Securities and Exchange Commission,
and any applicable state securities laws.
Subject to the provisions of the Act and of such Warrant Agreement,
this Warrant and all rights hereunder are transferable, in whole or in part, at
the offices of the Company, by the holder hereof in person or by duly authorized
attorney, upon surrender of this Warrant, together with the Assignment hereof
duly endorsed. Until transfer of this Warrant on the books of the Company, the
Company may treat the registered holder hereof as the owner hereof for all
purposes.
Any Underlying Securities (or Other Securities) which are acquired
pursuant to the exercise of this Warrant shall be acquired in accordance with
the Warrant Agreement and certificates representing all securities so acquired
shall bear a restrictive legend reading substantially as follows:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER THE SECURITIES ACT OF 1933
AND ANY APPLICABLE STATE LAW, OR (2) AN OPINION OF COUNSEL (SATISFACTORY TO THE
CORPORATION) THAT REGISTRATION IS NOT REQUIRED.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
duly authorized officer.
Date:_________________, 1999
WOODHAVEN HOMES, INC.
By:
Richard D. Laxton, Chief Executive Officer
<PAGE>
1
28331_1 - 75205/00003
SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: Woodhaven Homes, Inc.
The undersigned, the holder of the enclosed Warrant Certificate, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
Certificate for, and to purchase thereunder, _________________ Units ("Units"),
each consisting of one share of Common Stock, no par value ("Common Stock"), and
one Common Stock Purchase Warrant ("Warrants") of Woodhaven Homes, Inc., or the
underlying Common Stock and Warrants, if separately transferable, and either
tenders herewith payment of the purchase price in full in the form of cash or a
certified or cashier's check in the amount of $______________ therefor or, if
the undersigned elects pursuant to Section 4(b) of the Warrant Agreement
referred to in the Warrant Certificate to convert the enclosed Warrant
Certificate into Units or underlying Common Stock or Warrants by net issuance,
the undersigned exercises the Warrants by exchange under the terms of said
Section 4(b), and requests that the certificate or certificates for such
securities be issued in the name of and delivered to the undersigned.
Date:______________________________
- ----------------------------------------
(Signature must conform
in all respects to name
of holder as specified on
the face of the Warrant
Certificate)
=======================================
- ---------------------------------------
(Address)
Please indicate in the space below the number of shares called for on the face
of the Warrant Certificate (or, in the case of a partial exercise, the portion
thereof as to which the Warrant is being exercised), in either case without
making any adjustment for additional shares or other securities or property or
cash which, pursuant to the adjustment provisions of the Warrant, may be
deliverable upon exercise and whether the exercise is a cash exercise pursuant
to Section 4(a) of the Warrant Agreement or a net issuance exercise pursuant to
Section 4(b) of the Warrant Agreement.
Number of Units (or shares of Common Stock and
Warrants):_______________________________
Cash:____________________
Net issuance:______________
<PAGE>
1
28331_1 - 75205/00003
ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto ____________________________ the right represented by the enclosed Warrant
Certificate to purchase ____________________ Units ("Units"), each consisting of
one share of Common Stock, $.01 par value ("Common Stock"), and one Common Stock
Purchase Warrant ("Warrants") of Woodhaven Homes, Inc., or the underlying Common
Stock or Warrants, with full power of substitution.
The undersigned represents and warrants that the transfer, in whole in
or in part, of such right to purchase represented by the enclosed Warrant
Certificate is permitted by the terms of the Warrant Agreement referred to in
the Warrant Certificate, and the transferee hereof, by his acceptance of this
Assignment, represents and warrants that he or she is familiar with the terms of
such Warrant Agreement and agrees to be bound by the terms thereof with the same
force and effect as if a signatory thereto.
Date:___________________
- -------------------------------------------
(Signature must conform
in all respects to name of
holder as specified on
the face of the Warrant
Certificate)
- --------------------------------------------
(Address)
Signed in the presence of:______________________________
Articles of Merger
Page 1
STATE OF TEXAS ?
?
COUNTY OF DALLAS ?
ARTICLES OF MERGER
OF
WOODHAVEN HOMES, INC.
AND WOODHAVEN HOMES-1, LTD.
Pursuant to the provisions of Article 5.04 of the Texas Business
Corporation Act, WOODHAVEN HOMES, INC., a Texas corporation, and WOODHAVEN
HOMES-1, LTD., a Texas Limited Partnership, adopt the following Articles of
Merger for the purpose of effecting a merger in accordance with the provisions
of Article 5.01 of the Texas Business Corporation Act.
1. A plan of merger adopted in accordance with the provisions of Article 5.04 of
the Texas Business Corporation Act providing for the combination of WOODHAVEN
HOMES, INC. and WOODHAVEN HOMES-1, LTD., and resulting in WOODHAVEN HOMES, INC.
being the surviving entity in the merger is set forth below.
2. The name of each of the undersigned corporation and other entity (being a
Texas
Limited Partnership), the type of such corporation or other entity and the laws
under which such corporations or other entity were organized are:
<TABLE>
<S> <C> <C>
Name of Corporation or Other Entity Type of Entity State
Woodhaven Homes, Inc. Corporation Texas
Woodhaven Homes-1, Ltd. Limited Partnership Texas
</TABLE>
3. Shareholder approval of the following domestic corporations that are parties
to the plan of merger are not required pursuant to Article 5.03 of the Texas
Business Corporation Act:
Woodhaven Homes, Inc.
Woodhaven Homes-1, Ltd.
