As filed with the Securities and Exchange Commission on August 28, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 75225 Dallas, Texas 75225
(800) 442-7040 (214) 692-3566
(214) 987-2091 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.
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 AUGUST 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 ne 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 Tejas Securities Group, Inc. (the "Representative") to the Company. 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 [six 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
Company has applied to list the Units , Common Stock and Warrants on the
American Stock Exchange under the symbols "WHN.U" , "WHN" and "WHN.W",
respectively. There can be no assurance that the application for listing on the
American Stock Exchange will be approved.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE SECTION ENTITLED "RISK
FACTORS" BEGINNING ON PAGE 6 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 Representative, a 2.00%
nonaccountable expense allowance and to sell to the Underwriter warrants
exercisable for four years commencing one year from the date of this
Prospectus to purchase 100,000 Units at 120% 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 Representative's
2.00% 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 Underwriter in Dallas, Texas on or about , 1998.
TEJAS SECURITIES GROUP, INC.
The date of this Prospectus is , 1998.
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."
2
<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 Representative's Over-allotment Option and the
Representative's Warrant. All references to the "Company" or "Woodhaven" refer
to Woodhaven Homes, Inc., Woodhaven Homes, Ltd. and Woodhaven Homes, LLC.
The Company
General
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) 559-1999 and its fax number is (214)
599-9205.
3
<PAGE>
<TABLE>
<S> <C>
The Offering
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 $12.00 per
share until ____________, 2003 [five years from the date of this
Prospectus] See "Description of Securities."
Description of the Warrants................. The Warrants are not immediately exercisable and are not
transferable separately from the Shares until ____________, 1999
(six months from the date of this Prospectus). 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............................. Repay outstanding indebtedness and lot acquisition/development.
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."
Proposed American Stock Exchange Symbols
Units.................................... "WHN.U"
Common Stock............................. "WHN"
Warrants................................. "WHN.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) 100,000 shares issuable upon exercise of
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.
4
<PAGE>
SUMMARY HISTORICAL AND PROFORMA FINANCIAL INFORMATION
(dollars in thousands, except per share data)
The following selected financial data has been derived from the
un-audited balance sheet and income statement of Woodhaven Homes, Inc. for the
six months ended June 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>
Six Months
Fiscal Year Ended December 31, Ended June 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 $13,845 $21,388
Cost of sales 3,745 6,671 13,593 22,783 28,540 12,122 18,352
General and administrative 244 924 1,769 1,711 2,649 1,042 1,606
------ ------ -------- ------- ------- ------- -------
Earnings before income tax 351 444 (157) 533 1,465 475 1,315
Income tax 9 63 - 22 48 21 ---
------ ------ ------- ------- ------- ------- -------
Net income 342 381 (157) 511 1,417 454 1,315
Earnings per share $ 0.17 $ 0.19 $ (0.08) $ 0.26 $ 0.71 $ 0.23 $ 0.66
Proforma earnings
(loss) per share (2) $ 0.11 $ 0.13 $ (0.05) $ 0.16 $ 0.46 $ 0.15 $ 0.43
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
--------------------------------------------------- --------------
1993 1994 1995 1996 1997 1998 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
As Adjusted (1)
Balance Sheet Data:
Working capital $ (37) $ 710 $ 94 $ 496 $1,525 $ 2,571 $11,071
Current assets 1,358 2,694 7,331 10,229 16,002 17,202 22,202
Current liabilities 1,395 1,984 7,236 9,733 14,478 14,631 11,131
Total assets 1,698 2,839 7,606 10,652 16,455 17,658 22,658
Total liabilities 1,475 2,347 7,536 9,870 14,592 14,705 11,205
Shareholder's equity 223 492 70 781 1,863 2,953 11,453
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.
5
<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 Johns and Mark
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."
Influence on Voting by Principal Shareholders
Upon completion of this offering, the directors and principal
shareholders, will own approximately 66.7% of the outstanding Common Stock of
the Company. As a result, these shareholders will be able to impact the vote on
most matters submitted to shareholders, including the election of directors. See
"Principal Shareholders."
6
<PAGE>
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. In addition, 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."
Benefits to Current Shareholders
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 Representative does not have substantial experience in public
offerings. Tejas Securities Group, Inc. has managed and completed three
firm-commitment public offerings of equity securities in the past nine months.
Principals of the Representative, however, have had substantial experience in
connection with public offerings of equity securities. There can be no assurance
that the Representative's 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. The Company has
operated successfully in these markets, 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.
7
<PAGE>
Absence of Prior Public Market - American Stock Exchange Listing
Prior to this offering, there has been no public market for the
Securities. The Company intends to apply for listing of the Securities on the
American Stock Exchange. There can be no assurance that the Company's listing
application will be approved. Such listing, if approved, 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 $___
(200% of the offering price per unit) 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 is likely to 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 Company will applied for
listing of the Warrants and the Underlying Common Stock 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 $6.18 per share or approximately 61.8%
insofar as it relates to the resulting book value of Common Stock after
completion of this offering. See "Dilution."
8
<PAGE>
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."
9
<PAGE>
Representatives' Influence on the Market
A significant amount of the Securities offered hereby may be sold to
customers of the Representative. 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."
10
<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:
<TABLE>
<S> <C> <C>
Amount Percent
Reduction of Existing Debt(1) $ 36,500,000 41.2%
Lot Acquisition/Development 2,000,000 23.5%
Working Capital(2) 3,000,000 35.3%
- ------------------ --------- -----
$ 8,500,000 100.0%
=========== ======
</TABLE>
- ----------
(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 an interest rate ranging from 9% to 10.5%. The Company will
pay off the loans and smaller lines of credit that bear the highest
interest rates.
(2) The Company may also use a portion 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 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.
11
<PAGE>
DILUTION
As of June 30, 1998, the net tangible book value of the Company was
$2,952,686 or $1.48 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 $1.48 to $3.82. This represents an immediate increase
in net tangible book value of $2.34 per share to current shareholders and an
immediate dilution of $6.21 per share to new investors or, 62.10% 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 $ 1.48
Increase per share attributable to new investors 2.34
------
Adjusted net tangible book value per share after this offering $ 3.82
Dilution per share to new investors $ 6.18
Percentage dilution 61.80%
</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 share
<S> <C> <C> <C> <C> <C>
Share
Current shareholders 2,000,000 (2) 66.7% $ 2,952,686 22.8% $ 1.48
New investors 1,000,000 (2) 33.3% 10,000,000 77.2% $10.00 (3)
--------- ------ ----------- ------
Total 3,000,0001) 100.0% $12,952,686(2) 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Does not include a total of 1,650,000 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 the extent that these options and warrants are exercised,
there will be further share dilution to new investors.
(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."
12
<PAGE>
CAPITALIZATION
The following table sets forth the proforma capitalization of the
Company as of June 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>
June 30, 1998
(Unaudited) As Adjusted
<S> <C> <C>
Short-term debt:
Notes payable ...................................... $ 13,244,300$ 9,744,300
-------------------------------------
Total short-term debt............................... $ 13,244,300 $ 9,744,300
============= =============
Long-term debt:
Capital lease obligations........................... $ 74,184 $ 74,184
Total long-term debt.......................................................... $ 74,184 $ 74,184
============= =============
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) (2)..................... 20,000 30,000
Additional paid in capital.......................... 0 8,490,000
Retained earnings................................... 2,932,686 2,932,686
------------- -------------
Total shareholders' equity........................ 2,952,686 11,452,686
------------- -------------
Total capitalization ............................. $ 3,026,870 $ 11,526,870
============= =============
</TABLE>
(1) Does not include (i) 300,000 shares of Common Stock reserved for
issuance under the Company's Stock Option Plan or (ii) an aggregate of up
to 1,650,000 shares issuable upon exercise of (a) the Warrants or the
Underwriters' Warrants, (b) the Over-allotment Option, (c) employee stock
options, or (d) other warrants. See "Management - Stock Option Plan."
13
<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
six months ended June 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>
Six Months
Fiscal Year Ended December 31, Ended June 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 $13,845 $21,388
Cost of sales 3,745 6,671 13,593 22,783 28,540 12,122 18,352
General and administrative 244 924 1,769 1,711 2,649 1,042 1,606
------ ------ -------- ------- ------- ------- -------
Earnings before income tax 351 444 (157) 533 1,465 475 1,315
Income tax 9 63 - 22 48 21 ---
------ ------ ------- ------- ------- ------- -------
Net income 342 381 (157) 511 1,417 454 1,315
Earnings per share $ 0.17 $ 0.19 $ (0.08) $ 0.26 $ 0.71 $ 0.23 $ 0.66
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
--------------------------------------------------- --------------
1993 1994 1995 1996 1997 1998 1998
---- ---- ---- ---- ---- ---- ----
As Adjusted (1)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $(37) $710 $94 $496 $1,525 2,571 11,071
Current assets 1,358 2,694 7,331 10,229 16,002 17,202 22,202
Current liabilities 1,395 1,984 7,236 9,733 14,478 14,631 11,131
Total assets 1,698 2,839 7,606 10,652 16,455 17,658 22,658
Total liabilities 1,475 2,347 7,536 9,870 14,592 14,705 11,205
Shareholder's equity 223 492 70 781 1,863 2,953 11,453
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.
14
<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
Six months Ended 6/30
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 85.8 87.6
Gross profit 13.5 9.8 10.8 14.2 12.4
General and
administrative expenses 8.0 6.8 11.6 7.5 7.5
Operating income 5.4 3.0 (0.8) 6.7 4.9
Interest expense 1.0 0.9 0.2 0.5 1.5
Income taxes 0.1 0.1 -- -- 0.2
Net income 4.3 2.0 (1.0) 6.1 3.3
</TABLE>
Comparison of the Six months Ended June 30, 1997 and June 30, 1998
Net sales for the six month period ended June 30, 1998 increased by
54.1% to $21.3 million from $13.8 million for the six month period ended June
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 $104,500 from $99,600.
Gross profit for the six month period ended June 30, 1998 increased to
$3.0 million from $1.7 million for the same period in 1997. Gross margin
increased by 1.8% to 14.2% from 12.4%. 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.
General and administrative expense increased by 54.2% to $1.6 million
from $1.0 million for the six month period ended June 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 $114,000 for the six month period ended
June 30,1998 compared to $206,000 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 1998, the Company started leasing the model homes that eliminated
the interest expense associated with owning them.
Net earnings for the six months ended June 30, 1998 increased to
approximately $1.3 million from $454,000 for the six month period ended June 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.
15
<PAGE>
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. Revenues also benefited from an increase in the average sales price
of a home to $104,000 from $94,000 in the prior 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 reflected a
change in accounting whereby a larger component of interest expense was expensed
during the year instead of being capitalized and put into Cost of Sales as in
the prior year.
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
increase was primarily due to the hiring of additional sales staff and the
opening of additional sales centers. An increase in the average selling price of
a home also contributed to the revenue increase. The average sales price of a
home increased to $93,000 from $87,000 in the prior 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.
16
<PAGE>
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
June 30, 1998, the Company had working capital of $2.6 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 six months ended June 30, 1998 was
approximately $538,000 compared to $1.3 million for the six months ended June
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 $89,000 for the purchase of property
and equipment. The cash used in operations and investing was provided by notes
payable of approximately $1.3 million 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.
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
new software at a cost of approximately $32,000 and intends to purchase some new
hardware, which the Company estimates will cost approximately $30,000. When the
new software and hardware are installed, the Company believes that it will be in
compliance with the Year 2000 issues.
17
<PAGE>
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. SFAS No. 128 is required to be adopted by the Company in the
year ending November 1, 1998. Had the Company been required to adopt SFAS No.
128 for the periods presented, the adoption would not have impacted 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 become effective for fiscal years beginning after December 15, 1997.
Management plans to adopt these standards in the year ending November 1, 1999.
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 postretirement 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 becomes effective February 1998, for the Company, and the
Company believes it will not have a material effect on its financial condition
or results of operations.
18
<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 these markets. 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.
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 control its corporate overhead costs through
efficiencies achieved through its highly automated and integrated systems.
19
<PAGE>
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 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.
20
<PAGE>
Backlog
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 average home sales price for the specific city for the period indicated.
21
<PAGE>
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.
21
<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. 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 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 1997, the Company acquired a 51% interest in Trendsetter Mortgage, a
joint venture with the G.M. Group. The joint venture underwrites, originates and
sells mortgages for the homes the Company builds. The Company's capital is not
at risk in connection with these mortgages.
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
new software at a cost of approximately $32,000 and intends to purchase some new
hardware, which the Company estimates will cost approximately $30,000. When the
new software and hardware are installed, the Company believes that it will be in
compliance with the Year 2000 issues.
22
<PAGE>
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.
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.
23
<PAGE>
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.
24
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information regarding the
Company's directors and executive officers:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
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
</TABLE>
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.
Who Richard or the lumber company?
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 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 of those directors will be
appointed by the Representatives of the Underwriters. The other director has not
been selected. 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.
<TABLE>
<CAPTION>
Summary Compensation Table
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 corporation and
distributed much of its income to shareholders by way of bonuses for income tax
planning purposes. 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 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 or a committee of the Board of Directors (the "Committee"). 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. The plan will be
administered by the Board of Directors or a Compensation 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.
<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 33.37 666,667 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.
27
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was incorporated in August 1998, to acquire all of the assets
of Woodhaven Homes, Ltd. a limited partnership ("Woodhaven Ltd.") and all of the
outstanding capital stock of Resland Development Corporation ("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. The
exchange is intended to qualify as a tax free reorganization under Section 351
of the Internal Revenue Code of 1986. Messrs. Laxton, Phillip R. Johns and Mark
V. Johns will continue as officers and directors of the Company. See
"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 for the purchase of land. At June 30, 1998, the outstanding
balance was $49,000 on the Woodhaven Ltd. note and $70,000 on the Resland note.
The Company intends to repay the Resland note prior to the effective date of the
offering.
Through October 1, 1996, Dimensional Sales & Marketing, Inc.,
("Dimensional"), conducted the Company's marketing and sales activities. The
outstanding capital stock of Dimensional is owned 50% by Phillip R. Johns and
50% by his brother-in-law, an employee of the Company. The charges attributable
to these activities, including sales commissions and advertising costs, were
paid by the Company. 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.
28
<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. Common Stock
The Company is authorized to issue 20,000,000 shares of Common Stock,
$0.01 par value. As of June 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 $12.00 [120% of the offering
price] per share at any time after the Common Stock and Warrants become
separately tradable until _______, 2003. The right to exercise the Warrants will
terminate at the close of business on ______, 2003. 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 $__ [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.
30
<PAGE>
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
If the Securities are accepted for trading on the American Stock
Exchange, the Transfer Agent and Registrar for the Units, the Common Stock and
the Warrants will be Securities Transfer Corporation, 16910 Dallas Parkway,
Suite 100, Dallas, Texas 75248.
29
<PAGE>
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.
31
<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 Tejas Securities Group, Inc.(the
"Representative") are acting as Representative, have severally agreed to
purchase the number of Units set forth opposite its name in the following table.
Underwriters Number of Units
Tejas Securities Group, Inc.
Total........................................... 1,000,000
=========
The Representative has 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 Representative 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 Representative 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 Representative. 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 Representative,
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 Representative a non-accountable
expense allowance of 2.00% of the gross amount of the Units sold ($200,000 on
the sale of the Units offered) at the closing of the offering. The Underwriters'
expenses in excess thereof will be paid by the Representative. 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 Representative a maximum of $50,000 on an accountable basis
for expenses incurred by the Underwriters in connection with this offering.
32
<PAGE>
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 Representative, and during such time as the
Representative has not exercised such right, the Representative 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 Representative has not yet identified to the
Company the person who is to be nominated for election as a director or
designated as an observer.
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 120% of the public offering price for
a four-year period commencing one year from the effective date of this offering.
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 Representative, 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 Representative 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 Representative or other broker-dealer to
receive compensation in connection with the exercise. The Representative 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 Representative. 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 Company intends to apply for listing of the Units, Common Stock and
Warrants on the American Stock Exchange under the trading symbols "WDH.U," "WDH"
and "WDH.WS," respectively. The listing is contingent, among other things, upon
the Company obtaining 400 shareholders.
33
<PAGE>
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.
34
<PAGE>
Table of Contents
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
35
<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
August 11, 1998
F-1
<PAGE>
WOODHAVEN HOMES, INC.AND RELATED COMPANIES
COMBINED BALANCE SHEETS
SIX MONTHS ENDED JUNE 30, 1998
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997 1996
(unaudited)
Assets
<S> <C> <C> <C>
Current assets:
Cash $ 209,164 $ 637,468 $ 230,125
Accounts receivable 501,232 206,732 88,138
Inventories 16,315,565 14,959,290 9,749,642
Due from affiliates - 135,139 148,083
Prepaid expenses 176,447 63,737 13,273
-------------- --------------- ---------------
Total current assets 17,202,408 16,002,366 10,229,261
-------------- --------------- ---------------
Property and equipment, at cost:
Transportation equipment 76,760 124,198 175,664
Furniture and fixtures 285,346 203,139 41,676
Computer and office equipment 345,097 290,592 281,677
-------------- --------------- ---------------
707,203 617,929 499,017
Less accumulated depreciation ( 325,311) ( 243,846) ( 166,631)
-------------- -------------- ---------------
381,892 374,083 332,386
-------------- --------------- ---------------
Other assets 73,429 78,651 89,913
-------------- --------------- ---------------
$ 17,657,729 $ 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
SIX MONTHS ENDED JUNE 30, 1998
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997 1996
(unaudited)
Liabilities and Stockholders'/Partners' Equity
Current liabilities:
<S> <C> <C> <C>
Accounts payable, trade $ 808,805 $ 1,072,571 $ 1,044,374
Accrued expenses 280,659 294,925 200,178
Customer deposits 297,095 195,125 116,420
Construction loans payable 11,362,727 11,752,566 7,759,882
Note payable, partner 49,000 49,000 75,000
Notes payable, other 1,709,354 1,052,761 386,763
Current portion of long-term notes payable 123,219 60,831 150,323
Total current liabilities 14,630,859 14,477,779 9,732,940
-------------- ---------------- ---------------
Long-term notes payable, net of current portion 74,184 114,666 137,392
-------------- ---------------- ---------------
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 70,887 9,673 ( 1,957)
Partners' equity 2,880,799 1,851,982 782,185
-------------- ---------------- ---------------
2,952,686 1,862,655 781,228
-------------- ---------------- ---------------
$ 17,657,729 $ 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
SIX MONTHS ENDED JUNE 30, 1998
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Six Months Ended Years ended
June 30, December 31,
1998 1997 1997 1996 1995
---- ------ ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ 21,388,476 $13,844,734 $32,980,580 $5,253,378 $15,237,339
Costs of sales 18,352,290 12,122,014 28,540,221 22,782,948 13,592,674
----------- ---------- ---------- ---------- ----------
Gross profit 3,036,186 1,722,720 4,440,359 2,470,430 1,644,665
Selling, general and administrative 1,606,447 1,041,788 2,649,282 1,711,254 1,769,197
---------- --------- ---------- --------- ---------
Income (loss) from operations 1,429,739 680,932 1,791,077 759,176 (124,532)
Interest expense 114,708 206,140 325,977 226,404 32,399
---------- --------- ---------- --------- -------
Income loss before income taxes 1,315,031 474,792 1,465,100 532,772 (156,931)
Provision for income taxes - 21,000 48,228 21,944 -
--------- --------- ---------- --------- -----
Net income (loss) $ 1,315,031 $ 453,792 $ 1,416,872 $ 510,828 $( 156,931)
=========== ========= ========== ========= =========
Pro forma net income (loss) per share $ .43 $ .15 $ .46 $ .16 $( .05)
=========== ========= ======================== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
WOODHAVEN HOMES, INC.
AND RELATED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS'/PARTNERS' EQUITY
SIX MONTHS ENDED JUNE 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 ( 225,000) ( 225,000)
Net income (unaudited) 61,214 1,253,817 1,315,031
----------- -------- ------------ ------------ ------------
Balance June 30, 1998
(unaudited) 1,000 $ 1,000 $ 70,887 $ 2,880,799 $ 2,952,686
=========== ========= ============ ============= =============
</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
SIX MONTHS ENDED JUNE 30, 1998
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Six Months Ended Years ended
June 30, December 31,
1998 1997 1997 1996 1995
----- --- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Cash received from customers $ 21,195,946 $13,763,345 $ 32,940,691 $25,328,412 $ 15,154,177
Cash paid to employees ( 342,022) ( 540,468) ( 1,459,530) ( 1,629,165) ( 364,657)
Cash paid to suppliers ( 21,040,268) (14,070,505) (33,959,343) (25,204,348) (17,779,818)
Interest paid ( 351,485) ( 396,775) ( 1,055,490) ( 879,067) ( 243,374)
Income taxes paid - ( 20,172) ( 66,229) - -
-------------- ---------- -------- ------------ --------
Net cash used in operating activities ( 537,829) ( 1,264,575) ( 3,599,901) ( 2,384,168) ( 3,233,672)
-------------- ---------- ---------- ------------ ----------
Cash flows from investing activities:
Purchase of property and equipment (89,274) ( 3,631) (190,719) ( 175,643) (145,819)
Advances paid to affiliates - - ( 135,139) (122,628) (246,223)
Repayments from affiliates 135,139 148,083 148,083 - 62,508
------- ------- ------- -------- ------
Net cash provided by (used in)
investing activities 45,865 144,452 (177,775) ( 298,271) ( 329,534)
------ ------- ------- -------- - ------
Cash flows from financing activities:
Capital contributed by partners - - - 200,000 -
Distributions to partners (225,000) (100,000) ( 335,445) - (91,448)
Net proceeds (payments) from
inventory loans (389,839) 1,686,654 3,992,684 2,228,888 3,836,941
Proceeds from notes payable 1,337,412 666,965 1,247,626 633,591 604,551
Repayments of notes payable (658,913) (549,469) (693,846) (509,524) ( 273,518)
Proceeds from note payable, partner 25,000 - 24,000 75,000
Repayments of note payable, partner (25,000) ( 50,000) (50,000) - -
------ ------- ------ --------- ----------
Net cash provided by financing activities 63,660 1,654,150 4,185,019 2,627,955 4,076,526
------ --------- --------- --------- ----------
Net increase (decrease) in cash (428,304) 534,027 407,343 ( 54,484) 513,320
Cash at beginning of period 637,468 230,125 230,125 284,609 ( 228,711)
------- -------- ----------- ---------- ---------
Cash at end of period $ 209,164 $ 764,152 $ 637,468 $230,125 $ 284,609
======= ======== ========= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
WOODHAVEN HOMES, INC. WOODHAVEN HOMES, INC.
AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 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>
Six MonthsEnded Years ended
June 30, December 31,
1998 1997 1997 1996 1995
---- ----- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 1,315,031 $453,792 $1,416,872 $ 510,828 $(156,931)
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation 81,465 35,921 125,520 89,498 44,431
Less on disposal of assets - - 23,502 -
(Increase) decrease in accounts receivable (294,500) ( 173,070) (118,594) 50,395 ( 124,553)
(Increase) decrease in inventory ( 1,356,275) (1,754,479) (5,209,648) (2,867,622) (4,342,794)
(Increase) decrease in prepaid expenses (112,710) ( 53,208) (50,464) (13,273) -
(Increase) decrease in other assets 5,222 63,053 11,262 ( 60,313) 45,900
Increase (decrease) in accounts payable, trade (263,766) 125,692 28,197 (187,215) 1,127,601
Increase (decrease) in accrued expenses ( 14,266) ( 53,957) 94,747 68,895 131,283
Increase (decrease) in customer deposits 101,970 91,681 78,705 24,639 41,391
Increase (decrease) in income taxes payable:
Currently - - - - -
Deferred ( - - - - -
----------- ------ ------ --------- ----------------
Total adjustments (1,852,860) (1,718,367)(5,016,773) ( 2,894,996) (3,076,741)
--------- --------- --------- ---------- ---------
Net cash provided by (used in) operating activities $(537,829) $(1,264,575)$(3,599,901) $( 2,384,168) $(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. 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>
<S> <C> <C>
Company Type of Entity Date Incorporated
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. 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 June 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. 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 six month periods ended June
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 six months ended June 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:
1997 1996
---- ----
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
================ =================
F-10
<PAGE>
WOODHAVEN HOMES, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS
Partner
The Company has a note payable to a partner with an outstanding balance of
$49,000 and $75,000 at December 31, 1997 and 1996, respectively. The note is due
on demand and unsecured with interest payable monthly at 12.5%.
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 $135,139, $122,628 and
$246,223, respectively, and received repayments of these advances of $148,083,
$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 $135,139 and $148,083, 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:
1997 1996
---- ----
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
$ 11,752,566 $ 7,759,882
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
--------------- ----------------
$ 12,980,824 $ 8,434,360
================ =================
Future maturities required under the terms of the above notes and construction
loans payable are as follows: Year Ended December 31, Amount
1998 $ 12,928,552
1999 41,040
2000 11,232
---------
$ 12,980,824
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 six months
ended June 30, 1998, the Company incurred approximately $42,000 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.............................. 6
Use of Proceeds........................... 11
Dividend Policy........................... 11
Dilution.................................. 12
Capitalization............................ 13
Selected Combined
Financial Information..................... 14
Management's Discussion and
Analysis of Financial Condition
and Results of Operation................. 15
Business.................................. 19
Management................................ 25
Principal Shareholders.................... 27
Certain Relationships
and Related Transactions............... 28
Description of Securities................. 29
Shares Eligible For
Future Sale............................ 31
Underwriting.............................. 32
Legal Matters............................. 34
Experts................................... 34
Index to Financial Statements............. 35
Until ____ , 1998 (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
Woodhaven
Homes, Inc.
Prospectus
, 1998
Tejas Securities Group, Inc.
(214) 692-3544
<PAGE>
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 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 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
(a). Exhibits:
Exhibit No Item
Exhibit 1.1 Form of Underwriting Agreement.(1)
Exhibit 1.2 Form of Underwriters' Warrant Agreement.(1)
Exhibit 3.1 Articles of Incorporation of the Registrant. (1)
Exhibit 3.2 Bylaws of the Registrant (1)
Exhibit 4.1 Form of Warrant Agreement between Company and
Securities Transfer Corporation (1)
Exhibit 4.3 Specimen of Warrant Certificate. (1) Contained
in Exhibit 4.1
Exhibit 5.1 Opinion of Garza & Staples.(2)
Exhibit 10.1 Stock Option Plan (1)
Exhibit 10.2 Lease between the Registrant and Gaedeke Holdings,
Ltd. (1) First Amendment to Lease Agreement (1)
Exhibit 10.3 Form of Bank Loan Agreement between the Registrant and
its lenders.(1)
Exhibit 23.1 Consent of Turner , Stone & company, L.L.P., Certified
Public Accountants.(1)
Exhibit 23.2 Consent of Garza & Staples is contained in their
opinion to be filed as Exhibit 5.1 to
this registration statement.(2)
Exhibit 27.1 Financial Data Schedule (1)
-----------------------
(1) Filed herewith
(2) To be filed by amendment
(b) Financial Statement Schedules: Not applicable
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 August 28, 1998.
WOODHAVEN HOMES, INC.
By: /S/
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.
Signature Title Date
/S/
Richard D. Laxton Chief Executive Officer, August 28, 1998
Director (Principal Executive
Officer and Principal Financial
and Accounting Officer)
/S/
Phillip R. Johns President, Director August 28, 1998
/S/
Mark V. Johns Vice President, Director August 28, 1998
1,000,000 Units
WOODHAVEN HOMES, INC.
Each Unit Consisting of
One Share of Common Stock and
One Redeemable Common Stock Purchase Warrant
______________, 1998
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 Tejas
Securities Group, Inc. is acting as managing underwriter and representative (the
"Representative"), 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 Representative the Representative'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 Representative'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 "Representative's Securities"). The Underwritten Securities, the Option
Securities and the Representative'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
28325_1 - 75205/00003
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-___________) (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 Representative 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
Representative 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.
<PAGE>
(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 Representative'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 Representative'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 Representative'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
<PAGE>
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.
<PAGE>
(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
Representative the written agreements, substantially in the form
<PAGE>
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.
<PAGE>
(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 Representative 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 Representative 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
Representative 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 Representative 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
Representative in its discretion may make).
<PAGE>
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
Representative shall designate, which date and time may be postponed by
agreement among the Representative 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 Tejas Securities Group, Inc. 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 Representative 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 Representative (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 Representative shall have requested against payment at the office of Tejas
Securities Group, 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 Representative 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 Representative of such timely
filing. The Company will promptly advise the Representative (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 Representative.
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.
<PAGE>
(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 Representative 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
Representative 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 Representative 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
Representative's 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
<PAGE>
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 Representative, 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
Representative's 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 Representative,
and during such time as the Representative shall not have exercised such right,
the Representative 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 Representative, at the Representative's election, and shall pay to
the Representative 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 Representative 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 Representative 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 Representative 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
<PAGE>
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) 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
Representative's 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 Representative's 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
Representative's 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.
<PAGE>
(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
<PAGE>
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 Representative shall have received from Maurice JF. 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 Representative 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 Representative 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.
<PAGE>
(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 Representative letters, dated as of such dates, in form and
substance satisfactory to the Representative, 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 June 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 June 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 Representative and (B)
such changes or decreases and the explanation thereof shall be
acceptable to the Representative, in its sole discretion.
<PAGE>
(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 June 30, 1998 and the related
unaudited pro forma combined condensed statement of income and retained
earnings for the three months ended June 30, 1998, and the summary
unaudited pro forma combined financial information as of December 31,
1997 and the year then ended and June 30, 1998 and the six 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 Representative 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 Representative, 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 Representative a
certificate of the Secretary of the Company certifying as to certain information
and other matters as the Representative may reasonably request.
(j) The Company shall have furnished to the Representative such further
information, certificates and documents as the Representative 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 Representative 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
Representative. 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 Representative's 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;
<PAGE>
(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 Representative;
(i) a solicitation fee to the Representative 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) the beneficial owner of such Warrants
states in writing that the exercise was solicited by the Representative and
designates in writing the Representative 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 Representative provided
elsewhere herein and in addition to the Underwriters' Option, the Representative
shall be entitled to receive on the Closing Date, as partial compensation for
its services, warrants (the "Representative's Warrants") for the purchase of an
additional 100,000 Units. The Representative's Warrants shall be issued pursuant
to the Representative's 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 120% of the
initial public offering price of the Units. The Representative's Warrants,
including the Warrants issuable upon exercise thereof, shall be non-transferable
for one year from the date of issuance of the Representative's 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 Representative's 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.
<PAGE>
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 Representative 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 Representative.
(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 Representative 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
<PAGE>
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 Representative 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.
<PAGE>
10. Termination. This Agreement shall be subject to termination in the absolute
discretion of the Representative, 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 Representative, 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 Representative at:
Two Cielo Center
1250 Capitol of Texas Hwy., South, Suite 500
Austin, Texas 78746
Attention: Robert A. Shuey
Facsimile No. )512) 306-1528
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.
Underwriting Agreement
28325_1 - 75205/00003
Very truly yours,
WOODHAVEN HOMES, INC.
By:
Richard D. Laxton, President and Chief Executive
Officer
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
Ladies and Gentlemen:
The undersigned understands that you, as the Representative 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 Representative. 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: _________ ___, 1998
Print Name
Warrant Agreement
28331_1 - 75205/00003
WARRANT AGREEMENT
___________, 1998
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 "Representative's 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
_____________, 1998, between the Company and Security Transfer Corporation,
Dallas, Texas, as warrant agent (the "Warrant Agent"). The Representative's
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
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 Representative's Warrants at any time
shall be entitled to receive, or shall have received, upon the exercise of the
Representative's 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
subject to this Agreement. The Purchase Price shall equal 120% of the initial
offering price to public per Unit as set forth in the Prospectus, 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 Nasdaq Stock
Market 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 Representative's Warrants.
The term "Warrant Stock" refers to shares of Common Stock issuable upon
the exercise of the Warrants or the Representative's Warrants.
The purchase and sale of the Representative's 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 Representative's 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.
<PAGE>
3.Compliance with the Act.
(a) Transferability of Representative's Warrants. You agree that the
Representative's 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 Representative's 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 Representative's Warrants exercises such Representative's 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
Representative's 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.
<PAGE>
(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
<PAGE>
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.
<PAGE>
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
Representative's 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 Representative's Warrants.
(a) Cash Exercise. Each Representative's 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 Representative's Warrants may elect to exercise
the Representative's Warrants in full or in part and receive shares on a "net
exercise" basis in an amount equal to the value of the Representative's Warrants
by delivery of the form of subscription attached to the Warrant Certificate and
surrender of the Representative's 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 Representative's Warrants being exercised
(expressed as a fraction).
Y=the total number of shares of Common Stock issuable upon exercise of
the Representative's Warrants.
A=the Current Market Price of one share of Common Stock.
B=Purchase Price.
<PAGE>
(c) Partial Exercise. Prior to the expiration of the Representative's
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 Representative's 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
Representative's 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 Representative's
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 Representative's 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 Representative's 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 Representative's Warrants
until further adjusted as provided herein.
<PAGE>
(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 Representative's 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 Representative's 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
Representative's 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 Representative's 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
Representative's 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 Representative's Warrants shall
have been given a reasonable opportunity to then elect to receive upon the
exercise of the Representative's 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
<PAGE>
6(c) of any holder of the Representative's Warrants and (ii) if the Company's
Board of Directors shall propose to dissolve or liquidate the Company, each
holder of the Representative's 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 Representative's
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
Representative's 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 Representative's
Warrants in connection with any exercise from time to time of all or any portion
of the Representative's 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 Representative's 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 Representative's 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
Representative's Warrants, all shares of the Underlying Securities from time to
time issuable upon the exercise of the Representative's 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 Representative's Warrants shall be validly issued, fully paid
and nonassessable; each holder of the Representative's 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
Representative's Warrants, and maintain such listing of, all of the Underlying
Securities from time to time issuable upon the exercise of the Representative's
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.
<PAGE>
(d) Exchange of Representative's 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 Representative's 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 Representative's 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 Representative's 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 Representative's 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 Representative's
Warrants properly endorsed shall take such Representative's 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 Representative's 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 Representative's 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 Representative's 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
Representative's 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.
<PAGE>
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed on the date
hereof.
Warrant Agreement 28331_1 - 75205/00003 WOODHAVEN HOMES, INC.
By:
Richard D. Laxton, Chief Executive Officer
By:
Warrant Agreement
28331_1 - 75205/00003
<PAGE>
28331_1 - 75205/00003
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 A.M., on ___________, 2003 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:_________________, 1998
28331_1 - 75205/00003 WOODHAVEN HOMES, INC.
By:
Richard D. Laxton, Chief Executive Officer
<PAGE>
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>
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 Incorporation for Woodhaven Homes, Inc. Page 1
E:\p\c\Woodhaven\Articles of Incorporation
ARTICLES OF INCORPORATION
OF
WOODHAVEN HOMES, INC.
I, the undersigned natural person of the age of eighteen (18)
years or more, and being a citizen of the State of Texas, acting as incorporator
of the Corporation under the Texas Business Corporation Act, do hereby adopt the
following Articles of Incorporation for such Corporation:
ARTICLE ONE
NAME
The name of this Corporation is WOODHAVEN HOMES, INC.
ARTICLE TWO
DURATION
The period of its duration is perpetual.
ARTICLE THREE
PURPOSES
The purposes for which the Corporation is organized are:
(A) To engage in the business of the organization, development
and sale of resources of all types and all forms throughout the United
States and foreign countries as far as shall be in the best interest of
the Corporation;
Articles of Incorporation for Woodhaven Homes, Inc.
(B) To purchase, receive by way of gift, subscribe for, invest
in, and in all other ways acquire, import, lease, possess, maintain,
handle on consignment, own, hold for investments or otherwise, use,
enjoy, exercise, operate, manage, conduct, perform, make borrow,
contract in respect of, trade and deal in, sell, exchange, let, lend,
<PAGE>
export, mortgage, pledge, deed in trust, hypothecate, encumber,
transfer, assign and in all other ways dispose of, design, develop,
invent, improve, equip, repair, alter, fabricate, assemble, build,
construct, operate, manufacture, plant, cultivate, produce, market, and
in all other ways (whether like or unlike any of the foregoing), deal
in and with property of every kind and character, real, personal, or
mixed, including, but not limited to, money, credits, chooses in
action, securities, stocks, bonds, warrants, script, certificates,
debentures, mortgages, notes, commercial paper, and other obligation
and evidences of interest in or indebtedness of any person, firm, or
corporation, foreign or domestic, or of any government or subdivision
or agency thereof, documents of title, and accompanying rights, and
every other kind and character of personal property, real property
(improved or unimproved), and the products and avails thereof and in
every character of interest therein and appurtenance thereto, including
but not limited to, mineral, oil, gas and water rights, all or any part
of any going business and its incidents, franchises, subsidies,
charters, concessions, grants, powers, or privileges, granted or by
conferred any government or subdivision or agency thereof, and any
interest in or part of any of the foregoing, and to exercise in respect
thereof all of the rights, powers, privileges and immunities of
individual owners or holders thereof.
(C) To hire and employ agents, servants, and employees to
enter in to agreements of employment and collective bargaining
agreements, and to act as agent, contractor, factor, or otherwise,
either alone or in company with others.
(D) To promote or aid in any manner, financially or otherwise,
any person, firm, association, or corporation.
(E) To let concessions to others to do any of the things this
Corporation is empowered to do, and to enter in to, make, perform, and
carry out, contracts and arrangements of every kind and character with
any person, firm, association, or corporation, or any government or
authority or subdivision or agency thereof.