4. As to each of the undersigned domestic corporations, the approval of whose
shareholders is required, the number of outstanding shares of each class or
series of stock of such corporations entitled to vote, with other shares or as a
class, on the Plan of Merger are as follows:
<TABLE>
<S> <C> <C>
Name of Corporation Number of Shares Class or Series Number of Shares
- ------------------- ---------------- --------------- ----------------
Outstanding Entitled to Vote as
----------- -------------------
A Class or Series
Not Applicable Not Applicable Not Applicable Not Applicable
</TABLE>
5. As to each of the undersigned domestic corporations, the approval of whose
shareholders is required, the number of shares, not entitled to vote only as a
class, voted for and against the plan of merger, respectively, and, if the
shares of any class or series are entitled to vote as a class, the number of
shares of each such class or series voted for and against the plan of merger,
are as follows:
<TABLE>
<S> <C> <C> <C> <C>
Number of Shares
Total Total Entitled to Vote As
Name of Voted Voted Class or Class or Series
Corporation For Against Series Voted Voted
For Against
Not Applicable Not Applicable Not Applicable
</TABLE>
6. The plan of merger and the performance of its terms were duly authorized by
all action required by the laws under which each domestic corporation (all of
the corporations are domestic corporations) and the other entity (which is a
Texas Limited Partnership) that is a party to the plan of merger was
incorporated or organized and by its constituent documents.
7. The merger will become effective on December 15, 1998, in accordance with the
provisions of Article 10.03 of the Texas Business Corporation Act.
<PAGE>
Dated: December 15, 1998
For WOODHAVEN HOMES, INC.
By: ____________________________
Phillip R. Johns, President
For WOODHAVEN HOMES-1, LTD.
By: ___________________________
Phillip R. Johns, President of
WH Management, Inc.,
the General Partner
Warrant Agreement Page 12
WARRANT AGREEMENT
Between
WOODHAVEN HOMES, INC.
And
AMERICAN STOCK TRANSFER & TRUST COMPANY
As Warrant Agent
For
Redeemable Common Stock Purchase Warrants
Dated ______________, 1998
THIS WARRANT AGREEMENT, dated as of ______________, 1998, between
Woodhaven Homes, Inc., a Texas corporation (hereinafter called the "Company"),
and American Stock Transfer & Trust Company, New York, New York, as warrant
agent (hereinafter called the "Warrant Agent");
WHEREAS, the Company proposes to issue 1,000,000 Redeemable Common
Stock Purchase Warrants (hereinafter called the "Warrants"), entitling the
holders thereof to purchase one share of Common Stock, $.01 par value
(hereinafter called the "Common Stock") for each Warrant, in connection with the
proposed issuance by the Company of 1,000,000 Units, each Unit consisting of one
share of Common Stock and one Warrant, and the Company also proposes to issue up
to 150,000 Warrants underlying, in part, the Underwriters' over-allotment option
and 100,000 Warrants underlying, in part, a warrant to purchase Units to be
granted to the Representative of the Underwriters; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to act in connection with the
registration, transfer, exchange and exercise of Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
1. Appointment of Warrant Agent. The Company hereby appoints the
Warrant Agent to act as agent for the Company in accordance with the
instructions hereinafter in this Agreement set forth, and the Warrant Agent
hereby accepts such appointment.
2. Form of Warrant. The text of the Warrant and of the form of election
to purchase shares to be printed on the reverse thereof shall be substantially
as set forth in Exhibit A attached hereto. The Warrant Price to purchase one
share of Common Stock shall be as provided and defined in Section 8. The
Warrants shall be executed on behalf of the Company by the manual or facsimile
signature of the present or any future Chairman of the Board or President or
Vice President of the Company, under its corporate seal, affixed or in
facsimile, attested by the manual or facsimile signature of the present or any
future Secretary or Assistant Secretary of the Company. Warrants shall be dated
as of the date of issuance thereof by the Warrant Agent either upon initial
issuance or upon transfer or exchange.
3. Countersignature and Registration. The Warrant Agent shall maintain
books for the transfer and registration of the Warrants. The Warrants shall be
countersigned by the Warrant Agent (or by any successor to the Warrant Agent
then acting as warrant agent under this Agreement) and shall not be valid for
any purpose unless so countersigned. Warrants may be so countersigned, however,
by the Warrant Agent (or by its successor as warrant agent) and be delivered by
the Warrant Agent, notwithstanding that the persons whose manual or facsimile
signatures appear thereon as proper officers of the Company shall have ceased to
be such officers at the time of such countersignature or delivery.
4. Transfers and Exchanges. The Warrant Agent shall transfer, from time
to time after the sale of the Units, any outstanding Warrants upon the books to
be maintained by the Warrant Agent for that purpose, upon surrender thereof for
transfer properly endorsed or accompanied by appropriate instructions for
transfer. Upon any such transfer, a new Warrant shall be issued to the
transferee, and the surrendered Warrant shall be cancelled by the Warrant Agent.
Warrants so cancelled shall be delivered by the Warrant Agent to the Company
from time to time. The Warrants may be exchanged at the option of the holder
thereof, when surrendered at the office of the Warrant Agent, for another
Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of shares of
Common Stock. The Warrant Agent is hereby irrevocably authorized to countersign
in accordance with Section 3 of this Agreement the new Warrants required
pursuant to the provisions of this section, and the Company, whenever required
by the Warrant Agent, will supply the Warrant Agent with Warrants duly executed
on behalf of the Company for such purpose.
5. Exercise of Warrants. Subject to the provisions of this Agreement,
each registered holder of Warrants shall have the right, which may be exercised
as in such Warrants expressed, to purchase from the Company (and the Company
shall issue and sell to such registered holder of warrants) the number of fully
paid and nonassessable shares of Common Stock specified in such Warrants, upon
surrender of such Warrants to the Company at the office of the Warrant Agent,
with the form of election to purchase on the reverse thereof duly filled in and
signed, and upon payment to the Warrant Agent for the account of the Company of
the Warrant Price for the number of shares of common stock in respect of which
such Warrants are then exercised. Payment of such Warrant Price may be made in
cash, or by certified or official bank check, payable in United States dollars,
to the order of the Warrant Agent. No adjustment shall be made for any dividends
on any shares of Common Stock issuable upon exercise of a Warrant. Upon such
surrender of Warrants, and payment of the Warrant Price as aforesaid, the
Company shall issue and cause to be delivered with all reasonable dispatch to or
upon the written order of the registered holder of such Warrants and in such
name or names as such registered holder may designate, a certificate or
certificates for the number of full shares of Common Stock so purchased upon the
exercise of such Warrants. Such certificate or certificates shall be deemed to
have been issued and any person so designated to be named therein shall be
deemed to have become a holder of record of such shares as of the date of the
surrender of such Warrants and payment of the Warrant Price as aforesaid;
provided, however, that if, at the date of surrender of such Warrants and
payment of the Warrant Price, the transfer books for the Common Stock or other
class of stock purchasable upon the exercise of such Warrants shall be closed,
the certificates for the shares in respect of which such Warrants are then
exercised shall be issuable as of the date on which such books shall next be
opened and until such date the Company shall be under no duty to deliver any
certificate for such shares; provided further, however, that the transfer books
aforesaid, unless otherwise required by law, shall not be closed at any one time
for a period longer than 20 days. The rights of purchase represented by the
Warrants shall be exercisable, at the election of the registered holders
thereof, either as an entirety or from time to time for part only of the shares
specified therein, and in the event that any Warrant is exercised in respect of
less than all of the shares specified therein, a new Warrant or Warrants will be
issued for the remaining number of shares specified in the Warrant so
surrendered, and the Warrant Agent is hereby irrevocably authorized to
countersign and to deliver the required new Warrants pursuant to the provisions
of this Section and of Section 3 of this Agreement and the Company, whenever
required by the Warrant Agent, will supply the Warrant Agent with Warrants duly
executed on behalf of the Company for such purpose.
6. Mutilated or Missing Warrants. In case any of the Warrants shall be
mutilated, lost, stolen or destroyed, the Company will issue and the Warrant
Agent will countersign and deliver in exchange and substitution for and upon
cancellation of the mutilated warrant, or in lieu of and substitution for the
Warrant lost, stolen or destroyed, a new Warrant of like tenor and representing
an equivalent right or interest; but only upon receipt of evidence satisfactory
to the Company and the Warrant Agent of such loss, theft or destruction of such
Warrant and indemnity, if requested, also satisfactory to them. Applicants for
such substitute Warrants shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company or the Warrant
Agent may prescribe.
7. Reservation and Registration of Common Stock.
A. There have been reserved, and the Company shall at all times keep
reserved, out of the authorized and unissued shares of Common Stock, a number of
shares sufficient to provide for the exercise of the rights of purchase
represented by the Warrants, and the Transfer Agent for the Common Stock and
every subsequent Transfer Agent for any shares of the Company's capital stock
issuable upon the exercise of any of the rights of purchase aforesaid are hereby
irrevocably authorized and directed at all times to reserve such number of
authorized and unissued shares as shall be requisite for such purpose. The
Company will keep a copy of this Agreement on file with the Transfer Agent for
the Common Stock and with every subsequent Transfer Agent for any shares of the
Company's capital stock issuable upon the exercise of the rights of purchase
represented by the Warrants. The Warrant Agent is hereby irrevocably authorized
to requisition from time to time such Transfer Agent for stock certificates
required to honor outstanding Warrants. The Company will supply such Transfer
Agents with duly executed stock certificates for such purpose and will itself
provide or otherwise make available any cash which may be issuable as provided
in Section 9 of this Agreement. All Warrants surrendered in the exercise of the
rights thereby evidenced shall be cancelled by the Warrant Agent and shall
thereafter be delivered to the Company, and such cancelled Warrants shall
constitute sufficient evidence of the number of shares of stock which have been
issued upon the exercise of such Warrants.
B. The Company represents that it has registered under the Securities
Act of 1933, as amended, the shares of Common Stock issuable upon exercise of
the Warrants and will use its best efforts to maintain the effectiveness of such
registration by post-effective amendment during the entire period in which the
Warrants are exercisable, and that it will use its best efforts to qualify such
Common Stock for sale under the securities laws of such states of the United
States as may be necessary to permit the exercise of the Warrants in the states
in which the Units are initially qualified and to maintain such qualifications
during the entire period in which the Warrants are exercisable.
8. Warrant Price; Adjustments.
A. The price at which Common Stock shall be purchasable upon exercise
of Warrants at any time after the Common Stock and Warrants become separately
tradable until ____________, 2003 (hereinafter called the "Warrant Price") shall
be $_____ per share of Common Stock or, if adjusted as provided in this Section,
shall be such price as so adjusted.