(F) To carry on any business whatsoever that this Corporation
may deem proper or convenient in connection with any of the foregoing
purposes or otherwise, or that it may deem calculated, directly or
indirectly, to improve the interests of this Corporation, and to have
and to exercise all powers conferred by the laws of the State of Texas
on corporations formed under the laws pursuant to which and under which
this Corporation is formed, as such laws are now in effect or may at
anytime hereafter be amended, and to do any and all things hereinabove
set forth to the same extent and as fully as natural persons might or
could do, either alone or in connection with other persons, firms,
association, or corporations, and in any other part of the world.
(G) To engage in any business related or unrelated to those
described in clauses (A) of this Article Three, and from time to time
authorized or approved by the Board of Directors of this Corporation or
carry on any other trade or business which can, in the opinion of the
Board of Directors of the company, be advantageously carried on in
connection with or auxiliary to those described in clause (A) of this
Article Three, and to do all such things as are incidental or conducive
to the attainment of the above objects or any of them.
(H) To enter into any lawful arrangements for sharing profits
and/or losses in any transaction or transactions, and to promote and
organize other corporations.
<PAGE>
(I) To have and to exercise all rights and powers that are now
or may hereafter be granted to a corporation by law.
The foregoing shall be construed as objects, purposes and powers and
the enumeration thereof shall not be held to limit or restrict in any manner the
powers now or hereafter conferred on this Corporation by the laws of the State
of Texas.
The objects, purposes and powers specified herein shall, except as
otherwise expressed, be in no way limited, or restricted by reference to or
inference from the terms of any other clause or paragraph of these Articles. the
objects, purposes and powers specified in each of the clauses or paragraphs of
these Articles of Incorporation shall be regarded as independent objects,
purposes or powers.
The Corporation may in its By-Laws confer powers, not in conflict with
law, upon it Directors in addition to the foregoing and in addition to the power
and authorities expressly conferred upon the by statute.
The Corporation shall be subject to Part Four, Texas Miscellaneous
Corporation Laws Act.
ARTICLE FOUR
SHARE STRUCTURE, PREFERENCES, PRIVILEGES, RESTRICTIONS, AND RIGHTS
SECTION ONE: Common Shares with $.01 Par Value: The Corporation is
authorized to issue Common Shares. The total number of Common shares which the
Corporation is authorized to issue is Twenty Million (20,000,000) shares with
$.01 par value
SECTION TWO: Voting Rights to Common, Common Stock Shall Have No
Liquidation Preference: The holders of the Common shares shall have voting
rights and powers, including the right to notice of shareholder's meetings. Upon
any liquidation, dissolution or winding-up of the Corporation, whether voluntary
or involuntary, the holders of Common shares shall not be paid until the holders
of any Serial Preferred shares have been paid in full the amounts to which they
shall be entitled.
<PAGE>
SECTION THREE: Serial Preferred. The Corporation is authorized to issue
three million (3,000,000) shares of Serial Preferred Stock, par value of one
dollar ($1.00) per share. The Serial Preferred Stock may be issued in one or
more series, from time to time, at the discretion of the Board of Directors
without the necessity of stockholder approval, with each such series to consist
of such number of shares and to have such voting powers (whether full or
limited, or no voting powers or more than one vote per share) and such
designations, powers, preferences and \relative, participating' optional,
redemption, conversion, exchange or other special rights, and such
qualifications, limitations or restrictions thereof, as shall be stated in the
resolution or resolutions providing for the issuance of such series adopted by
the Board of Directors. The Board of Directors is hereby expressly-vested with
the authority, to the full extent now or hereafter provided by law, to adopt any
such resolution or resolutions. Each share of any series of Serial Preferred
Stock shall be identical with all other shares of such series, except as to the
date from which dividends, if any, shall accrue. The Board of Directors shall
have the power and authority at any time and from time to time without the
necessity of stockholders approval to issue, sell, or otherwise dispose of any
authorized and unissued shares of any class of stock of the Corporation to such
persons or parties, including the holders of any class of stock, for such
consideration (not less than the par value thereof) and upon such terms and
conditions as the Board of Directors in its discretion may deem for the best
interests of the Corporation.
SECTION FOUR: Amendments. This Article Four can be amended only by the
affirmative vote or concurrence of shareholders holding at least 66 2/3 percent
of the issued and outstanding shares of Common Stock, plus (if any Serial
Preferred Stock is issued and outstanding and entitled to vote) that percentage
of the affirmative vote of such Serial Preferred Stock as the Board of Directors
has designated.
SECTION FIVE: Pre-emptive Rights: No shareholder or other person shall have any
pre-emptive rights whatsoever.
<PAGE>
ARTICLE FIVE
COMMENCEMENT OF BUSINESS
The Corporation will not commence business until it has received for
the issuance of its shares consideration of the value of One Thousand Dollars
($1,000.00), consisting of money, labor done, or property actually received,
which sum is not less than One Thousand Dollars ($1,000.00).
ARTICLE SIX
REGISTERED OFFICE AND AGENT
The post office address of its initial registered office is
2501 Oak Lawn, Suite 550, Dallas, Texas 75219, and the name of its initial
registered agent at such address is Richard D. Laxton.
ARTICLE SEVEN
BY-LAWS
The Shareholders of the Corporation hereby delegate to the Board of
Directors the power to adopt, alter, amend, or repeal the By-Laws of the
Corporation; this power shall be vested exclusively in the Board of Directors
and shall not be exercised by the Shareholders.
ARTICLE EIGHT
INTERESTED DIRECTORS, OFFICERS AND SHAREHOLDERS
SECTION ONE: VALIDITY. If SECTION TWO is satisfied, no contract or
other transaction between the Corporation and any of its officers or
shareholders (or any corporation or firm which any of them are directly or
indirectly interested) shall be invalid solely because of this relationship or
because of the presence of such director, officer or shareholder at the meeting
authorizing such contract or transaction, or his participation in such meeting
or authorization.
<PAGE>
SECTION TWO: DISCLOSURE, APPROVAL, FAIRNESS: SECTION ONE shall apply only if:
(1) The material facts of the relationship or interest of each
such director, officer or shareholder are known or disclosed
to the Board of Directors and it nevertheless authorizes or
ratifies the contract or transaction by a majority of the
directors present, each such interested director to be counted
in determining whether a quorum is present but not in
calculating the majority necessary to carry the vote.
(2) The Contract or transaction is fair to the Corporation as
of the time it is authorized or ratified by the Board of
Directors, a committee of the Board, or the shareholders.
SECTION THREE: NON-EXCLUSIVE: This provision shall not be construed to
invalidate a contract or transaction which would be valid in the absence of this
provision.
ARTICLE NINE
INDEMNIFICATION:
To the fullest extent permitted by Texas statutory or decisional law,
as the same exists or may hereafter be amended or interpreted, a director of the
corporation shall not be liable to the corporation or its shareholders for any
act or omission in such director's capacity as a director. Any repeal or
amendment of this Article, or adoption of any other provision of these Articles
of Incorporation inconsistent with this Article, by the shareholders of the
corporation shall be prospective only and shall not adversely affect any
limitation on the liability to the corporation or its shareholders of a client
or of the corporation existing at the time of such repeal, amendment or adoption
at an inconsistent provision.
<PAGE>
ARTICLE TEN
CONSIDERATION OF OFFERS
SECTION ONE: Evaluation of Offers. The Board of Directors, when
evaluating any offer of another party to (a) make a tender or exchange offer for
the equity securities of the Corporation or any subsidiary, (b) merge or
consolidate the Corporation or any subsidiary with another corporation, or (c)
purchase or otherwise acquire all or substantially all of the properties or
assets of the corporation, or of any subsidiary, shall, in connection with the
exercise of its judgment in determining what is in the best interests of the
Corporation and its stockholders, give due consideration to all relevant
factors, including by way of illustration, but not limitation, any or all of the
following:
(1) Whether the offer is acceptable based on
historical operating results and the financial condition of
the Corporation and its subsidiaries, and its future
prospects;
(2) Whether a more favorable offer could be obtained
for the Corporation's or its subsidiaries' securities or
assets in the foreseeable future.
(3) The social, economic or any other material impact
which an acquisition of the equity securities of the
Corporation or substantially all of its assets would have upon
the employees and customers of the Corporation and its
subsidiaries and the community which they serve;
(4) The reputation and business practices of the
offeror and its management and affiliates as they would affect
the employees and customers of the Corporation and its
subsidiaries and the future value of the Corporation's stock;
(5) The value of the securities, if any, which the
offeror is offering in exchange for the Corporation's or its
subsidiaries' securities or assets based on an analysis of the
work of the Corporation or of its subsidiaries as compared to
the offeror corporation or other entity whose securities are
being offered; and
(6) Any antitrust or other legal or regulatory issues
that are raised by the offer.
<PAGE>
SECTION TWO: Rejection of Offers. If the Board of Directors determines that an
offer should be rejected, it may take any lawful action to accomplish its
purpose including, but not limited to, any or all of the following:
(1) Advising shareholders not to accept the offer,
(2) Litigation against the offeror;
(3) Filing complaints with any governmental and
regulatory authorities;
(4) Acquiring the Corporation's securities;
(5) Selling or otherwise issuing authorized but unissued
securities or treasury stock or options with respect
thereto,
(6) Acquiring a company to create an antitrust or other
regulatory problem for the offeror;
(7) Obtaining a more favorable offer from another individual
or entity.
SECTION THREE: Amendment Requirements. This Article Ten can be amended
only by the affirmative vote or concurrence of shareholders holding at least
eighteen percent of the issued and outstanding shares of Common Stock, plus (if
any Serial Preferred Stock is issued and outstanding and entitled to vote) that
percentage of the affirmative vote of such Serial Preferred Stock as the Board
of Directors has designated.
ARTICLE ELEVEN
SHAREHOLDER CONSENTS
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting, without prior notice, and without a
vote, if a written consent or consents, setting forth the action so taken, is
signed by the holders of shares having not less than the minimum number of votes
necessary to take such action at a meeting at which the holders of all shares
entitled to vote on the action were present and voted.
ARTICLE TWELVE
DIRECTORS
(A) The number of directors constituting the initial Board of
Directors is one and the name and address of the person who is to serve
as directors until the first annual meeting of the shareholders or
until their successor are elected and qualified is:
Richard D. Laxton, 2501 Oak Lawn, Suite 550, Dallas, TX 75219
Mark V. Johns, 2501 Oak Lawn, Suite 550, Dallas, TX 75219
Phillip Ray Johns, 2501 Oak Lawn, Suite 550, Dallas, TX 75219
(B) The number of Directors of the Corporation set forth in
clause (A) of this Article Ten shall constitute the authorized number
of Directors until changed by an amendment of the By-Laws duly adopted
by the vote or written consent of the Board of Directors of the
Corporation, but shall not be less than one.
<PAGE>
ARTICLE TWELVE
INCORPORATOR
The name and address of the incorporator is:
Richard D. Laxton 2501 Oak Lawn
Suite 550
Dallas, Texas 75219
IN WITNESS WHEREOF, I have hereunto set my hand this ________ day of
August, 1998.
Richard D. Laxton
By-Laws
Page 1
BYLAWS
OF
WOODHAVEN HOMES, INC.
Preamble. This is a Corporation organized and operated under the
applicable laws of the State of Texas, including the Texas Business Corporation
Act and the Texas Miscellaneous Corporation Act.
ARTICLE I. OFFICES
Section 1.01. Registered Office and Agent.
The registered office of the Corporation shall be
at 2501 Oaklawn, Suite 550, Dallas, Texas 75219. The name of the registered
agent at such address is RICHARD LAXTON.
Section 1.02. Other Offices.
The Corporation may also have offices at such other places both within
and without the State of Texas as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II. SHAREHOLDERS
Section 2.01. Common Shares.
The Corporation is authorized to issue Common Shares. The total number
of Common shares which the Corporation is authorized to issue is Twenty Million
(20,000,000) shares with $.01 par value.
Section 2.02.
Voting Rights to Common, Cumulative Voting Prohibited, Common Stock Shall
Have No Liquidation Preference.
The holders of the Common shares shall have the voting rights and
powers, including the right to notice of shareholder's meetings. Directors shall
be elected by majority vote. Cumulative voting shall not be permitted. Upon any
liquidation, dissolution or winding-up of the Corporation, whether voluntary or
involuntary, the holders of Common shares shall not be paid until the holders of
any Serial Preferred shares have been paid in full the amounts to which they
shall be entitled.
<PAGE>
Section 2.03. Serial Preferred Shares.
The Corporation is authorized to issue three
million (3,000,000) shares of Serial Preferred Stock, par value of one Dollar
($1.00) per share. The Serial Preferred Stock may be issued in one or more
series, from time to time, at the discretion of the Board of Directors without
the necessity of stockholder approval, with each such series to consist of such
number of shares and to have such voting powers (whether full or limited, or no
voting powers or more than one vote per share) and such designations, powers,
preferences and relative, participating optional, redemption, conversion,
exchange or other special rights, and such qualifications, limitations or
restrictions thereof, as shall be stated in the resolution or resolutions
providing for the issuance of such series adopted by the Board of Directors and
the Board of Directors is hereby expressly vested with the authority, to the
full extent now or hereafter provided by law, to adopt any such resolution or
resolutions. Each share of any series of Serial Preferred Stock shall be
identical with all other shares of such series, except as to the date from which
dividends, if any, shall accrue. The Board of Directors shall have the power and
authority at any time and from time to time without the necessity of
stockholders approval to issue, sell, or otherwise dispose of any authorized and
unissued shares of any class of stock of the Corporation to such persons or
parties, including the holders of any class of stock, for such consideration
(not less than the par value thereof) and upon such terms and conditions as the
Board of Directors in its discretion may deem for the best interests of the
Corporation. This Article II can be amended only by the affirmative vote or
concurrence of at least 66 2/3 percent of the vote the Board of Directors.
Section 2.04. Pre-emptive Rights.
No shareholder or other person shall have any pre-emptive rights
whatsoever.
<PAGE>
. Section 2.05. Time and Place of Meetings
Meetings of the shareholders shall be held at such time and at such place,
within or without the State of Texas, as shall be determined by the Board of
Directors.
Section 2.06. Annual Meetings
Annual meetings of shareholders shall be held on such date and at such time
as shall be determined by the board of directors. At each annual meeting the
shareholders shall elect a board of directors and transact such other business
as may properly be Brought before the meeting.
.
Section 2.07. Special Meetings
Special meetings of the shareholders may be called at any time by the chief
executive officer, president or the board of directors, and shall be called by
the chief executive officer, president or the secretary at the request in
writing of the holders of not less than 10% of the voting power represented by
all the shares issued, outstanding and entitled to be voted at the proposed
special meeting. Such request shall state the purpose or purposes of the
proposed meeting. Business transacted at special meetings shall be confined to
the purposes stated in the notice of the meeting.
.
Section 2.08. Notice
Written or printed notice stating the place, day and hour of any
shareholders' meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
nor more than 60 days before the date of the meeting, either personally or by
mail, by or at the direction of the chief executive officer, president,
secretary or the officer or person calling the meeting, to each shareholder
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the united states mail, postage prepaid, addressed
to the shareholder at his address as it appears on the share transfer records of
the corporation.
<PAGE>
Section 2.09. Closing of Share Transfer Records and Fixing Record Dates for
. Matters Other than Consents to Action
For the purpose of determining shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or entitled to
receive payment of any distribution or share dividend, or in order to make a
determination of shareholders for any other proper purpose (other than
determining shareholders entitled to consent to action by shareholders proposed
to be taken without a meeting of shareholders), the Board of Directors of the
Corporation may provide that the share transfer records shall be closed for a
stated period but not to exceed, in any case, 60 days. If the share transfer
records shall be closed for the purpose of determining shareholders, such
records shall be closed for at least ten days immediately preceding such
meeting. In lieu of closing the share transfer records, the Board of Directors
may fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than 60 days and, in the case
of a meeting of shareholders, not less than ten days prior to the date on which
the particular action requiring such determination of shareholders is to be
taken. If the share transfer records are not closed and no record date is fixed
for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders, or shareholders entitled to receive payment of a
distribution (other than a distribution involving a purchase or redemption by
the Corporation of any of its own shares) or share dividend, the date on which
notice of the meeting is mailed or the date on which the resolution of the Board
of Directors declaring such distribution or share dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof except where the determination has been made
through the closing of share transfer records and the stated period of closing
has expired.
<PAGE>
Section 2.10. Fixing Record . es for Consents to Action
Unless a record date shall have previously been fixed or determined
pursuant to this section 2.10, whenever action by shareholders is proposed to be
taken by consent in writing without a meeting of shareholders, the board of
directors may fix a record date for the purpose of determining shareholders
entitled to consent to that action, which record date shall not precede, and
shall not be more than ten days after, the date upon which the resolution fixing
the record date is adopted by the board of directors. If no record date has been
fixed by the board of directors and the prior action of the board of directors
is not required by the Texas business corporation act (herein called the "act"),
the record date for determining shareholders entitled to consent to action in
writing without a meeting shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its registered office, its principal place of
business, or an officer or agent of the corporation having custody of the
records in which proceedings of meetings of shareholders are recorded. Delivery
shall be by hand or by certified or registered mail, return receipt requested.
Delivery to the corporation's principal place of business shall be addressed to
the president or the chief executive officer of the corporation. If no record
date shall have been fixed by the board of directors and prior action of the
board of directors is required by the act, the record date for determining
shareholders entitled to consent to action in writing without a meeting shall be
at the close of business on the date on which the board of directors adopts a
resolution taking such prior action.
Section 2.11. List of . reholders
The officer or agent of the corporation having charge of the share
transfer records for shares of the corporation shall make, at least ten days
before each meeting of the shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of voting shares held by
each, which list, for a period of ten days prior to such meeting, shall be kept
on file at the registered office or principal place of business of the
corporation and shall be subject to inspection by any shareholder at any time
during the usual business hours of the corporation. Such list shall also be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any shareholder during the whole time of the meeting. The
original share transfer records shall be prima facie evidence as to who are the
shareholders entitled to examine such list or transfer records or to vote at any
meeting of shareholders. Failure to comply with the requirements of this section
shall not affect the validity of any action taken at such meeting. . Section
<PAGE>
2.12. Quorum
A quorum shall be present at a meeting of shareholders if the holders
of shares having a majority of the voting power represented by all issued and
outstanding shares entitled to vote at the meeting are present in person or
represented by proxy at such meeting, unless otherwise provided by the articles
of incorporation in accordance with the act. Once a quorum is present at a
meeting of shareholders, the shareholders represented in person or by proxy at
the meeting may conduct such business as may properly be brought before the
meeting until it is adjourned, and the subsequent withdrawal from the meeting of
any shareholder or the refusal of any shareholder represented in person or by
proxy to vote shall not affect the presence of a quorum at the meeting. If,
however, a quorum shall not be present at any meeting of shareholders, the
shareholders entitled to vote, present in person or represented by proxy, shall
have power to adjourn the meeting, without notice (other than announcement at
the meeting at which the adjournment is taken of the time and place of the
adjourned meeting), until such time and to such place as may be determined by a
vote of the holders of a majority of the shares represented in person or by
proxy at such meeting until a quorum shall be present. At such adjourned meeting
at which a quorum is present, any business may be transacted which might have
been transacted at the meeting as originally noticed. . Section 2.13. Voting
When a quorum is present at any
meeting, the vote of the holders of a majority of the shares entitled to vote,
present in person or represented by proxy at such meeting, shall decide any
matter brought before such meeting, other than the election of directors or a
matter for which the affirmative vote of the holders of a specified portion of
the shares entitled to vote is required by the Act, and shall be the act of the
shareholders, unless otherwise provided by the Articles of Incorporation, these
Bylaws or by resolution of the Board of Directors in accordance with the Act.
Unless otherwise provided in the articles of incorporation or these
bylaws in accordance with the act, directors of the corporation shall be elected
by a plurality of the votes cast by the holders of shares entitled to vote in
the election of directors at a meeting of shareholders at which a quorum is
present.
At every meeting of the shareholders, each shareholder shall be
entitled to such number of votes, in person or by proxy, for each share having
voting power held by such shareholder, as is specified in the articles of
incorporation (including the resolution of the board of directors (or a
committee thereof) creating such shares), except to the extent that the voting
rights of the shares of any class or series are limited or denied by the
articles of incorporation. At each election of directors, every shareholder
shall be entitled to cast, in person or by proxy, the number of votes to which
the shares owned by him are entitled for as many persons as there are directors
to be elected and for whose election he has a right to vote. Cumulative voting
is prohibited by the articles of incorporation. Every proxy shall be in writing
and be executed by the shareholder. A telegram, telex, cablegram, or similar
transmission by the shareholder, or a photographic, photostatic, facsimile, or
similar reproduction of a writing executed by the shareholder, shall be treated
as an execution in writing for the purposes of this section 2.13. No proxy shall
be valid after 11 months from the date of its execution unless otherwise
provided therein. Each proxy shall be revocable unless (i) the proxy form
conspicuously states that the proxy is irrevocable, and (ii) the proxy is
coupled with an interest, as defined in the act and other Texas law.
<PAGE>
Shares standing in the name of another corporation may be voted by such
officer, agent or proxy as the bylaws of such corporation may prescribe or, in
the absence of such provision, as the board of directors of such corporation may
determine.
Shares held by an administrator, executor, guardian or conservator may
be voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name as trustee.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without being transferred into his name, if such authority is
contained in an appropriate order of the court that appointed the receiver.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Treasury shares, shares of the corporation's stock owned by another
corporation the majority of the voting stock of which is owned or controlled by
the corporation, and shares of its own stock held by the corporation in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
Votes submitted as abstentions on matters to be voted on at any meeting
will be counted as votes against such matters. Broker non-votes will not count
for or against the matters to be voted on at any meeting.
Section 2.14. Action By Consent.
Any action required or permitted to be taken at a
meeting of the shareholders may be taken without a meeting, without prior
notice, and without a vote if a consent in writing, setting forth the action so
taken, shall be signed by all of the shareholders entitled to vote with respect
to the action that is the subject of the consent.
In addition, if the articles of incorporation so provide, any action
required or permitted to be taken at a meeting of the shareholders may be taken
without a meeting, without prior notice, and without a vote if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holder or holders of shares having not less than the minimum number of votes
that would be necessary to take such action at a meeting at which the holders of
all shares entitled to vote on the action were present and voted. Prompt notice
of the taking of any action by shareholders without a meeting by less than
unanimous written consent shall be given to those shareholders who did not
consent in writing to the action.
<PAGE>
Every written consent shall bear the date of signature of each
shareholder who signs the consent. No written consent shall be effective to take
the action that is the subject of the consent unless, within 60 days after the
date of the earliest dated consent delivered to the corporation as set forth
below in this section 2.14, the consent or consents signed by the holder or
holders of shares having not less than the minimum number of votes that would be
necessary to take the action that is the subject of the consent are delivered to
the corporation by delivery to its registered office, its principal place of
business, or an officer or agent of the corporation having custody of the
records in which proceedings of meetings of shareholders are recorded. Delivery
shall be by hand or certified or registered mail, return receipt requested.
Delivery to the corporation's principal place of business shall be addressed to
the president or the chief executive officer of the corporation. A telegram,
telex, cablegram, or similar transmission by a shareholder, or a photographic,
photostatic, facsimile, or similar reproduction of a writing signed by a
shareholder, shall be regarded as signed by the shareholder for the purposes of
this section 2.14.
Section 2.15. Presence at Meetings by Means of .ommunications Equipment
Shareholders may participate in and hold a meeting of the shareholders
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 2.15 shall constitute
presence in person at such meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
<PAGE>
ARTICLE III. DIRECTORS
Section 3.01. Number of . ectors
The number of directors of the corporation shall be fixed from time to
time by resolution of the board of directors, but in no case shall the number of
directors be less than one. Until otherwise fixed by resolution of the board of
directors, the number of directors shall be the number stated in the articles of
incorporation. No decrease in the number of directors shall have the effect of
reducing the term of any incumbent director. Directors shall be elected at each
annual meeting of the shareholders by the holders of shares entitled to vote in
the election of directors, except as provided in section 3.02 of this article
iii, and each director shall hold office until the annual meeting of
shareholders following his election or until his successor is elected and
qualified. Directors need not be residents of the state of Texas or shareholders
of the corporation. .
Section 3.02. Vacancies
Subject to other provisions of this section 3.02, any vacancy occurring
in the board of directors may be filled by election at an annual or special
meeting of the shareholders called for that purpose or by the affirmative vote
of a majority of the remaining directors, though the remaining directors may
constitute less than a quorum of the board of directors as fixed by section 3.08
of this article iii. A director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office. Any directorship to be filled
by reason of an increase in the number of directors shall be filled by election
at an annual meeting or at a special meeting of shareholders called for that
purpose or may be filled by the board of directors for a term of office
continuing only until the next election of one or more directors by the
shareholders; provided that the board of directors may not fill more than two
such directorships during the period between any two successive annual meetings
of shareholders. Shareholders holding a majority of shares then entitled to vote
at an election of directors may, at any time and with or without cause,
terminate the term of office of all or any of the directors by a vote at any
annual or special meeting called for that purpose. Such removal shall be
effective immediately upon such shareholder action even if successors are not
elected simultaneously, and the vacancies on the board of directors caused by
such action shall be filled only by election by the shareholders.
Notwithstanding the foregoing, whenever the holders of any class or series
of shares are entitled to elect one or more directors by the provisions of the
articles of incorporation, only the holders of shares of that class or series
shall be entitled to vote for or against the removal of any director elected by
the holders of shares of that class or series; and any vacancies in such
directorships and any newly created directorships of such class or series to be
filled by reason of an increase in the number of such directors may be filled by
the affirmative vote of a majority of the directors elected by such class or
series then in office or by a sole remaining director so elected, or by the vote
of the holders of the outstanding shares of such class or series, and such
directorships shall not in any case be filled by the vote of the remaining
directors or the holders of the outstanding shares as a whole unless otherwise
provided in the articles of incorporation.
. Section 3.03. General Powers
The powers of the corporation shall be exercised by or under the
authority of, and the business and affairs of the corporation shall be managed
under the direction of, its board of directors, which may do or cause to be done
all such lawful acts and things, as are not by the act, the articles of
incorporation or these bylaws directed or required to be exercised or done by
the shareholders.
<PAGE>
Section 3.04. Place of . tings The board of directors of the corporation
may hold meetings, both regular and special, either within or without the state
of Texas. .
Section 3.05. Annual Meetings
The first meeting of each newly elected board of directors shall be held,
without further notice, immediately following the annual meeting of
shareholders at the same place, unless by the majority vote or unanimous
consent of the directors then elected and serving, such time or place shall
be changed. Section 3.06. Regular . tings Regular meetings of the board of
directors may be held with or without notice at such time and place as the
board of directors may determine by resolution. . Section 3.07. Special
Meetings Special meetings of the board of directors may be called by or at
the request of the chief executive officer and shall be called by the
secretary on the written request of a majority of the incumbent directors.
The person or persons authorized to call special meetings of the board of
directors may fix the place for holding any special meeting of the board of
directors called by such person or persons. Notice of any special meeting
shall be given at least 24 hours previous thereto if given either
personally (including written notice delivered personally or telephone
notice) or by telex, telecopy, telegram or other means of immediate
communication, and at least 72 hours previous thereto if given by written
notice mailed or otherwise transmitted to each director at the address of
his business or residence. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the board of directors
need be specified in the notice or waiver of notice of such meeting. Any
director may waive notice of any meeting, as provided in section 4.02 of
article iv of these bylaws. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting to the transaction
of any business on the ground that the meeting is not lawfully called or
convened. Section 3.08. Quorum and . ing At all meetings of the board of
directors, the presence of a majority of the number of directors fixed in
the manner provided in section 3.01 of this article iii shall constitute a
quorum for the transaction of business. At all meetings of committees of
the board of directors (if one or more be designated in the manner
described in section 3.09 of this article iii), the presence of a majority
of the number of directors fixed from time to time by resolution of the
board of directors to serve as members of such committees shall constitute
a quorum for the transaction of business. The affirmative vote of at least
a majority of the directors present and entitled to vote at any meeting of
the board of directors or a committee of the board of directors at which
there is a quorum shall be the act of the board of directors or the
committee, except as may be otherwise specifically provided by the act, the
articles of incorporation or these bylaws. Directors may not vote by proxy
at any meeting of the board of directors. Directors with an interest in a
business transaction of the corporation and directors who are directors or
officers or have a financial interest in any other corporation,
partnership, association or other organization with which the corporation
is transacting business may be counted in determining the presence of a
quorum at a meeting of the board of directors or of a committee of the
board of directors to authorize such business transaction. If a quorum
shall not be present at any meeting of the board of directors or a
committee thereof, a majority of the directors present thereat may adjourn
the meeting, without notice other than announcement at the meeting, until
such time and to such place as may be determined by such majority of
directors, until a quorum shall be present. Section 3.09. Committees of .
Board of Directors The board of directors may, by resolution passed by a
majority of the whole board of directors, designate from among its members
one or more committees, each of which shall be composed of one or more of
its members, and may designate one or more of its members as alternate
members of any committee, who may, subject to any limitations imposed by
the board of directors, replace absent or disqualified members at any
meeting of that committee. Any such committee, to the extent provided in
the resolution of the board of directors designating the committee or in
the articles of incorporation or these bylaws, shall have and may exercise
all of the authority of the board of directors of the corporation, except
where action of the board of directors is required by the act or by the
articles of incorporation. Any member of a committee of the board of
directors may be removed, for or without cause, by the affirmative vote of
a majority of the whole board of directors. If any vacancy or vacancies
occur in a committee of the board of directors caused by death,
resignation, retirement, disqualification, removal from office or
otherwise, the vacancy or vacancies shall be filled by the affirmative vote
of a majority of the whole board of directors. Such committee or committees
shall have such name or names as may be designated by the board of
directors and shall keep regular minutes of their proceedings and report
the same to the board of directors when required. Section 3.10.
Compensation of Directors. Directors, as members of the board of directors
or of any committee thereof, shall be entitled to receive compensation for
their services on such terms and conditions as may be determined from time
to time by the board of directors. Nothing herein contained, however, shall
be construed to preclude any director from serving the corporation in any
other capacity and receiving compensation therefor. Section 3.11. Action by
. nimous Consent Any action required or permitted to be taken at any
meeting of the board of directors or of any committee thereof may be taken
without a meeting if a written consent, setting forth the action so taken,
is signed by all the members of the board of directors or the committee, as
the case may be, and such written consent shall have the same force and
effect as a unanimous vote at a meeting of the board of directors. Section
3.12. Presence at Meetings by Means of . mmunications Equipment Members of
the board of directors of the corporation or any committee designated by
the board of directors, may participate in and hold a meeting of such board
or committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can
hear each other, and participation in a meeting pursuant to this section
3.12 shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to
the transaction of any business on the ground that the meeting is not
lawfully called or convened.
<PAGE>
ARTICLE IV. NOTICES
.
Section 4.01. Form of Notice
Whenever under the provisions of the act, the
articles of incorporation or these bylaws, notice is required to be given to any
director or shareholder, and no provision is made as to how such notice shall be
given, it shall not be construed to mean personal notice exclusively, but any
such notice may be given in writing, by mail, postage prepaid, or by telex,
telecopy, or telegram, or other means of immediate communication, addressed or
transmitted to such director or shareholder at such address as appears on the
books of the corporation. Any notice required or permitted to be given by mail
shall be deemed to be given at the time when the same be thus deposited, postage
prepaid, in the united states mail as aforesaid. Any notice required or
permitted to be given by telex, telecopy, telegram, or other means of immediate
communication shall be deemed to be given at the time of actual delivery.
Section 4.02. Waiver.
Whenever under the provisions of the act, the articles of incorporation
or these bylaws, any notice is required to be given to any director or
shareholder of the corporation, a waiver thereof in writing signed by the person
or persons entitled to such notice, whether before or after the time stated in
such notice, shall be equivalent to the giving of such notice.
Section 4.03. When Notice Unnecessary.
Whenever, under the provisions of the act, the
articles of incorporation or these bylaws, any notice is
required to be given to any shareholder, such notice need
not be given to the shareholder if:
(A) notice of two consecutive annual meetings
and all notices of meetings held during
the period between those annual meetings,
if any, or
(B) all (but in no event less than two)
payments (if sent by first class mail) of
distributions or interest on securities
during a 12-month period, have been mailed
to that person, addressed at his address
as shown on the records of the
Corporation, and have been returned
undeliverable. Any action or meeting
taken or held without notice to such a
person shall have the same force and
effect as if the notice had been duly
given. If such a person delivers to the
Corporation a written notice setting forth
his then current address, the requirement
that notice be given to that person shall
be reinstated.
<PAGE>
ARTICLE V. EXECUTIVE COMMITTEE
Section 5.01. Designation.
The Board of Directors may, by resolution adopted by a majority of the
whole board, designate an executive committee.
Section 5.02. Number; Qualification; Term.
The executive committee shall consist of two or
more persons, one of whom shall be the president. The
executive committee shall serve at the pleasure of the board
of directors.
Section 5.03. Authority.
The executive committee, to the extent provided in such resolution,
shall have and may exercise all of the authority of the board of directors in
the management of the business and affairs of the corporation, except where
action of the full board of directors is required by statute or by the articles
of incorporation, and shall have power to authorize the seal of the corporation
to be affixed to all papers which may require it.
Section 5.04. Change in Number.
The number of executive committee members may be
increased or decreased (but not below two) from time to time by resolution
adopted by a majority of the whole board of directors.
Section 5.05. Removal.
Any member of the executive may be removed by the Board of Directors by
the affirmative vote of a majority of the whole Board, whenever in its judgment
the best interests of the Corporation will be served thereby.
DATED: ________________ SIGNED
BY:
By: _________________________
Richard D. Laxton
By: __________________________
Mark V. Johns
By: __________________________
Phillip Ray Johns
Warrant Agreement
28333_1 - 75205/00003
WARRANT AGREEMENT
Between
WOODHAVEN HOMES, INC.
And
SECURITIES TRANSFER CORPORATION
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 Securities Transfr Corporation, Dallas, Texas, 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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
(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.
<PAGE>
(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.
<PAGE>
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 Oklahoma City, Oklahoma 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 in the
Nasdaq Stock Market, on the last business day prior to the date of exercise.
<PAGE>
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 Oklahoma
City, Oklahoma 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 Oklahoma City, Oklahoma 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").
<PAGE>
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.
<PAGE>
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, Buffered 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 Oklahoma City, Oklahoma 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.
<PAGE>
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: President
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:
Securities Transfr Corporation
16910 Dallas Parkway, suite 100
Dallas, Texas 75248
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.
<PAGE>
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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date hereof.
By:______________________________________________
Richard d. Laxton, Chief Executive Officer
SECURITIES TRANSFER CORPORATION
By:
<PAGE>
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.,
DALLAS, TEXAS 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
By:__________________________________________
Richard D. Laxton, Chief Executive Officer
SECURITIES TRANSFER CORPORATION,
as Warrant Agent
By:________________________________
<PAGE>
FORM OF
ELECTION TO PURCHASE
Woodhaven Homes, Inc.
c/o Securities Transfr Corporation
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>
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)
TABLE OF CONTENTS
* * *
1998 STOCK COMPENSATION PLAN
of
WOODHAVEN HOMES, INC.
<PAGE>
SECTION SUBJECT PAGE
1. Purpose of Plan .............................1
2. Stock Subject to the Plan .......................1
3. Administration of the Plan2
(a) General .....................2
(b) Changes in Law Applicable 3
4. Types of Awards Under the Plan.........................3
5. Persons to Options Shall Be Granted3
(a) Nonqualified Options..................3
(b) Incentive Options 3
6. Factors to Be Considered in Granting Options...............3
7. Time of Granting Option .........3
8. Terms and Conditions of Options.............................3
(a) Number of Shares.......................3
(b) Type of Option 3
(c) Option Period 3
(1) General...........
(2) Termination of Employment 4
(3) Cessation of Service as Director
or Advisor.................................5
(4) Disability........................5
(5) Death 4
(6) Acceleration and Exercise Upon Change
of Control..............................5
(d) Option Prices........................6
(1) Nonqualified Options..............6
(2) Incentive Options 6
(3) Determination of Fair Market Value.7
(e) Exercise of Options.....................7
(f) Nontransferability of Options......7
(g) Compliance with Securities Laws....8
(h) Additional Provisions 8
9. Medium and Time of Payment 8
10. Rights as a Shareholder .................................9
11. Optionee's Agreement to Serve 9
12. Adjustments on Changes in Capitalization.......................9
(a) Changes in Capitalization..................9
(b) Reorganization, Dissolution or Liquidation 9
(c) Change in Par Value.......................10
(d) Notice of Adjustments....................10
(e) Effect Upon Holder of Option.......10
(f) Right of Company to Make Adjustments 11
13. Investment Purpose ................................11
14. No Obligation to Exercise Option ......
15. Modification, Extension, and Renewal of Options......................11
16 Effective Date of the Plan........................................11
17. Termination of the Plan11
18. Amendment of the Plan 11
19. Withholding ................................12
20. Indemnification of Committee 12
21. Application of Funds 12
22. Governing Law .......... ...............12
<PAGE>
1998 STOCK COMPENSATION PLAN
OF
Woodhaven Homes, Inc.