B. The Warrant Price shall be subject to adjustment from time to time
as follows:
(1) Except as hereinafter provided, in case
the Company shall at any time or from time to time after the
date hereof issue any additional shares of Common Stock for a
consideration per share less than the Warrant Price in effect
immediately prior to the issuance of such additional shares,
or without consideration, then, upon each such issuance, the
Warrant Price in effect immediately prior to the issuance of
such additional shares shall forthwith be reduced to a price
(calculated to the nearest full cent) determined by dividing:
(a) An amount equal to (i) the total
number of shares of Common Stock outstanding
immediately prior to such issuance multiplied by the
Warrant Price in effect immediately prior to such
issuance, plus (ii) the consideration. if any.
received by the Company upon such issuance, by
(b) The total number of shares of
Common Stock outstanding immediately after the
issuance of such additional shares.
(2) The Company shall not be required to
make any such adjustment of the Warrant Price in accordance
with the foregoing if the amount of such adjustment shall be
less than $0.05 (adjustment will be made when cumulative
adjustment equals or exceeds $0.05) but in such case the
Company shall maintain a cumulative record of the Warrant
Price as it would have been in the absence of this provision
(the "Constructive Warrant Price"), and for the purpose of
computing a new Warrant Price after the next subsequent
issuance of additional shares (but not for the purpose of
determining whether an adjustment thereof is required under
the terms of this paragraph) the constructive Warrant Price
shall be deemed to be the Warrant Price in effect immediately
prior to such issuance.
(3) For the purpose of this Section 8 the following provisions shall also
be applicable:
(a) In the case of the issuance of
additional shares of Common Stock for cash, the
consideration received by the Company therefor shall
be deemed to be the net cash proceeds received by the
Company for such shares before deducting any
commissions or other expenses paid or incurred by the
Company for any underwriting of, or otherwise in
connection with, the issuance of such shares.
(b) In case of the issuance
(otherwise than upon conversion or exchange of shares
of Common stock) of additional shares of Common Stock
for a consideration other than cash or a
consideration a part of which shall be other than
cash, the amount of the consideration other than cash
received by the Company for such shares shall be
deemed to be the value of such consideration as
determined in good faith by the Board of Directors of
the Company, as of the date of the adoption of the
resolution of said Board, providing for the issuance
of such shares for consideration other than cash or
for consideration a part of which shall be other than
cash, such fair value to include goodwill and other
intangibles to the extent determined in good faith by
the Board.
(c) In case of the issuance by the
Company after the date hereof of any security (other
than the Warrants) that is convertible into shares of
Common Stock or of any warrants, rights or options to
purchase shares of Common stock (except the options
and warrants referred to in subsection H of this
Section 8), (i) the Company shall be deemed (as
provided in subparagraph (e) below) to have issued
the maximum number of shares of Common Stock
deliverable upon the exercise of such conversion
privileges or warrants, rights or options, and (ii)
the consideration therefor shall be deemed to be the
consideration received by the Company for such
convertible securities or for such warrants, rights
or options, as the case may be, before deducting
therefrom any expenses or commissions incurred or
paid by the Company for any underwriting of, or
otherwise in connection with, the issuance of such
convertible security or warrants, rights or options,
plus (A) the minimum consideration or adjustment
payment to be received by the Company in connection
with such conversion, or (B) the minimum price at
which shares of Common Stock are to be delivered upon
exercise of such warrants, rights or options or, if
no minimum price is specified and such shares are to
be delivered at an option price related to the market
value of the subject shares, an option price bearing
the same relation to the market value of the subject
shares at the time such warrants, rights or options
were granted; provided that as to such options such
further adjustment as shall be necessary on the basis
of the actual option price at the time of exercise
shall be made at such time if the actual option price
is less than the aforesaid assumed option price. No
further adjustment of the Warrant Price shall be made
as a result of the actual issuance of the shares of
Common Stock referred to in this subparagraph (c). on
the expiration of such warrants, rights or options,
or the termination of such right to convert, the
Warrant Price shall be readjusted to such Warrant
Price as would have pertained had the adjustments
made upon the issuance of such warrants, rights,
options or convertible securities been made upon the
basis of the delivery of only the number of shares of
Common Stock actually delivered upon the exercise of
such warrants, rights or options or upon the
conversion of such securities.
(d) For the purposes hereof, any
additional shares of Common Stock issued as a stock
dividend shall be deemed to have been issued for no
consideration.
(e) The number of shares of Common
Stock at any time outstanding shall include the
aggregate number of shares deliverable in respect of
the convertible securities, rights and options
referred to in subparagraph (C) of this paragraph;
provided that with respect to shares referred to in
clause (i) of subparagraph (c), to the extent that
such warrants, options, rights or conversion
privileges are not exercised, such shares shall be
deemed to be outstanding only until the expiration
dates of the warrants, rights, options or conversion
privileges or the prior cancellation thereof.
C. In case the Company shall at any time subdivide its outstanding
shares of Common stock into a greater number of shares, the Warrant Price in
effect immediately prior to such subdivision shall be proportionately reduced
and, in case the outstanding shares of the Common Stock of the Company shall be
combined into a smaller number of shares, the Warrant Price in effect
immediately prior to such combination shall be proportionately increased.
D. Upon each adjustment of the Warrant Price pursuant to the provisions
of this Section 8, the number of shares issuable upon the exercise of each
Warrant shall be adjusted by multiplying the Warrant Price in effect prior to
the adjustment by the number of shares of Common Stock covered by the warrant
and dividing the product so obtained by the adjusted Warrant Price.
E. Except upon consolidation or reclassification of the shares of
Common Stock of the Company as provided for in subsection (c) hereof and except
for readjustment of the Warrant Price upon expiration of warrants, rights or
options as provided for in subparagraph (c) of paragraph 3 of subsection (B)
hereof, the Warrant Price in effect at any time may not be adjusted upward or
increased in any manner whatsoever.
F. Irrespective of any adjustment or change in the warrant Price or the
number of shares of Common Stock actually purchasable under the several
Warrants, the Warrants theretofore and thereafter issued may continue to express
the Warrant Price per share and the number of shares purchasable thereunder as
the Warrant Price per share and the number of shares purchasable were expressed
in the Warrants when initially issued.
G. If any capital reorganization or reclassification of the capital
stock of the Company (other than a distribution of stock in accordance with
Section 10(B)) or consolidation or merger of the Company with another
corporation or the sale of all or substantially all of its assets to another
corporation shall be effected, then, as a condition of such reorganization,
reclassification, consolidation, merger or Bale, lawful and adequate provision
shall be made whereby the holder of each Warrant then outstanding shall
thereafter have the right to purchase and receive upon the basis and upon the
terms and conditions specified herein and in the Warrants and in lieu of the
shares of the common Stock of the Company immediately theretofore purchasable
and receivable upon the exercise of the rights represented by each such warrant,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such Common stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented by each
such Warrant had such reorganization, reclassification, consolidation, merger or
sale not taken place, and in any such case appropriate provisions shall be made
with respect to the rights and interest of the holder of each Warrant then
outstanding to the end that the provisions thereof (including without limitation
provisions for adjustment of the Warrant Price and of the number of shares
purchasable upon the exercise of each Warrant then outstanding) shall thereafter
be applicable as nearly as may be in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise of each Warrant.
H. No adjustment of the Warrant Price shall be made in connection with
the issuance or sale of shares of Common Stock issuable pursuant to currently
outstanding options and warrants granted to officers, directors, employees,
advisory directors, or affiliates of the Company.
I. Whenever the Warrant Price is adjusted as herein provided, the
Company shall (a) forthwith file with the Warrant Agent a certificate signed by
the Chairman of the Board or the President or a Vice President of the Company
and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Company, showing in detail the facts requiring such adjustment
and the Warrant Price and the number of shares of Common Stock purchasable upon
exercise of the Warrants after such adjustment and (b) cause a notice stating
that such adjustment has been effected and stating the adjusted warrant Price
and the number of shares of Common Stock purchasable upon exercise of the
Warrants to be published at least once a week for two consecutive weeks in a
newspaper of general circulation in Dallas, Texas and in New York, New York. The
Company, at its option, may cause a copy of such notice to be sent by first
class mail, postage prepaid, to each registered holder of Warrants at his
address appearing on the Warrant register. The Warrant Agent shall have no duty
with respect to any such certificate filed with it except to keep the same on
file and available for inspection by holders of Warrants during reasonable
business hours. The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of a Warrant to determine whether any facts exist
which may require any adjustment of the Warrant Price, or with respect to the
nature or extent of any adjustment of the Warrant Price when made, or with
respect to the method employed in making such adjustment.
J. The Company may retain a firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) selected by the Board of
Directors of the Company or the Executive Committee of said Board and approved
by the Warrant Agent, to make any computation required under this Section 8, and
a certificate signed by such firm shall be conclusive evidence of the
correctness of any computation made under this Section 8.
K. In case at any time conditions shall arise by reason of action taken
by the Company which, in the opinion of the Board of Directors of the Company,
are not adequately covered by the other provisions of this Agreement and which
might materially and adversely affect the rights of the holders of the Warrants,
or in case at any time any such conditions are expected to arise by reason of
any action contemplated by the Company, the Board of Directors of the Company
shall appoint a firm of independent certified public accountants of recognized
standing (which may be the firm that regularly examines the financial statements
of the Company), who shall give their opinion as to the adjustment, if any (not
inconsistent with the standards established in this Section 8), of the Warrant
Price and the number of shares of Common Stock purchasable pursuant hereto
(including, if necessary, any adjustment as to the property which may be
purchasable in lieu thereof upon exercise of the Warrants) which is, or would
be, required to preserve without dilution the rights of the holders of the
Warrants. The Board of Directors of the Company shall make the adjustment
recommended forthwith upon the receipt of such opinion or the taking of any such
action contemplated, as the case may be; provided, however, that no adjustment
of the Warrant Price shall be made which in the opinion of the accountant or
firm of accountants giving the aforesaid opinion would result in an increase of
the Warrant Price to more than the Warrant Price then in effect except as
otherwise provided in subsection E of this Section 8.
9. No Fractional Interests. The Company shall not be required to issue
fractions of shares of Common Stock on the exercise of Warrants. If any fraction
of a share of Common Stock would, except for the provisions of this section, be
issuable on the exercise of any warrant (or specified portions thereof), the
Company shall purchase such fraction for an amount in cash equal to the current
value of such fraction (a) computed, if the Common Stock shall be listed or
admitted to unlisted trading privileges on any national or regional securities
exchange, on the basis of the last reported sale price of the Common Stock on
such exchange on the last business day prior to the date of exercise upon which
such a sale shall have been effected (or, if the Common Stock shall be listed or
admitted to unlisted trading privileges on more than one such exchange, on the
basis of such price on the exchange designated from time to time for such
purpose by the Board of Directors of the Company) or (b) computed, if the Common
Stock shall not be listed or admitted to unlisted trading privileges, on the
basis of the average of the high and low bid prices of the Common Stock on the
Nasdaq Stock Market, on the last business day prior to the date of exercise.