1. Purpose of Plan. This 1998 Stock Compensation Plan ("Plan") is intended to
encourage ownership of the common stock of Woodhaven Homes, Inc. ("Company") by
certain officers, directors, employees and advisors of the Company or any
Subsidiary or Subsidiaries of the Company (as hereinafter defined) in order to
provide additional incentive for such persons to promote the success and the
business of the Company or its Subsidiaries and to encourage them to remain in
the employ of the Company or its Subsidiaries by providing such persons an
opportunity to benefit from any appreciation of the common stock of the Company
through the issuance of stock options to such persons in accordance with the
terms of the Plan. It is further intended that options granted pursuant to this
Plan shall constitute either incentive stock options ("Incentive Options")
within the meaning of Section 422 (formerly Section 422A) of the Internal
Revenue Code of 1986, as amended ("Code"), or options which do not constitute
Incentive Options ("Nonqualified Options") as determined by the Committee (as
hereinafter defined) at the time of issuance of such options. Incentive Options
and Nonqualified Options are herein sometimes referred to collectively as
"Options". As used herein, the term Subsidiary or Subsidiaries shall mean any
corporation (other than the employer corporation) in an unbroken chain of
corporations beginning with the employer corporation if, at the time of granting
of the Option, each of the corporations other than the last corporation in the
unbroken chain owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
2. Stock Subject to the Plan. Subject to adjustment as provided in Section 12
hereof, there will be reserved for the use upon the exercise of Options to be
granted from time to time under the Plan, an aggregate of three-hundred thousand
(300,000) shares of the common stock, $.01 par value, of the Company ("Common
Stock"), which shares in whole or in part shall be authorized, but unissued,
shares of the Common Stock or issued shares of Common Stock which shall have
been reacquired by the Company as determined from time to time by the Board of
Directors of the Company ("Board of Directors"). To determine the number of
shares of Common Stock available at any time for the granting of Options under
the Plan, there shall be deducted from the total number of reserved shares of
Common Stock, the number of shares of Common Stock in respect of which Options
have been granted pursuant to the Plan which remain outstanding or which have
been exercised. If and to the extent that any Option to purchase reserved shares
shall not be exercised by the optionee for any reason or if such Option to
purchase shall terminate as provided herein, such shares which have not been so
purchased hereunder shall again become available for the purposes of the Plan
unless the Plan shall have been terminated, but such unpurchased shares shall
not be deemed to increase the aggregate number of shares specified above to be
reserved for purposes of the Plan (subject to adjustment as provided in Section
12 hereof).
3. Administration of the Plan.
(a) General. The Plan shall be administered by a Compensation
Committee ("Committee") appointed by the Board of Directors, which Committee
shall consist of not less than two (2) members of the Board of Directors who are
not eligible to participate in the Plan, and have not, for a period of at least
one (1) year prior thereto been eligible to participate in the Plan, except that
if at any time there shall be less than two (2) directors who are qualified to
serve on the Committee, then the Plan shall be administered by the full Board of
Directors. All references in this Plan to the Committee shall be deemed to refer
instead to the full Board of Directors at any time there is not a committee of
two (2) members qualified to act hereunder. The Board of Directors may from time
to time appoint members of the Committee in substitution for or in addition to
members previously appointed and may fill vacancies, however caused, in the
Committee. If the Board of Directors does not designate a Chairman of the
Committee, the Committee shall select one of its members as its Chairman. The
Committee shall hold its meetings at such times and places as it shall deem
advisable. A majority of its members shall constitute a quorum. Any action of
the Committee shall be taken by a majority vote of its members at a meeting at
which a quorum is present. Notwithstanding the preceding, any action of the
Committee may be taken without a meeting by a written consent signed by all of
the members, and any action so taken shall be deemed fully as effective as if it
had been taken by a vote of the members present in person at the meeting duly
called and held. The Committee may appoint a Secretary, shall keep minutes of
its meetings, and shall make such rules and regulations for the conduct of its
business as it shall deem advisable.
<PAGE>
The Committee shall have the sole authority and power, subject to the
express provisions and limitations of the Plan, to construe the Plan and option
agreements granted hereunder, and to adopt, prescribe, amend, and rescind rules
and regulations relating to the Plan, and to make all determinations necessary
or advisable for administering the Plan, including, but not limited to, (i) who
shall be granted Options under the Plan, (ii) the term of each Option, (iii) the
number of shares covered by such Option, (iv) whether the Option shall
constitute an Incentive Option or a Nonqualified Option, (v) the exercise price
for the purchase of the shares of the Common Stock covered by the Option, (vi)
the period during which the Option may be exercised, (vii) whether the right to
purchase the number of shares covered by the Option shall be fully vested on
issuance of the Option so that such shares may be purchased in full at one time
or whether the right to purchase such shares shall become vested over a period
of time so that such shares may only be purchased in installments, and (viii)
the time or times at which Options shall be granted. The Committee's
determinations under the Plan, including the above enumerated determinations,
need not be uniform and may be made by it selectively among the persons who
receive, or are eligible to receive, Options under the Plan, whether or not such
persons are similarly situated.
The interpretation by the Committee of any provision of the Plan or of
any option agreement entered into hereunder with respect to any Incentive Option
shall be in accordance with Section 422 of the Code and the regulations issued
thereunder, as such section or regulations may be amended from time to time, in
order that the rights granted hereunder and under said option agreements shall
constitute "Incentive Stock Options" within the meaning of such section. The
interpretation and construction by the Committee of any provision of the Plan or
of any Option granted hereunder shall be final and conclusive, unless otherwise
determined by the Board of Directors. No member of the Board of Directors or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option granted under it. Upon issuing an Option
under the Plan, the Committee shall report to the Board of Directors the name of
the person granted the Option, whether the Option is an Incentive Option or a
Nonqualified Option, the number of shares of Common Stock covered by the Option,
and the terms and conditions of such Option.
(b) Changes in Law Applicable. If the laws relating to Incentive
Options or Nonqualified Options are changed, altered or amended during
the term of the Plan, the Board of Directors shall have full authority
and power to alter or amend the Plan with respect to Incentive Options
or Nonqualified Options, respectively, to conform to such changes in
the law without the necessity of obtaining further shareholder
approval, unless the changes require such approval.
4. Types of Awards Under the Plan. Awards under the Plan may be in the form of
either Incentive Options or Nonqualified Options, or a combination thereof.
5. Persons to Whom Options Shall be Granted.
(a) Nonqualified Options. Nonqualified Options shall be granted only to
officers, directors employees and advisors of the Company or a Subsidiary who,
in the judgment of the Committee, are responsible for or contribute to the
management or success of the Company or a Subsidiary and who, at the time of the
granting of the Nonqualified Options, are either officers, directors, employees
or advisors of the Company or a Subsidiary.
(b) Incentive Options. Incentive Options shall be granted only to employees of
the Company or a Subsidiary who, in the judgment of the Committee, are
responsible for or contribute to the management or success of the Company or a
Subsidiary and who, at the time of the granting of the Incentive Option are
either an employee of the Company or a Subsidiary.
<PAGE>
6. Factors to Be Considered in Granting Options. In making any determination as
to persons to whom Options shall be granted and as to the number of shares to be
covered by such Options, the Committee shall take into account the duties and
responsibilities of the respective officers, directors, employees, or advisors,
their current and potential contributions to the success of the Company or a
Subsidiary, and such other factors as the Committee shall deem relevant in
connection with accomplishing the purpose of the Plan.
7. Time of Granting Options. Neither anything contained in the Plan or in any
resolution adopted or to be adopted by the Board of Directors or the
Shareholders of the Company or a Subsidiary nor any action taken by the
Committee shall constitute the granting of any Option. The granting of an Option
shall be effected only when a written Option Agreement acceptable in form and
substance to the Committee, subject to the terms and conditions hereof including
those set forth in Section 8 hereof, shall have been duly executed and delivered
by or on behalf of the Company and the person to whom such Option shall be
granted. No person shall have any rights under the Plan until such time, if any,
as a written Option Agreement shall have been duly executed and delivered as set
forth in this Section 7. 8. Terms and Conditions of Options. All Options granted
pursuant to this Plan must be granted within ten (10) years from the date the
Plan is adopted by the Board of Directors of the Company. Each Option Agreement
governing an Option granted hereunder shall be subject to at least the following
terms and conditions, and shall contain such other terms and conditions, not
inconsistent therewith, that the Committee shall deem appropriate:
(a) Number of Shares. Each Option shall state the number of shares of
Common Stock which it represents.
(b) Type of Option. Each Option shall state whether it is intended to be an
Incentive Option or a Nonqualified Option. (c) Option Period.
(1) General. Each Option shall state the date upon which it is -------
granted. Each Option shall be exercisable in whole or in part during such
period as is provided under the terms of the Option subject to any vesting
period set forth in the Option, but in no event shall an Option be
exercisable either in whole or in part after the expiration of ten (10)
years from the date of grant.
(2) Termination of Employment. Except as otherwise provided in
case of Disability (as hereinafter defined), death or Change
of Control (as hereinafter defined), no Option shall be
exercisable after an optionee who is an employee of the
Company or a Subsidiary ceases to be employed by the Company
or a Subsidiary as an employee; provided, however, that the
Committee shall have the right in its sole discretion, but not
the obligation, to extend the exercise period for not more
than three (3) months following the date of termination of
such optionee's employment; provided further, however, that no
Option shall be exercisable after the expiration of ten (10)
years from the date it is granted.
(3) Cessation of Service as Director or Advisor. In the event an optionee who
was a director or advisor of the Company or a Subsidiary ceases to be a director
or advisor of the Company or a Subsidiary for any reason, other than Disability
or death, prior to the full exercise of the Option, such optionee may exercise
his Option at any time within ninety (90) days after such optionee's status as a
director or advisor of the Company or a Subsidiary is so terminated to the
extent he was entitled to exercise such Option at the date such optionee's
status as a director or advisor of the Company or a Subsidiary terminated;
provided, however, that no Option shall be exercisable after the expiration of
ten (10) years from the date it is granted. (4) Disability. If an optionee's
employment is terminated by reason of the permanent and total Disability of such
optionee or if an optionee who is a director or advisor of the Company or a
Subsidiary ceases to serve as a director or advisor by reason of the permanent
and total Disability of such optionee, the Committee shall have the right in its
sole discretion, but not the obligation, to extend the exercise period for not
more than one (1) year following the date of termination of the optionee's
employment or the date such optionee ceases to be a director or advisor of the
Company or a Subsidiary, as the case may be, subject to the condition that no
Option shall be exercisable after the expiration of ten (10) years from the date
it is granted. For purposes of this Plan, the term "Disability" shall mean the
inability of the optionee to fulfill such optionee's obligations to the Company
or a Subsidiary by reason of any physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to last for a
continuous period of not less than twelve (12) months as determined by a
physician acceptable to the Committee in its sole discretion. (5) Death. If an
optionee dies while in the employ of the Company or a Subsidiary, or while
serving as a director or advisor of the Company or a Subsidiary, and shall not
have fully exercised Options granted pursuant to the Plan, such Options may be
exercised in whole or in part at any time within one (1) year after the
optionee's death, by the executors or administrators of the optionee's estate or
by any person or persons who shall have acquired the Options directly from the
optionee by bequest or inheritance, but only to the extent that the optionee was
entitled to exercise such Option at the date of such optionee's death, subject
to the condition that no Option shall be exercisable after the expiration of ten
(10) years from the date it is granted. (6) Acceleration and Exercise Upon
Change of Control. Notwithstanding the preceding provisions of this Section
8(c), if any Option granted under the Plan provides for either (a) an
incremental vesting period whereby such Option may only be exercised in
installments as such incremental vesting period is satisfied or (b) a delayed
vesting period whereby such Option may only be exercised after the lapse of a
specified period of time, such as after the expiration of one (1) year, such
vesting period shall be accelerated upon the occurrence of a Change of Control
(as hereinafter defined) of the Company, or a threatened Change of Control of
the Company as determined by the Committee, so that such Option shall thereupon
become exercisable immediately in part or its entirety by the holder thereof, as
such holder shall elect. For the purposes of this Plan, a "Change of Control"
shall be deemed to have occurred if:
<PAGE>
(i) Any "person", including a "group" as
determined in accordance with Section 13(d)(3) of the
Securities Exchange Act of 1934 ("Exchange Act") and
the Rules and Regulations promulgated thereunder, is
or becomes, through one or a series of related
transactions or through one or more intermediaries,
the beneficial owner, directly or indirectly, of
securities of the Company representing 25% or more of
the combined voting power of the Company's then
outstanding securities, other than a person who is
such a beneficial owner on the effective date of the
Plan and any affiliate of such person;
(ii) As a result of, or in connection with, any tender offer or exchange offer,
merger or other business combination, sale of assets or contested election, or
any combination of the foregoing transactions ("Transaction"), the persons who
were Directors of the Company before the Transaction shall cease to constitute a
majority of the Board of Directors of the Company or any successor to the
Company; (iii) Following the effective date of the Plan, the Company is merged
or consolidated
with another corporation and as a result of such
merger or consolidation less than 40% of the
outstanding voting securities of the surviving or
resulting corporation shall then be owned in the
aggregate by the former stockholders of the Company,
other than (x) any party to such merger or
consolidation, or (y) any affiliates of any such
party;
(iv) A tender offer or exchange offer is made and
consummated for the ownership of securities of the
Company representing 25% or more of the combined
voting power of the Company's then outstanding voting
securities; or
(v) The Company transfers more than 50% of its assets, or the last of a series
of transfers result in the transfer of more than 50% of the assets of the
Company, to another corporation that is not a wholly-owned corporation of the
Company. For purposes of this subsection 8(c)(6)(v), the determination of what
constitutes more than 50% of the assets of the Company shall be determined based
on the sum of the values attributed to (i) the Company's real property as
determined by an independent appraisal thereof, and (ii) the net book value of
all other assets of the Company, each taken as of the date of the Transaction
involved.
In addition, upon a Change of Control, any Options
previously granted under the Plan to the extent not already
exercised may be exercised in whole or in part either
immediately or at any time during the term of the Option as
such holder shall elect.
(d) Option Prices.
(1) Nonqualified Options. The purchase price or prices of the
shares of the Common Stock which shall be offered to any
person under the Plan and covered by a Nonqualified Option
shall be the price determined by the Committee at the time of
granting of the Nonqualified Option, which price may be less
than, equal to or higher than one hundred ten percent (110%)
of the fair market value of the Common Stock at the time of
granting the Nonqualified Option.
(2) Incentive Options. The purchase price or prices of the shares of the Common
Stock which shall be offered to any person under the Plan and covered by an
Incentive Option shall be one hundred ten percent (110%) of the fair market
value of the Common Stock at the time of granting the Incentive Option or such
higher purchase price as may be determined by the Committee at the time of
granting the Incentive Option. (3) Determination of Fair Market Value. During
such time as the Common Stock of the Company is not listed upon an established
stock exchange, the fair market value per share shall be deemed to be the
closing sales price of the Common Stock on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") on the day the Option
is granted, as reported by NASDAQ, if the Common Stock is so quoted, and if not
so quoted, the mean between dealer "bid" and "ask," prices of the Common Stock
in the New York over-the-counter market on the day the Option is granted, as
reported by the National Association of Securities Dealers, Inc. If the Common
Stock is listed upon an established stock exchange or exchanges, such fair
market value shall be deemed to be the highest closing price of the Common Stock
on such stock exchange or exchanges on the day the Option is granted or, if no
sale of the Common Stock of the Company shall have been made on established
stock exchange on such day, on the next preceding day on which there was a sale
of such stock. If there is no market price for the Common Stock, then the Board
of Directors and the Committee may, after taking all relevant facts into
consideration, determine the fair market value of the Common Stock. (e) Exercise
of Options. To the extent that a holder of an
Option has a current right to exercise, the Option may be
exercised from time to time by written notice to the Company
at its principal place of business. Such notice shall state
the election to exercise the Option, the number of whole
shares in respect of which it is being exercised, shall be
signed by the person or persons so exercising the Option, and
shall contain any investment representation required by
Section 8(i) hereof. Such notice shall be accompanied by
payment of the full purchase price of such shares and by the
Option Agreement evidencing the Option. In addition, if the
Option shall be exercised, pursuant to Section 8(c)(4) or
Section 8(c)(5) hereof, by any person or persons other than
the optionee, such notice shall also be accompanied by
appropriate proof of the right of such person or persons to
exercise the Option. The Company shall deliver a certificate
or certificates representing such shares as soon as
practicable after the aforesaid notice and payment of such
shares shall be received. The certificate or certificates for
the shares as to which the Option shall have been so exercised
shall be registered in the name of the person or persons so
exercising the Option. In the event the Option shall not be
exercised in full, the Secretary of the Company shall endorse
or cause to be endorsed on the Option the number of shares
which has been exercised thereunder and the number of shares
that remain exercisable under the Option and return such
Option Agreement to the holder thereof.
<PAGE>
(f) Nontransferability of Options. An Option granted pursuant to the Plan shall
be exercisable only by the optionee or the optionee's court appointed guardian
as set forth in Section 8(c)(4) hereof during the optionee's lifetime and shall
not be assignable or transferable by the optionee otherwise than by Will or the
laws of descent and distribution. An Option granted pursuant to the Plan shall
not be assigned, pledged or hypothecated in any way (whether by operation of law
or otherwise other than by Will or the laws of descent and distribution) and
shall not be subject to execution, attachment, or similar process. Any attempted
transfer, assignment, pledge, hypothecation, or other disposition of any Option
or of any rights granted thereunder contrary to the foregoing provisions of this
Section 8(f), or the levy of any attachment or similar process upon an Option or
such rights, shall be null and void. (g) Compliance with Securities Laws. The
Plan and the grant and exercise of the rights to purchase shares hereunder, and
the Company's obligations to sell and deliver shares upon the exercise of rights
to purchase shares, shall be subject to all applicable federal and state laws,
rules and regulations, and to such approvals by any regulatory or governmental
agency as may, in the opinion of counsel for the Company, be required, and shall
also be subject to all applicable rules and regulations of any stock exchange
upon which the Common Stock of the Company may then be listed. At the time of
exercise of any Option, the Company may require the optionee to execute any
documents or take any action which may be then necessary to comply with the
Securities Act of 1933, as amended ("Securities Act"), and the rules and
regulations promulgated thereunder, or any other applicable federal or state
laws regulating the sale and issuance of securities, and the Company may, if it
deems necessary, include provisions in the stock option agreements to assure
such compliance. The Company may, from time to time, change its requirements
with respect to enforcing compliance with federal and state securities laws,
including the request for and enforcement of letters of investment intent, such
requirements to be determined by the Company in its judgment as necessary to
assure compliance with said laws. Such changes may be made with respect to any
particular Option or stock issued upon exercise thereof. Without limiting the
generality of the foregoing, if the Common Stock issuable upon exercise of an
Option granted under the Plan is not registered under the Securities Act, the
Company at the time of exercise will require that the registered owner execute
and deliver an investment representation agreement to the Company in form
acceptable to the Company and its counsel, and the Company will place a legend
on the certificate evidencing such Common Stock restricting the transfer
thereof, which legend shall be substantially as follows:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAW BUT HAVE BEEN ACQUIRED FOR THE
PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT
BE OFFERED, SOLD OR TRANSFERRED UNTIL EITHER (i) A
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR
SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE
BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) THE
COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY AND ITS COUNSEL THAT
REGISTRATION UNDER SUCH SECURITIES ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN
CONNECTION WITH SUCH PROPOSED OFFER, SALE OR
TRANSFER.
(h) Additional Provisions. The Option Agreements authorized under
the Plan shall contain such other provisions as the Committee
shall deem advisable, including, without limitation,
restrictions upon the exercise of the Option. Any such Option
Agreement with respect to an Incentive Option shall contain
such limitations and restrictions upon the exercise of the
Incentive Option as shall be necessary in order that the
option will be an "Incentive Stock Option" as defined in
Section 422 of the Code.
<PAGE>
9. Medium and Time of Payment. The purchase price of the shares of the Common
Stock as to which the Option shall be exercised shall be paid in full either (i)
in cash at the time of exercise of the Option, (ii) by tendering to the Company
shares of the Company's Common Stock having a fair market value (as of the date
of receipt of such shares by the Company) equal to the purchase price for the
number of shares of Common Stock purchased, or (iii) partly in cash and partly
in shares of the Company's Common Stock valued at fair market value as of the
date of receipt of such shares by the Company. Cash payment for the shares of
the Common Stock purchased upon exercise of the Option shall be in the form of
either a cashier's check, certified check or money order. Personal checks may be
submitted, but will not be considered as payment for the shares of the Common
Stock purchased and no certificate for such shares will be issued until the
personal check clears in normal banking channels. If a personal check is not
paid upon presentment by the Company, then the attempted exercise of the Option
will be null and void. In the event the optionee tenders shares of the Company's
Common Stock in full or partial payment for the shares being purchased pursuant
to the Option, the shares of Common Stock so tendered shall be accompanied by
fully executed stock powers endorsed in favor of the Company with the signature
on such stock power being guaranteed. If an optionee tenders shares, such
optionee assumes sole and full responsibility for the tax consequences, if any,
to such optionee arising therefrom, including the possible application of Code
Section 424(c), or its successor Code section, which negates any nonrecognition
of income rule with respect to such transferred shares, if such transferred
shares have not been held for the minimum statutory holding period to receive
preferential tax treatment.
10. Rights as a Shareholder. The holder of an Option shall have no rights as a
shareholder with respect to the shares covered by the Option until the due
exercise of the Option and the date of issuance of one or more stock
certificates to such holder for such shares. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued, except as provided in Section 12
hereof. 11. Optionee's Agreement to Serve. Each employee receiving an Option
shall, as one of the terms of the Option Agreement agree that such employee will
remain in the employ of the Company or Subsidiary for a period of at least one
(1) year from the date on which the Option shall be granted to such employee;
and that such employee will, during such employment, devote such employee's
entire time, energy, and skill to the service of the Company or a Subsidiary as
may be required by the management thereof, subject to vacations, sick leaves,
and military absences. Such employment, subject to the provisions of any written
contract between the Company or a Subsidiary and such employee, shall be at the
pleasure of the Board of Directors of the Company or a Subsidiary, and at such
compensation as the Company or a Subsidiary shall reasonably determine. Any
termination of such employee's employment during the period which the employee
has agreed pursuant to the foregoing provisions of this Section 11 to remain in
employment that is either for cause or voluntary on the part of the employee
shall be deemed a violation by the employee of such employee's agreement. In the
event of such violation, any Option or Options held by such employee, to the
extent not theretofore exercised, shall forthwith terminate, unless otherwise
determined by the Committee. Notwithstanding the preceding, neither the action
of the Company in establishing the Plan nor any action taken by the Company, a
Subsidiary or the Committee under the provisions hereof shall be construed as
granting the optionee the right to be retained in the employ of the Company or a
Subsidiary, or to limit or restrict the right of the Company or a Subsidiary, as
applicable, to terminate the employment of any employee of the Company or a
Subsidiary, with or without cause.
<PAGE>
12. Adjustments on Changes in Capitalization.
(a) Changes in Capitalization. Subject to any required action by the
Shareholders
--------------------------
of the Company, the number of shares of Common Stock covered by the Plan,
the number of shares of Common Stock covered by each outstanding Option,
and the exercise price per share thereof specified in each such Option,
shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock of the Company resulting from a
subdivision or consolidation of shares or the payment of a stock dividend
(but only on the Common Stock) or any other increase or decrease in the
number of such shares effected without receipt of consideration by the
Company after the date the Option is granted, so that upon exercise of the
Option, the optionee shall receive the same number of shares the optionee
would have received had the optionee been the holder of all shares subject
to such optionee's outstanding Option immediately before the effective date
of such change in the number of issued shares of the Common Stock of the
Company.
(b) Reorganization, Dissolution or Liquidation. Subject to any required action
by the Shareholders of the Company, if the Company shall be the surviving
corporation in any merger or consolidation, each outstanding Option shall
pertain to and apply to the securities to which a holder of the number of shares
of Common Stock subject to the Option would have been entitled. A dissolution or
liquidation of the Company or a merger or consolidation in which the Company is
not the surviving corporation, shall cause each outstanding Option to terminate
as of a date to be fixed by the Committee (which date shall be as of or prior to
the effective date of any such dissolution or liquidation or merger or
consolidation); provided, that not less than thirty (30) days written notice of
the date so fixed as such termination date shall be given to each optionee, and
each optionee shall, in such event, have the right, during the said period of
thirty (30) days preceding such termination date, to exercise such optionee's
Option in whole or in part in the manner herein set forth. (c) Change in Par
Value. In the event of a change in the Common Stock of the Company as presently
constituted, which change is limited to a change of all of its authorized shares
with par value into the same number of shares with a different par value or
without par value, the shares resulting from any change shall be deemed to be
the Common Stock within the meaning of the Plan. (d) Notice of Adjustments. To
the extent that the adjustments set forth in the foregoing paragraphs of this
Section 12 relate to stock or securities of the Company, such adjustments, if
any, shall be made by the Committee, whose determination in that respect shall
be final, binding and conclusive, provided that each Incentive Option granted
pursuant to this Plan shall not be adjusted in a manner that causes the
Incentive Option to fail to continue to qualify as an "Incentive Stock Option"
within the meaning of Section 422 of the Code. The Company shall give timely
notice of any adjustments made to each holder of an Option under this Plan and
such adjustments shall be effective and binding on the optionee. (e) Effect Upon
Holder of Option. Except as hereinbefore expressly provided in this Section 12,
the holder of an Option shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class or the payment of any stock
dividend or any other increase or decrease in the number of shares of stock of
any class by reason of any dissolution, liquidation, merger, reorganization, or
consolidation, or spin-off of assets or stock of another corporation, and any
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of Common
Stock subject to the Option. Without limiting the generality of the foregoing,
no adjustment shall be made with respect to the number or price of shares
subject to any Option granted hereunder upon the occurrence of any of the
following events: (1) The grant or exercise of any other options which may be
granted or exercised under any qualified or nonqualified stock
option plan or under any other employee benefit plan of the
Company whether or not such options were outstanding on the
date of grant of the Option or thereafter granted;
(2) The sale of any shares of Common Stock in the Company's initial or any
subsequent public offering, including, without limitation, shares sold upon the
exercise of any overallotment option granted to the underwriter in connection
with such offering; (3) The issuance, sale or exercise of any warrants to
purchase shares of Common Stock whether or not such warrants were outstanding on
the date of grant of the Option or thereafter issued; (4) The issuance or sale
of rights, promissory notes or other securities convertible into shares of
Common Stock in accordance with the terms of such securities ("Convertible
Securities") whether or not such Convertible Securities were outstanding on the
date of grant of the Option or were thereafter issued or sold; (5) The issuance
or sale of Common Stock upon conversion or exchange of any Convertible
Securities, whether or not any adjustment in the purchase price was made or
required to be made upon the issuance or sale of such Convertible Securities and
whether or not such Convertible Securities were outstanding on the date of grant
of the Option or were thereafter issued or sold; or (6) Upon any amendment to or
change in the terms of any rights or warrants to subscribe for or purchase, or
options for the purchase of, Common Stock or Convertible Securities or in the
terms of any Convertible Securities, including, but not limited to, any
extension of any expiration date of any such right, warrant or option, any
change in any exercise or purchase price provided for in any such right, warrant
or option, any extension of any date through which any Convertible Securities
are convertible into or exchangeable for Common Stock or any change in the rate
at which any Convertible Securities are convertible into or exchangeable for
Common Stock. (f) Right of Company to Make Adjustments. The grant of an Option
pursuant to the
Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassification, reorganizations, or changes of its
capital or business structure or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or any part of its
business or assets.
<PAGE>
13. Investment Purpose. Each Option under the Plan shall be granted on the
condition that the purchase of the shares of stock thereunder shall be for
investment purposes, and not with a view to resale or distribution; provided,
however, that in the event the shares of stock subject to such Option are
registered under the Securities Act or in the event a resale of such shares of
stock without such registration would otherwise be permissible, such condition
shall be inoperative if in the opinion of counsel for the Company such condition
is not required under the Securities Act or any other applicable law,
regulation, or rule of any governmental agency.
14. No Obligation to Exercise Option. The granting of an Option shall impose no
obligation upon the optionee to exercise such Option. 15. Modification,
Extension, and Renewal of Options. Subject to the terms and conditions and
within the limitations of the Plan, the Committee and the Board of Directors may
modify, extend or renew outstanding Options granted under the Plan, or accept
the surrender of outstanding Options (to the extent not theretofore exercised).
Neither the Committee nor the Board of Directors shall, however, modify any
outstanding Options so as to specify a lower price or accept the surrender of
outstanding Options and authorize the granting of new Options in substitution
therefor specifying a lower price. Notwithstanding the foregoing, however, no
modification of an Option shall, without the consent of the optionee, alter or
impair any rights or obligations under any Option theretofore granted under the
Plan. 16. Effective Date of the Plan. The Plan shall become effective on the
date of execution hereof, which date is the date the Board of Directors approved
and adopted the Plan ("Effective Date"); provided, however, if the Shareholders
of the Company shall not have approved the Plan by the requisite vote of the
Shareholders, within twelve (12) months after the Effective Date, then the Plan
shall terminate and all Options theretofore granted under the Plan shall
terminate and be null and void. 17. Termination of the Plan. This Plan shall
terminate as of the expiration of ten (10) years from the Effective Date.
Options may be granted under this Plan at any time and from time to time prior
to its termination. Any Option outstanding under the Plan at the time of its
termination shall remain in effect until the Option shall have been exercised or
shall have expired. 18. Amendment of the Plan. The Plan may be terminated at any
time by the Board of Directors of the Company. The Board of Directors may at any
time and from time to time without obtaining the approval of the Shareholders of
the Company or a Subsidiary, modify or amend the Plan (including such form of
Option Agreement as hereinabove mentioned) in such respects as it shall deem
advisable in order that the Incentive Options granted under the Plan shall be
"Incentive Stock Options" as defined in Section 422 of the Code or to conform to
any change in the law, or in any other respect which shall not change: (a) the
maximum number of shares for which Options may be granted under the Plan, except
as provided in Section 14 hereof; or (b) the option prices other than to change
the manner of determining the fair market value of the Common Stock for the
purpose of Section 8(d) hereof to conform with any then applicable provisions of
the Code or regulations thereunder; or (c) the periods during which Options may
be granted or exercised; or (d) the provisions relating to the determination of
persons to whom Options shall be granted and the number of shares to be covered
by such Options; or (e) the provisions relating to adjustments to be made upon
changes in capitalization. The termination or any modification or amendment of
the Plan shall not, without the consent of the person to whom any Option shall
theretofore have been granted, affect that person's rights under an Option
theretofore granted to such person. With the consent of the person to whom such
Option was granted, an outstanding Option may be modified or amended by the
Committee in such manner as it may deem appropriate and consistent with the
requirements of this Plan applicable to the grant of a new Option on the date of
modification or amendment. 19. Withholding. Whenever an optionee shall recognize
compensation income as a result of the exercise of any Option granted under the
Plan, the optionee shall remit in cash to the Company or Subsidiary the minimum
amount of federal income and employment tax withholding which the Company or
Subsidiary is required to remit to the Internal Revenue Service in accordance
with the then current provisions of the Code. The full amount of such
withholding shall be paid by the optionee simultaneously with the award or
exercise of an Option. 20. Indemnification of Committee. In addition to such
other rights of indemnification as they may have as Directors or as members of
the Committee, the members of the Committee shall be indemnified by the Company
against the reasonable expenses, including attorneys' fees actually and
necessarily incurred in connection with the defense of any action, suit or
proceedings, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Option granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Committee member is liable for negligence or misconduct in
the performance of his duties; provided that within sixty (60) days after
institution of any such action, suit or proceeding a Committee member shall in
writing offer the Company the opportunity, at its own expense, to pursue and
defend the same. 21. Application of Funds. The proceeds received by the Company
from the sale of Common Stock pursuant to Options granted hereunder will be used
for general corporate purposes. 22. Governing Law. This Plan shall be governed
and construed in accordance with the laws of the state of incorporation of the
Company.
<PAGE>
EXECUTED this ______ day of ____________1998.
WOODHAVEN HOMES, INC.
By: ______________________________
Richard D. Laxton
Chief Executive Officer and Director
GAEDEKE REALTY
A TEXAS LIMITED LIABILITY COMPANY
May 29, 1996
Mr. Mark Johns
Woodhaven Homes, Ltd.
4601 Langland #104
Dallas, TX 75244
RE: Lease Agreement by and between Gaedeke Holdings, Ltd., Landlord, and
Woodhaven Homes, Ltd., Tenant
Dear Mark:
Enclosed please find a fully executed original of the above referenced Lease
Agreement for your files.
Mark, we appreciate having Woodhaven Homes, Ltd. as a Tenant at Oak Lawn
Plaza and look forward to serving you in the years to come. The
construction documents are being prepared and will be complete on Monday,
June 3, 1996. If I can be of further service to you, please contact me at
214/528-0133 ext. 222
Sincerely,
GAEDEKE LANDERS, LLC
AS AGENT FOR GAEDEKE HOLDINGS, LTD.
Michael J. Haase
Director of Leasing
MJH/je
Enclosures
<PAGE>
BASIC LEASING INFORMATION
Lease Date: ______________________________
Tenant: WOODHAVEN HOMES, LTD.
Address of Tenant: 4601 Langland #104
Dallas, Texas 75244
Contact: Mark Johns Telephone: 214-960-1888
Landlord: GAEDEKE HOLDINGS, LTD.
Address of Landlord: 2501 Oak Lawn
Suite 445
Dallas, Texas 75219
Contact: Jeff Price Telephone: 214-559-7230
214-559-2537 fax
Demised Premises: Suite No. 550, which is located in office building to be
(or which has been) Constructed and known as Oak Lawn Plaza (the
"Building") located at 2501 Oak Lawn Dallas, Dallas County, Texas.
Lease Term: The period commencing on June 29, 1996, (the "Commencement
Date") or on such earlier date as Tenant may occupy the Demised Premises
with Landlord's prior written consent and continuing for fifty (50)
calendar months after the Commencement Date; provided, however, if the term
of this Lease is deemed to have commenced on a date other than the first
day of a calendar month, the Lease Term shall consist of fifty (50)
calendar months in addition to the remainder of the calendar month during
which the Lease is deemed to have commenced.
<PAGE>
Base Rental: Mo. 1 $8,024.00 per month
Mo. 2 -0-
Mos. 3-12 $8,024.00 per month
Mo. 13 -0-
Mos. 14-24 $8,024.00 per month
Mos. 25-50 $8, 345.00 per month
Security Deposit: $8,024.00
Net Rentable Area
in the Building: 128,337 NRSF
Net Rentable Area
in Demised Premises: 7,703 NRSF
Permitted Use: General Office Use and Title Company Fee Office
<PAGE>
The foregoing Basic Lease Information is hereby incorporated into and made a
part of the Lease identified hereinabove. Each reference in the Lease to any of
the information and definitions set forth in the Basic Lease Information shall
mean and refer to the information and definitions hereinabove set forth and
shall be used in conjunction with and limited by all references thereto in the
provisions of the Lease. In the event of any conflict between any Basic Lease
Information and the Lease, the Lease shall control.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS AND BASIC PROVISIONS......................................................................... 1
2. LEASE GRANT.............................................................................................. 2
3. BASE RENTAL.............................................................................................. 2
4. BASE RENTAL ADJUSTMENT................................................................................... 2
5. SECURITY DEPOSIT......................................................................................... 7
6. USE...................................................................................................... 7
7. LANDLORD'S OBLIGATIONS................................................................................... 7
8. TENANT'S REPAIRS AND ALTERATIONS......................................................................... 8
9. INDEMNITY................................................................................................ 9
10. ASSIGNMENT AND SUBLETTING................................................................................ 9
11. INSPECTION............................................................................................... 10
12. SUBORDINATION............................................................................................ 10
13. LEASEHOLD IMPROVEMENTS................................................................................... 11
14. MECHANIC'S LIEN.......................................................................................... 11
15. SUBROGATION.............................................................................................. 11
16. INSURANCE................................................................................................ 11
17. CONDEMNATION............................................................................................. 12
18. FIRE & OTHER CASUALTY.................................................................................... 12
19. HOLDING OVER............................................................................................. 12
20. TAXES ON TENANT'S PROPERTY............................................................................... 13
21. EVENTS OF DEFAULT........................................................................................ 13
22. REMEDIES................................................................................................. 13
23. SURRENDER OF PREMISES.................................................................................... 14
24. ATTORNEY'S FEES.......................................................................................... 15
25. LANDLORD'S LIEN.......................................................................................... 15
26. QUIET ENJOYMENT.......................................................................................... 15
27. NOTICES.................................................................................................. 15
28. FORCE MAJEURE............................................................................................ 16
29. LEGAL INTERPRETATION..................................................................................... 16
30. AMENDMENTS; BINDING EFFECT............................................................................... 16
31. RULES AND REGULATIONS.................................................................................... 16
32. SUBSTITUTION OF SPACE.................................................................................... 16
33. EXHIBITS AND ATTACHMENTS................................................................................. 16
34. GENDER................................................................................................... 17
35. CAPTIONS................................................................................................. 17
36. PREPAYMENTS.............................................................................................. 17
37. TENANT'S REMEDIES........................................................................................ 17
38. CHANGE OF BUILDING NAME.................................................................................. 17
39. ESTOPPEL CERTIFICATIONS.................................................................................. 17
40. JOINT AND SEVERAL LIABILITY.............................................................................. 17
41. CERTAIN RIGHTS RESERVED BY LANDLORD...................................................................... 17
42. NOTICE TO LENDER......................................................................................... 18
43. LOSS OR THEFT............................................................................................ 18
44. PARKING.................................................................................................. 18
45. LANDLORD'S PERFORMANCE OF TENANT'S OBLIGATIONS........................................................... 19
46. RECORDATION.............................................................................................. 19
47. SURRENDER OF DEMISED PREMISES............................................................................ 19
48. LIGHT AND AIR............................................................................................ 19
49. MISCELLANEOUS............................................................................................ 19
50. NON-DISCLOSURE CLAUSE.................................................................................... 20
51. ENVIRONMENTAL MATTERS.................................................................................... 20
52. COMPLIANCE WITH LAWS AND REGULATIONS..................................................................... 21
53. AMERICANS WITH DISABILITIES ACT AND TEXAS ARCHITECTURAL BARRIER STATUTE.................................. 22
</TABLE>
<PAGE>
EXHIBITS
EXHIBIT A..........................DEMISED PREMISES
EXHIBIT B... ....................... ...RULES AND REGULATIONS
EXHIBIT C.......... ..................WORK LETTER AGREEMENT
EXHIBIT D..... ...............................LEGAL DESCRIPTION
EXHIBIT E.. ....... .. ..................PARKING AGREEMENT
EXHIBIT F....... .... ...........RIGHTS OF FIRST REFUSAL
<PAGE>
LEASE
THIS LEASE AGREEMENT (the "Lease") is made and entered into as of
______________,1996 in multiple copies, between GAEDEKE HOLDINGS, LTD.,
("Landlord") and WOODHAVEN HOMES, LTD. (Tenant").