10. Notice to Warrant Holders.
A. Nothing contained in this Agreement or in any of the Warrants shall
be construed as conferring upon the holders thereof the right to vote or to
consent or to receive notice as stockholders in respect of the meetings of
stockholders for the election of directors of the Company or any other matters,
or any rights whatsoever as stockholders of the Company; provided, however, that
in the event that a meeting of stockholders shall be called to consider and take
action on a proposal for the voluntary dissolution of the Company, other than in
connection with a consolidation, merger or sale of all, or substantially all, of
its property, assets, business and goodwill as an entirety, then and in that
event the Company shall cause a notice thereof to be published at least once a
week for two consecutive weeks in a newspaper of general circulation in Dallas,
Texas and New York, New York, such publication to be completed at least 20 days
prior to the date fixed as a record date or the date of closing the transfer
books for the determination of the stock holders entitled to vote at such
meeting. The Company shall also cause a copy of such notice to be sent by first
class mail, Postage prepaid, at least 20 days prior to said date fixed as a
record date or said date of closing the transfer books, to each registered
holder of Warrants at his address appearing on the Warrant register; but failure
to mail or receive such notice or any defect therein or in the mailing thereof
shall not affect the validity of any action taken in connection with such
voluntary dissolution. If such notice shall have been so given and if such a
voluntary dissolution shall be authorized at such meeting or any adjournment
thereof, then for and after the date on which such voluntary dissolution shall
have been duly authorized by the stockholders, the purchase rights represented
by the Warrants and other rights with respect thereto shall cease and terminate.
B. If the Company shall make any distribution on, or to holders of, its
Common Stock (or other property which may be purchasable in lieu thereof upon
the exercise of Warrants) of any property (other than a cash dividend), the
Company shall cause a notice of its intention to make such distribution to be
published at least once a week for two consecutive weeks in a newspaper of
general circulation in Dallas, Texas and New York, New York, such publication to
be completed at least 20 days prior to the date fixed as a record date or the
date of closing the transfer books for the determination of the stockholders
entitled to receive such distribution. The Company shall also cause a copy of
such notice to be sent by first class mail, postage prepaid, at least 20 days
prior to said date fixed as a record date or said date of closing the transfer
books, to each registered holder of Warrants at his address appearing on the
Warrant register; but failure to mail or to receive such notice or any defect
therein or in the mailing thereof shall not affect the validity of any action
taken in connection with such distribution.
11. Disposition of Proceeds on Exercise of Warrants.
A. The Warrant Agent shall account promptly to the Company with respect
to Warrants exercised and concurrently pay to the Company all monies received by
the Warrant Agent for the purchase of shares of the Company's stock through the
exercise of such Warrants.
B. The Warrant Agent shall keep copies of this Agreement available for
inspection by holders of Warrants during normal business hours at its principal
office.
12. Redemption of Warrants.
A. At any time on or after _______________, 1999, the Company may, at
its option, redeem some or all of the outstanding Warrants at $0.05 per Warrant,
upon thirty (30) days' prior written notice, if the closing sale price of the
Common Stock on the American Stock Exchange or any other national securities
exchange, or the closing bid quotation on the American Stock Exchange, has
equaled or exceeded $_____ for ten (10) consecutive trading days preceding the
date notice of redemption is given (the "Redemption Price"). In the event of an
adjustment in the Warrant Price pursuant to Section 8, the Redemption Price
shall also be automatically adjusted. In order to redeem the Warrants, the
Company must have on file with the Securities and Exchange Commission a current
registration statement pertaining to the Common Stock underlying the Warrants.
B. The election of the Company to redeem some or all of the Warrants
shall be evidenced by a resolution of the Board of Directors of the Company.
C. Warrants may be exercised at any time on or before the date fixed
for redemption (the "Redemption Date").
D. Notice of redemption shall be given by first class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each holder of Warrants, at his address appearing in the Warrant
register.
All notices of redemption shall state:
(1) The Redemption Date;
(2) That on the Redemption Date the
Redemption Price will become due and payable upon each
Warrant;
(3) The place where such Warrants are to be
surrendered for redemption and payment of the Redemption
Price; and
(4) The current Warrant Price of the
Warrants, the place or places where such Warrants may be
surrendered for exercise, and the time at which the right to
exercise the Warrants will terminate in accordance with this
Agreement.
E. Notice of redemption of Warrants at the election of the Company
shall be given by the Company or, at the Company's request, by the Warrant Agent
in the name and at the expense of the Company.
F. Prior to any Redemption Date, the Company shall deposit with the
Warrant Agent an amount of money sufficient to pay the Redemption Price of all
the Warrants which are to be redeemed on that date. If any Warrant is exercised
pursuant to Section 5, any money so deposited with the Warrant Agent for the
redemption of such Warrant shall be paid to the Company.
G. Notice of redemption having been given as aforesaid, the Warrants so
to be redeemed shall, on the Redemption Date, become redeemable at the
Redemption Price therein specified and on such date (unless the Company shall
default in the payment of the Redemption Price), such Warrants shall cease to be
exercisable and thereafter represent only the right to receive the Redemption
Price. Upon surrender of such Warrants for redemption in accordance with said
notice, such Warrants shall be redeemed by the Company for the Redemption Price.
13. Merger or Consolidation or Change of Name of Warrant Agent. Any
corporation into which the Warrant Agent may be merged or with which it may be
consolidated, or any corporation resulting from any merger or consolidation to
which the Warrant Agent shall be a party, or any corporation succeeding to the
corporate trust business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor warrant agent under
the provisions of Section 15 of this Agreement. In case at the time such
successor to the Warrant Agent shall succeed to the agency created by this
Agreement and at such time any of the Warrants shall have been countersigned but
not delivered, any such successor to the Warrant Agent may adopt the
countersignature of the Warrant Agent and deliver such warrants so
countersigned; and in case at the time any of the Warrants shall not have been
countersigned, any successor to the Warrant Agent may countersign such Warrants
either in the name of the predecessor Warrant Agent or in the name of the
successor warrant agent; and in all such cases such Warrants shall have the full
force provided in the warrant and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrants shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior name
and deliver warrants so countersigned; and in case at that time any of the
Warrants shall not have been countersigned, the Warrant Agent may countersign
such Warrants whether in its prior name or in its changed name; and in all such
cases such Warrants shall have the full force provided in the Warrants and in
this Agreement.
14. Duties of Warrant Agent. The Warrant Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Warrants, by their
acceptance thereof, shall be bound:
A. The statements contained herein and in the Warrants shall be taken
as statements of the Company, and the Warrant Agent assumes no responsibility
for the correctness of any of the same except such as describe the Warrant Agent
or action taken or to be taken by it. The Warrant Agent assumes no
responsibility with respect to the distribution of the Warrants except as herein
otherwise provided.
B. The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrants to be complied with by the Company.
C. The Warrant Agent may execute and exercise any of the rights or
powers hereby vested in it to perform any duty hereunder either itself or by or
through its attorneys, agents or employees.
D. The Warrant Agent may consult at any time with counsel satisfactory
to it (who may be counsel for the Company) and the Warrant Agent shall incur no
liability or responsibility to the Company or to any holder of any Warrant in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in accordance with the opinion or the advice of such counsel, provided the
Warrant Agent shall have exercised reasonable care in the selection and
continued employment of such counsel.
E. The Warrant Agent shall incur no liability or responsibility to the
Company or to any holder of any Warrant for any action taken in reliance on any
notice, resolution, waiver, consent, order, certificate, or other paper,
document or instrument believed by it to be genuine and to have been signed,
sent or presented by the proper party or parties.
F. The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges of any kind and nature incurred by the
Warrant Agent in the execution of this Agreement and to indemnify the warrant
Agent and save it harmless against any and all liabilities, including judgments,
costs and reasonable counsel fees, for anything done or omitted by the Warrant
Agent in the execution of this Agreement except as a result of the Warrant
Agent's negligence or bad faith.
G. The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expense unless the Company or one or more registered holders of Warrants shall
furnish the Warrant Agent with reasonable security and indemnity for any cost
and expense which may be incurred, but this provision shall not affect the power
of the Warrant Agent to take such action as the Warrant Agent may consider
proper, whether with or without any such security or indemnity. All rights of
action under this Agreement or under any of the Warrants may be enforced by the
Warrant Agent without the possession of any of the Warrants or the production
thereof at any trial or other proceeding relative thereto, and any such action,
suit or proceeding instituted by the Warrant Agent shall be brought in its name
as Warrant Agent, and any recovery of judgment shall be for the ratable benefit
of the registered holders of the Warrants, as their respective rights or
interests may appear.
H. The Warrant Agent and any stockholder, director, officer or employee
of the Warrant Agent may buy, sell or deal in any of the Warrants or other
securities of the Company or become peculiarly interested in any transaction in
which the Company may be interested, or contract with or lend money to or
otherwise act as fully and freely as though it were not Warrant Agent under this
Agreement. Nothing herein shall preclude the Warrant Agent from acting in any
other capacity for the Company or for any other legal entity.
I. The Warrant Agent shall act hereunder solely as agent and not in a
ministerial capacity, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not be liable for anything which it
may do or refrain from doing in connection with this Agreement except for its
own negligence or bad faith.
15. Change of Warrant Agent. The Warrant Agent may resign and be
discharged from its duties under this Agreement by giving to the Company notice
in writing, and to the holders of the Warrants notice by publication, of such
resignation, specifying a date when such resignation shall take effect, which
notice shall be published at least once a week for two consecutive weeks in a
newspaper of general circulation in Dallas, Texas, and New York, New York, prior
to the date so specified. The Warrant Agent may be removed by like notice to the
Warrant Agent from the Company and by like publication. If the Warrant Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Warrant Agent. If the Company shall
fail to make such appointment within a period of 30 days after such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Warrant Agent or by the registered holder of a
Warrant (who shall, with such notice, submit his warrant for inspection by the
Company), then the registered holder of a Warrant may apply to any court of
competent jurisdiction for the appointment of a successor to the Warrant Agent.
Any successor warrant agent, whether appointed by the Company or by
such a court, shall be a bank or trust company having its principal office, and
having capital and surplus as shown by its last published report to its
stockholders, of at least $1,000,000. After appointment, the successor warrant
agent shall be vested with the same powers, rights, duties and responsibilities
as if it had been originally named as Warrant Agent without further act or deed;
but the former Warrant Agent shall deliver and transfer to the successor warrant
agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Failure to
file or publish any notice provided for in this section, however, or any defect
therein, shall not affect the legality or validity of the resignation or removal
of the Warrant Agent or the appointment of the successor warrant agent, as the
case may be.