1. DEFINITIONS AND BASIC PROVISIONS
The definitions and basic provisions set forth in the Basic Lease
Information (the "Basic Lease Information") executed by Landlord and
Tenant contemporaneously herewith are incorporated herein by reference
for all purposes and shall be used in conjunction with and limited by
the reference thereto in the provisions of this Lease. In the event of
any conflict between any provision of the Basic Lease Information and
this Lease, this Lease shall control. The definitions of certain
additional terms used in this Lease are set forth below and in the
Building Rules and Regulations attached hereto as Exhibit "B"; those
respective terms as used herein shall be given their defined meaning.
a. "Building shall mean that certain 8-story office building which has been
constructed on the Site.
b. "Building Standards" or "Building Standard" shall mean such
standards applicable to the Building, as determined by
Landlord in its sole discretion, taking into account similar
standards applicable to the operation of other Class "A"
buildings of the same quality and character of, and in the
general vicinity as, the Building.
c. "Non-Building Standards" or "Non-Building Standard" Tenant
Improvement items shall include, but not be limited to, the
following: any plumbing within the Demised Premises; any glass
doors at the entrance of the Demised Premises or within the
Demised Premises; any glass or mirrors within the Demised
Premises; millwork; draperies; ceiling fans; appliances such
as, but not limited to, microwaves, dishwashers,
refrigerators, icemakers; flooring other than building
standard carpeting; wall coverings; sconces, canned lights or
other specialized lighting.
d. "Commencement Date" shall mean the date the Demised Premises are
ready for occupancy, as certified to by Landlord's architect or agent. The
existence of minor work (punch list items) to be performed within the
Demised Premises will not justify refusal of Landlord's architect or agent
to certify that the Demised Premises are ready for occupancy or the refusal
of Tenant forthwith to accept the Demised Premises, or delay the
Commencement Date. If this Lease is executed before the Demised Premises
become vacant, or otherwise available and ready for occupancy, or if any
present Tenant or occupant of the Demised Premises holds over and Landlord
cannot acquire possession of the Demised Premises prior to the Commencement
Date of this Lease, Landlord shall not be deemed to be in default
hereunder, and Tenant agrees to accept possession of the Demised Premises
on such date as Landlord is able to tender same, which date shall be deemed
to be the Commencement Date for all purposes; however, no later than
ninety(90) days from full execution of the Lease. At such time as the
Landlord's architect or agent certifies that the Demised Premises are ready
for occupancy, Landlord and Tenant shall execute a memorandum reciting the
date from and after which Base Rental will be due Landlord, which
memorandum shall then become a supplement to this Lease.
e. Demised Premises" shall mean all of the space of the Building
leased pursuant to the terms and provisions of this Lease,
located on Floor Five (5), Suite 550 of the Building, all as
shown and outlined as the outline of Demised Premises on the
floor plan or plans of such premises attached hereto as
Exhibit `A".
f. "Net Rentable Area" (NRA) of the Leased Premises shall mean
the gross area within the inside surface of the outer glass of
the exterior walls, to the mid-point of any walls separating
portions of the Leased Premises from those of adjacent tenants
and to the inside surface of walls separating the Leased
Premises from Common and Service areas, multiplied by a factor
of 13.7% which represents the relationship of the Leased
Premises to the common areas of the building
The total net rentable area of the building is 128, 337 square feet.
g. "Project' shall mean the Site, the Building, any parking
garage located on the Site and all other improvements located
on the Site.
h. "Site" shall mean the land upon which the building is situated.
i. "Trade Fixtures" shall mean any and all signs placed by Tenant
within the Demised Premises pursuant to provisions hereof and
any and all items of property used by Tenant in the Demised
Premises, including but not limited to furniture and
equipment. The term Trade Fixtures shall not include any
permanent leasehold improvements (all of which are permanent
leasehold improvements, as between Landlord upon the
incorporation in or affixation to the Demised Premises)
including but not limited to any floor, wall or ceiling
coverings, and interior walls or partitions, any lighting
fixtures, or any property a part of or associated with any
electrical, plumbing or mechanical system, notwithstanding
that the same may have been installed within the Demised
Premises.
2. LEASE GRANT
Landlord, in consideration of the covenants and agreements to be
performed by Tenant and upon the terms and conditions hereinafter
stated, does hereby lease, demise and let unto Tenant and the Demised
Premises, as defined in the Basic Lease Information and generally
outlined on the Outline of Demised Premises attached hereto as Exhibit
"A", commencing on the Commencement Date and ending on the last day of
the Lease Term unless sooner terminated as herein provided. By
occupying the Demised Premises, Tenant shall be deemed to have accepted
the same as suitable for the purposes herein intended and to have
acknowledged that the same comply fully with Landlord's obligations,
notwithstanding that certain "punch list" type items may not have been
completed.
3. BASE RENTAL
Tenant hereby agrees to pay base rental (herein referred to as the
"Base Rental") in the sum of (See "Base Rental on Basic Leasing
Information Page) per month and any adjustments thereto made pursuant
to Paragraphs 4 and S of this Lease. The Tenant shall also pay, as
additional rent, all such other sums of money as shall become due and
payable by Tenant to Landlord under the terms of this Lease. The Base
Rental shall be due and payable on the first day of each calendar month
during the Lease Term, at Landlord's address as provided herein (or at
such other address as may be designated by Landlord from time to time).
If the Commencement Date is a day other than the first day of a
calendar month or in the event this Lease terminates on other than the
last day of a calendar month, then the Base Rental for such month or
months shall be prorated and the amount so prorated shall be paid by
Tenant to Landlord in advance.
If Tenant fails to pay any regular monthly installment of rent by the
fifth (5th) day of the month in which the installment is due, or any
other sum of money owed Landlord within five (5) days after accrual
thereof or billing therefore, there shall be added to such unpaid
amount a late charge of ten percent (10%) of the installment or amount
due in order to compensate Landlord for extra administrative expenses
incurred.
4. BASE RENTAL ADJUSTMENT
The Base Rental shall be adjusted from time to time in accordance with
the following provisions:
a. The Base Rental includes a component allocable to Operating
Costs per month equal to 1996 Base Year per square foot of Net
Rentable Area in the Building. This amount is an estimate of
Operating Costs per month as if the Building were in operation
on the date of this Lease.
b. Prior to each January 1 during the Lease Term, or as soon
thereafter as possible, Landlord shall provide an estimate of
Operating Costs per month for the forthcoming calendar year.
If this estimate exceeds the original 1996 Base Year per
square foot of Net Rentable Area in the Building, then the
Base Rental for each such calendar month during the
forthcoming calendar year shall be adjusted upward by an
amount equal to the product of such excess times the Net
Rentable Area of the Demised Premises.
c. On or before June 1 of each year during the Lease Term and on
or before the next succeeding first day of June after the
expiration of the Lease Term, or as soon thereafter as
possible, Landlord shall furnish to Tenant a statement of
Operating Costs for the previous calendar year and
reconciliation payments or a credit, if any, shall be made as
follows:
i. If the actual Operating Costs per square foot of the
Net Rentable Area of the Building exceed the
estimated Operating Costs per square foot of the Net
Rentable Area of the Building for the previous
calendar year or the original 1996 Base Year per
square foot estimate, whichever is greater, Tenant
shall pay Landlord a lump sum payment, within thirty
(30) days of the delivery of Landlord's statement,
equal to the product of such excess times the Net
Rentable Area of the Demised Premises; or
ii. If the estimated Operating Costs per square foot of
Net Rentable Area of the Building for the previous
calendar year exceed the actual Operating Costs per
square foot of Net Rentable Area of the Building for
the previous calendar year or the original 1996 Base
Year per square foot estimate, whichever is greater,
Landlord shall either credit against the next
succeeding installments of the Base Rental or other
sums due hereunder or within thirty (30) days of the
delivery of Landlord's statement, pay Tenant an
amount equal to the product of such excess times the
Net Rentable Area of the Demised Premises.
The effect of this reconciliation payment or credit
is that Tenant will pay during the Lease Term its
share of Operating Costs increases over the original
1996 Base Year per square foot estimate and no more.
d. Notwithstanding any other provision herein to the contrary, if
fewer than 95% of the total rentable square feet in the
Building is occupied by tenant(s) or Landlord is not supplying
services to 95% of the total rentable square feet in the
Building at any time during any such calendar year, Operating
Expenses for such calendar year shall be determined to be an
amount equal to the expense that would normally be expected to
be incurred had such occupancy been 95% of the Building's
total square feet of rentable area and had Landlord been
supplying services to 95% of the Building's total square feet
of rentable area throughout such calendar year.
e. In no event shall Tenant's pro rata share of the excess
(excluding taxes, insurance, and utilities) in any Calendar
Year increase by more than eight percent (8%) over Tenant's
pro rata share of actual operating expenses (excluding taxes,
insurance, and utilities) in the previous Calendar Year.
f. If the Lease Term has commenced, terminated or expired on any
day other than the first day of a calendar year, the
calculations with respect to the reconciliation payment or
credit described in (d) above shall be prorated accordingly.
The obligation of Landlord to Tenant makes such reconciliation
payment or credit shall survive the termination or expiration
of this Lease.
g. `Operating Costs" shall mean all operating expenses of the
Project and shall consist of all expenditures by Landlord to
maintain all of the Project in operation at the beginning of
the Lease Term in subsequent years as may be determined by
Landlord to be necessary or beneficial for the operation of
the Project. The term "operating expenses" as used herein
shall mean all expenses, costs and disbursements (but not
replacement of capital investment items nor specific costs
specifically billed to and paid by specific tenants) of every
kind and nature which Landlord shall pay or become obligated
to pay because of or in connection with the ownership or
operation of the Project, including but not limited to, the
following:
i. Wages and salaries of all employees engaged in
operation and maintenance or security of any part of
the Project, including, taxes, insurance and benefits
relating to such employees.
ii. All supplies and materials used in operating and
Maintenance of any part of the project.
iii. Cost of all utilities for the Project.
iv. Cost of all maintenance, janitorial, security and
service agreements for the Project, and the equipment
therein, including alarm service, window cleaning and
elevator maintenance.
v. Cost of all insurance relating to the Project
including cost of casualty and liability insurance
and Landlord's personal property used in connection
therewith.
vi. All taxes and assessments and governmental charges
whether federal, state, county or municipal, and
whether they be by taxing districts or authorities
presently taxing any part of the Project or by
others, subsequently created or otherwise, and any
other taxes or assessments attributable to the
Project or its operations. Tenant shall be
responsible for ad valorem taxes on its personal
property and on the value of leasehold improvements
to the extent that same are not Building Standard
items.
vii. Cost of repairs and general maintenance of any part
of the Project (excluding repairs and general
maintenance paid by proceeds of insurance or by
Tenant or other third parties, and alterations
attributable solely to tenants of the Building other
than Tenant) including, without limitation,
landscaping of any part of the Project.
viii. Purchase and installation and purchase of capital
investment items which are primarily for the purpose
of reducing operating costs or which may be required
by and governmental authority. All such costs shall
be amortized over the reasonable life of the capital
investment items, with the reasonable life and
amortization schedule being determined in accordance
with generally accepted accounting principles and in
no event to extend beyond the reasonable life of the
Building or other part of the Project to which such
costs are related.
ix. Landlords central accounting and overhead costs
applicable to the Project. All fees, costs and
charges paid to any persons or entity who manage any
part of the Project.
h. Exclusions from Operating Expenses:
(i) Capital Improvements.
(a) Costs incurred by Landlord for alterations,
additions, and replacements which are considered
capital expenditures under generally accepted
accounting principles, consistently applied, except
to the extent that they are incurred primarily to
effect a reduction in operating expenses of the
building, but only to the extent of said annual cost
savings.
(b) Depreciation and amortization, except that a
reasonable amortization charge, not to exceed the
amount of the annual cost savings, may be taken on
account of capital expenditures incurred primarily to
effect a reduction in operating expenses of the
building.
(c) All other costs of a capital nature, including, but
not limited to, capital equipment and capital tools,
all in conformity with generally accepted accounting
principles consistently applied except to the extent
that they are incurred primarily to effect a
reduction in operating expenses of the building but
only to the extent of said annual cost savings.
(d) Costs of correcting defects in the building, the
parking facilities or the equipment used therein and
the replacement of defective equipment to the extent
such costs are covered by warranties of
manufacturers, suppliers, or contractors, or are
otherwise borne by parties other than landlord,
except that conditions resulting from ordinary wear
and tear will not be deemed defects for the purpose
of this category.
(f) Costs of repairs or other work occasioned by fire,
windstorm, or other casualty of an insurable nature,
whether or not Landlord carries such insurance, and
costs reimbursable to Landlord by governmental
authorities in eminent domain.
(g) Rental and other related expenses, if any, incurred
in leasing air conditioning systems, elevators, or
other equipment ordinarily considered to be of a
capital nature, except equipment used in providing
janitorial services and which is not affixed to the
building.
(h) Any other expenses or costs that, under generally
accepted accounting principles, consistently applied,
would not be considered a normal maintenance or
operating expense of the building, including, without
limitation, losses due to uncollected rent or fees or
reserves for bad debts.
(ii)Tenant Specific Costs.
(a) Any expenses that are/or should be separately metered
or billed directly to or separately paid by another
tenant or other third party.
(b) Costs of preparation of space, including tenant
build-out, renovating or otherwise changing,
improving, decorating, or redecorating space for new
tenants, prospective tenants, or other occupants in
the building, or vacant space in the building except
for routine, periodic repair, and replacement not
considered to be capital items under generally
accepted accounting principles, consistently applied.
(c) Costs incurred in removing the property or improvements of
former tenants or other occupants of the building.
(d) Any concessions including rental abatement, lease
buy-outs, club memberships, or other inducements
incurred by Landlord in connection with the leasing
or renewal of leases in the building.
(e) Architectural fees, leasing commissions, attorney's
fees, costs and disbursements, and other expenses
incurred in connection with negotiations or disputes
with tenants, prospective tenants or other occupants
of the building and any such expenses incurred in
connection with this lease.
(f) Specific costs incurred for third parties (including
other tenants), including without limitation, above
building standard electrical and/or janitorial,
services, and other services above building standard.
(g) All utility costs for which the Tenant directly contracts
with local utility companies.
(h) Costs incurred due to acts of Landlord, any other
tenant, or other occupant causing an increase in rate
of insurance on the building or its contents.
(iii) Penalties and Violations.
(a) Costs, fines, interest penalties, legal fees, and
costs of litigation incurred due to late payment of
taxes (except for penalties associated with
Landlord's good faith contest of real estate taxes),
utility bills, ground rentals or mortgage debt, and
other such costs incurred by Landlord's failure to
make such payments when due
(b) Penalties, fines, and other costs incurred due to
violations (or alleged violations) by Landlord, and
tenant or third party of any laws, rules,
regulations, codes, or ordinances.
(c) Costs incurred due to violations or alleged
violations by Landlord or any tenant or other
occupant of the building of the terms and conditions
of any lease or other rental arrangement covering
space in the building.
(iv)Administrative Costs.
(a) Any overhead, administrative and general office
expense other than the management fee and permitted
office expenses provided above.
(b) Overhead and profit increments paid to subsidiaries
or affiliates of Landlord for services on or to the
property, to the extent such overhead or profit
increments exceed that which would have been earned
or paid to an independent, third-party provider of
the same or similar services.
(c) Wages, salaries, and other compensation of any kind
or nature paid to any executive employees above the
grade of building manager.
(d) Profit of Landlord in the furnishing of goods and services
to the building.
(e) Costs exceeding those obtainable through competitive
bidding.
(v) Debt Service, Certain Taxes, and Ownership.
(a) Ground rentals, payment of principal and interest on
debt (and other debt costs), amortization payments on
any mortgage or mortgages executed by Landlord
covering the building (or any portion thereof) except
to the extent that any of the foregoing may include
payments or prepayments of insurance premiums or
taxes that would be included in operating expenses if
paid directly to Landlord), rental concessions and
negative cash flow guaranties.
(b) Costs incurred in connection with the sale,
refinancing, mortgaging or selling or change of
ownership of the building, including but not limited
to brokerage commissions, attorneys' and accountants'
fees, loan brokerage fees, closing costs, interest
charges, and taxes.
(c) State, local, federal, personal, and corporate income
taxes measured by the income of Landlord from all
sources or from sources other than rent alone; estate
and inheritance taxes; franchise, succession and
transfer taxes.
(d) All costs incurred by Landlord in connection with any
dispute relating to the Landlord's title to or
ownership of the property.
(vi) Marketing Costs.
(a) Advertising and promotional expenditures.
(b) Contributions to charitable organizations.
(vii) Environmental Costs. Expenses and costs relating in any way
to the identification, testing, monitoring and control,
encapsulation, removal, replacement, repair or abatement of any
hazardous materials within the building, the garage, leased
premises, or the land.
i. Audit and Contest Provision: Tenant, at Tenant's sole cost and
expense, shall have the right to be exercised by written notice given to
Landlord within thirty (30) days after receipt of the statement showing
Operating Expenses for the preceding calendar year, to audit, at the place
where Landlord maintains its books and records, Landlord's books and
records pertaining only to such Operating Expenses for such preceding
calendar year, provided such audit commences with 30 days after Tenant's
notice to Landlord and thereafter proceeds regularly and continuously to
conclusion and, provided further, that such audit does not unreasonably
interfere with the conduct of Landlord's business. Landlord agrees to
cooperate in good faith with Tenant in the conduct of any such audit. If
the audit reveals a discrepancy of 5% or more the Landlord shall (i)
reimburse Tenant for the expense of the audit, and (ii) refund to Tenant
within 30 days of the date of the audit report any overpayment made by
Tenant by reason of the discrepancy. If less than five percent (5%), Tenant
shall pay for all audit costs, including Landlord's costs.
5. SECURITY DEPOSIT
Tenant hereby agrees to pay Landlord a security deposit of Eight
Thousand Twenty-four Dollars ($8,024.00) payable on the date this Lease
is executed by Tenant. Landlord shall hold and receive the security
deposit without liability for interest. Upon default by Tenant
hereunder, Landlord may, from time to time, without prejudice to any
other remedy, use such security deposit to the extent necessary to make
good any arrears of Base Rental or any additional rent, or any other
damage, injury, expense or liability incurred by Landlord by reason of
default by Tenant. After any such application of security deposit,
Tenant shall, upon request of Landlord, pay to the Landlord the amount
so applied so as to restore the security deposit to its original
amount. Any remaining balance of such security deposit shall be
returned by Landlord to Tenant within a reasonable period of time after
the termination of this Lease. The security deposit shall not be
considered an advance payment of rental or a measure of Landlord's
damages in case of default by Tenant.
6. USE
The Demised Premises shall be used and occupied by Tenant only for the
Permitted Use, as defined in the Basic Lease Information. Tenant shall
not occupy or use, or permit to be occupied or used, any portion of the
Demised Premises for any other purpose, or for any business or purpose
which is unlawful in part or in whole or deemed to be disreputable in
any manner, or extra hazardous on account of fire, nor permit anything
to be done which will in any way increase the rate of fire insurance on
the Building or its contents, and in the event that there shall be any
increase in the rate of insurance on the Building or its contents, as a
result of Tenant's acts or conduct of business, then such Tenant shall
pay such increase to Landlord on demand, and acceptance of such payment
shall not constitute Landlord's waiver of such default of Tenant or of
any of Landlord's rights or remedies hereunder. Tenant will conduct its
business and control its agents, employees and invitees in such a
manner as not to create any nuisance, nor interfere with, annoy or
disturb other tenants or Landlord in the management of the Building.
Tenant will maintain the Demised Premises in a clean and healthful
condition.
7. LANDLORD'S OBLIGATIONS
In respect of the Demised Premises, Landlord shall use its best efforts
to furnish, or cause public utilities to furnish, to Tenant during the
Lease Term:
a. Electricity and water to be utilized in operating any and all
facilities serving the Demised Premises;
b. Hot and cold water at those points of supply provided for general
use of other tenants in the Building;
c. Central heat and air conditioning in season during Normal
Business Hours (and at the request and expense of Tenant
during other hours), at such temperatures and in such amounts
as are consistent with Building Standards;
d. Routine maintenance and electric lighting service for all
public areas and special service areas of the Building in a
manner and to the extent consistent with Building Standards;
e. Janitor service on a five (5) day week basis, excluding
holidays, at no extra charge to Tenant unless Tenant's floor
coverings or other improvements are not consistent with
Building Standards, in which case Tenant shall pay the
additional cleaning cost attributable thereto upon
presentation of a statement therefor by Landlord;
f. Personnel or equipment to maintain security for the Building;
provided, however, Landlord shall have no responsibility to
prevent, and shall not be liable to Tenant for and shall be
indemnified by Tenant against any liability or loss to Tenant,
its agents, employees and visitors arising out of losses due
to theft, burglary, or damage or injury to persons or property
caused by persons gaining access to the Building or the
Demised Premises;
g. Electrical facilities to furnish sufficient power for
typewriters, calculating machines, and other machines of
similar low electrical consumption; but not including
electricity required for photocopying machines, electrical
data processing equipment or special lighting in excess of an
amount consistent with Building Standards, and to the extent
that Tenant requires electrical power which is in excess of
Building Standard, Tenant shall pay for the use of such
additional power and metering thereof promptly upon receipt of
an invoice therefor; notwithstanding anything to the contrary
contained herein, at the time of lease commencement, Tenant's
electrical usage is not in excess of building standard.
h. All light bulbs and fluorescent tube replacements in all areas
of the Demised Premises consistent with Building Standards,
provided that Landlord's standard charge for such bulbs and
tubes shall be paid by Landlord and all incandescent bulb
replacements in public areas, toilet and rest room areas and
stairwells; and
i. Non-exclusive passenger elevator service in the Building
twenty-four (24) hours per day and non-exclusive freight
elevator service during Normal Business Hours.
Failure by Landlord to any extent to furnish or cause to be furnished
the services described in Paragraph 7 of this Lease, or any cessation
thereof, resulting from causes beyond the control of Landlord shall not
render Landlord liable in any respect for damages to either person or
property, nor be construed as an eviction of Tenant, nor result in an
abatement of rent, nor relieve Tenant from fulfillment of any covenant
or agreement contained in this Lease. Provided, however, in the event
that Landlord fails to provide water, electricity, elevator service, or
access to the premises for a period in excess of eight (8) consecutive
business days, all rent payable by Tenant under this Lease shall be
abated and waived beginning on the date of the failure and continuing
thereafter until such time as the failure is cured by Landlord.
8. TENANT'S REPAIRS AND ALTERATIONS
Tenant agrees to keep the Demised Premises, including all fixtures
installed by Tenant and any interior plate glass and special store
fronts, in good condition and make all necessary non-structural repairs
except those covered by fire, casualty or acts of God covered by
Landlord's fire insurance policy covering the Building. Tenant will not
in any manner deface, damage or injure the Building, and will pay the
cost of repairing any damage or injury done to the Building or any part
thereof, including without limitation, structural damages, by Tenant or
Tenant's agents, employees, licensees or invitees. Tenant will not make
or allow to be made any alterations or physical additions in or to the
Demised Premises including without limitation, painting, installing
lighting, decorations, signs, window or door lettering or advertising
media of any type on or about any portion of the Demised Premises
without the prior written consent of Landlord. The performance by
Tenant of its obligations to maintain and make repairs shall be
conducted only by contractors and subcontractors approved in writing by
Landlord, it being understood that Tenant shall procure and maintain
and shall cause such contractors and subcontractors engaged by or on
behalf of Tenant to procure and maintain insurance coverage against
such risks, in such amounts and with such companies as Landlord may
require in connection with any such maintenance and repair. If Tenant
fails to make such repairs within fifteen (15) days after the
occurrence of the damage or injury, Landlord may at its option make
such repair and Tenant shall, upon demand therefor, pay Landlord for
the cost thereof. At the expiration or termination of this Lease,
Tenant shall deliver up the Demised Premises with all improvements
located thereon (except as otherwise herein provided) in good repair
and condition, reasonable wear and tear excepted, and shall deliver to
Landlord all keys to the Demised Premises. All alterations, additions
or improvements (whether temporary or permanent in character) made in
or upon the Demised Premises, either by Landlord or tenant, shall be
Landlord's property on termination or expiration of this Lease and
shall remain on the Demised Premises without compensation to Tenant.
All furniture, movable trade fixtures and equipment installed by Tenant
may be removed by Tenant at the termination of expiration of this Lease
if Tenant so elects, and shall be so removed if required by Landlord,
or if not so removed shall, at the option of Landlord, become the
property of Landlord. All such installations, removals and restoration
shall be accomplished in a good and workmanlike manner so as not to
damage the Demised premises or the primary structure or structural
qualities of the building or the plumbing, electrical lines or other
utilities.
9. INDEMNITY
<PAGE>
Landlord shall not be liable for and Tenant will indemnify and save
harmless Landlord from any and all fines, suits, claims, demands, losses and
actions of any kind (including attorney's fees) for any injury to person or
damage to or loss of property on or about the Demised Premises, the building or
the land upon which the Building is situated caused by the negligence,
misconduct or any breach, violation or non-performance of any covenant hereof on
the part of Tenant, its employees, agents, subtenants, licensees, invitees or by
any other person entering the Demised Premises, the Building or the land upon
which the Building is situated, under expressed or implied invitation of Tenant,
or arising out of Tenant's use of the Demised Premises. Landlord shall not be
liable or responsible for any loss or damage to any property or person
occasioned by theft, fire, act of God, public enemy, injunction, riot, strike,
insurrection, war, court order, requisition or order of governmental body or
authority or other matter beyond the reasonable control of Landlord, or for any
damage or inconvenience which may arise through repair or alteration of any part
of the Building, or failure to make repairs, or from any cause whatever except
Landlord's gross negligence or willful wrong. Landlord agrees to indemnify and
save harmless Tenant from any amid all fines, suits, claims, demands, losses,
and actions of any kind (including attorneys' fees) for any injury to person, or
damage to or loss of property within the common areas of the Building resulting
from any occurrence within the common areas of the Building that (i) was not
proximately caused in whole or in part by the negligence of Tenant or Tenant's
employees, agents, contractors, or invitees, and (ii) was proximately caused by
the negligence of Landlord or Landlord's employees, agents, contractors, or
invitees.
10. ASSIGNMENT AND SUBLETTING
a. Tenant shall not, without prior written consent of Landlord which
will miot be unreasonably withheld, (i) assign or in any manner
transfer this Lease or any estate or interest therein, (ii) permit an
assignment of this Lease or any estate or interest therein by operation
of law, (iii) sublet the Demised Premises or any part thereof, (iv)
grant any license, concession or other right of occupancy of any
portion of the Demised Premises or (v) permit the use of the Demised
Premises by any parties other than Tenant, its agents and employees and
any such acts without Landlord's prior written consent shall be void
and of no effect. Landlord agrees to consent to any assignment by
Tenant to any corporation succeeding to substantially all the business
and assets of Tenant by merger, consolidation, purchase of assets or
otherwise, or to any assignment or subletting all the business and
assets of Tenant by merger, consolidation, purchase of assets or
otherwise, or to any assignment or subletting to a corporation which is
an affiliate of Tenant. Tenant shall not assign this Lease or sublet
all or any portion of the Demised Premises for any monthly rental which
is or could become, less than the Basic Rental from time to time due
hereunder without Landlord's consent, and any such act shall be void
and of no effect. Consent by Landlord to one or more assignments or
sublettings shall not operate as a waiver of Landlord's rights as to
any subsequent assignments and sublettings. Notwithstanding any
assignment or subletting, Tenant and any guarantor of Tenant's
obligations under this Lease shall at all times remain fully
responsible and liable for the payment of the rent herein specified and
for compliance with all of Tenant's other obligations under this Lease.
If an event of default, hereinafter defined, should occur while the
Demised Premises or any part thereof is then assigned or sublet,
Landlord, in addition to any other remedies herein provided or provided
by law, may at its option collect directly from such assignee or
sublessee all rents becoming due to Tenant under such assignment or
sublease and apply such rent against any such sums due to Landlord by
Tenant hereunder, and Tenant hereby authorizes and directs any such
assignee or sublessee to make such payments of rent directly to
Landlord upon receipt of notice from Landlord. No direct collection by
Landlord from any such assignee or sublessee shall be construed to
constitute a novation or a release of tenant or any guarantor of Tenant
from the performance of its obligations hereunder. Receipt by Landlord
of rent or additional payments from any assignee, sublessee or occupant
of the Demised Premises shall not be deemed a waiver of the covenant
contained in this Lease against assignment and subletting or a release
of Tenant under this Lease. The receipt by Landlord from any such
assignee or sublease obligated to make payments of rent or additional
payments shall be a full and complete release, discharge, and
acquittance to such assignee or sublessee to the extent of any amount
so paid to Landlord. Landlord is authorized and empowered, on behalf of
Tenant, to endorse the name of Tenant upon any check, draft, or other
instrument payable to Tenant evidencing payment of rent or additional
payments, or any part thereof, and to receive and apply the proceeds
therefrom in accordance with the terms hereof. Tenant shall not
mortgage, pledge or otherwise encumber its interest in this Lease or in
the Demised Premises.
b. If Tenant requests Landlord's consent to an assignment of this Lease
or subletting of all or a part of the Demised Premises, it shall submit
to Landlord, in writing, the name of the proposed assignee or subtenant
and the nature and character of the business of the proposed assignee
or subtenant, the term, use, rental rate and other particulars of the
proposed subletting or assignment, including, without limitation,
evidence satisfactory to Landlord that the proposed subtenant or
assignee is financially responsible and will immediately occupy and
thereafter use the Demised Premises (or any sublet portion thereof) for
the remainder of the Lease Term (or for the entire term of the
sublease, if shorter). Landlord shall have the option (to be exercised
within thirty (30) days from submission of Tenant's written request) to
cancel the applicable portion to be as of the commencement date stated
in the above-mentioned subletting or assignment. If Landlord elects to
cancel this Lease as stated, then the Lease Term, and the tenancy and
occupancy of the Demised Premises by Tenant thereunder, shall cease,
terminate, expire, and come to an end with respect to that portion of
the Demised Premises so assigned or sublet as if the cancellation date
were the original termination date of this Lease and Tenant shall pay
to Landlord all costs or charges which are the responsibility of Tenant
hereunder with respect to that portion of the Demised Premises so
assigned or sublet. Thereafter Landlord may lease the Demised Premises
or any other portion of the Building to the prospective subtenant or
assignee without liability to Tenant. If Landlord does not thus cancel
this Lease, other terms and provisions of subparagraph 10(a) hereof
will apply.
c. If Landlord consents to any subletting or assignment by Tenant as
hereinabove provided, and subsequently any rents received by Tenant
under any such sublease are in excess of the rent payable by Tenant
under this Lease, or any additional consideration is paid to Tenant by
the assignee under such assignment, the Landlord may, at its option,
either (i) declare such excess rents under any sublease or such
additional consideration for an assignment to be due and payable by
Tenant to Landlord as additional rent hereunder, or (ii) elect to
cancel this Lease as provided in subparagraph 10(b) hereof.
d. Landlord shall have the right to transfer, assign and convey, in
whole or in part, the Building and any and all of its rights under this
Lease, and in the event Landlord assigns its rights under this Lease,
Landlord shall thereby be released from any further obligations
hereunder, and Tenant agrees to look solely to such successor in
interest of the Landlord for performance of such obligations.
11. INSPECTION
Landlord, or its agents and representatives shall have the right to
enter into and upon any and all parts of the Demised Premises at all
reasonable hours with reasonable notice (or, if any emergency, at any
hour) to inspect same or clean or make repairs, alterations or
additions as Landlord may deem necessary, or to show the Demised
Premises to prospective tenants, purchasers or lenders, and Tenant
shall not be entitled to any abatement or reduction of rent by reason
thereof, or shall such be deemed to be an actual or constructive
eviction.
12. SUBORDINATION
This Lease and all rights of Tenant hereunder are subject and
subordinate to (i) any and all ground leases or underlying leases that
now or hereafter affect any portion of the Demised Premises, the
Building, or the land situated beneath the Building, and (ii) any and
all deeds of trust, mortgages and other instruments of security that
now or hereafter affect any portion of the aforesaid leases, the
Demised Premises, the Building, or the land situated beneath the
Buildings, and (iii) any and all increases, renewal, modifications,
consolidations, replacements and extensions of any such leases, deeds
of trust, mortgages or instruments of security, and all advances made
on the security of the foregoing. This provision is hereby declared by
Landlord and Tenant to be self-operative and no further instrument
shall be required to effect such subordination of this Lease. Tenant,
without expense to Landlord, shall, however, upon demand at any time or
times execute, acknowledge and deliver to Landlord any and all
instruments and certificates that in the judgement of Landlord may be
necessary or proper to confirm or evidence such subordination.
Notwithstanding the generality of the foregoing provisions of this
paragraph, Tenant agrees that any lessor or mortgagee described in this
paragraph shall have the right at any time to subordinate any such
ground leases, underlying leases, deeds of trust, mortgages or other
instruments of security to this Lease on such terms and subject to such
conditions as such lessor or mortgagee may deem appropriate in its
discretion. Tenant further covenants and agrees upon demand by
Landlord's mortgagee at any time, before or after the institution of
any proceedings for the foreclosure of any such deeds of trust,
mortgages or other instruments of security, or sale of the Building
pursuant to any such deeds of trust, mortgages or other instruments of
security, to attorn to such purchaser upon any such sale and to
recognize such purchaser as Landlord under this Lease, which covenant
shall survive any such foreclosure sale or trustee's sale. Tenant shall
upon demand at any time or times, before or after any such foreclosure
sale or trustee's sale, execute, acknowledge, and deliver to Landlord's
mortgagee any and all instruments and certificates that in the judgment
of Landlord's mortgagee may be necessary or proper to confirm or
evidence such attornment and Tenant hereby irrevocably authorizes
Landlord's mortgagee to execute, acknowledge and deliver any such
instruments and certificates on Tenant's behalf. Notwithstanding the
foregoing, Tenant shall be entitled to the continued use and occupancy
of the Demised Premises pursuant to the terms of this Lease so long as
Tenant is not in default (monetary or technical) herein.
13. LEASEHOLD IMPROVEMENTS
In preparing the Demised Premises for occupancy by Tenant, Landlord
shall be required to bear certain expenses of installing the items
indicated on Exhibit "C" attached hereto, only to the extent indicated
on said Exhibit "C". All installations, additions, and improvements to
the Demised Premises in excess thereof shall be installed at the sole
cost and expense of Tenant (which shall be payable on Landlord's
demand), but only in accordance with plans and specifications which
have been previously submitted to and approved in writing by Landlord,
such work to be performed only by Landlord or by contractors and
subcontractors approved in writing by Landlord, it being understood
that Tenant shall procure and maintain and shall cause such
contractors, subcontractors and other persons engaged by or on behalf
of Tenant to procure and maintain insurance coverage against such
risks, in such amounts and with such companies as Landlord may require
in connection with the installation of such improvements. Landlord has
made no representations as to the condition of the Demised Premises or
the Building or to remodel, repair or decorate, except as expressly set
forth herein.
14. MECHANIC'S LIENS
Tenant will not permit any mechanic's lien or liens to be placed upon
the Demised Premises or the Building during or after the Lease Term
caused by or resulting from any work performed, materials furnished or
obligation incurred by or at the request of Tenant, and in the case of
the filing of any such lien Tenant will promptly pay same. If default
in the payment thereof shall continue for twenty (20) days after
written notice thereof from Landlord to Tenant, Landlord shall have the
right and privilege at Landlord's option of paying the same or any
portion thereof without inquiry as to the validity thereof, and any
amounts so paid, including expenses and interest, shall be additional
rental hereunder due from Tenant to Landlord and shall be repaid to
Landlord immediately on demand accompanied by a bill therefor.
Notwithstanding the above, Tenant shall have the right to contest the
validity of claims after posting appropriate bond equal to one hundred
fifty percent (150%) of the claim.
15. SUBROGATION
Notwithstanding any provision in this Lease to the contrary, each party
hereto hereby waives any cause of action it might have against the
other party on account of any loss or damage that is insured against
under any insurance policy (to the extent that such loss or damage is
recoverable under such insurance policy) that covers the Building, the
Demised Premises, Landlord's or Tenant's fixtures, personal property,
leasehold improvements or business and which names Landlord or Tenant,
as the case may be, as a party insured, it being understood and agreed
that this provision is cumulative of Paragraph 9 hereof. Each party
hereto agrees that it will request its insurance carrier to endorse all
applicable policies waiving the carrier's rights of recovery under
subrogation or otherwise against the other party.
16. INSURANCE
Tenant shall procure and maintain throughout the Lease Term:
a. A policy or policies of insurance at its sole cost and expense
and in amounts of not less than a combined single limit of
$2,000, insuring Tenant and Landlord against any and all
liability to the extent obtainable for injury to or death of a
person or persons or damage to property occasioned by or
arising out of or in connection with the use, operation and
occupancy of the Demised Premises, and
b. Such other insurance with companies, on forms and in such
amounts as are acceptable to Landlord, insuring the Demised
Premises against such risks, casualties and hazards as shall
be reasonably required by Landlord.
Tenant shall furnish a certificate of insurance and such other
evidence satisfactory to Landlord of the maintenance of all
insurance coverage required hereunder, and Tenant shall obtain
a written obligation on the part of each insurance company to
notify Tenant and Landlord at least thirty (30) days prior to
cancellation or material change of any such insurance.