16. Identify of Transfer Agent. Forthwith upon the appointment of any
Transfer Agent for the Common Stock or of any subsequent Transfer Agent for
shares of the Common Stock or other shares of the Company's capital stock
issuable upon the exercise of the rights of purchase represented by the
Warrants, the Company will file with the Warrant Agent a statement setting forth
the name and address of such Transfer Agent.
17. Notices. Any notice pursuant to this Agreement to be given or made
by the Warrant Agent or the registered holder of any Warrant to or on the
Company shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing by the Company
with the Warrant Agent) as follows:
Woodhaven Homes, Inc.
2501 Oak Lawn, Suite 550
Dallas, Texas 75219
Attention: Chief Executive Officer
Any notice pursuant to this Agreement to be given or made by the
Company or the registered holder of any Warrant to or on the Warrant Agent shall
be sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing by the warrant Agent with
the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
18. Supplements and Amendments. The Company and the Warrant Agent may
from time to supplement or amend this Agreement without the approval of any
holders of Warrants in order to cure any ambiguity or to correct or supplement
any provision contained herein which may be defective or inconsistent with any
other provision herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Warrant Agent may deem
necessary or desirable and which shall not be inconsistent with the provisions
of the Warrants and which shall not adversely affect the interests of the
holders of Warrants.
19. Successors. All the covenants and provisions of this Agreement by
or for the benefit of the Company or the Warrant Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
20. Merger or Consolidation of the Company. The Company shall not
effect any consolidation or merger with, or sale of substantially all its
property to, any other corporation unless the corporation resulting from such
merger (if not the Company) or consolidation or the corporation purchasing such
property shall expressly assume, by supplemental agreement satisfactory in form
to the Warrant Agent and executed and delivered to the Warrant Agent, the due
and punctual performance and observance of each and every covenant and condition
of this Agreement to be performed and observed by the Company.
21. Texas Contract. This Agreement and each Warrant issued hereunder
shall be deemed to be a contract made under the laws of the State of Texas and
for all purposes shall be construed in accordance with the laws of said state.
22. Benefits of This Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrants any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Warrant Agent and the registered
holders of the Warrants.
23. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes by deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date hereof.
<PAGE>
Warrant Agreement 28333_1 - 75205/00003 WOODHAVEN HOMES, INC.
By:
Richard D. Laxton, Chief Executive Officer
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:
<PAGE>
Warrant Agreement
28333_1 - 75205/00003
<PAGE>
28333_1 - 75205/00003
No. ____
EXHIBIT A
FORM OF
WOODHAVEN HOMES, INC.
REDEEMABLE COMMON STOCK PURCHASE WARRANT
TO PURCHASE ________ SHARES OF COMMON STOCK
EXERCISABLE ON OR BEFORE 5:00 P. M.,
NEW YORK, NEW YORK TIME, ___________ 2003
This Warrant Certifies that _____________________________________, or
registered assigns, is the holder of _______________ Warrants expiring _______,
2003, to purchase Common Stock, no par value per share (the "Common Stock"), of
Woodhaven Homes, Inc., a Texas corporation (the "Company"). Each Warrant
entitles the holder to purchase from the Company at any time after the Shares
and Warrants become separately tradable and until _______, 2003, (subject to
extensions in the sole discretion of the Company, the "Expiration Date")
________ fully-paid and non-assessable shares of Common Stock at the exercise
price (the "Exercise Price") of $____ per share upon surrender of this Warrant
Certificate and payment of the Exercise Price at the office or agency of the
Warrant Agent in New York, New York, but only subject to the conditions set
forth herein and in the Warrant Agreement. Payment of the Exercise Price may be
made in cash or by certified check payable to the order of the Company. As used
herein, "Shares" refers to the Common Stock offered by the Prospectus dated
____________, 1998, and, where appropriate, to the other securities or property
issuable upon exercise of a Warrant as provided for in the Warrant Agreement
upon the happening of certain events set forth in the Warrant Agreement.
No Warrant may be exercised after 5:00 p.m., New York, New York time,
on the Expiration Date. To the extent not exercised by such time, the Warrants
shall be cancelled and retired notwithstanding delivery of the related Warrant
Certificate. All Warrants evidenced hereby shall thereafter be void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse in hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
Dated: , 1998
<PAGE>
28333_1 - 75205/00003 WOODHAVEN HOMES, INC.
By:
Richard D. Laxton, Chief Executive Officer
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By:
<PAGE>
28333_1 - 75205/00003
<PAGE>
28333_1 - 75205/00003
FORM OF
ELECTION TO PURCHASE
Woodhaven Homes, Inc.
c/o American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
shares of the stock provided for therein, and requests that certificates for
such shares shall be issued in the name of and be delivered to at and, if said
number of shares shall not be all of the shares purchasable thereunder, that a
new Warrant for the balance remaining of the shares purchasable under the within
Warrant be registered in the name of, and delivered to, the undersigned at the
address stated below.
Date:___________________
Name of Warrant Holder:______________________________
(Please Print)
Signature:___________________________________________
(Signature must conform
in all respects to name of
holder as specified on
the face of the Warrant
Certificate)
Address:____________________________________________
============================================
<PAGE>
28333_1 - 75205/00003
FORM OF
ASSIGNMENT
For value received,
does hereby well, assign and transfer unto the within Warrant, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint attorney, to transfer said Warrant on the books of the within-named
Corporation, with full power of substitution in the promises,
Date:___________________
Signature:___________________________________________
(Signature must conform
in all respects to name of
holder as specified on
the face of the Warrant
Certificate)