17. CONDEMNATION
If the whole or any substantial part of the Demised Premises, or if the
Building or any portion thereof which would leave the remainder of the
Building unsuitable for use as an office building comparable to its use
on the Commencement Date, shall be taken or condemned for any public or
quasi-public use under governmental law, ordinance or regulation or by
right of eminent domain, or by private purchase in lieu thereof, then
Landlord may, at its option, terminate this Lease and the rent shall be
abated during the unexpired portion of this Lease, effective when the
physical taking of said Demised Premises shall occur. In the event this
Lease is not terminated, the rent for any portion of the Demised
Premises so taken or condemned shall be abated during the unexpired
term of this Lease effective when the physical taking of said portion
of the Demised Premises shall occur. All compensation awarded for any
such taking or condemnation, or sale proceeds in lieu thereof, shall be
the property of Landlord, and Tenant shall have no claim thereto, the
same being hereby expressly waived by Tenant, except for any portions
of such award or proceeds which are specifically allocated by the
condemning or purchasing party for the taking of or damage to trade
fixtures of Tenant, which Tenant specifically reserves to itself.
18. FIRE & OTHER CASUALTY
In the event that the Building or Demised Premises is totally destroyed
by fire, tornado or other casualty, or is damaged to the extent that
rebuilding or repairs cannot in Landlord's reasonable estimation be
completed within one hundred eighty (180) days after the date of such
damage, Landlord may, at its option, terminate this Lease, in which
event the rent shall be abated during the unexpired portion of the
Lease Term, effective with the date of occurrence of such damage. In
the event the Building or the Demised Premises are damaged by fire,
tornado or other casualty covered by Landlord's insurance, but only to
such extent that rebuilding or repairs can in the Landlord's estimation
be completed within two hundred forty (240) days after the date of such
damage, this Lease shall not terminate and Landlord shall within thirty
(30) days after the date of such damage commence to rebuild or repair
the Building and/or the Demised Premises and shall proceed with
reasonable diligence to restore the Building and/or the Demised
Premises to substantially the condition which existed immediately prior
to the happening of the casualty, except that Landlord shall not be
required to rebuild, repair or replace any part of the partitions,
fixtures and other improvements which may have been placed by Tenant or
other tenants within the Building or the Demised Premises. Landlord
shall allow an abatement of rent during the time a portion of the
Demised Premises are unfit for occupancy. In the event any mortgagee
under a deed of trust, mortgage or instrument of security on any
portion of any ground lease or underlying lease, the Building, or the
land situated beneath the Building should require that the insurance
proceeds be used to retire the debt secured by such document, Landlord
shall have no obligation to rebuild and this Lease shall terminate upon
notice by Landlord to Tenant. Except as provided herein, any insurance
which may be carried by Landlord or Tenant against loss or damage to
the Building or to the Demised Premises shall be for the sole benefit
of the party carrying such insurance and under its sole control.
19. HOLDING OVER
In the event of any holding over by Tenant after the expiration or
termination of this Lease, unless the parties hereto otherwise agree in
writing, such holding over shall constitute and be construed as a
tenancy at will, subject to termination by Landlord at any time, or by
Tenant at any time upon at least thirty (30) days advance written
notice, and all of the other terms and provisions of this Lease shall
be applicable during that period, except that the daily rent payable by
Tenant shall be equal to the daily rent in effect for the last month of
the Lease Term, fifty percent (50%) of such amount; provided, nothing
in this Paragraph 19 shall be construed as Landlord's consent for the
Tenant to hold over.
20. TAXES ON TENANT'S PROPERTY
Tenant shall be liable for all taxes levied or assessed against
personal property, furniture, improvements, additions or fixtures
placed by Tenant in the Demised Premises. lf any such taxes for which
Tenant is liable are levied or assessed against Landlord or Landlord's
property and if Landlord elects to pay the same or if the assessed
value of Landlord's property is increased by inclusion of personal
property, furniture or fixtures placed by Tenant in the Demised
Premises, and Landlord elects to pay the taxes based on such increase,
Tenant shall pay to Landlord upon demand that part of such taxes for
which Tenant is primarily liable hereunder.
21. EVENTS OF DEFAULT
The following events shall be deemed to be events of default by Tenant
under this Lease:
a. Tenant shall fail to pay any installment of rent herein
provided for, or any other sums payable to Landlord hereunder
(or under any other lease now or hereafter executed by Tenant
in connection with other space in the Building), and such
failure shall continue for a period of five (5) days from the
due date; and after written notice from Landlord; however,
Landlord shall not be obligated to give Tenant more than two
(2) such notices per calendar year.
b. Tenant shall fail to comply with any term, provision or
covenant of this Lease (or any other lease now or hereafter
executed by Tenant in connection with other space in the
Building), other than the payment of rent or other sums
payable by Tenant, and shall not cure such failure within
twenty (20) days after written notice thereof from Landlord to
Tenant; or
c. Tenant or any guarantors of Tenant's obligations hereunder
shall make an assignment for the benefit of creditors; or
d. Tenant or any guarantors of Tenant's obligations hereunder
file a petition under any section or chapter of the Bankruptcy
Code, 11 U.S.C. ss.101 et seq., as amended or under any
similar law or statute of the United States and/or any state
thereof; or if the interest of Tenant under this Lease shall
be levied on under execution or other legal process; or if any
petition shall be filed against Tenant or any such guarantor
to declare Tenant or such guarantor a bankrupt (or a similar
proceeding), or to delay, reduce or modify any debts or
obligations of Tenant or any such guarantor; or Tenant or any
such guarantor shall be adjudged bankrupt or insolvent.
e. A receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant or any guarantor of
Tenant's obligations hereunder and such receivership shall not
be terminated or stayed within thirty (30) days; or
e. Tenant shall desert or vacate any substantial portion of the
Demised Premises for a period of five (5) days or more without
Landlord's prior written approval.
22. REMEDIES
Upon the occurrence of any event of default, Landlord shall have the
option to pursue any one or more of the following remedies, in addition
to all other rights and remedies provided at law or in equity, without
any notice or demand whatsoever:
a. Terminate this Lease in which event Tenant shall immediately
surrender the Demised Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have for
possession of the Demised Premises or arrearages in rent, enter upon and
take possession of the Demised Premises and expel or remove Tenant and any
other person who may be occupying the Demised Premises or any part thereof,
without being liable for prosecution or any claim or damages therefor; and
Tenant agrees to pay to Landlord on demand the amount of all loss and
damage which Landlord may suffer by reason of such termination, whether
through inability to relet the Demised Premises on satisfactory terms or
otherwise.
b. Enter upon and take possession of the Demised Premises and
expel or remove Tenant and any other person who may be
occupying the Demised Premises or any part thereof, by force
if necessary, without being liable for prosecution or any
claim for damages therefor, and if Landlord elects, relet the
Demised Premises and receive the rent therefor; and Tenant
agrees to pay to Landlord on demand any deficiency that may
arise by reason of such reletting.
c. Enter upon the Demised Premises without being liable for
prosecution or any claim for damages therefor, and do whatever
Tenant is obligated to do under this Lease; and Tenant agrees
that Landlord shall not be liable for any damages resulting to
the Tenant from such act ion.
d. In order to regain possession of the Demised Premises and to deny
Tenant access thereto, Landlord or its agent may, at the expense and
liability of the Tenant, alter or change any or all locks or other security
devices controlling access to the Demised Premises without posting.
Landlord shall have no obligation to provide Tenant a key or grant Tenant
access to the Demised Premises so long as Tenant is in default under this
Lease. Tenant shall not be entitled to recover possession of the Demised
Premises, terminate this Lease, or recover any actual, incidental,
consequential, punitive, statutory or other damages or award of attorneys'
fees, by reason of Landlord's alteration or change of any lock or other
security device and the resulting exclusion from the Demised Premises of
the Tenant or Tenant's agents, servants, employees, customers, licensees,
invitees or any other persons from the Demised Premises. Landlord may,
without notice, remove and either dispose or of store, at Tenant's expense,
any property belonging to Tenant that remains in the Demised Premises after
Landlord has regained possession
thereof.
No re-entry or taking possession of the Demised Premises by Landlord
shall be construed as or deemed as an election by Landlord to terminate
this Lease, unless a written notice of such intention signed by
Landlord and addressed to Tenant be delivered to Tenant.
Notwithstanding any such reletting or re-entry or taking possession,
Landlord may at any time thereafter elect to terminate this Lease for a
previous default. Pursuit of any of the foregoing remedies shall not
preclude pursuit of any of the other remedies provided for in this
Lease or any other remedies provided by law, nor shall pursuit of any
remedy provided for in this Lease constitute a forfeiture or waiver of
any rent due to Landlord hereunder or of any damages incurred by
Landlord by reason of the violation of any of the terms, provisions and
covenants herein contained. Landlord's acceptance of rent following an
event of default hereunder shall not be construed as Landlord's waiver
of such event of default. No waiver by Landlord of any violation or
breach of any of the terms, provisions and covenants herein contained
and no failure to give notice thereof shall be deemed or construed to
constitute a waiver of any other violation or default. The loss or
damage that Landlord may suffer by reason of termination of this Lease
or the deficiency from any reletting as provided for above shall
include the reasonable and necessary expense of repossession and any
repairs or remodeling undertaken by Landlord following possession
(limited to Building Standard). Should Landlord at any time terminate
this Lease for any default, in addition to any other remedy Landlord
may have, Landlord may recover from Tenant all damages Landlord may
incur by reason of such default, including the cost of recovering the
Demised Premises and the loss of rental for the remainder of the Lease
Term. Forbearance by Landlord to enforce one or more of the remedies
provided for in this Lease, or at law, upon an event of default shall
not be deemed or construed to constitute a waiver of such default or
remedies.
23. SURRENDER OF PREMISES
No act or thing done by the Landlord or its agents during the Lease
Term shall be deemed an acceptance of a surrender of the Demised
Premises, and no agreement to accept a surrender of the Demised
Premises shall be valid unless the same be made in writing and signed
by Landlord, and addressed to Tenant.
<PAGE>
24. ATTORNEY'S FEES
Should it become necessary for Landlord or Tenant, because of a default
by Tenant or Landlord hereunder, to bring any action under this Lease
or to consult or place this Lease with an attorney concerning or for
the enforcement of any of Landlord's or Tenant's rights hereunder,
Tenant and Landlord agree to pay reasonable attorney's fees, court
cost, and administrative cost of the prevailing party.
25. LANDLORD'S LIEN
In addition to any statutory landlord's lien, Landlord shall have, and
Tenant does hereby grant to Landlord, at all times, a valid security
interest and lien to secure payment of all rent and other sums of money
becoming due hereunder from Tenant, and to secure payment of any
damages or loss which Landlord may suffer by reason of the breach by
Tenant of any covenant, agreement or condition contained herein, upon
all goods, equipment, fixtures, furniture, improvements and other
personal property of Tenant presently, or which may hereinafter be
situated within the Demised Premises, and all proceeds therefrom, and
such property shall not be removed from the Demised Premises without
the consent of Landlord until all arrearages in rent, as well as any
and all other sums of money then due to Landlord hereunder, shall first
have been paid and discharged and all the covenants, agreements and
conditions hereof have been fully complied with and performed by
Tenant. In the event of a default by Tenant hereunder, Landlord may, in
addition to any other remedies provided elsewhere herein, enter upon
the Demised Premises and take possession of any and all goods,
equipment, fixtures, furniture, improvements and other personal
property of Tenant situated within the Demised Premises, without
liability for trespass or conversion, and sell the same at public or
private sale, with or without having such property at the sale, after
giving Tenant reasonable notice of the time and place of any public
sale or of the time after which any private sale is to be made, at
which sale the Landlord or its assigns may purchase any of such
property unless otherwise prohibited by law. Unless otherwise provided
by law, and without intending to exclude any other manner of giving
Tenant reasonable notice, the requirement of reasonable notice shall be
met if such notice is given in the manner prescribed in Paragraph 27 of
this Lease at least ten (10) days before the time of sale. The proceeds
from any such disposition, less any and all expenses connected with the
taking of possession, holding and selling of the property (including
reasonable attorneys' fees and legal expenses) shall be applied as a
credit against the indebtedness secured by the security interest and
lien granted in this paragraph. Any surplus shall be paid by Tenant or
as otherwise required by law, and Tenant shall pay any deficiencies
forthwith. Upon request by Landlord, Tenant agrees to execute and
deliver to Landlord a financing statement in form sufficient to perfect
the security interest of Landlord in the aforementioned property and
proceeds thereof under the provisions of the Uniform Commercial Code in
force in the State of Texas. Any statutory lien for rent is not hereby
waived, the security interest herein granted being in addition and
supplementary thereto.
26. QUIET ENJOYMENT
Provided Tenant is not in default (beyond any period given Tenant to
cure such default) in the performance of any of the terms, covenants
or conditions of this Lease on Tenant's part to be performed,
including the payment of rent or additional payments, Tenant shall
peaceably and quietly hold and enjoy the Demised Premises during the
Lease Term and any extensions thereof, free from interference or
disturbance by Landlord and other persons subject to the terms and
conditions of this Lease, provided, however, Landlord shall not be
liable for any such interference or disturbance by other persons, nor
shall Tenant be released from any of its obligations pursuant to this
Lease because of such interference or disturbance.
27. NOTICES
Each provision of this Lease or of any applicable governmental laws,
ordinances, regulations or other requirements with reference to the
sending, mailing, or delivery of any notice, or with reference to the
making of any payment by Tenant to Landlord, shall be deemed to be
complied with when and if the following steps are taken:
a. All rent and other payments required to be made by
Tenant to Landlord hereunder shall be payable to
Landlord at the address set forth in the Basic Lease
information, or at such other address as Landlord may
specify from time to time by written notice delivered
in accordance herewith; and
<PAGE>
b. Any notice or document required to be delivered
hereunder shall be deemed to be delivered, whether
actually received or not, when deposited in the
United States mail, postage prepaid, certified or
registered mail (with or without return receipt
requested), addressed to the parties hereto at the
respective address set forth in the Basic Lease
information, or at such other address as has been
theretofore specified by written notice delivered
in accordance herewith.
28. FORCE MAJEURE
Whenever a period of time is herein prescribed for action to be taken
by Landlord, Landlord shall not be liable or responsible for, and there
shall be excluded from the computation of any such period of time, any
delays due to strikes, riots, acts of God, shortages of labor or
materials, war, governmental laws, regulations or restrictions, or any
other causes of any kind whatsoever which are beyond the control of
Landlord.
29. LEGAL INTERPRETATION
This Lease and the rights and obligations of the parties hereto shall
be interpreted, construed and enforced in accordance with the laws of
the State of Texas. If any clause or provision of this Lease is
illegal, invalid or unenforceable under present or future laws
effective during the Lease Term then and in that event, it is the
intention of the parties hereto that the remainder of this Lease shall
not be affected thereby, and it is also the intention of the parties
to this Lease that, in lieu of each clause or provision of this Lease
that is illegal, invalid or unenforceable, there be added as a part of
this Lease a clause or provision as similar in terms to such illegal,
invalid, or unenforceable clause or provision as may be possible and
be legal, valid and enforceable.
30. AMENDMENTS: BINDING EFFECT
This Lease may not be altered, changed or amended, except by an
instrument in writing signed by both parties hereto. No provision of
this Lease shall be deemed to have been waived by Landlord or Tenant
unless such waiver is in writing signed by Landlord or Tenant, and
addressed to Tenant or Landlord, nor shall any custom or practice
which may evolve between the parties in the administration of the
terms hereof be construed to waive or lessen the right of Landlord or
Tenant to insist upon the performance by Tenant or Landlord in strict
accordance with the terms hereof. The terms, provisions, covenants and
conditions contained in this Lease shall apply to, inure to the
benefit of, and be binding upon the parties hereto, and upon their
respective heirs, successors in interest, legal representatives, and
permitted assigns, except as otherwise herein expressly provided.
31. RULES AND REGULATIONS
Tenant and Tenant's employees, agents, licensees, and invitees will
comply fully with all requirements of the Building Rules and
Regulations attached hereto as Exhibit "B" and made a part hereof as
though fully set out herein. Landlord shall at all times have the
right to change such rules and regulations, to amend them, or to
promulgate other rules and regulations in such manner as Landlord
shall deem advisable for the safety, care and cleanliness of the
Building and related facilities, and for preservation of good order
therein, all of which rules and regulations, changes and amendments
will be forwarded to Tenant in writing and shall be carried out and
observed by Tenant. Notwithstanding the above, such changes shall not
unreasonably interfere with Tenant's authorized use. Tenant shall
further be responsible for compliance with such rules and regulations
by the employees, agents, licensees, visitors and invitees of Tenant.
32. SUBSTITUTION OF SPACE This section has been intentionally deleted.
33. EXHIBITS AND ATTACHMENTS
All exhibits, attachments, riders and addenda referred to in this Lease
or attached to this Lease are incorporated in this Lease and made a
part hereof for all intents and purposes; including, without
limitation:
Exhibit A - Demised Premises Exhibit B - Building Rules and
Regulations Exhibit C - Work Letter Agreement Exhibit D -
Legal Description Exhibit E - Parking Agreement Exhibit F -
Right of First Refusal
34. GENDER
Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be
held to include the plural, unless the context requires otherwise.
35. CAPTIONS
The captions contained in this Lease are for the convenience of
reference only and in no way limit or enlarge the terms and conditions
of this Lease.
36. PREPAYMENTS
Tenant shall have no right to make any payment of rent or any other
payments to Landlord hereunder more than thirty (30) days in advance
of the date such sums are due to Landlord.
37. TENANT'S REMEDIES
In the event Landlord defaults in the performance of any of its
obligations to Tenant hereunder, or breaches any warranty or
representation, express or implied, to Tenant in connection with this
Lease or Demised Premises, Tenant shall have no right of set-off
against payments due to Landlord hereunder and shall have no right to
terminate this Lease except as provided herein, and Tenant hereby
waives such remedies and any other right or remedies provided by law
or in equity, and Tenant's sole remedy shall be to bring suit against
Landlord for damages. Landlord shall have no personal liability to
Tenant for any such default or breach by Landlord, and Tenant
specifically agrees to look solely to Landlord's interest in the
Building for payment of any damages suffered by Tenant. Pending
resolution of any controversy hereunder, Tenant shall continue to pay
to Landlord all sums which are and become due to Landlord hereunder,
without deduction or set-off.
38. CHANGE OF BUILDING NAME
Landlord reserves the right at any time to change the name by which the
Building is designated.
39. ESTOPPEL CERTIFICATES
Tenant agrees to furnish from time to time when requested by Landlord,
the holder or any deed of trust, mortgage, or other instrument of
security, or by the lessor under any ground lease or underlying lease
covering all or any part of the Building or the improvements therein or
the land situated beneath the Building, or any interest of Landlord
therein, a certificate signed by Tenant confirming and containing such
factual certifications and representations deemed appropriate and
setting forth the facts as they exist by the party requesting such
certificate, and Tenant shall, within ten (10) days following receipt
of said proposed certificate from Landlord, return a fully executed
copy of said certificate to Landlord. In the event Tenant shall fail to
return a fully executed copy of such certificate to Landlord within the
foregoing ten-day period, then Tenant shall be deemed to have approved
and confirmed all of the terms, certifications and representations
contained in such certificate.
40. JOINT AND SEVERAL LIABILITY
If there is more than one person or entity constituting Tenant, the
obligations hereunder imposed upon Tenant shall be joint and several.
If there is a guarantor of Tenant's obligations hereunder, the
obligations hereunder imposed upon Tenant shall be the joint and
several obligations of Tenant and such guarantor, and Landlord need not
first proceed against Tenant before proceeding against such guarantor
nor shall any such guarantor be released from its guaranty for any
reason whatsoever, including without limitation, any amendment of this
Lease; waiver hereof of failure to give such guarantor any notices
hereunder.
41. CERTAIN RIGHTS RESERVED BY LANDLORD
Landlord shall have the following rights, exercisable without liability
and without notice to Tenant for damage or injury to property, persons
or business and without effecting an eviction, constructive or actual,
or disturbance of Tenant's use or possession or giving rise to any claim
for set-off or abatement of rent;
a. To decorate and to make repairs, alterations, additions,
changes or improvements, whether structural or otherwise, in
and about the Building, or any part thereof, and for such
purposes to enter upon the Demised Premises and, during the
continuance of any such work, to temporarily close doors,
entry ways, public space and corridors in the Building, to
interrupt or temporarily suspend Building services and
facilities and to change the arrangement and location of
entrances or passageways, doors and doorways, corridors,
elevators, stairs, toilets, or other public parts of the
Building, so long as the Demised Premises are reasonably
accessible.
b. To have and retain a paramount title to the Demised Premises
free and clear of any act of Tenant purporting to burden or
encumber them.
c. To grant to anyone the exclusive right to conduct any business
or render any service in or to the Building, provided such
exclusive right shall not operate to exclude Tenant from the
use expressly permitted herein or unreasonably interfere with
such use.
d. To prohibit the placing of vending or dispensing machines of
any kind in or about the Demised Premises without the prior
written permission of Landlord.
e. To have access for Landlord and other tenants of the Building
to any mail chutes located on the Demised Premises according
to the rules of the United States Postal Services.
f. To take all such reasonable measures as Landlord may deem advisable for the
security of the Building and its occupants, including without limitation,
the search of all persons entering or leaving the Building, the evacuation
of the Building for cause, suspected cause, or for drill purposes, the
temporary denial of access to the Building, and the closing of the Building
after normal business hours and on Saturdays, Sundays and holidays,
subject, however, to Tenant's right to admittance when the Building is
closed after normal business hours under such reasonable regulations as
Landlord may prescribe from time to time which may include by way of
example but not of limitation, that persons entering or leaving the
Building, whether or not during normal business hours, identify themselves
to a security officer by registration or otherwise and that such persons
establish their right to enter or leave the Building.
42. NOTICE TO LENDER
If the Demised Premises or the Building or any part thereof are at any
time subject to a first mortgage or a first deed of trust or other
similar instrument and this Lease or the rentals are assigned to such
mortgagee, trustee or beneficiary and the Tenant is given written
notice thereof, including the post office address of such assignee,
then the Tenant shall not take any action to terminate this Lease or
abate rentals for any default on the part of the Landlord without
first giving written notice by certified or registered mail, return
receipt requested, to such assignee, specifying the default in
reasonable detail, and affording such assignee a reasonable
opportunity to make performance, at its election, for and on behalf of
the Landlord.
43. LOSS OR THEFT
Landlord shall not be responsible in any manner to Tenant, its agents,
employees, licensees or Invitees for any property lost or stolen from
the Demised Premises or any other portion of the
Building, the Building's garage or the land situated beneath the
Building.
44. PARKING
Landlord may make, modify and enforce rules and regulations relating to
the parking of automobiles in the parking garage adjacent to the
Building, and Tenant agrees to abide by such rules and regulations.
Tenant shall have the right to use the parking garage adjacent to the
Building in accordance with said rules and regulations, and the
provisions of Exhibit "E" attached. hereto
45. LANDLORD'S PERFORMANCE OF TENANT'S OBLIGATIONS
If Tenant fails to perform any one or more of its obligations
hereunder, in addition to the other rights of Landlord hereunder,
Landlord shall have the right but not the obligation to perform all or
any part of such obligations of Tenant. Upon receipt of a demand
therefor from Landlord, Tenant shall reimburse Landlord for (i) the
cost to Landlord of performing such obligations and reasonable profit
and overhead of not less than fifteen percent (15%) of such cost, plus
(ii) interest thereon at the maximum nonusurious rate of interest
permitted by law from the date such costs were incurred until paid in
full, or if applicable, law shall not provide a maximum nonusurious
rate of interest, then at a rate per annum of fifteen percent (15%).
46. RECORDATION
Tenant agrees not to record this Lease, or any instrument to which
this Lease may now or hereafter be attached.
47. SURRENDER OF DEMISED PREMISES
On the last day of the Lease Term, Tenant shall peaceably and quietly
surrender the Demised Premises to Landlord, in good order, repair and
clean condition at least equal to the condition when delivered to
Tenant, except for ordinary wear and tear and damage by fire or other
casualty which occurred through no fault or neglect of Tenant, its
agent, employees, invitees or visitors. If Tenant fails to do any of
the foregoing, Landlord, in addition to other remedies available to it
at law or in equity may, with or without notice, enter upon, reenter,
possess or repossess itself thereof, by summary proceedings, ejectment
or otherwise, and may dispossess and remove Tenant and all persons and
property from the Demised Premises; and Tenant waives any and all
damages or claims for damages as a result thereof. Such dispossession
and removal of Tenant shall not constitute a waiver by Landlord of any
claims by Landlord against Tenant.
48. LIGHT AND AIR This section is intentionally deleted.
49. MISCELLANEOUS
a. Any approval by Landlord or Landlord's architects and/or engineers of any
of Tenant's drawings, plans and specifications which are prepared in
connection with any construction of improvements in the Demised Premises
shall not in any way be construed or operate to bind Landlord or Tenant or
to constitute a representation or warranty of Landlord as to the adequacy
or sufficiency of such drawings, plans and specifications, or the
improvements to which they relate, for any use, purpose, or condition, but
such approval shall merely be the consent of Landlord as may be required
hereunder in connection with Tenant's construction of improvements in the
Demised Premises in accordance with such drawings, plans and
specifications.
b. Each and every covenant and agreement contained in this Lease
is, and shall be construed to be, a separate and independent
covenant and agreement.
c. There shall be no merger of this Lease or the leasehold estate
hereby created with the fee estate in the Demised Premises or
any part thereof by reason of the fact that the same person
may acquire or hold, directly or indirectly, this Lease or the
leasehold estate hereby created or any interest in this Lease
or in such leasehold estate as well as the fee estate in the
Demised Premises or any interest in such fee estate.
d. Neither Landlord nor Landlord's agents or brokers have made
any representations or promises with respect to the Demised
Premises, the Building or the land situated beneath the
Building, except as herein expressly set forth, and no rights,
easements or licenses are acquired by Tenant by implication or
otherwise except as expressly set forth in the provisions of
this Lease.
e. The submission of this Lease to Tenant shall not be construed
as an offer, nor shall Tenant have any rights with respect
thereto unless and until Landlord shall, or shall cause its
managing agent to, execute a copy of this Lease and deliver
the same to Tenant.
50. NON-DISCLOSURE CLAUSE
<PAGE>
Tenant agrees not to disclose any terms of its Lease to other tenants
in this building or to the general public.
51. ENVIRONMENTAL MATTERS
a. Tenant, at Tenant's expense, hereby covenants and agrees to comply with all
Applicable Environmental Laws (as hereinafter defined). The term
"Applicable Environmental Laws" shall mean and include the collective
aggregate of the following: Any law, statute, ordinance, rule, regulation,
order of determination of any governmental authority or any board of fire
underwriters (or other body exercising similar functions), or any
restrictive covenant or deed restriction (recorded or otherwise) affecting
the Demised Premises pertaining to health, safety, or the environment,
including without limitation, all applicable zoning ordinances and building
codes, flood disaster laws and health, safety, and environmental laws and
regulations pertaining to health, safety, or the environment, including
without limitation, the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, the Resource, Conservation and Recovery Act of
1976, the Superfund Amendments and Reauthorization Act of 1986, the
Occupational Safety and Health Act, the Texas Water Code, the Texas Solid
Waste Disposal Act, the Texas Workers' Compensation Laws, and any federal,
state, or municipal laws, ordinances, regulations, or common law which may
now or hereafter require removal of Hazardous Materials (as hereinafter
defined) or Hazardous Materials Contamination (as hereinafter defined) from
the Demised Premises or impose any liability on Landlord to Hazardous
Materials or Hazardous Materials Contamination on the Demised Premises. The
provisions of this paragraph shall survive the termination of this Lease.
b. Tenant agrees to give notice to Landlord immediately upon
Tenant's acquiring knowledge of the presence of any Hazardous
Materials on the Demised Premises or of any Hazardous
Materials Contamination with a full description thereof.
Without limiting the indemnity set forth below, if the
presence of any Hazardous Materials or any Hazardous Materials
Contamination on the Demised Premises caused by Tenant results
in any contamination of the Demised Premises, Tenant shall
promptly take all actions at its sole expense as are necessary
to return the Demised Premises to the condition existing prior
to the introduction of any such Hazardous Materials or
Hazardous Materials Contamination to the Demised Premises.
Notwithstanding the above, Landlord's approval of such action
shall first be obtained, which approval shall not be
unreasonably withheld so long as such actions would not
potentially have any material adverse long term or short term
effect on the Demised Premises.
"Hazardous Materials" shall mean:
i. Any "hazardous waste as defined by the Resource Conservation and Recovery
Act of 1976 (42 U.S.C.ss. 6901 et -- seq.), as amended from time to time
and, regulations promulgated thereunder;
ii. Any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation
and Liability Act of 1980 (42 U.S.C. ss. 9601 et
seq.) ("CERCLA"), as amended from time to time, and
regulations promulgated thereunder, and as defined by
Section 311 of the Federal Water Pollution Control
Act (33 U.S.C. ss. 1317;
iii. Asbestos;
iv. Polychlorinated biphenyls
v. Any substance the presence of which on the Premises
is prohibited by any applicable governmental
requirements; and
vi. Any substance which by any applicable governmental
requirements requires special handling or
notification of any federal, state, or local
governmental entity in its collection, storage,
treatment, or disposal.
"Hazardous Materials Contamination" shall mean the
contamination (whether presently existing or hereafter
occurring) of the improvements, facilities, soil, groundwater,
air or other element on or of the leased premises by Hazardous
Materials, or the contamination of the buildings, facilities,
soil, groundwater, air, or other elements on or of any other
property as a result of Hazardous Materials emanating from the
Demised Premises after the date of this Lease.
c. If Tenant breaches this obligation, the Tenant shall indemnify, defend, and
hold Landlord harmless from any and all claims, judgment, damages,
penalties, fines, costs, liabilities or losses (including, without
limitation, diminution in value of the Demised Premises, damages for the
loss or restriction on use of rentable or usable space or of any amenity of
the Demised Premises, damages arising from any adverse impact on marketing
of space, and sums paid in settlement of claims, attorneys' fees,
consultant fees and expert fees) which arise during or after the Lease Term
as a result of such contamination. This indemnification of Landlord by
Tenant includes, without limitation, costs incurred in connection with any
investigation of site condition or any clean-up, remedial, removal or
restoration work required by any federal, state, or local governmental
agency or potential subdivision because of Hazardous Material present in,
on, or under the soil or surface as ground water on, about, or under the
Demised Premises. The foregoing indemnity shall survive the expiration or
earlier termination of this Lease.
d. Landlord and its agents shall have the right, but not the
duty, to inspect the Demised Premises at any time to determine
whether Tenant is complying with the terms of this Lease. If
Tenant is not in compliance with this Lease, Landlord shall
have the right to immediately enter upon the Demised Premises
to remedy any contamination caused by Tenant's failure to
comply with the terms of this Lease notwithstanding any other
provisions of this Lease. Landlord shall use its best efforts
to minimize interference with Tenant's business, but shall not
be liable for any interference caused thereby.
e. Any default under this Paragraph shall be a material default
enabling Landlord to exercise any of the remedies set forth in
this Lease.
f. To the best of Landlord's knowledge no asbestos is present in
the building and no contaminants or hazardous materials exist
in or on the Project. Landlord agrees to the best of its
ability and within reason to comply, at its sole expense, with
all environmental laws applicable to the Project, including,
without limitation, those applicable to any systems or
portions of the Leased Premises for which Landlord has the
maintenance obligation.
52. COMPLIANCE WITH LAWS AND REGULATIONS
<PAGE>
a. Except with respect to the ADA (as hereinafter defined) and
the Texas Act (as hereinafter defined), to the best of
Landlord's knowledge, as of the Commencement Date of this
Lease, the Demised Premises will be in compliance with all
applicable laws, ordinances, orders, rules and regulations (of
state, federal, municipal and other agencies or bodies having
any jurisdiction thereof), pertaining to the Demised Premises.
b. Tenant, at Tenant's sole cost and expense, covenants and
agrees to comply with all applicable laws, ordinances, orders,
rules and regulations (of state, federal, municipal and other
agencies or bodies having any jurisdiction thereof), present
and future, with regard to the use, condition or occupancy of
the Demised Premises.
53. AMERICANS WITH DISABILITIES ACT AND TEXAS ARCHITECTURAL BARRIER STATUTE
The parties acknowledge that (i) Title III of the Americans With
Disabilities Act of 1990 and the regulations and rules promulgated
thereunder, as all of the same may be amended and supplemented from
time to time (collectively referred to herein as the "ADA"), and (ii)
the Texas Architectural Barrier Statute and the regulations and rules
promulgated thereunder, as all of the same may be amended and
supplemented from time to time (collectively referred to herein as the
"Texas Act"), establish requirements for accessibility and barrier
removal, and that such requirements may or may not apply to the Demised
Premises, and the real property of which the Demised Premises are a
part. Tenant acknowledges and fully understands that Landlord is making
no representation or warranty whatsoever (express or implied) that the
Demised Premises is in compliance with the ADA or the Texas Act. The
parties hereby agree that: (a) Landlord shall be responsible for ADA
and Texas Act compliance in the common areas of the Building, and (b)
Tenant shall be responsible for ADA and Texas Act compliance within the
Demised Premises.
Dated as of the date first above written.
TENANT:
WOODHAVEN HOMES, LTD.
By: ______________________________
Phillip Ray Johns
Title: President
LANDLORD:
GAEDEKE HOLDINGS, LTD., ACTING BY AND THROUGH
ITS AGENT, GAEDEKE LANDERS, L.L.C.
By: ______________________________
D. W. Landers
President/C.E.O.
<PAGE>
EXHIBIT "A"
DEMISED PREMISES
[GRAPHIC OMITTED]
AMENDMENT TO LEASE
GAEDEKE LANDERS
A TEXAS LIMITED LIABILITY COMPANY
April 7, 1998
Mr. Mark Johns
Woodhaven Homes, Ltd.
2501 Oak Lawn Avenue
Suite 550
Dallas, Texas 75219
Re: First Amendment to Lease Agreement by and between Gaedeke Holdings II, Ltd.
as Landlord and Woodhaven Homes, Ltd., as Tenant
Dear Mark:
Enclosed please find one fully executed Amendment as referenced above.
Mark, we appreciate having you as a Tenant at Oak Lawn Plaza and look forward to
serving you in the years to come. Should you have any questions, please do not
hesitate to call me at (214) 528- 0133, ext. 222.
Sincerely,
GAEDEKE LANDERS, L.L.C. As AGENT FOR
GAEDEKE HOLDINGS II, LTD.
Michael J. Haase
Director of Leasing
MJH/tw
Enclosure
CORPORATE 3710 RAWLINS #1000 LB 24 DALLAS, TEXAS 75219
TEL 214.52B.BBB3 FAX 214.52B.B05B
SOUTHEAST REGION: 150 W. FLAGLER STREET #2650 Miami, FLORIDA 33130
TEL 305.5363747 FAX 305.539.5506
OTHER LOCATIONS: ATLANTA BOCA RATON FT. LAUDERDALE ORLANDO
FIRST AMENDMENT TO LEASE AGREEMENT
STATE OF TEXAS ss.
ss.
COUNTY OF DALLAS ss.
This First Amendment to Lease Agreement ("Amendment")
is dated April 3 ,1998, between GAEDEKE HOLDINGS II, LTD.,
SUCCESSOR IN INTEREST TO GAEDEKE HOLDINGS, LTD., hereinafter
referred to as "Landlord," and WOODHAVEN HOMES, LTD.,
hereinafter referred to as "Tenant" is based on the following:
WITNESSETH:
The following provisions form a part of and constitute
the basis of this Amendment:
1. Landlord, under that certain Standard Office
Building Lease dated May 29, 1996,
(hereinafter referred to as the "Lease
Agreement") leased to Tenant approximately
7,703 rentable square feet (hereafter referred
to as the "Demised Premises") known as Suite
550 in the building known as Oak Lawn Plaza
and located at 2501 Oak Lawn, Dallas County,
Dallas, Texas. Terms defined in the Lease
Agreement when used herein, shall have the
same meaning as are ascribed to them in the
Lease Agreement, except as otherwise defined
herein.
2. Landlord and Tenant desire to amend the Lease
Agreement as hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises set forth above and
the mutual benefits to accrue to each of the parties hereunder, it is
hereby agreed as follows: Effective the earlier of occupancy or May 1,
1998, the Lease Agreement is hereby amended as follows:
I.EXPANSION. Tenant shall lease Suite 420 ("Expansion Space") containing 2,147
rentable square feet for a total of 9,850 r.s.f. as shown on Exhibit "A"
attached hereto which replaces Exhibit "A" in the Lease Agreement.
2. BASIC RENTAL.
05/01/98 - 06/30/98
07/01/98 - 08/31/00
$10,708.00 per month $128,496.00 per year
$11,029.00 per month $132,348.00 per year
3. PARKING. Exhibit "E" in the Lease Agreement is
deleted and replaced by Exhibit "B" attached
hereto.
4. TENANT IMPROVEMENT. Tenant shall receive a
Tenant Improvement Allowance as shown on
Exhibit "C" attached.
5. SECURITY DEPOSIT. Tenant hereby agrees to pay Landlord a security
Thousand six hundred and eighty four dollars ($2,684.00) payable on the
Amendment is executed by Tenant. Tenant's total security deposit will be
$10,708.00
PREPAID RENT. $2,684.00 due and payable upon execution of the
Amendment as the first full month's rental for Suite 420.
All other terms and conditions of the original Lease
Agreement shall remain the same, and are hereby acknowledged
by Tenant to be in full force and effect. The provisions of
this First Amendment shall serve to supplement and amend the
Lease as set forth herein. In the event of a conflict between
the provisions of
<PAGE>
[GRAPHIC OMITTED]
LOAN AGREEMENT
THIS LOAN AGREEMENT is made and entered into as of the 5 day of July,
1997, between WOODHAVEN HOMES, L.L.C., a Texas limited liability company, with
principal offices at 2501 Qaklawn, Suite 550, Dallas, Texas 75219 (the
"Borrower"), and BANK UNITED, with principal offices at 3200 Southwest Freeway,
Suite 2000, Houston, Texas 77027 (the "Lender").
WHEREAS, the Lender, for the consideration hereinafter set forth and
subject to the terms and conditions herein stated, hereby commits and agrees to
make loans to the Borrower totaling, in the aggregate, an amount not to exceed
THREE MILLION AND NO/ 100 DOLLARS ($3,000,000.00); and,
WHEREAS, the loans are to be used by the Borrower to (i) finance the
acquisition of the Lots, as hereinafter defined, and (ii) to finance both the
acquisition of the Lots and the construction of single-family residences thereon
in accordance with plans and specifications and a cost breakdown submitted to
and approved by the Lender:
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and of the loans and commitment hereinafter referred to, the
Borrower and the Lender agree as follows:
ARTICLE 1
GENERAL TERMS
Section 1.01 Terms Defined Above. As used in this Agreement, the terms
"Borrower" and "Lender" shall have the meanings indicated above.
Section 1.02 Certain Definitions. As used in this Agreement, the
following terms have the following meanings, unless the context otherwise
requires:
"Advance" shall mean a disbursement by the Lender to or for the benefit of
the Borrower of any of the proceeds of the Note.
"Affidavit" shall mean that certain Borrower's loan purpose affidavit
executed in connection with each Loan, a pro forma copy of which is
attached hereto as Exhibit
"A".
"Affiliate" shall mean a Person, directly or indirectly, through one or
more intermediaries, controlling, controlled by or under common control
with the Person in question, which, in the case of a Person which is a
partnership, shall include each of the constituent partners thereof.
The term "controlling" as used in the immediately preceding sentence
shall mean, with respect to a Person that is a corporation, the right
to the exercise, directly or indirectly, of more than ten percent (10%)
of the voting rights attributable to the shares of the controlled
corporation, including without limitation the voting power for the
election of the directors of such Person or the direct management or
policies of such Person, whether through the ownership of voting
securities, by contract or otherwise, and, with respect to a Person
that is not a corporation, the possession, directly or indirectly, of
the power to direct or cause the direction of the management or
policies of the controlled Person. Affiliate shall also mean a Person
who is related to the Person in question. The term "related to" in the
immediately preceding sentence shall mean a relation of immediate
family including father, mother, brother, sister, son, daughter, or any
such relation created by the occurrence of marriage by any such
Persons.
<PAGE>
"Agreement" shall mean this Loan Agreement, as the same may from time to time be
amended or supplemented.
"Appraisal" shall mean, with respect to each Unit, an appraisal, to be prepared
at the sole cost and expense of the Borrower, in form and substance satisfactory
to the Lender, stating the anticipated appraised value of such Unit upon
Substantial Completion of a Residence constructed thereon, and the appraised
value of the Lot prior to commencement of construction thereon, such appraisal
to be prepared by an appraiser approved by the Lender; and when applicable for a
Lot Purchase Loan, "Appraisal" shall mean an appraisal, to be prepared by an
appraiser approved by the Lender at the sole cost and expense of the Borrower,
in form and substance satisfactory to the Lender, stating the appraised value of
the Lot.
"Appraised Value" shall mean, with respect to each Unit and each Lot
attributable to a Lot Purchase Loan, an amount equal to the Appraisal.
"Bills Paid Affidavit" shall mean the affidavit substantially in the form of
Exhibit "B" attached hereto.
"Borrower's Deposit" shall mean such cash sums as the Lender may reasonably deem
necessary in accordance with Section 5.20 hereof.
"Borrowing Request" shall mean a request for an Advance pursuant to Section 2.01
hereof and which shall give sufficient detail to identify the Lots or Units for
which the Advances are being requested.
"Budget" shall mean a detailed budget in such form as shall be acceptable to the
Lender, prepared by the Borrower in connection with any Interim Construction
Loan reflecting the cost of acquisition, construction and operation of the
portion of the Premises covered thereby, which shall not be changed or modified
by more than twenty percent (20%) without the prior written consent of the
Lender.
"Business Day" shall mean a day other than a Saturday, Sunday or legal holiday
for federally insured depository institutions under the laws of the United
States of America.
<PAGE>
"CMSA" shall mean Consolidated Metropolitan Statistical Area.
"Collateral" shall mean the collateral described and set forth in the
Security Agreement.
"Commitment" shall mean the obligation of the Lender to make Advances to the
Borrower under Section 2.01 hereof, up to the maximum amount therein stated.
"Completion Date" shall mean, with respect to each Pre-- sale and the Interim
Construction Loan in connection therewith, nine (9) months from the date of the
initial Advance under such Interim Construction Loan, with respect to each
Speculative Start and the Interim Construction Loan in connection therewith,
twelve (12) months from the date of the initial Advance under such Interim
Construction Loan, with respect to each Model Home and the Interim Construction
Loan in connection therewith, eighteen (18) months from the date of the initial
Advance under such Interim Construction Loan, and with respect to Lot Purchase
Loans, nine (9) months from the date of the initial Advance.
"Compliance Certificate" shall mean the Compliance Certificate to be executed by
the Borrower in conjunction with each initial Advance, which shall be in a form
satisfactory to the Lender.
"Construction Contracts" shall mean the contracts between the Borrower and any
contractor or subcontractor relating to rendering of services or furnishing of
materials in connection with the construction of all or any portion of the
Improvements, contracts between any general contractor and any subcontractor,
and contracts between any of the foregoing and any other Person or entity
relating to rendering of services or furnishing of materials in connection with
the construction of the Improvements, all of which shall not have been
disapproved by the Lender.
"Construction Draw Schedule" shall mean the builder's draw schedule as set forth
in Exhibit "C" attached hereto.
"Current Survey" shall mean a slab survey of a Lot made by a duly licensed
surveyor or civil engineer satisfactory to the Lender containing the information
and meeting all of the Lender's requirements.
"Debt" shall mean, for any Person, without duplication:
(i) all indebtedness of such Person for borrowed money or for the deferred
purchase price of Property or services for which such Person is liable,
contingently or otherwise, as obligor, guarantor or otherwise, or in respect of
which such person otherwise assures a creditor against loss; (ii) all
obligations under leases which shall have been, or should have been, in
accordance with generally accepted accounting principles in effect on the date
of this Agreement, recorded as capital leases in respect of which such Person is
liable, contingently or otherwise, as obligor, guarantor or otherwise, or in
respect of which obligations such Person otherwise assures a creditor against
loss, and (iii) unfunded vested benefits under any ERISA plan.
"Default" shall mean the occurrence of any of the events specified in Section
7.01 hereof, whether or not any requirement for notice or lapse of time or other
condition precedent has been satisfied.
"Eligible CMSA" shall mean a CMSA designated in Section 3.07 hereof.
<PAGE>
"Environmental Complaint" means any complaint, order, citation or notice by any
Person asserting that the Borrower or any Property of the Borrower is in
violation of or does not comply with any Environmental Law.
"Environmental Laws" means: (i) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986, 42 U.S.C.A. 9601 et. sect.
("CERCLA"), (ii) the Resource Conservation and Recovery Act, as amended by
the Hazardous and Solid Waste Amendment of 1984, 42 U.S.C.A. 6901 et. seq.
("RCRA"), (iii) the Clean Air Act, 42 U.S.C.A 7401 et. seq., (iv) the Clean
Water Act of 1977, 33 U.S.C.A. 1251 et. seq., (v)the Toxic Substances
Control Act, 15 U.S.C.A. 2601 et. seq., (vi) the Safe Drinking Water Act,
42 U.S.C. 300(E) et. sea., (vii) the Refuse Act, 33 U.S.C. 407 et. sea.,
(viii) the Texas Solid Waste Disposal Act, Tex. Health and Safety Code,
ss.361.001 et. sea., (ix) the Texas Clean Air Act, Tex. Health and Safety
Code, ss.382.001 et. sea., (x) the regulations promulgated pursuant to the
aforesaid laws, or any of them, and (xi) all other federal, state or local
laws, ordinances, orders, rules or regulations, now or hereafter existing,
that directly and/or indirectly relate to air pollution, water pollution,
noise control and/or the presence, storage, escape, seepage, leakage,
emission, release, use, spillage, generation, transportation, handling,
discharge, disposal or recovery of on--site or off--site hazardous or toxic
substances, wastes or materials and/or underground storage tanks, and as
each and any of the foregoing laws, ordinances, orders, rules or
regulations may be amended or enacted from time to time.
"Environmental Liability" means any claim, demand, obligation, cause of action,
accusation, allegation, order, violation, damage, injury, judgment, injunction,
penalty or fine, cost of enforcement, cost of cleanup, removal, encapsulation or
other remedial action, or any other cost or expense whatsoever, including
without limitation reasonable attorneys' fees and reimbursements, resulting from
the violation or alleged violation of any Environmental Law or the existence of
Hazardous Material, or the imposition of any Environmental Lien.
"Environmental Lien" means a Lien (as hereinafter defined) in favor of any
Person arising as a result of or securing (i) any liability under an
Environmental Law or (ii) damages arising from or costs incurred by any Person
in response to any actual or threatened Hazardous Discharge.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" shall mean the occurrence of any of the events specified in
Section 7.01 hereof, provided that any requirement for notice or lapse of time
or any other condition precedent has been satisfied.
"Financial Statements" shall mean the financial statement or statements of the
Borrower described or referred to in Section 4.06 hereof.
"Financing Statement" shall mean the financing statement to be recorded in the
Office of the Secretary of State of the State of Texas perfecting the Lender's
security interest in and to the Collateral described in the Security Agreement.
<PAGE>
"Governmental Authority" includes the United States of America, the state,
county, city or any political subdivision in which all or any portion of the
Premises is located, and any court or political subdivision, agency, department,
commission, board, bureau or instrumentality having jurisdiction over the
Borrower, the Lender, all or any portion of the Premises or construction
thereon.
"Governmental Requirement" shall mean any law, statute, code, ordinance, order,
rule, regulation, judgment, decree, injunction, franchise, permit, certificate,
license, authorization or other direction or requirement now or hereafter
existing (including, without limitation, any of the foregoing which relate to
environmental standards or controls, energy regulations and occupational, safety
and health standards or controls) of any (domestic or foreign) federal, state,
county, municipal or other government, department, commission, board, court,
agency or any other instrumentality of any of them, which exercises jurisdiction
over the Borrower or any of the Borrower's Property.
"Guarantors" shall mean Phillip Johns and The Woodhaven Homes Trust.
"Guaranty Agreements" shall mean the agreements executed by the Guarantors,
guaranteeing the payment of the Note and the performance of the covenants and
obligations of the Security Instruments.
"Hazardous Discharge" means the happening of any event involving the presence,
disposal, escape, seepage, leakage, emission, release, use, storage, spillage,
discharge, investigation, cleanup, removal or remediation of any Hazardous
Material which violates or threatens to violate any Environmental Law.
"Hazardous Material" shall mean one or more of the following substances:
(a) Those substances included within the definitions of "hazardous
substances", "hazardous materials", "toxic substances" or "solid
waste" in any one or more of the Environmental Laws or the Hazardous
Material Transportation Act (49 U.S.C.) or in the regulations
promulgated pursuant to said law;(b) Those substances listed in the
United States Department of Transportation Table (49 CFR 172.101 and
amendments thereto) or by the Environmental Protection Agency (or any
successor agency) as hazardous substances (40 CFR Part 302 and
amendments thereto);(c)Such other substances, materials and wastes
which are or become regulated under applicable local, state or federal
law, or the United States government, or which are classified as
hazardous or toxic under federal, state or local laws, orders,
ordinances, rules or regulations; and(d) Any material, waste or
substances which are: (i) asbestos, (ii) polychlorinated bi--phenyls,
(iii) a substance described in clause (a) of the definition of
"Hazardous Material", (iv) explosives, (v) radioactive materials, (vi)
gasoline, (vii) petroleum, (viii) petroleum products or (ix) related
or similar materials or substances.
"Highest Lawful Rate" shall mean the maximum nonusurious interest rate, if any,
that at any time or from time to time may be contracted for, taken, reserved,
charged or received on the Note or on other Indebtedness, as the case may be,
under laws applicable to the Lender which are presently in effect or, to the
extent allowed by law, under such applicable laws which may hereafter be in
effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.
<PAGE>
"Impositions" shall mean all real estate and personal property taxes; water,
gas, sewer, electricity and other utility rates and charges; charges imposed
pursuant to any subdivision, planned unit development or condominium declaration
or restrictions; charges for any easement, license or agreement maintained for
the benefit of the Premises, and all other taxes, charges and assessments and
any interest, costs or penalties with respect thereto of any kind and nature
whatsoever which at any time prior to or after the execution hereof may be
assessed, levied or imposed upon all or any portion of the Premises or the
ownership, use, occupancy or enjoyment thereof.
"Improvements" shall mean all Residences and any other improvements, buildings,
structures, equipment and amenities located on the Lots and provided for in the
Plans.
"Indebtedness" shall mean any and all amounts owing or to be owing by the
Borrower to the Lender in connection with the Note or any Security Instruments,
including this Agreement, and all other liabilities of the Borrower to the
Lender from time to time existing, whether in connection with this or other
transactions.
"Insurance Policies" shall mean (a) owner's and contractor's policies of
comprehensive general public liability insurance, including worker's
compensation insurance; (b) hazard insurance against all risks of loss,
including collapse, in an amount not less than the Maximum Loan Amount, with
annual agreed amount endorsement and sufficient at all times to prevent the
Borrower from becoming a co--insurer, such insurance prior to completion of the
Improvements to be in builder's risk form on a reporting basis and including
coverage for all materials and equipment, wherever located, intended to be
installed in or utilized in the construction of the Improvements; (c) if any
portion of the Premises is in a "Flood Hazard Area", a flood insurance policy,
or binder therefor, with respect to that portion of the Premises, in an amount
equal to the portion of the Maximum Loan Amount attributable to such portion of
the Premises or the maximum amount available under the Flood Disaster Protection
Act of 1973 and regulations issued pursuant thereto, as amended from time to
time, whichever is less, in form complying with the "insurance purchase
requirement" of that Act; and (d) such other insurance, if any, as the Lender
may reasonably require from time to time. In addition, the term "Insurance
Policies" shall mean insurance policies issued and maintained in form, in
amounts and by companies satisfactory to the Lender, containing a mortgagee
clause (without contribution) in favor of the Lender with loss proceeds payable
to the Lender as its interest may appear, requiring not less than thirty (30)
days prior written notice to the Lender of any cancellation or change of
coverage, and providing that no act of the insured or any occupant, and no
occupancy or use of any portion of the Premises for purposes more hazardous than
permitted by the terms of the policy, will affect the validity or enforceability
of the insurance as respects the Lender.
"Interim Construction Loan" shall mean, with respect to each Unit, the Advances
made and to be made from time to time pursuant to the Commitment for the
acquisition of Lot(s) and the construction of the Improvements thereon.
<PAGE>
"Inventory Report" shall mean the report described in Section 5.30 hereof.
"Lien" shall mean any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property, whether such interest
is based on the common law, statute or contract, and including but not limited
to the lien or security interest arising from a mortgage, encumbrance, pledge,
Environmental Lien, security agreement, conditional sale or trust receipt or a
lease, consignment or bailment for security purposes. The term "Lien" shall
include reservations, exceptions, encroachments, easements, rights--of--way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting the Property. For the purposes of this Agreement, the
Borrower shall be deemed to be the owner of any Property which the Borrower has
acquired or holds subject to a conditional sale agreement, financing lease or
other arrangement pursuant to which title to the Property has been retained by
or vested in some other Person for security purposes.
"Loan" shall mean a Lot Purchase Loan and an Interim Construction Loan.
"Lot" shall mean a fully developed single--family residential lot in a
subdivision, with respect to which all development and construction work has
been completed (including completion of all public roadways necessary to provide
sufficient access to such Lot and completion of all water, sanitary and storm
sewer facilities in capacities sufficient for single--family residential use) so
that such Lot is ready and of sufficient size for a residence to be constructed
thereon.
"Lot Purchase Loan" shall mean, with respect to a Lot, the Advances made and to
be made from time to time pursuant to the Commitment for the acquisition of the
Lot.
"Margin Percentage" shall mean, with respect to the Note, the percent per annum
which is expressly enumerated in Section 2.02 hereof (before or after maturity,
as appropriate) to be added to the Prime Rate to determine (except as may be
limited by applicable law) the interest rate on the Note.
"Master Form Deed of Trust" shall mean the Master Form Deed of Trust And
Security Agreement, whether now or hereafter executed, duly executed by the
Borrower for the benefit of the Lender securing the Indebtedness, each Master
Form Deed of Trust to be recorded in each county in which an Eligible CMSA is
located.
"Material Adverse Effect" shall mean any material and adverse effect on (i) the
assets, liabilities, financial condition, business, operations, affairs or
circumstances of the Borrower from those reflected in the Financial Statements
or from the facts represented or warranted in this Agreement or any other
Security Instrument, or (ii) the ability of the Borrower to carry out its
business as of the date of this Agreement or as proposed at the date of this
Agreement to be conducted or meet its obligations under the Note, this Agreement
or the other Security Instruments on a timely basis.
"Maturity Date" shall mean July 2L~ 1998.
<PAGE>
"Maximum Loan Amount" shall mean, with respect to each Presale and the Interim
Construction Loan in connection therewith, an amount equal to the lesser of (a)
the Borrower's actual cost for the acquisition of the Lot and the construction
of the Residence thereon or (b) eighty percent (80%) of the lesser of [i] the
Appraised Value of the Unit(s) attributable to such Interim Construction Loan,
or [ii] the Sales Price of the Unit(s) attributable to such Interim Construction
Loan; with respect to each Speculative Start or Model Home and the Interim
Construction Loan in connection therewith, an amount equal to the lesser of (a)
the Borrower's actual cost for the acquisition of the Lot and the construction
of the Residence thereon or (b) seventy--five percent (75%) of the lesser of [i]
the Appraised Value of the Unit(s) attributable to such Interim Construction
Loan, or (ii] the Sales Price of the Unit(s) attributable to such Interim
Construction Loan; and, with respect to each Lot Purchase Loan, an amount equal
to seventy percent (70%) of the Borrower's actual cost for the acquisition of
the Lots attributable to the Lot Purchase Loan.
"Model Home" shall mean a Unit to be used by the Borrower in promoting the sale
of other Units offered for sale by the Borrower.
"Note" shall mean the promissory note described in Section 2.01(a) hereof,
executed by the Borrower, payable to the order of the Lender, in the form
attached hereto as Exhibit "D", and all duly authorized renewals, extensions,
modifications, increases, reinstatements and/or rearrangements thereof expressly
agreed to in writing by the Lender.
"Person" shall mean any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any body, authority, agency or political subdivision thereof, or any other
form of entity.
"Plans" shall mean the final working drawings and specifications for the
construction of a Residence or Residences (including soil reports and
engineering calculations) prepared by architects and/or engineers and as
modified or supplemented from time to time and approved for each Interim
Construction Loan by the Lender, the Borrower and, to the extent necessary, by
each Governmental Authority.
"Premises" shall mean the Lots, the Improvements, all fixtures, equipment,
leases, rentals and personal property of any kind or character now or hereafter
related to, situated on or used in connection with the Lots or in any
improvements now or hereafter constructed thereon, and all related parts,
accessions and accessories thereto and all replacements or substitutions theref
or, as well as all other improvements, benefits and appurtenances now or
hereafter placed thereon or accruing thereto.
"Presale" shall mean a Unit for which the Borrower has delivered to the Lender a
contract for sale with a bona fide third party purchaser not an Affiliate of the
Borrower (unless approved in writing by the Lender).
"Prime Rate" shall mean the variable rate of interest per annum established and
announced by the Lender as a general reference rate of interest, which is not
necessarily the lowest or best rate actually charged to any customer, it being
understood that the Lender may make various commercial or other loans at rates
of interest having no relationship to the Prime Rate.
<PAGE>
"Property" shall mean any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Release Parcel" shall have the meaning set forth in Section 8.01 hereof.
"Residence" shall mean any single--family dwelling constructed or to be
constructed on a Lot from the proceeds of any Interim Construction Loan.
"Sales Price" shall mean, with respect to each Unit, the price therefor,
initially established by the Borrower prior to the initial Advance of an Interim
Construction Loan in connection with such Unit.
"Security Agreement" shall mean the Security Agreement duly executed by Borrower
for the benefit of Lender.
"Security Instruments" shall mean this Agreement, the Deeds of Trust, the
Security Agreement, the Guaranty Agreements, the Financing Statement and any and
all other agreements or instruments now or hereafter executed and delivered by
the Borrower or the Guarantors in connection with, or as security for the
payment or performance of, the Note or this Agreement, as such agreements may be
amended, modified, extended, increased, reinstated, rearranged or supplemented
from time to time.
"Speculative Start" shall mean a Unit which is not a Pre- sale.
"Subdivisions" shall mean those certain parcels of lots or subdivisions located
in one or more CMSAs as shall be approved in writing from time to time by the
Lender.
"Substantial Completion" shall mean completion of a Residence in accordance with
the Plans in the sole reasonable judgment of the Lender.
"Supplemental Deed of Trust" shall mean the Supplemental Deeds of Trust and
Security Agreements, whether now or hereafter executed, covering one or more
Lots or one or more Units, as applicable, and securing the Indebtedness, duly
executed by the Borrower as shall be required to create first priority Liens
upon and security interests in all of the Lots or Units, and any and all
supplements, modifications, amendments and/or extensions thereof.
"Title Company" shall mean such title companies expressly approved by the Lender
from time to time.
"Title Insurance Binder" shall mean one or more mortgagee title insurance
binders, as the Lender may require, issued in favor of the Lender by the Title
Company if and as required by the Lender in an amount equal to one hundred
percent (100%) of the amount of each Interim Construction Loan, insuring or
agreeing to insure the Lender's Lien in such form as may be prescribed by
applicable Governmental Requirements and as shall be satisfactory to the Lender,
certifying that good and indefeasible title to the Lot(s) relating to such
Interim Construction Loan is vested in the Borrower, subject only to exceptions
acceptable to the Lender and required by state title insurance regulations.
<PAGE>
"Title Insurance Policy" shall mean one or more mortgagee's title policies
issued in favor of the Lender by the Title Company in the amount of
the Lot Purchase Loan, insuring the Lender's Lien in such form as may
be prescribed by applicable Governmental Requirements and as shall be
satisfactory to the Lender, certifying that good and indefeasible
title to the Lot(s) relating to such Lot Purchase Loan is vested in
the Borrower, subject only to exceptions acceptable to the Lender and
required by state title insurance regulations.
"Unit" shall mean any Lot and the Residence located thereon covered by
an Interim Construction Loan.
Section 1.03 Accounting Principles. Where the character or amount of
any asset or liability or item of income or expense is required to be determined
or other accounting computation is required to be made for the purposes of this
Agreement, this shall be done in accordance with generally accepted accounting
principles applied on a basis consistent with those reflected by the Financial
Statements, except where such principles are inconsistent with the requirements
of this Agreement.
ARTICLE 2
AMOUNT AND TERMS OF LOAN
Section 2.01. The Loans and Commitment.
(a) Subject to the terms and conditions and relying on the
representations and warranties contained in this Agreement, so long as the terms
and provisions of this Agreement are complied with by the Borrower, the Lender
agrees to advance Loans to the Borrower in principal amounts up to but not
exceeding at any one time Three Million and No/100 Dollars ($3,000,000.00) (the
"Commitment Amount"). To evidence the Loans made by the Lender pursuant to this
Section 2.01, the Borrower will execute and deliver the Note payable to the
order of the Lender in the face amount of $3,000,000.00, dated as of the date
hereof and payable on the earlier of (i) the Maturity Date or (ii) the
Completion Date of the last Interim Construction Loan or the last Lot Purchase
Loan originated prior to the Maturity Date. Accrued interest shall be due and
payable as provided in the Note.
(b) At such time as a Loan shall have been paid in full, and if the
Borrower is not in Default and prior to the Maturity Date, the amount of funds
advanced hereunder shall once again be available to the Borrower for additional
Loans to be made in accordance with the terms and provisions hereof. The amount
of funds available under the Commitment at any time prior to the Maturity Date,
provided that the Borrower is not in Default, shall be determined by subtracting
the Maximum Loan Amounts of Loans which are in place from $3,000,000.00. The
resulting figure shall be available for additional Interim Construction loans
under the Commitment.
<PAGE>
(c) At no time shall Lots or Units be located other than in the
Eligible CMSAs. Furthermore, in no event may more than $900,000.00 of the
Commitment be allocated for the construction of Speculative Starts and Model
Homes throughout Eligible CMSAs, and no more than $250,000.00 of the Commitment
be allocated for Lot Purchase Loans throughout Eligible CMSAs.
(d) Subject to the foregoing, the Borrower may, at any time until the
Maturity Date, submit to the Lender a Borrowing Request requesting the Lender to
advance one or more Lot Purchase Loans for the acquisition of one or more Lots
or to advance one or more Interim Construction Loans for the acquisition and
construction of any one or more Units. The initial Borrowing Request for each
Lot Purchase Loan (i) shall identify the subdivision and the Lot or Lots to be
acquired and (ii) shall be accompanied by copies of fully executed purchase and
sale agreements executed by the Borrower and the seller of the Lot or Lots. The
initial Borrowing Request for each Interim Construction Loan (i) shall identify
the Subdivision and the Lot or Lots to be acquired out of the proceeds of such
Interim Construction Loan, (ii) shall specify whether such Lot or Lots and the
Residence or Residences to be located thereon are Presales, Model Homes or
Speculative Starts, and (iii) shall be accompanied by copies of fully executed
sales contracts for those Units designated as Presales. The initial Borrowing
Request for each Interim Construction Loan shall also be accompanied with a
Budget and Plans. The subsequent Borrowing Requests for each Interim
Construction Loan must give sufficient detail as to the identity of the Units
for which the Advance is being requested and must be accompanied by an executed
Bills Paid Affidavit.
(e) All Loans closed under this Agreement shall be subject to approval
by the Lender in accordance with the Lender's usual underwriting guidelines and
procedures, consistently applied, and shall conform in all respects to the rules
and regulations governing the Lender as a federally chartered and insured
savings bank. Such underwriting guidelines shall include, but not be limited to,
a monthly review of the Borrower's inventory report pursuant to Section 5.30
hereof.
(f) Notwithstanding the Lender's approval of the Borrower's Borrowing
Request, the Borrower must satisfy all of the conditions precedent to any Loan
and all terms and conditions set forth in this Agreement before the Lender shall
be obligated to make any Loan or any Advance thereunder.
Section 2.02 Interest Rate. The Note shall bear interest from the date
thereof until maturity at a varying rate per annum which is one percent (1.00%)
per annum above the Prime Rate (but in no event to exceed the Highest Lawful
Rate), all as set forth in the Note. Past-due principal and interest shall bear
interest at a varying rate per annum which is five percent (5%) per annum above
the Prime Rate (but in no event to exceed the Highest Lawful Rate). Adjustments
in the varying rate of interest shall be made on the same day as each change in
the Prime Rate and, to the extent allowed by law, on the effective date of any
change in the Highest Lawful Rate.
Section 2.03 Fees.
(a) On the date of the initial Advance of each Interim Construction
Loan made or to be made hereunder in connection with a Presale, the Borrower
shall pay to the Lender an origination fee in the amount of one--half of one
percent (0.50%) of the amount of such Interim Construction Loan;
<PAGE>
(b) On the date of the initial Advance of each Interim Construction
Loan made or to be made hereunder in connection with a Speculative Start, the
Borrower shall pay to the Lender an origination fee in the amount of
three--fourths of one percent (0.75%) of the amount of such Interim Construction
Loan;
(c) On the date of the initial Advance of each Interim Construction
Loan made or to be made hereunder in connection with a Model Home, the Borrower
shall pay to the Lender an origination fee in the amount of two percent (2.00%)
of the amount of such Interim Construction Loan;
(d) On the date of the initial Advance of each Lot Purchase Loan made
or to be made hereunder in connection with a Model Home, the Borrower shall pay
to the Lender an origination fee in the amount of one percent (1.00%) of the
amount of such Lot Purchase Loan; and,
(e) Provided that no Event of Default exists, the Borrower may elect
to pay an extension fee of one--fourth of one percent (.25%) of the Maximum Loan
Amount of either a Lot Purchase Loan or an Interim Construction Loan, and upon
receipt thereof by the Lender the Completion Date with respect to such Loan
shall be extended ninety (90) days from the date of the original Completion Date
or ninety (90) days from the date of any prior extension thereof, as applicable.
Section 2.04 Notice and Manner of Borrowing. The amount of each
Advance shall be designated by the Borrower's execution of a Borrowing Request
to be received by the Lender at least three (3) but not more than ten (10)
Business Days prior to the date of such Advance, which date shall be a Business
Day. Each such Advance shall be made at the office of the Lender and shall be
funded in immediately available funds.
Section 2.05 Computation. All payments of interest shall be computed
on the per annum basis of a year of 365 or 366 days, as the case may be, and for
the actual number of days (including the first day but excluding the last day)
elapsed.
Section 2.06 Mandatory Prepayments. If at any time after the
Completion Date of any Loan, including any extension thereof, there shall remain
any outstanding balance owing on such Loan, then the Borrower shall immediately
pay the amount of the outstanding balance to the Lender.
<PAGE>
Section 2.07 Termination of Commitment.
(a) The Commitment shall expire on the Maturity Date unless the Lender
agrees to extend the Commitment. It is hereby understood that the Lender shall
have no obligation to extend the Commitment, and that any such further extension
will be in the Lender's sole discretion. The expiration of the Commitment shall
relieve the Lender from any obligation to enter into any additional Loans from
and after the Maturity Date, but shall not affect the term, operation or the
obligation of the Lender to make Advances as provided hereunder in connection
with any Interim Construction Loans for which the initial funding of an Advance
thereunder shall have been made prior to the Maturity Date.
(b) Unless the Interim Construction Loan has been extended pursuant to
Section 2.03(c) hereof, the obligation of the Lender to make Advances under any
Interim Construction Loan shall terminate on the Completion Date thereof and the
principal and accrued interest attributable to such Interim Construction Loan(s)
shall be due and payable in full. In spite of the termination or expiration of
the Lender's commitment and obligations thereunder and hereunder, all duties and
obligations of the Borrower under this Agreement and all other security
Instruments shall continue in full force and effect until the occurrence of the
full and final payment of the Note and performance of all obligations in the
Security Instruments.
Section 2.08 Payment Procedure. All payments made by the Borrower
under the Note or this Agreement shall be made to the Lender before 12:00 noon,
Central Standard Time, at its principal office in immediately available funds on
the date that such payment is required to be made. The Borrower hereby
authorizes the Lender, if and to the extent payment is not made when due
hereunder or under the Note or Security Instruments, to charge from time to time
against the Borrower's account with the Lender any amount so due. Any payment
received and accepted by the Lender after such time shall be considered for all
purposes (including the calculation of interest, to the extent permitted by law)
as having been made on the Lender's next following Business Day.
Section 2.09 Business Days. If the date for any loan payment or fee
payment hereunder falls on a day which is not a Business Day, then for all
purposes for the Note and this Agreement the same shall be deemed to have fallen
on the next following Business Day, and such extension of time shall in such
case be included in the computation of payments of interest or fees, as the case
may be.
CONDITIONS OF FUNDING
The obligations of the Lender to make the Interim Construction Loans
pursuant to this Agreement are subject to the conditions precedent stated in
this Article 3 hereof.
Section 3.01 Initial Advance. The obligations of the Lender under this
Agreement are, in addition to the conditions precedent specified in Section 3.02
hereof, subject to the following conditions precedent, wherein each document to
be delivered to the Lender shall be in form and substance satisfactory to it:
<PAGE>
(a) Borrower's Certificates --
(i) the Lender shall have received certificates of the
Secretary of the Borrower in form and substance satisfactory
to the Lender with respect to the authorization of the
Borrower to execute and deliver the Note, this Agreement and
any other Security Instruments provided herein and
authorization of the officers of the Borrower to sign such
instruments, and specimen signatures of the officers so
authorized.
(ii) the Lender shall also have received a copy, certified as
true by the Secretary of the Borrower, of the Borrower's
Articles of Organization filed with the Secretary of State of
the State of Texas and the Regulations governing the Borrower.
(b) Other Certifications from the Borrower -- the Lender shall have
received such other certificates and documentation as deemed necessary or
appropriate, including, without limitation, copies of the Borrower's certificate
of good standing, issued by the Comptroller of the State of Texas; and,
(c) Opinion Letter from Borrower's Counsel -- the Lender shall have
received from the Borrower's counsel a favorable written opinion as to such
matters contained in Sections 4.01, 4.02, 4.03, 4.04 and 4.05 hereof; and as to
such counsel's knowledge of pending or threatened material litigation or
governmental or regulatory proceedings against the Borrower; and as to such
other matters incident to the transactions herein contemplated as the Lender may
reasonably request; and,
(d) the Lender shall have received each of the following
documents, duly and validly executed: (i) this Loan Agreement;
(ii) the Note;
(iii) the Master Form Deeds of Trust;
(iv) the Master Financing Statement;
(v) the Security Agreement; and,
(vi) a Loans to one Borrower Affidavit.
(e) The Lender shall have approved the Subdivision in accordance with
the provisions of Section 3.08 of this Agreement; and,
(f) The Lender shall have received evidence of the Insurance Policies
and delivery of all documents or certificates as the Lender may require with
respect thereto; and,
(g) The Lender shall have received such other documents as the Lender
may reasonably have requested.
Section 3.02 All Advances. All Advances relating to each Interim
Construction Loan hereunder shall be made in accordance with the Construction
Draw Schedule. The obligation of the Lender to make each Advance (including the
initial Advance with respect to each Loan) pursuant to this Agreement is subject
to the following further conditions precedent:
(a) the delivery to the Lender of the following items, each of which
shall be in form and substance satisfactory to it, in its sole and absolute
discretion:
(i) the Borrowing Request; (ii) the Appraisal; (iii) the Current
Survey; (iv) the Affidavit; (v) the Plans; (vi) the Compliance
Certificate;
(vii) the most recent Inventory Report; and, (iv) the Bills Paid
Affidavit.
<PAGE>
(b) the delivery to the Lender of a commitment for title insurance
issued by the Title Company, committing to issue to the Lender either a Title
Insurance Binder or a Title Insurance Policy, as appropriate;
(c) the delivery to the Lender of a certified copy of the executed and
notarized Supplemental Deed of Trust covering the Lot or Lots for which the
initial Advance has been requested;
(d) if requested by the Lender, the Borrower shall have delivered to
the Lender lien waivers from the subcontractors and materialmen connected with
any items payable pursuant to all previous Advances made on each Interim
Construction Loan in connection with said application for Advance; such lien
waivers shall be in form and substance satisfactory to the Lender;
(e) the appropriate Security Instruments shall have been duly
delivered to the appropriate offices for filing or recording when applicable,
and the Lender shall have received confirmations of receipt thereof from the
appropriate filing or recording offices;
(f) after the initial Advance, the Lender shall have received the
Title Insurance Binder or the Title Insurance Policy, as applicable; and,
(g) all building and utility permits, and licenses; and,
(h) no Default shall have occurred and be continuing, nor shall a
Material Adverse Change have occurred and be continuing.
(i) if required by the Lender, the Borrower shall deliver to the
Lender any and all other supporting documents reasonably required by the Lender.
Section 3.03 Limitation on Speculative Starts and Model Homes.
Notwithstanding any provision contained herein to the contrary, the Lender shall
not be obligated to make any Interim Construction Loan to finance any
Speculative Start, any Model Home, or any Lot Purchase Loan in any Subdivision,
if at any time:
(a) the number of Model Homes exceeds six (6) throughout all the
approved Subdivisions; or,
(b) the number of Speculative Starts exceeds four (4) in any one
Subdivision (which, for the purpose of this calculation, shall include two
<PAGE>
(2) Model Homes in any one Subdivision); or,
(c) the ratio of the Borrower's total inventory of Speculative Starts to
Presales exceeds 40% to 60% (whether or not such Speculative Starts and
Presales are financed by the Lender).
Section 3.04 Application of Interim Construction Loan Proceeds. The
Borrower will hold all Advances of each Interim Construction Loan as a trust
fund to be applied for the sole purpose of paying the cost of construction of
the Units under each such Interim Construction Loan in accordance with the
Budget and shall apply the same to the payment of such costs. The Borrower will
apply such Advances by the Lender to the payment of material and labor costs in
connection with construction of the Units under each such Interim Construction
Loan pursuant to the request for Advance. Such payment will be made promptly and
Advances will be used for no other purpose so long as any sums of money remain
due by the Borrower for the payment of material and labor. No Advance by the
Lender shall ever be used to defray living expenses, to anticipate profit or to
defray any other item not expressly set forth in the Budget connected with cost
of construction.
Section 3.05 Lot Advances. Advances to the Borrower in connection with
the purchase of Lots with respect to a Lot Purchase Loan shall be equal to the
Maximum Loan Amount attributable to the Lot Purchase Loan. Advances to the
Borrower with respect to the purchase of Lots in connection with an Interim
Construction Loan shall be equal to the purchase price of the Lot (including, if
applicable, any interest accrued and due thereon) plus all closing costs
associated with the purchase.
Section 3.06 Third--Party Beneficiaries. All conditions precedent to
the Lender's obligation to make Advances hereunder are imposed solely and
exclusively for the benefit of the Lender. No Person or entity other than the
Lender shall have any standing to require satisfaction of such conditions or be
entitled to assume that the Lender will refuse to make Advances absent strict
compliance therewith, and any or all of such conditions may be freely waived in
whole or in part in writing by the Lender at any time or times.
Section 3.07 Eligible CMSAs. The Lender shall not be obligated to make
any Loan hereunder unless the Subdivision is located within the Dallas, Texas
CMSA or the Fort Worth, Texas CMSA.
Section 3.08 Subdivision Approval. No Advance for either an Interim
Construction Loan or for a Lot Purchase Loan shall be made until and unless the
Lots will be located in a Subdivision which has been approved by the Lender, in
its sole discretion and which is within the Eligible OMSA. In order to obtain
such approval, the Borrower shall furnish the Lender the following items, each
of which shall be in form and substance satisfactory to it, in its sole and
absolute discretion:
<PAGE>
(a) a certified copy of the recorded Subdivision plat in which the
Lot(s) to be covered by the Security Instruments are to located, properly filed
of record and otherwise complying with all applicable laws; and,
(b) a certified copy of any recorded Deed Restrictions
applicable to the Subdivision; and,
(c) the following site assessments conducted and certified by
independent qualified environmental consultant(s) approved by the Lender:
(1) a Category 1 or Phase 1 environmental audit assessing the
Presence of Hazardous Material, if any, at the Premises;
(2) such further site assessments as the Lender may require
due to the results obtained in (i) above; and
(3) a report from such consultant(s) to the effect that no
Hazardous Materials are present at the Premises.
The environmental consultant(s), its qualifications, the scope
and methodology of its investigations, its reports and
recommendations and the form, scope and substance of its
certifications to the Lender shall be acceptable to the Lender
in all respects. For purposes of this Section, a Category 1 or
Phase 1 environmental audit refers to what is commonly known
within the industry as a three-- phase approach, the purpose
of which is to assess the presence or absence of information
that indicates potential contamination and to make
recommendations for further investigation. A Category 1 or
Phase 1 environmental audit would typically include, but not
be limited to: a site history review, interviews with
individuals who are familiar with the site and regulatory
agency personnel, a site visit and off--site research (i.e.,
aerial photographs); and,
(d) copies of the fully executed lot takedown purchase agreements
executed by the developer of the Subdivision as seller and the Borrower as
purchaser; and,
(e) evidence satisfactory to the Lender that the Subdivision is not
situated in an area that has been designated by the Secretary of Housing And
Urban Development as an area having special flood hazards or, in the
alternative, flood insurance with maximum limits of coverage for such
Subdivision which have been identified as having special flood hazards.
Section 3.09 Arbitration.
(a) To the maximum extent not prohibited by law, any controversy,
dispute or claim arising out of, in connection with, or relating to the
Indebtedness, this Agreement, the Loans or the Security Instruments or any
transaction provided for therein, including but not limited to any claim based
on or arising from an alleged tort or an alleged breach of any agreement
contained in any of the Security Instruments, shall, at the request of any party
to the Indebtedness, this Agreement, the Loans or the Security Instruments
(either before or after the commencement of judicial proceedings), be settled by
arbitration pursuant to Title 9 of the United States Code, which the parties
hereto acknowledge and agree applies to the transaction involved herein, and in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the "AAA"). If Title 9 of the United States Code is inapplicable to
any such claim, dispute or controversy for any reason, such arbitration shall be
conducted pursuant to the Texas General Arbitration Act and in accordance with
the Commercial Arbitration Rules of the AAA. In any such arbitration proceeding:
(i) all statutes of limitations which would otherwise be applicable shall apply;
and (ii) the proceeding shall be conducted in Houston, Texas, by a single
arbitrator, if the amount in controversy is $1 million or less, or by a panel of
three arbitrators if the amount in controversy is over $1 million. All
arbitrators shall be selected by the process of appointment from a panel
pursuant to Section 13 of the AAA Commercial Arbitration Rules and each
arbitrator will have AAA-acknowledged expertise in the appropriate subject
matter. Any award rendered in any such arbitration proceeding shall be final and
binding, and judgment upon any such award may be entered in any court having
jurisdiction.
<PAGE>
(b) If any party to the Indebtedness, this Agreement, the Loans or the
Security Instruments files a proceeding in any court to resolve any such
controversy, dispute or claim, such action shall not constitute a waiver of the
right of such party or a bar to the right of any other party to seek arbitration
under the provisions of this Section of that or any other claim, dispute or
controversy, and the court shall, upon motion of any party to the proceeding,
direct that such controversy, dispute or claim be arbitrated in accordance with
this Section.
(c) Notwithstanding any of the foregoing, the parties hereto agree
that no arbitrator or panel of arbitrators shall possess or have the power to
(i) assess punitive damages, (ii) dissolve, rescind or reform (except that the
arbitrator may construe ambiguous terms) the Indebtedness, this Agreement, the
Loans or the Security Instruments, (iii) enter judgment on the debt, (iv)
exercise equitable powers or issue or enter any equitable remedies or (v) allow
discovery of attorney/client privileged information. The Commercial Arbitration
Rules of the AAA are hereby modified to this extent for the purpose of
arbitration of any dispute, controversy or claim arising out of, in connection
with, or relating to the Indebtedness, this Agreement, the Loans or the Security
Instruments. The parties further agree to waive, each to each other, any claims
for punitive damages, and agree that neither an arbitrator nor any court shall
have the power to assess punitive damages.
(d) No provision of, or the exercise of any rights under, this Section
shall limit or impair the right of any party to the Supplemental Deed of Trust
or the other Security Instruments before, during or after any arbitration
proceeding to (i) exercise self-- help remedies such as setoff or repossession;
(ii) foreclose (judicially or otherwise) any lien on or security interest in the
Premises; or (iii) obtain emergency relief from a court of competent
jurisdiction to prevent the dissipation, damage, destruction, transfer,
hypothecation, pledging or concealment of assets or of the Premises securing any
indebtedness, obligation or guaranty referenced in the Security Instruments.
Such emergency relief may be in the nature of, but is not limited to:
pre-judgment attachments, garnishments, sequestrations, appointments of
receivers, or other emergency injunctive relief to preserve the status quo.
(e) In the event arbitration is prohibited by law with respect hereto,
any actions or proceedings with respect to the Note, the Indebtedness, this
Agreement, the Loans or the other Security Instruments may be instituted in the
courts of the State of Texas, the United States District Court for the Southern
District of Texas, or elsewhere to the extent that jurisdiction shall exist
apart from the provisions of this Section, as the Lender may elect, and by
execution and delivery of this Agreement, Borrower irrevocably and
unconditionally submits to the jurisdiction (both subject matter and personal)
of each such court, and irrevocably and unconditionally waives (i) any objection
Borrower may now or hereafter have to the laying of venue in any of such courts,
and (ii) any claim that any action or proceeding brought in any of such courts
has been brought in an inconvenient forum.
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement, the
Borrower represents and warrants to the Lender (which representations and
warranties will survive the delivery of the Note and the making of the Advances
thereunder and shall be continually in full force and effect until the Lender's
Commitment is terminated and the Lender has been paid in full of all sums owing
under the Indebtedness), that:
Section 4.01 Existence. The Borrower is a limited liability company
duly organized, legally existing and in good standing under the laws of the
State of Texas.
Section 4.02 Power and Authorization. The Borrower is duly authorized
and empowered to create and issue the Note; and the Borrower is duly authorized
and empowered to execute, deliver and perform the Security Instruments to which
the Borrower is a party; and all corporate action of the Borrower's part
requisite for the due creation and issuance of the Note and for the due
execution, delivery and performance of the Security Instruments to which the
Borrower is a party has been duly and effectively taken.
Section 4.03 Binding Indebtedness. This Agreement does, and the Note
and other Security Instruments to which the Borrower is a party upon their
creation, issuance, execution and delivery will, constitute valid and binding
obligations of the Borrower, enforceable in accordance with their terms (except
that enforcement may be subject to any applicable bankruptcy, insolvency or
similar laws generally affecting the enforcement of creditors' rights).
Section 4.04 No Legal Bar or Resultant Lien. The Note and the Security
Instruments to which the Borrower is a party do not and will not violate any
provisions of its By--Laws or any contract, agreement, instrument or
Governmental Requirement to which the Borrower is subject, or result in the
creation or imposition of any Lien upon any Properties of the Borrower, other
than those permitted by this Agreement. The Borrower's development, improvement
and sale of the Lots and Improvements and any sale or lease of any portion
thereof by the Borrower are and shall be exempt from the registration and
reporting requirements of the Interstate Land Sales Full Disclosure Act and
regulations thereunder, as amended from time to time.
Section 4.05 No Consent. The Borrower's execution, delivery and
performance of the Note and the Security Instruments to which the Borrower is a
party do not require the consent or approval of any other Person which has not
been obtained, including without limitation any regulatory authority or
governmental body of the United States of America or any state thereof or any
political subdivision of the United States of America or any state thereof.
Section 4.06 Financial Condition. The annual financial statements of
the Borrower for its fiscal year ended December 31, 1996, which have been
delivered to the Lender, have been prepared in accordance with generally
accepted accounting principles, consistently applied, and present fairly the
financial condition and changes in financial position of the Borrower as of the
date or dates and for the period or periods stated (subject only to normal
year-end audit adjustments with respect to such unaudited interim statements).
No change, either in any case or in the aggregate, has since occurred in the
condition, financial or otherwise, of the Borrower which would have a Material
Adverse Effect, except as disclosed to the Lender in Exhibit "E" attached
hereto.
<PAGE>
Section 4.07 Investments and Guaranties. At the date of this
Agreement, the Borrower has not made investments in, advances to or guaranties
of the obligations of any Person, except as reflected in the Financial
Statements or disclosed to the Lender in Exhibit "E" hereto.
Section 4.08 Liabilities- Litigation. Except for liabilities incurred
in the normal course of business, the Borrower does not have at the date of this
Agreement any material (individually or in the aggregate) liabilities, direct or
contingent, except as disclosed or referred to in the Financial Statements or as
disclosed to the Lender in Exhibit "E" hereto. Except as disclosed to the Lender
in Exhibit "E" hereto, at the date of this Agreement there is no litigation,
legal, administrative or arbitral proceeding, investigation or other action of
any nature pending or, to the knowledge of the Borrower, threatened against or
affecting the Borrower which involves the possibility of any judgment or
liability not fully covered by insurance and which would have a Material Adverse
Effect. No unusual, extraordinary or unduly burdensome restriction, restraint or
hazard exists by contract, law or governmental regulation or otherwise relative
to the business or Properties of the Borrower, except as disclosed to the Lender
in Exhibit "E" hereto.
Section 4.09 Taxes; Governmental Charges. The Borrower has filed all
tax returns and reports required to be filed and has paid all taxes,
assessments, fees and other governmental charges levied upon it or upon its
Properties or income which are due and payable, including interest and
penalties, or has provided adequate reserves for the payment thereof.
Section 4.10 Titles. Etc. The Borrower has good title to its material
(individually and in the aggregate) Properties, free and clear of all Liens
except (i) Liens referred to in the Financial Statements, (ii) Liens disclosed
to the Lender in Exhibit "E" hereto, (iii) Liens and minor irregularities in
title which do not materially interfere with the occupation, use and enjoyment
by the Borrower of its Properties in the normal course of business as presently
conducted or materially impair the value thereof for such business, or (iv)
Liens otherwise permitted or contemplated by this Agreement or the other
Security Instruments. In connection with any Interim Construction Loan, the
Borrower is, or will be subsequent to the initial Advance of such Interim
Construction Loan, the legal and equitable fee simple absolute owner of the Lot
attributable thereto and all Improvements thereon, subject only to title
exceptions specified in the Title Insurance Binder which are hereafter accepted
by the Lender.
Section 4.11 Defaults. The Borrower is not in Default nor has any
event or circumstance occurred which, but for the passage of time or the giving
of notice, or both, would constitute a default under any loan or credit
agreement, indenture, mortgage, deed of trust, security agreement or other
agreement or instrument evidencing or pertaining to any Debt of the Borrower, or
under any material agreement or instrument to which the Borrower is a party or
by which the Borrower is bound, except as disclosed to the Lender in Exhibit "E"
hereto. No Default or Event of Default hereunder has occurred and is continuing.
Section 4.12 Casualties; Taking of Properties. Since the date of the
Financial Statements, neither the business nor the Properties of the Borrower
have been materially and adversely affected as a result of any fire, explosion,
earthquake, flood, drought, windstorm, accident, strike or other labor
disturbance, embargo, requisition or taking of Property or cancellation of
contracts, permits or concessions by any domestic or foreign government or any
agency thereof, riot, activities of armed forces or acts of God or of any public
enemy.
Section 4.13 Compliance with the Law. The Borrower:
(a) is not in violation of any Governmental Requirement nor of any
ERISA requirement or any funding obligation under any ERISA plan; and
(b) has not failed to obtain any license, permit, franchise or other
governmental authorization necessary to the ownership of any of its Properties
or the conduct of its business which violation or failure would have (in the
event such violation or failure were asserted by any Person through appropriate
action) a Material Adverse Effect.
Section 4.14 No Material Misstatements. No information, exhibit or
report furnished to the Lender by the Borrower in connection with the
negotiation of this Agreement contained any material misstatement of fact or
omitted to state a material fact or any fact necessary to make the statement
contained therein not misleading.
Section 4.15 Environmental Matters. Except as disclosed to the Lender
in Exhibit "E" hereto, the Borrower (a) is unaware of and has not received
notice of any actual or alleged Environmental Liability which would individually
or in the aggregate have a Material Adverse Effect arising in connection with
(i) any actual or alleged non--compliance with or violation of the requirements
of any Environmental Law or (ii) -any actual, alleged or threatened Hazardous
Discharge, (b) has no threatened or actual liability in connection with any
actual, alleged or threatened Hazardous Discharge which would individually or in
the aggregate have a Material Adverse Effect, and (c) is unaware of and has not
received notice of any inspection, investigation or evaluation concerning
whether any remedial action is needed.to respond to any actual, alleged or
threatened Hazardous Discharge for which the Borrower is or may be liable. To
the Borrower's knowledge, all Property covered by the Security Instruments is in
compliance with all Environmental Laws.
Section 4.16 Compliance. The Residences, when completed in accordance
with the Plans, and their intended uses, will comply with all applicable laws,
ordinances, regulations, restrictive covenants and requirements of Governmental
Authorities (including without limitation building ordinances, health
ordinances, handicap ordinances, zoning laws and environmental regulations).
Prior to commencement of construction of a Residence, the Plans will have been
approved by all Governmental Authorities with jurisdiction over the Residences.
<PAGE>
Section 4.17 Budget. Each Budget accurately reflects or will
accurately reflect all costs which will be incurred by the Borrower in the
acquisition, construction and operation of the portion of the Premises covered
thereby through the Completion Date of the interim Construction Loan in
connection therewith.
Section 4.18 Sufficient Funds. Sufficient funds are available to the
Borrower in addition to proceeds of the Note to pay all costs of
construction of the Improvements.
Section 4.19 Utilities and Permits. All utility services and permits
(including without limitation water and sewage permits) in such capacities as
are necessary for the construction of the Residences and the operation thereof
for their intended purpose are available at the boundary of each Lot, including
water supply, storm and sanitary sewer facilities, gas, electric and telephone
facilities. All zoning and building permits required for the construction of
each Residence have been obtained or shall be obtained prior to the commencement
of construction of such Residence, and upon request of the Lender copies of same
shall have been delivered to the Lender.
Section 4.20 Streets. All streets, roads and/or highways necessary for
the full utilization of any Residence for its intended purpose have been
completed and the necessary rights-of-way therefor have either been acquired by
the appropriate Governmental Authority or have been dedicated to the public use
and accepted by such Governmental Authority, and all necessary steps have been
taken by the Borrower and any such Governmental Authority to assure the complete
construction and installation thereof prior to the Substantial Completion for
the applicable Residence.
Section 4.21 No Work. No work or construction (including the
destruction or removal of any existing improvements, site work, clearing,
grubbing, draining or fencing of the Lot) has been or will be commenced on the
Lot which is the subject of the Interim Construction Loan, and no contract, oral
or written, has been or will be recorded for the construction of any Residence,
and no materials or supplies to be used in the construction of any Residence
have been delivered to the Lot, and no contract or affidavit has been nor will
any contract or affidavit be filed of record which (with respect to any of the
foregoing) could result in the imposition of a mechanic's or materialman's lien
on any portion of the Lot prior to or on parity with the lien and security
interest evidenced by any Deed of Trust. THE BORROWER UNDERSTANDS THAT THE
LENDER IS EXPRESSLY RELYING ON THE REPRESENTATIONS AND WARRANTIES CONTAINED IN
THIS SECTION IN MAKING INTERIM CONSTRUCTION LOANS TO THE BORROWER AND THAT ALL
ADVANCES ARE CONDITIONED UPON THE CONTINUED TRUTH AND ACCURACY OF THE
REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN.
Section 4.22 Affirmation of Representations and Warranties. Receipt of
each Advance and each Borrowing Request shall constitute an affirmation that the
representations and warranties of the Borrower contained in this Agreement are
true and correct in all material respects as of the date thereof and, unless the
Lender is notified in. writing to the contrary before the disbursement of any
Advance, will be so on the date thereof.
<PAGE>
Section 4.23 Location of the Borrower. The Borrower's principal place
of business and chief executive offices are located at the address stated in the
opening recital of this Agreement.
Section 4.24 Forfeiture. Neither the Borrower nor any of its
Affiliates is or has been charged with, or to their knowledge, are under
investigation for possible violations of the Racketeer Influenced and Corrupt
Organizations Act, the Continuing Criminal Enterprise Act, the Controlled
Substance Act of 1978, the Money Laundering Act of 1986, the Anti-Drug Abuse Act
of 1988, or similar laws providing for the possible forfeiture of any of their
respective assets or Properties.
ARTICLE 5
AFFIRMATIVE COVENANTS
The Borrower will at all times comply with the covenants contained in
this Article 5, from the date hereof and for so long as any part of the
Indebtedness or the Commitment is outstanding.
Section 5.01 Financial Statements and Reports. The Borrower will
promptly furnish to the Lender from time to time upon request such information
regarding the business and affairs and financial condition of the Borrower as
the Lender may reasonable request, and will furnish to the Lender:
(a) Annual Reports - promptly after becoming available and in any
event within 120 days after the close of each fiscal year of the Borrower, the
balance sheet of the Borrower as at the end of such year, the statement of
profit and loss of the Borrower for such year, and the statement of
reconciliation of capital accounts of the Borrower for such year, setting forth
in each case in comparative form the corresponding figures for the preceding
fiscal year, accompanied by the related report of an independent public
accountant acceptable to the Lender, which report shall be to the effect that
such statements have been prepared in accordance with generally accepted
accounting principles consistently followed throughout the period indicated
except for such changes in such principles with which the independent public
accountants shall have concurred; and
(b) Promptly after becoming available and in any event within 21 days
after the end of each third month in each fiscal year of the Borrower, the
balance sheet of the Borrower as at the end of such quarter, the statement of
profit and loss of the Borrower for such quarter, and for the period from the
beginning of the fiscal year to the close of such quarter, and the statement of
reconciliation of capital accounts of the Borrower for such quarter, and for the
period from the beginning of the fiscal year to the close of such quarter,
setting forth in each case, in comparative form, the corresponding figures for
the corresponding period of the preceding fiscal year, certified by the
principal financial officer of the Borrower to have been prepared in accordance
with generally accepted accounting principles consistently followed throughout
the period indicated except to the extent stated therein, subject to normal
changes resulting from year--end adjustments; and
<PAGE>
(c) Environmental Notices - notice to the Lender in writing,
immediately delivered to the Lender upon the Borrower's becoming aware that the
Borrower has received any information, notice, advise or of any claim, demand,
action, event, condition, report or investigation indicating any potential or
actual liability arising in connection with (i) the noncompliance with or
violation of the requirements of any Environmental Law which individually or in
the aggregate might have a Material Adverse Effect, (ii) the release or
threatened release of any toxic or hazardous material, waste, substance or
constituent into the environment which individually or in the aggregate might
have a Material Adverse Effect or which release of threatened release the
Borrower has a duty to report under any Environmental Law, or (iii) the
existence of any Environmental Lien on any Properties or assets of the Borrower;
and
(d) The Borrower shall furnish or cause to be furnished to the Lender
annually the balance sheet of the each of the Guarantors for the prior year, and
the statement of cash flow for Phillips John for such period (provided, however,
both of such reports shall be certified by each of the Guarantors as true and
correct but need not be audited), and, when filed, an executed copy of the each
of the Guarantor's federal income tax return for such year. At no time shall the
financial statements delivered by either of the Guarantors to the Lender as
provided hereunder be for a period more than one (1) year from the date of
delivery of any such prior financial statement delivered in connection herewith.
Section 5.02 Payment of Impositions. The Borrower will pay and
discharge, or cause to be paid or discharged, any and all Impositions not later
than the due date thereof, or the day any fine, penalty, interest or cost may be
added thereto or imposed or the day any Lien may be filed for the nonpayment
thereof (if such day is used to determine the due date of the respective item);
the Borrower may in good faith, in lieu of paying such Impositions as they
become due and payable, by appropriate proceedings, contest the validity
thereof. During such contest the Borrower shall not be deemed in Default
hereunder because of such nonpayment if, prior to delinquency of the asserted
tax or assessment, and if required by the Lender, the Borrower furnishes the
Lender an indemnity bond, conditioned that such tax or assessment with interest,
cost and penalties be paid as herein stipulated, secured by a deposit in cash or
security acceptable to the Lender or with surety acceptable to the Lender, in
the amount of the tax or assessment being contested by the Borrower and a
reasonable additional sum to pay all possible costs, interest and penalties
imposed or incurred in connection therewith. Upon conclusion of such contest the
Borrower shall promptly pay any amount adjudged by a court of competent
jurisdiction to be due, with all costs, penalties and interest thereon prior to
the date such judgment becomes final or any writ or order is issued under which
any portion of the Premises may be sold pursuant to such judgment.
Section 5.03 Maintenance. The Borrower will (i) maintain its existence
as a duly qualified limited liability company in accordance with the Texas
Miscellaneous Corporation Law Act, as amended from time to time, (ii) observe
and comply with all Governmental Requirements, and (iii) maintain its Properties
(and any Properties leased by or consigned to it or held under title retention
or conditional sales contracts) in good and workable condition at all times and
make all repairs, replacements, additions, betterments and improvements to its
Properties as are needed and proper so that the business carried on in
connection therewith may be conducted properly and efficiently at all times.
Section 5.04 Further Assurances. The Borrower will promptly cure any
defects in the creation and issuance of the Note and the execution and delivery
of the Security Instruments. The Borrower at its expense will promptly execute
and deliver to the Lender upon reasonable request all such other and further
documents, agreements and instruments in compliance with or accomplishment of
the covenants and agreements of the Borrower in the Security Instruments or to
further evidence and more fully describe the collateral intended as security for
the Note, or to correct any omissions in the Security Instruments, or more fully
to state the security obligations set out herein or in any of the Security
Instruments, or to perfect, protect or preserve any Liens created pursuant to
any of the Security Instruments, or to make any recordings, to file any notices,
or obtain any consents, all as may be necessary or appropriate in connection
therewith. The Borrower shall also furnish the Lender such reports on the
operations of the Borrower and on the Borrower's Affiliates and associated
enterprises, including details of projects or properties financed by parties
other than the Lender, as the Lender may reasonably request.
Section 5.05 Performance of Indebtedness. The Borrower will pay the
Note according to the reading, tenor and effect thereof and the Borrower will do
and perform every act and discharge all of the obligations provided to be
performed and discharged by the Borrower under the Security Instruments,
including this Agreement, at the time or times and in the manner specified.
Section 5.06 Reimbursement of Expenses. The Borrower will pay all fees
incurred by the Lender in connection with the Security Instruments, including
without limitation (a) all fees for filing or recording any Security
Instruments; (b) all fees and commissions lawfully due to brokers, salesmen and
agents in connection with the Indebtedness or the Premises; (c) all reasonable
fees and expenses of counsel to the Lender in connection with the negotiation,
preparation, interpretation, amendment or enforcement of any of the Security
Instruments, the making of any Advance, or any suit to which the Lender is a
party involving this Agreement or any portion of the Premises; (d) all title
insurance and title examination charges, including premiums for the Mortgagee's
Title Policies and the Title Insurance Binders; (e) all survey costs and
expenses, including the cost of the Current Surveys; (f) all premiums for the
Insurance Policies; and (g) all other reasonable costs and expenses incurred by
the Lender in connection with the Premises and the Security Instruments. In the
event the Borrower shall fail, refuse or neglect to pay any costs and expenses
specified in the Security Instruments when due, then at any time thereafter, and
without notice to or demand upon the Borrower and without waiving or releasing
any other right, remedy or recourse the Lender may have because of the same, the
Lender may, but shall not be obligated to, make such payment or payments for the
account of and at the expense of the Borrower. The Borrower will, upon request,
promptly reimburse the Lender for all amounts expended, advanced or incurred by
the Lender to satisfy any obligation of the Borrower under the Security
Instruments, or to collect the Note, or to enforce the rights of the Lender
under the Security Instruments.
<PAGE>
Section 5.07 Insurance.
(a) The Borrower now maintains and will continue to maintain, with
financially sound and reputable insurers, Insurance Policies with respect to its
Properties and the Premises and business against such liabilities, casualties,
risks and contingencies and in such types and amounts as shall be acceptable to
the Lender.
(b) Upon request of the Lender, the Borrower will furnish or cause to
be furnished to the Lender from time to time a summary of the insurance coverage
of the Borrower in form and substance satisfactory to the Lender and if
requested will furnish the Lender copies of the applicable Insurance Policies.
(c) In the case of any fire, accident or other casualty causing loss
or damage to any Units, the proceeds of such policies shall be used at the
option of the Lender (i) to repair or replace the damaged Property or (ii) to
prepay the Indebtedness. If the Lender elects to make the insurance proceeds
available to the Borrower to repair and restore the damaged Unit(s) rather than
applying the proceeds to payment of the Indebtedness, such proceeds will be
deposited with the Lender, together with any additional funds of the Borrower
which the Lender determines are necessary to complete the repairs and
restoration, and such funds will be disbursed by the Lender in accordance with
the terms of this Agreement before any additional Advances shall be made in
connection with the applicable Interim Construction Loan. The Borrower agrees to
promptly and diligently repair and restore the Premises.
(d) The Borrower shall cooperate with the Lender in obtaining for the
Lender the benefits of any Insurance Policy or other proceeds lawfully or
equitably payable to the Lender in connection with the transactions contemplated
hereby and the collection of any Indebtedness of the Borrower to the Lender
incurred hereunder (including payment by the Borrower of the expense of any
independent appraisal on behalf of the Lender in case of fire or other casualty
affecting any of the Improvements).
(e) The Borrower will obtain endorsements to the policies pertaining
to all physical Properties in which the Lender shall have a Lien under the
Security Instruments naming the Lender as a loss payee and containing provisions
that such policies will not be cancelled without 30 days prior written notice
having been given by the insurance company to the Lender.
Section 5.08 Accounts and Records. The Borrower will keep books of
records and accounts in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and activities, in
accordance with generally accepted accounting principles or practices with which
the Borrower's independent public accountants concur.
Section 5.09 Inspection of Books and Records. The Borrower will permit
any officer, employee or agent of the Lender to visit, inspect, and examine the
Borrower's financial records and accounts which (i) provide evidence that the
Advances are being used by the Borrower for the purposes stated in this
Agreement and (ii) relate to the preparation of the Financial Statements. The
Lender shall be permitted to take copies and extracts therefrom. The Lender
shall provide at least two (2) business days prior written notice to the
Borrower of the Lender's intention to inspect such records.
<PAGE>
Section 5.10 Inspection of the Premises. The Lender, its employees,
agents and/or representatives, will at all times be permitted to enter upon the
Premises and any of the locations where materials for the Improvements are being
stored to inspect the Premises, the Improvements and all materials to be used in
the construction thereof, and to examine all detailed plans and shop drawings,
contracts, statements, invoices, bills, reports, lien waivers and all other
documents of any kind relating to the construction, leasing and operation of the
Premises and/or any of the Improvements, which shall be kept at the construction
site or such other location designated in writing by the Borrower to the Lender
and approved by the Lender in writing. This provision shall not be deemed to
impose upon the Lender any duty or obligations whatsoever to undertake such
inspections, to correct any defects in the Premises or any of the Improvements
or to notify any person with respect thereto, nor shall it amount to a waiver of
any Defect which the Lender might have discovered by such inspection but failed
to notify the Borrower of same. Notwithstanding any approvals, inspections or
reviews conducted by the Lender or the Lender's employees or agents, the Lender
shall have no responsibility or obligation whatsoever for the Plans or any other
matter incident to the Lots or the construction of the Improvements.
Section 5.11 Notice of Certain Events. The Borrower shall promptly
notify the Lender if the Borrower learns of the occurrence of any event which
constitutes a Default or any event which could reasonably be expected to have a
Material Adverse Effect.
Section 5.12 Down-Date Endorsements. If requested by the Lender,
commencing not later than 120 days after the initial Advance of each Interim
Construction Loan (the "Applicable Date"), and prior to each Advance thereafter
until Substantial Completion of the Unit covered by a particular Title Insurance
Binder, the Borrower will furnish to the Lender a certificate issued by the
Title Company reflecting such changes in title to the applicable Lot as may have
occurred since the date of issuance of the Title Insurance Binder. Commencing on
the Applicable Date, the Borrower shall deliver to the Lender with each
Borrowing Request a satisfactory down--date endorsement to the applicable Title
Insurance Binder, which endorsement shall indicate that since the effective date
of the Title Insurance Binder (or the effective date of the last such
endorsement, if any) there has been no change in the status of title to the
applicable Lot.
Section 5.13 Survey. The Borrower will furnish to the Lender at any
stage of construction, upon the Lender's reasonable request, a Current Survey
for any Unit.
Section 5.14 Construction Contracts. Upon receipt of written request
from the Lender, the Borrower agrees to cause maj or contractors and
subcontractors to subordinate their respective liens, claims and charges to the
Deed of Trust covering the Units which are the subject of such Construction
Contracts and the rights, remedies and recourses of the Lender thereunder.
Section 5.15 Conveyance and Encumbrance. Except for the sale of Lots or
of Units pursuant to earnest money contracts to Persons who are not Affiliates
of the Borrower, the Borrower shall not sell, lease, exchange, assign, convey or
transfer possession of, or otherwise dispose of any of the Lots or Units, or any
legal or beneficial interests therein, without the prior written consent of the
Lender, which consent shall be in the Lender's sole discretion. If ownership of
a Lot or Unit or any part thereof or any interest therein becomes vested in any
Person other than the Borrower, any proceeds of such sale shall constitute a
trust fund for the benefit of the Lender, and the Lender may, without notice to
the Borrower, deal with such successor or successors with reference to the
applicable Deed of Trust and the Indebtedness in the same manner as with the
Borrower without in any way discharging the Borrower from the Indebtedness, and
without waiving any Default or Event of Default caused by such vesting of title
in another Person. No transfer of any portion of the Premises, for forbearance
by the Lender and no extension of the time for the payment of the Indebtedness
or the performance of any of the obligations performed or to be performed by the
Borrower granted by the Lender shall release, discharge or affect in any way the
liability of the Borrower hereunder.
<PAGE>
Section 5.16 Inspection Fee. The Borrower shall pay to the Lender at
the time of the initial Advance and each time the Borrower requests an
inspection in connection with an Advance an Inspection Fee in the amount of
$18.00, which amount is subject to adjustment at the Lender's discretion. The
Lender shall provide prior written notice of the change in the fee.
Section 5.17 Sign. If required by the Lender, the Borrower shall
maintain on a suitable site in each Subdivision a sign indicating that
construction financing is being provided by the Lender, all to the reasonable
satisfaction and at the expense of the Lender.
Section 5.18 Construction of Improvements. The Borrower agrees that (i)
each Residence shall be constructed entirely on the Lot upon which such
Residence was intended to be located; (ii) construction of a Residence will not
encroach upon or overhang any easement or right--of--way upon the land of
others; and (iii) each Residence, when erected, shall be wholly within the
building restriction lines, however established. The construction of all
Residences shall begin promptly, but not later than, before 45 days from the
date of the initial Advance with respect to each Interim Construction Loan
relating thereto and shall be prosecuted with diligence and continuity and in a
good and workmanlike manner, and in accordance with sound building and
engineering practices. After construction of a Residence has commenced, the
Borrower shall not permit work to be stopped on that Residence for a period in
excess of 30 consecutive calendar days, and the Borrower shall cause Substantial
Completion to occur in accordance with the applicable Plans, on or before the
Completion Date, free and clear of all Liens except the Lien of the applicable
Deed of Trust.
Section 5.19 Maintenance, Repair and Operation of Lots and of Units.
The Borrower shall: maintain the Units in first--class order, condition and
appearance; operate the Units properly and efficiently and in compliance with
any and all restrictive covenants affecting any of the Units; protect every part
of the Units and the material stored thereon from removal, destruction and
damage; not commit or permit any waste of any of the Units; not use, maintain,
operate or occupy, or allow the use, maintenance, operation or occupancy of any
Lot or Unit in a manner which violates any Governmental Requirements, or may be
dangerous, constitutes a public or private nuisance, or makes void, voidable or
cancelable or increases the premium of any insurance then in force with respect
thereto; upon demand by the Lender, and at the Borrower's sole expense, correct
any defect in any of the Units; and make all repairs, replacements, renewals,
additions, betterments, improvements and alterations thereof and thereto,
interior and exterior, structural or non--structural, ordinary and
extraordinary, foreseen and unforeseen, which are necessary or reasonably
appropriate to keep the Units in such order and condition.
<PAGE>
Section 5.20 Borrower's Deposit. If from time to time the Lender
reasonably determines that the actual cost of Substantial Completion of a Unit
exceeds or appears likely to exceed the amount of the unadvanced portion of an
Interim Construction Loan, then the Borrower shall, within five (5) calendar
days following receipt of the Lender's request, make a Borrower's Deposit with
Lender. The Lender may advance all or a portion of Borrower's Deposit prior to
making any further Advance of the Interim Construction Loan. The Borrower shall
promptly notify the Lender in writing if and when the actual cost of Substantial
Completion of a Unit exceeds, or appears likely to exceed, the amount of the
unadvanced portion of the Interim Construction Loan relating to such Units and
the un-- advanced portion of any then existing Borrower's Deposit. The Borrower
hereby assigns and pledges the proceeds of Borrower's Deposit and grants therein
a security interest to the Lender for such purposes.
Section 5.21 Joint Disbursement and Application by Lender. The Lender
shall have the right, but not the obligation, to disburse jointly the proceeds
of any Advance to the Borrower and any contractor or supplier to the
satisfaction of any item included in any Budget. Any Advance by the Lender for
such purposes, except Borrower's Deposit, shall be part of the Indebtedness. The
Lender may jointly disburse any portion of any Advance in connection with any
Loan at any time to persons other than the Borrower for the purposes specified
in this section, irrespective of any other provision hereof. This authorization
by the Borrower shall be irrevocably vested in the Lender for the purpose of
protecting the Lender's security interest in the Premises created under the
Security Instruments and shall constitute a power coupled with that interest.
Section 5.22 Flood Area. Prior to the initial Advance of each Interim
Construction Loan, the Borrower shall deliver to the Lender evidence
satisfactory to the Lender that the Improvements covered thereby will not be
situated in an area that has been identified by the Secretary of Housing and
Urban Development as an area having special flood hazards. Should it be
determined, however, that any of the Improvements are to be situated in an area
identified as having special flood hazards, the Lender may require flood
insurance with maximum limits of coverage and may require that the full premium
thereof be paid in full prior to any advance hereunder. The flood insurance
policy or policies shall all be in for~n and substance satisfactory to the
Lender.
Section 5.23 Compliance with Governmental Requirements. The Borrower
shall promptly comply with all Governmental Requirements affecting any portion
of the Premises in all respects and the Lender will be furnished, on demand,
evidence of such compliance. The Borrower assumes full responsibility for the
compliance of the Plans, the Lots and the Improvements with all Governmental
Requirements and with sound building and engineering practice and,
notwithstanding any approvals by the Lender, the Lender shall have no
responsibility or obligations whatsoever for the Plans or any other matter
incident to the Lots or the construction of the Improvements.
Section 5.24 Substantial Compliance. In no event shall the Lender be
obligated or committed to make any Advance hereunder in connection with an
Interim Construction Loan unless, in the judgment of the Lender, all
Improvements ordinarily completed at the stage of construction when the Advance
has been requested shall have been completed in a good and workmanlike manner
and all materials and fixtures usually installed and furnished at such stage, of
construction shall have been furnished and installed, and all construction,
materials and fixtures shall be in substantial conformity with the Plans and all
Governmental Requirements.
<PAGE>
Section 5.25 Easements, Encumbrances, Liens and Restrictive Covenants.
The Borrower shall not grant any easement, impose any restrictive covenants upon
any of the Lots or the Improvements, execute or file any subdivision plat
affecting any of the Lots or consent to the annexation thereof to any city
without the prior written consent of the Lender, which consent shall not be
unreasonably withheld. The Borrower shall not, without the prior written consent
of the Lender, create, place, suffer or permit to be created or placed or,
through any act or failure to act, acquiesce in the placing or allow to remain,
any mortgage, pledge, lien (statutory, constitutional or contractual), security
interest, encumbrance or charge on, or conditional sale or other title retention
agreement, regardless of whether same are expressly subordinate to the liens and
security interests of the Security Instruments, with respect to any of the Lots,
other than the encumbrances accepted by the Lender on the Mortgagee's Title
Policy or on the Title Insurance Binder.
Section 5.26 Transactions with Affiliates. The Borrower will not engage
in any transaction with any Affiliate of the Borrower on terms less favorable to
the Borrower than would be obtainable at the time in comparable transactions
with Persons not Affiliate of the Borrower.
Section 5.27 Ownership and Management. The Borrower will not permit any
change to occur in the ownership or management of any portion of the Premises.
The Borrower shall not permit the sale or transfer of more than 49% of the
ownership interest in the Borrower. Within 90 days of the end of each fiscal
year of the
Section 5.23 Compliance with Governmental RecTuirements. The Borrower
shall promptly comply with all Governmental Requirements affecting any portion
of the Premises in all respects and the Lender will be furnished, on demand,
evidence of such compliance. The Borrower assumes full responsibility for the
compliance of the Plans, the Lots and the Improvements with all Governmental
Requirements and with sound building and engineering practice and,
notwithstanding any approvals by the Lender, the Lender shall have no
responsibility or obligations whatsoever for the Plans or any other matter
incident to the Lots or the construction of the Improvements.
Section 5.24 Substantial Compliance. In no event shall the Lender be
obligated or committed to make any Advance hereunder in connection with an
Interim Construction Loan unless, in the judgment of the Lender, all
Improvements ordinarily completed at the stage of construction when the Advance
has been requested shall have been completed in a good and workmanlike manner
and all materials and fixtures usually installed and furnished at such stage, of
construction shall have been furnished and installed, and all construction,
materials and fixtures shall be in substantial conformity with the Plans and all
Governmental Requirements.
<PAGE>
Section 5.25 Easements, Encumbrances, Liens and Restrictive Covenants.
The Borrower shall not grant any easement, impose any restrictive covenants upon
any of the Lots or the Improvements, execute or file any subdivision plat
affecting any of the Lots or consent to the annexation thereof to any city
without the prior written consent of the Lender, which consent shall not be
unreasonably withheld. The Borrower shall not, without the prior written consent
of the Lender, create, place, suffer or permit to be created or placed or,
through any act or failure to act, acquiesce in the placing or allow to remain,
any mortgage, pledge, lien (statutory, constitutional or contractual), security
interest, encumbrance or charge on, or conditional sale or other title retention
agreement, regardless of whether same are expressly subordinate to the liens and
security interests of the Security Instruments, with respect to any of the Lots,
other than the encumbrances accepted by the Lender on the Mortgagee's Title
Policy or on the Title Insurance Binder.
Section 5.26 Transactions with Affiliates. The Borrower will not engage
in any transaction with any Affiliate of the Borrower on terms less favorable to
the Borrower than would be obtainable at the time in comparable transactions
with Persons not Affiliate of the Borrower.
Section 5.27 Ownership and Management. The Borrower will not permit any
change to occur in the ownership or management of any portion of the Premises.
The Borrower shall not permit the sale or transfer of more than 49% of the
ownership interest in the Borrower. Within 90 days of the end of each fiscal
year of the Borrower, the Borrower shall furnish to the Lender a complete and
accurate list of the names and addresses of the owners of the Borrower.
Section 5.28 Indemnification of the Lender. The Borrower hereby
expressly agrees to indemnify, defend and hold the Lender and the Lender's
officers, directors, shareholders, agents, employees, successors and assigns (as
well as the officers, directors, shareholders, agents and employees of the
Lender's successors and assigns) absolutely harmless from and against all costs,
expenses, liabilities, losses, damages, fines, penalties and/or obligations
(including, without limitation, diminution in the value of the Premises) of any
kind and character, known or unknown, fixed or contingent, asserted against,
incurred by or imposed upon or alleged to be due of the Lender or the Lender's
successors and assigns in connection with the assertion of (a) any claim for
brokerage, agency or finder's fees or commissions in connection with the
Indebtedness or the Premises not arising by, through or under the Lender; (b)
any claim for attorneys', appraisal, title insurance, inspection or other fees,
costs and expenses incurred in connection with the negotiation, closing,
administration, collection or refinancing of the Indebtedness, which arise by,
through or on behalf of the Borrower or any agent or representative of the
Borrower; Cc) any claim arising out of or occurring because of or related to any
Default hereunder; Cd) the presence, disposal, escape, seepage, leakage,
spillage, discharge, emission, release or threatened release of any Hazardous
Material on, from or affecting the Premises or any other property; Ce) any
personal injury (including wrongful death) or property damage (real or personal)
arising out of or related to such Hazardous Material; (f) any lawsuit brought or
threatened, settlement reached or government order relating to such Hazardous
Material; or (g) any violations of laws, orders, any regulations, requirements
or demands of Governmental Authorities which are based upon or in any relate to
such Hazardous Material.
<PAGE>
The Borrower acknowledges that the obligations set forth in this
Section 5.28 obligate the Borrower even if the liabilities, obligations, claims,
demands, damages, penalties, causes of action, losses, fines and costs and
expenses arose out of a claim, cause of action or suit that is based on or
alleged to be based on the Lender's negligence or strict liability of the
Lender. Any indemnity provision is intended to indemnify the Lender against the
consequences of its own negligence or fault as provided above, including any
so--called active negligence, regardless of whether the Lender is jointly,
comparatively or concurrently negligent with the Borrower or with any other
Person. Without limiting the remedies available to the Lender with respect to
the enforcement of its indemnification rights as stated herein or as stated in
any of the Security Instruments, in the event any claim or demand is made or any
other fact comes to the attention of the Lender in connection with, relating or
pertaining to, or arising out of the transactions contemplated by this
Agreement, which the Lender reasonably believes might involve or lead to some
liability of the Lender, the Borrower shall, immediately upon receipt of written
notification of any such claim or demand, assume in full the personal
responsibility for and, to the extent requested by the Lender, the defense of
any such claim or demand and pay in connection therewith any loss, damage,
deficiency, liability or obligation, including, without limitation, attorneys'
fees and court costs incurred in connection therewith. In the event of court
action in connection with any such claim or demand the Borrower shall assume, to
the extent requested by the Lender, the responsibility for the defense of any
such action, and shall immediately satisfy and discharge any final decree or
judgment rendered therein. The Lender may, in its sole and uncontrolled
discretion, make any payments sustained or incurred by reason of any of the
foregoing, and the Borrower shall immediately repay to the Lender in cash the
amount of such payment, with interest at the rate specified in the Note to be
applicable to past-due principal. The Lender shall have the right to join the
Borrower as a party defendant in any legal action brought against the Lender,
and the Borrower hereby consents to the entry of an order making the Borrower a
party defendant to any such action.
Section 5.29 Tax and Insurance Payments. Upon written request from the
Lender, the Borrower shall make monthly escrow payments, as estimated by the
Lender for the payment of ad valorem taxes, assessments and insurance premiums.
Such escrow payments shall be due and payable simultaneously with the monthly
payments due under the terms of the Note. The escrow payments shall be applied
by the Lender for the payment of the taxes, assessments and insurance premiums
that become due and owing under the term of this Agreement. If the Lender
reasonably determines that any amounts previously paid by the Borrower are (or
will be) insufficient for the payment in full of the taxes, assessments and
premiums, the Lender shall notify the Borrower of the additional amounts
required to provide a sufficient fund and, within 10 days after the date of the
Lender's notice, the Borrower shall pay to the Lender the additional amount
stated in the Lender's notice.
Section 5.30 Inventory Report. The Borrower shall provide or cause to
be provided to the Lender within 10 days after the end of each calendar month a
current inventory report (the "Inventory Report") and, if requested by the
Lender, copies of all contracts executed during the previous calendar month. The
Inventory Report shall show, as of the end of such month, (i) all Units of the
Borrower sold or under contract (including Units financed by Persons other than
the Lender and Units financed internally), (ii) the name of the purchaser, (iii)
the sales status (i.e., Model Home, Speculative Start or Presale), (iv)
completion status, (v) all Lots of the Borrower (including Lots financed by
Persons other than the Lender and Lots financed internally), and such other
information and supporting documentation as may be reasonably required by the
Lender. The Borrower shall provide to the Lender, upon request, such other
information pertaining to the Premises, the operations of the Premises, or any
other information reasonably requested by the Lender.
<PAGE>
Section 5.31 Condemnation. In the event the Premises or any portion
thereof is taken or damaged by eminent domain powers of any Governmental
Authority, or be transferred in lieu thereof, all damages or other amounts
awarded shall be paid to the Lender and applied to payment of the Loans secured
by the portion of the Premises affected after deducting any costs incurred in
connection therewith, and all or any portion of the Indebtedness, at the
Lender's option, may be declared immediately due and payable.
Section 5.32 Environmental Cleanup. In the event the Borrower or the
Lender is or becomes obligated by any of the Environmental Laws or Governmental
Requirements, or otherwise directed by any Governmental Authority, to clean up,
remove or encapsulate, or cause the cleanup, removal or encapsulation of any
Hazardous Material from the Premises, the Borrower (i) shall promptly undertake
to arrange for such cleanup, removal and disposal in accordance with all
applicable laws, rules, regulations and guidelines, (ii) shall exercise its best
efforts to ensure that such cleanup and removal shall be conducted in a timely
and diligent manner, and (iii) hereby expressly assumes the cost and expense of
such cleanup, removal or encapsulation.
ARTICLE 6
NEGATIVE COVENANTS
The Borrower will at all times comply with the covenants contained in
this Article 6, from the date hereof and for so long as any part of the
Indebtedness or the Commitment is outstanding:
Section 6.01 Debt. The Borrower will not incur, create, assume or
suffer to exist any Debt or any Lien on its Properties if any such Debt or Lien
would result in a violation of Sections 6.09 or 6.10.
Section 6.02 Investments. Loans and Advances. The Borrower will not make or
permit to remain outstanding any loans or advances to or investments in any
Person, except that the foregoing restriction shall not apply to:
(a) investments, loans or advances, the material details of which have
been set forth in the Financial Statements or are disclosed to the Lender in
Exhibit "E" hereto;
(b) investments in direct obligations of the United States of America
or any agency thereof;
<PAGE>
(c) investments in certificates of deposit of maturities less than one
year, issued by commercial banks in the United States of America having capital
and surplus in excess of $50,000,000; and
(d) investments in commercial paper of maturities less than one year,
if at the time of purchase such paper is rated in either of the two highest
rating categories of Standard & Poors Corporation, Moody's Investors Service,
Inc., or any other rating agency selected by the Lender and satisfactory to the
Lender.
Section 6.03 Nature of Business. The Borrower will not permit any
material change to be made in the character of its business as carried on at the
date hereof.
Section 6.04 Mergers. Etc. The Borrower will not merge or consolidate
with, or reorganize or recapitalize, reclassify its capital stock, or sell,
assign, lease or otherwise dispose of (whether in one transaction or in a series
of transactions) all or substantially all of its Properties (whether now owned
or hereafter acquired) to, any Person.
Section 6.05 Sale or Discount of Receivables. The Borrower will not
discount or sell without recourse, or sell for less than the greater of the face
or market value thereof, any of its notes receivable or accounts receivable.
Section 6.06 Subordinated Debt. During the term of this Agreement,
payments due and owing in any calendar year pursuant to the provisions of any
subordinated debt of the Borrower shall be made by the Borrower by utilizing
monies derived from the Borrower's earnings for that calendar year. No further
debt may be incurred by the Borrower from its stockholders except in the case of
debt created by obtaining cash infusions, which debt is subordinated to the
Indebtedness.
Section 6.07 Tangible Net Worth. From and after the date of this
Agreement through June 30, 1997, the Borrower will not permit its tangible net
worth to be less than $800,000.00. Beginning June 30, 1997 and at all times
thereafter during the term of this Agreement, the Borrower will not permit its
tangible net worth to be less than $900,000.00.
As used in this Section, "tangible net worth" shall be calculated in
accordance with the generally accepted accounting principles as the difference
between the Borrower's total assets less the sum of Ci) the Borrower's
intangibles such good will, organizational expenses, copyright expenses and
trademarks, plus the Borrower's total liabilities.
Section 6.08 Ratio of Total Liabilities to Net Worth. From and after
the date of this Agreement through September 29, 1997, the Borrower will not
permit its ratio of (i) total liabilities to (ii) tangible net worth to be
greater than 10.0 to 1 at any time. From and after September 30, 1997 through
December 30, 1997, the Borrower will not permit its ratio of (i) total
liabilities to (ii) tangible net worth to be greater than 9.0 to 1 at any time.
Beginning December 31, 1997, and at all times thereafter during the term of this
Agreement, the Borrower will not permit its ratio of (i) total liabilities to
(ii) tangible net worth to be greater than 8.0 to 1 at any time.
<PAGE>
As used in this Section, "tangible net worth" shall have the meaning as
defined in Section 6.07 hereof.
Section 6.09 Representations and Warranties. The Borrower will not
allow any representations or warranties in Sections 4.21 or 4.24 hereof to
become incorrect or false at any time.
Section 6.10 Environmental Responsibilities. The Borrower shall not (i)
cause or permit any Hazardous Materials to be placed, held, located, escaped,
leaked, spilled, discharged, emitted, released or disposed of on, from, under or
at the Premises, (ii) cause or permit the Premises while under the control or
ownership of the Borrower to be used as a dumpsite or storage site (whether
permanent or temporary) for any Hazardous Material without first having in place
adequate insurance of a sufficient amount to totally cover (subject to
deductibility clause not to exceed $25,000.00) any and all potential liability
of any nature oramount arising from said events, and (iii) except as otherwise
provided in Section 5.32 hereof, clean up or remove any Hazardous Materials
placed, held, located, escaped, leaked, spilled, discharged, emitted, released
or disposed of on, from, under or at the Premises.
ARTICLE 7
EVENTS OF DEFAULT
Section 7.01 Events. Any of the following events shall be considered an
"Event of Default" as that term ------
is used herein:
(a) Default is made in the payment when due of any installment of
principal or interest on the Note or other Indebtedness and such Default
continues for longer than 15 days past the due date provided therefor, whether
or not notice of such Default shall have been given by the Lender to the
Borrower; or
(b) Any representation or warranty made by the Borrower or any
Guarantor herein or in any other Security Instrument or in any certificate,
request or other document furnished pursuant to or under the Security
Instrument, including without limitation any schedule, certificate, financial
statement, report, notice or any other writing or information furnished by or on
behalf of the Borrower (or of either of the Guarantors) proves to have been
incorrect, false or misleading in any material respect as of the date the facts
set forth are stated or certified, or deemed stated or certified; or
(c) Default is made in the due observance or performance by the
Borrower of any of the covenants or agreements contained in Article 5 of this
Agreement (except with respect to the covenants contained in Sections 5.09,
5.10, 5.15 or 5.26 hereof) and such Default continues unremedied for a period of
30 days after the earlier of (i) notice thereof being given by the Lender to the
Borrower or (ii) such Default otherwise becoming known to the Borrower;
provided, however, that in the event that the Lender shall have delivered two
(2) such notices in any 12--month period, the Borrower shall not be entitled to
any further notice, grace or opportunity to cure, and any subsequent Default
shall be an Event of Default immediately. With respect to a Default in the due
observance or performance by the Borrower of the covenants contained in Sections
5.09, 5.10, 5.15 or 5.26 hereof, there shall be no applicable cure period; or
(d) Default is made in the due observance or performance by the
Borrower of any of the covenants or agreements contained in Article 6 hereof; or
(e) Default is made in the due observance or performance by the
Borrower of any of the covenants or agreements contained in any Security
Instrument other than this Agreement, and such Default continues unremedied
beyond the expiration of any applicable grace period which may be expressly
allowed hereunder or under such Security Instrument; or
(f) The Borrower discontinues its usual business; or
(g) The Borrower fails to make any payment due on any Debt, or any
event shall occur or any condition shall exist in respect of any Debt of the
Borrower, or under any agreement securing or relating to such Debt, the effect
of which is to cause or to permit any holder of such Debt to cause (whether or
not such holder elects to cause) such Debt, or a portion thereof, to become due
prior to its stated maturity; or
(h) Substantial Completion of a Residence fails to occur on or before
the Completion Date (unless extended pursuant to Section 2.03 hereof); or
(i) Occurrence of any condition, no matter how caused, which renders it
impossible for the Borrower timely to comply fully with, or to cause timely full
compliance with, the provisions hereof or of any other of the Security
Instruments; or
(j) If, in the sole discretion of the Lender, either of the Guarantors
suffers or is impaired by an occurrence which causes a Material Adverse Effect
on the Borrower, the Premises or either of the Guarantors.
Section 7.02 Remedies.
(a) Upon the occurrence of any Event of Default described in this
Agreement or any breach of Section 6.09 hereof, the Lender may Ci) declare the
entire principal amount of all Indebtedness then outstanding together with
interest then accrued thereon to be immediately due and payable, all without
written notice, and without presentment, demand for payment, protest, notice of
protest and non--payment or dishonor, notice of intent to demand, notice of
intent to accelerate, notice of acceleration, or any other notice of Default of
any kind, all of which are hereby expressly waived by the Borrower, and/or (ii)
terminate the Commitment and other lending obligations, if any, of the Lender
hereunder.
<PAGE>
(b) Upon the occurrence of an Event of Default, the Lender shall have
the right, but not the obligation, to enter upon and take immediate exclusive
possession of all or any part of the Premises, either with or without process of
law, forcibly or otherwise (so long as such action does not constitute a breach
of the peace), expel and remove any Persons, goods or chattels occupying or upon
the same, employ watchmen and other safeguards to protect the Premises, receive
all rents and issue receipts therefor, manage, control and operate the Premises
as fully as the Borrower might do if in possession thereof, including without
limitation the making of all repairs and replacements deemed necessary by the
Lender, the construction of Improvements thereon and leasing of the same, or any
part thereof, from time to time, and after deducting all reasonable attorneys'
fees and all costs and expenses incurred in the protection, care, maintenance,
management and operation of the Premises, apply the remaining net income, if
any, to the Premises or toward the satisfaction of any deficiency remaining
after any foreclosure proceedings, and/or toward their satisfaction of any of
the Indebtedness as provided herein. At the option of the Lender, such entry and
taking of possession shall be accomplished either by actual entry and possession
or by written notice served personally upon or sent by certified mail to the
Borrower at the address of the Borrower set forth herein. The Borrower agrees to
surrender possession of the Premises to the Lender immediately upon the
occurrence of an Event of Default upon the request of the Lender.
If the Borrower shall remain in physical possession of the Premises, or
any part thereof, after any Event of Default and the Lender's request that the
Borrower surrender the Premises, such possession shall be as a tenant at
sufferance of the Lender, and the Borrower agrees to pay to the Lender, or to
any receiver appointed as provided below, after such Event of Default, a
reasonable monthly rental for the Premises, or a part thereof so occupied by the
Borrower, to be paid in advance on the first (1st) day of each calendar month,
and, in Default of so doing, the Borrower may be dispossessed by the usual
summary proceeding. This covenant shall be effective irrespective of whether any
foregoing proceeding shall have been instituted and irrespective of any
application for or appointment of a receiver.
(c) Upon the occurrence of an Event of Default under any Security
Instrument, the Lender may, at its option, apply for by ex parte petition and
obtain by appropriate judicial action, appointment of a receiver or receivers
for all or any part of the Lots and the Improvements as a matter or right,
without regard to the sufficiency of the security, without any showing of
insolvency, fraud or mismanagement on the part of the Borrower, and without the
necessity of filing judicial proceedings (other than the proceedings for the
appointment of the receiver or receivers) to protect or enforce the rights of
the Lender. The Borrower hereby consents to any such appointment.
(d) Upon the occurrence of an Event of Default under any Security
Instrument, the Lender may, at its option, exercise any and all other rights and
remedies afforded by the laws of the State of Texas, or by any and all of the
Security Instruments or otherwise.
Section 7.03 Right of Set-Off. Upon the occurrence and during the
continuance of any Event of Default, however evidenced, the Lender is hereby
authorized at any time and from time to time, without notice to the Borrower
(any such notice being expressly waived by the Borrower), to set-off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by the Lender to or
for the credit or the account of the Borrower against any and all of the
Indebtedness of the Borrower, irrespective of whether or not the Lender shall
have made any demand under this Agreement or the Note and although such
obligations may be unmatured. The rights of the Lender under this Section are in
addition to other rights and remedies (including without limitation other rights
of set-off) which the Lender may have.
<PAGE>
Section 7.04 Rights Vested. The authorization and rights granted by
Sections 7.02 and 7.03 hereof shall be deemed irrevocably vested in the Lender
for the purpose of protecting the Lender's security interest in the Premises
created under the Security Instruments and shall constitute a power coupled with
that interest, and may not be revoked by the Borrower.
Section 7.05 Fair Market Value for Calculating Deficiency. The
following shall be the basis for the finder of fact's determination of the fair
market value of the particular Units foreclosed upon as of the date of the
foreclosure sale in proceedings governed by Sections 51.003, 51.004 and 51.005
of the Texas Property Code (as amended from time to time):
1. The Units shall be valued in an "as is" condition as of the date of the
foreclosure sale, without any assumption or expectation that the Units
will be repaired or improved in any manner before a resale of the Units
after foreclosure.
2. The valuation shall be based upon an assumption that the foreclosure
purchaser desires a prompt resale of the Units for cash promptly (but
no later than twelve months) following the foreclosure sale.
3. All reasonable closing costs customarily borne by the seller in a
commercial real estate transaction shall be deducted from the gross
fair market value of the Units, including without limitation brokerage
commissions, title insurance, a survey of the Units, tax prorations,
attorneys' fees and marketing costs.
4. The gross fair market value of the Units shall be further discounted to
account for any estimated holding costs associated with maintaining the
Units pending sale, including without limitation utility expenses,
property management fees, taxes and assessments (to the extent not
accounted for in subparagraph 3 above) and other maintenance expenses.
5. Any expert opinion testimony given or considered in connection with a
determination of the fair market value of the Units must be given by
persons having at least five years experience in appraising property
similar to the Units and who have conducted and prepared a complete
written appraisal of the Units, taking into consideration the factors
set forth above.
Section 7.06 Waiver of Jury Trial. To the maximum extent permitted by
law, the Borrower hereby knowingly, voluntarily and intentionally waives any
right it may have to a trial by jury with respect to any litigation directly or
indirectly arising out of, under, or in connection with this Agreement, the
Security Instruments, or the transactions contemplated thereby. The Borrower
acknowledges that no agent or representative of the Lender has represented,
expressly or otherwise, that the Lender would not, in the event of litigation,
seek to enforce this waiver.
<PAGE>
ARTICLE 8
PARTIAL RELEASES
Section 8.01 Conditions to and Procedures for Partial Release. Provided
(i) no Event of Default exists under the Note or any of the Security Instruments
and (ii) the Borrower pays to the Lender the Release Price (as defined
hereinafter), the Borrower shall be entitled to receive Partial Releases from
the Lender of the Liens created by any Deeds of Trust and any other Security
Instruments benefiting the Lender on the following basis:
(a) The Borrower to Deliver Contracts for Sale and Partial Releases.
The Borrower shall deliver to the Lender (i) if required by the Lender, a copy
of the contract of sale for the Release Parcel, (ii) the Settlement Statement
prepared by the Title Company in connection with the sale of a Release Parcel,
and (iii) a partial release of lien in form and substance satisfactory to the
Lender (the "Partial Release"), which shall include a lot and block legal
description of the Lot or of the Unit for which the Partial Release is requested
(the "Release Parcel"). In addition, the Partial Release shall be accompanied by
information necessary for the Lender to process the Partial Release, including
without limitation the name and address of the Title Insurance Company to whose
attention the Partial Release should be directed, any applicable order numbers,
and the date on which the Partial Release is to become effective. The Borrower
also shall specify the name and address of the purchaser or transferee of the
Release Parcel and such other documents and information as the Lender may
reasonably request.
(b) Partial Release Price. The release price (the "Release Price") for
each Release Parcel shall be an amount equal to the Maximum Loan Amount of the
Lot Purchase Loan in connection with the Release Parcel or the aggregate sum of
all Advances made under the Interim Construction Loan in connection with the
Release Parcel, all interest accrued but unpaid in connection with the
applicable Loan, and all other fees and charges reasonably required by the
Lender. Contemporaneously with the payment to the Lender of the Release Price,
the Lender shall execute and deliver all documents necessary to effect the
release of its lien on the Release Parcel, all such documents and instruments to
be prepared, reviewed and recorded at the Borrower's sole cost and expense and
to be a part of the Release Price.
ARTICLE 9
MISCELLANEOUS
Section 9.01 Notices. Any notice required or permitted to be given
under or in connection with the Security Instruments (except as may otherwise be
expressly required therein) or the Note shall be in writing and shall be mailed
by first--class or express mail, postage prepaid, or sent by telex, telegram,
telecopy or other similar form of rapid transmission confirmed by mailing (by
firstclass or express mail, postage prepaid) written confirmation at
substantially the same time as such rapid transmission, or personally delivered
to an officer of the receiving party. All such communications shall be mailed,
set or delivered:
(a) if to the Borrower, to its address shown at the beginning of this
Agreement, or to such other address or to such individual's or department's
attention as it may have furnished the Lender in writing; and
(b) if to the Lender, to its address shown at the beginning of this
Agreement, or to such other address or to such individual's or department's
attention as it may have furnished the Borrower in writing.
Any communication so addressed and mailed shall be deemed to be given
when so mailed, except that Borrowing Requests or communications related to
Borrowing Requests shall not be effective until actually received by the Lender;
and any notice so sent by rapid transmission shall be deemed to be given when
receipt of such transmission is acknowledged, and any communication so delivered
in person shall be deemed to be given when receipted for by, or actually
received by, an authorized officer of the Borrower or the Lender, as the case
may be.
Section 9.02 Amendments and Waivers. Any provision of this Agreement,
the other Security Instruments or the Note may be amended or waived if, but only
if, such amendment or waiver is in writing and is signed by the Borrower (and/or
any other Person which is a party to any Security Instrument being amended or
with respect to which a waiver is being obtained) and the Lender.
Section 9.03 Invalidity. In the event that any one or more of the
provisions contained in the Note or in any Security Instrument shall, for any
reason, be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of the Note or any Security Instrument.
Section 9.04 Survival of Agreements. All representations and warranties
of the Borrower herein or in the other Security Instruments, and all covenants
and agreements herein not fully performed before the effective date or dates of
this Agreement and of the other Security Instruments, shall survive such date or
dates.
Section 9.05 Successors and Assigns. All covenants and agreements
contained by or on behalf of the Borrower in the Note and in any Security
Instrument shall bind its duly authorized successors and assigns and shall inure
to the benefit of the Lender and its successors and assigns. The Borrower shall
not, however, have the right to assign its rights under this Agreement or any
interest herein without the express prior written consent of the Lender.
Section 9.06 Renewal. Extension or Rearrangement. All provisions of
this Agreement and of any other Security Instruments relating to the Note or
other Indebtedness shall apply with equal force and effect to each and all
promissory notes hereafter executed which in whole or in part represent a
renewal, extension for any period, increase or rearrangement of any part of the
Indebtedness originally represented by the Note or of any part of such other
Indebtedness.
<PAGE>
Section 9.07 Waivers. No course of dealing on the part of the Lender,
its officers, employees, consultants or agents, nor any failure or delay by the
Lender with respect to exercising any right, power or privilege of the Lender
under the Note or any Security Instrument shall operate as a waiver thereof,
except as otherwise provided in Section 9.02 hereof.
Section 9.08 Cumulative Rights. Rights and remedies of the Lender
under the Note and each Security Instrument shall be cumulative, and the
exercise or partial exercise of any such right or remedy shall not preclude the
exercise of any other right or remedy.
Section 9.09 Singular and Plural. Words used herein in the singular,
where the context so permits, shall be deemed to include the plural and vice
versa. The definitions of words in the singular herein shall apply to such words
when used in the plural where the context so permits, and vice versa.
Section 9.10 CONSTRUCTION. THIS AGREEMENT IS, AND THE NOTE WILL BE, A
CONTRACT MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE UNITED STATES OF AMERICA AND THE STATE OF TEXAS, AS SUCH
LAWS ARE NOW IN EFFECT AND, WITH RESPECT TO USURY LAWS, IF ANY, APPLICABLE
TO THE LENDER AND TO THE EXTENT ALLOWED HEREBY, AS SUCH LAWS MAY HEREAFTER
BE IN EFFECT WHICH ALLOW A HIGHER MAXIMUM NON-USURIOUS INTEREST RATE THAN
SUCH LAWS NOW ALLOW. TEX. REV. CIV. STAT. ANN. ART 5069, CII. 15 (WHICH
REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRIPARTY
ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR THE NOTE.
Section 9.11 Interest. It is the intention of the parties hereto to
conform strictly to usury laws applicable to the Lender. Accordingly, if the
transactions contemplated hereby would be usurious under applicable law
(including the laws of the United States of America and the State of Texas),
then, in that event, notwithstanding anything to the contrary in the Note in any
Security Instrument or agreement entered into in connection with or as security
for the Note, it is agreed as follows: (i) the aggregate of all consideration
which constitutes interest under law applicable to the Lender that is contracted
for, taken, reserved, charged or received under the Note or under any of the
Security Instruments or agreements or otherwise in connection with the Note
shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be credited by the Lender on the principal
amount of the Indebtedness (or, if the principal amount of the Indebtedness
shall have been paid in full, refunded by the Lender to the Borrower); and (ii)
in the event that the maturity of the Note is accelerated by reason of an
election of the Lender resulting from any Event of Default under this Agreement
or otherwise, or in the event of any required or permitted prepayment, then such
consideration that constitutes interest under law applicable to the Lender may
never include more than the maximum amount allowed by such applicable law, and
excess interest, if any, provided for in the Agreement or otherwise shall be
cancelled automatically as of the date of such acceleration or prepayment and,
if theretofore paid, shall be credited by the Lender on the principal amount of
the Indebtedness (or, if the principal amount of the Indebtedness shall have
been paid in full, refunded by the Lender to the Borrower). Without limiting the
foregoing, all calculations of the rate of interest taken, reserved, contracted
for, charged, received or provided for under the Note or any of the Security
Instruments.
<PAGE>
To the extent that Article 5069-1.04 of the Texas Revised
Civil Statutes is relevant to the Lender for the purpose of
determining the Highest Lawful Rate, the Lender hereby elects to
determine the applicable rate ceiling under such Article by the
indicated (weekly) rate ceiling from time to time in effect, subject
to the Lender's right subsequently to change such method in
accordance with applicable law.
If at any time the sum of the Margin Percentage plus the
Prime Rate exceeds the Highest Lawful Rate, the rate of interest to
accrue on the Note shall be limited to the Highest Lawful Rate, but
any subsequent reductions in the Prime Rate shall not reduce the
interest to accrue on the Note below the Highest Lawful Rate until
the total amount of interest accrued on the Note equals the amount
of interest which would have accrued if a varying rate per annum
equal to the sum of the Margin Percentage plus the Prime Rate had at
all times been in effect. If at maturity or final payment of the
Note the total amount of interest paid or accrued on the Note under
the foregoing provisions is less than the total amount of interest
which would have accrued if a varying rate per annum equal to the
sum of the Margin Percentage plus the Prime Rate had at all times
been in effect, then the Borrower agrees, to the fullest extent
permitted by law, to pay to the Lender an amount equal to the
difference between (a) the lesser of (i) the amount of interest
which would have accrued on the Note if the Highest Lawful Rate had
at all times been in effect or (ii) the amount of interest which
would have accrued on the Note if a varying rate per annum equal to
the sum of the Margin Percentage plus the Prime Rate had at all
times been in effect, and (b) the amount of interest accrued in
accordance with the other provisions of the Note.
Section 9.12 References. The words "herein", "hereof", "hereunder" and
other words of similar import when used in this Agreement refer to this
agreement as a whole, and not to any particular article, section or subsection.
Section 9.13 Taxes. Etc. Any taxes (excluding income taxes) payable or
ruled payable by federal or state authority in respect of the Note, this
Agreement or the other Security Instruments shall be paid by the Borrower,
together with interest and penalties, if any.
Section 9.14 Governmental Regulation. Anything contained in this
Agreement to the contrary notwithstanding, the Lender shall not be obligated to
extend credit to the Borrower in an amount in violation of any limitation or
prohibition provided by any applicable statute or regulation.
Section 9.15 Entire Agreement. The Note and the Security Instruments
embody the entire agreement and understanding between the Lender the Borrower
and supersede all prior agreements and understandings between such parties
relating to the subject matter hereof and thereof.
Section 9.16 Exhibits. The exhibits attached to this Agreement are
incorporated herein and shall be considered a part of this Agreement for the
purposes stated herein, except that in the event of any conflict between any of
the provisions of such exhibits and the provisions of this Agreement, the
provisions of this Agreement shall prevail.
<PAGE>
Section 9.17 Titles of Articles, Sections and Subsections. All titles
or heading-s to articles, sections, subsections or other divisions of this
Agreement or the exhibits hereto are only for the convenience of the parties and
shall not be construed to have any effect or meaning with respect to the other
content of such articles, sections, subsections or other divisions, such other
content being controlling as to the agreement between the parties hereto.
Section 9.18 Jurisdiction. All actions or proceedings with respect to
the Note or the Security Instruments may be instituted in the courts of the
States of Texas, the United States District Court for the Southern District of
Texas, or elsewhere to the extent that jurisdiction shall exist apart from the
provisions of this Section, as the Lender may elect, and by execution and
delivery of this Agreement, the Borrower irrevocably and unconditionally submits
to the jurisdiction (both subject matter and personal) of each such court, and
irrevocably and unconditionally waives (i) any objection the Borrower may now or
hereafter have to the laying of venue in any of such courts, and (ii) any claim
that any action or proceeding brought in any of such courts has been brought in
an inconvenient forum.
Section 9.19 Counterparts. This Agreement may be executed in two or
more counterparts, and it shall not be necessary that the signatures of all
parties hereto be contained on any one counterpart hereof; each counterpart
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
Section 9.20 Effectiveness. This Agreement shall not be effective
until delivered to the Lender at its principal offices in the State of Texas,
accepted by the Lender in such State, and executed by the Lender in such State.
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed as of the date first above written.
BORROWER:
WOODHAVEN,HOMES L.L.D.
BY:
NAME:
LENDER:
BANK UNITED
BY:
NAME:
TITLE:
<PAGE>
AFFIDAVIT
THE STATE OF TEXAS ss.
ss.
COUNTY OF ss.
This Affidavit is given pursuant to that certain Loan Agreement dated
July ____, 1997 (said Loan Agreement, as the same may from time to time be
amended or supplemented, hereinafter referred to as "Loan Agreement") by and
between BANK UNITED (the "Lender") and WOODHAVEN HOMES, L.L.C., a Texas limited
liability company (the "Borrower"). Unless otherwise defined herein, all terms
beginning with a capital letter which are defined in the Loan Agreement shall
have the same meanings as herein as therein unless the context hereof otherwise
requires.
BEFORE ME, the undersigned notary public, on this day personally
appeared ______________________________, known to me to be the person whose name
is subscribed hereto, and who after being by me first duly sworn according to
law, upon oath, deposed and said:
"1. I am the ___________________ of the Borrower.
2. That I am aware that this Affidavit has been for the purposes
of inducing the Lender to make an Advance to the Borrower in
the amount of $_________.00, with full knowledge that the
Lender shall rely upon the recitals herein contained when
entering into such loan transaction, and that but for this
instrument and the recital of such facts herein contained and
the truth thereof, the Lender would not take such action.
3. I have full power and authority in the name and on behalf of the
Borrower to:
(a) execute on behalf of the Borrower, Borrowing Requests
including, without limitation, a Borrowing Request
for an Advance in the amount of $ .00.
(b) pledge, assign, mortgage, hypothecate, and execute
Deeds of Trust upon and/or Security Agreements
covering Property of the Borrower as security for the
Indebtedness, including the above described Advance.
4. The Borrower is either the owner of or intends to use the
proceeds of the Advance referred to in paragraph 3(a) above to
purchase the real property in ________ County,
Texas, described as follows (herein called the "Property"):
_______________________________, Texas.
<PAGE>
5. For purposes of determining the Completion Date(s) applicable to the
Property, and the Advance in connection therewith, the following
classifications are presented:
6. As of the date hereof, or as of the date the Borrower purchases the
Property, no party is or will be, as applicable, in possession of the
Property except the Borrower.
7. As of the date hereof or as of the date the Borrower purchases the
Property, as applicable, except as previously disclosed to the Lender,
there are no unpaid bills for labor or materials, or for either of
them, incident to any Improvements upon the Property, nor are there any
materials, prefabricated or otherwise, which have been used or prepared
or have been previously delivered to the Property which could give rise
to Lien claims of any kind against the Property or Improvements, if
any, situated thereon, which would be superior or prior to the Liens or
security interest granted to the Lender.
8. As of the date hereof, no Construction Contracts of any kind between the
Borrower and any contractor for the construction of any Improvements upon the
Property have been recorded and no work has commenced upon and no materials have
been delivered to the Property for use in connection with any proposed
Improvements to be constructed on the Property. The Borrower hereby agrees that
any Liens and rights or claims of Liens owned, claimed, or held by the Borrower
against the Property by reason of labor and services performed and equipment,
materials and rentals furnished by the Borrower to or for the Property as of the
date hereof shall be subordinate and inferior to the Lien granted in favor of
the Lender, its successors and assigns as security for the Indebtedness. In the
event of a foreclosure of the Liens and security interests created or to be
created under or by virtue of a Deed of Trust covering the Property, then such
foreclosure shall operate to cut off, extinguish and otherwise terminate all
such Liens, rights and other interests of every kind and nature whatsoever that
the Borrower may now or hereinafter have in and to the Property and all
Improvements now or hereafter constructed or situated thereon.
9. As of the date hereof, except as previously disclosed to the Lender, no
leases, either written or oral, have been entered into affecting the
Property or any portion thereof.
10. There are no judgments against the Borrower in any court remaining
unpaid; there are no material suits pending against the Borrower in any
court; and there are no Liens or claims superior to the Liens in favor
of the Lender that might become Liens upon the Property except as set
forth as follows:
11. The extension of credit in the transaction described herein is solely
for business, investment or commercial purpose other than agricultural purposes,
to--wit: acquisition of real property and construction of improvements thereon
for residential use; and to my knowledge the transaction is specifically exempt
under Section 226.3(a) of Regulation Z issued by the Board of Governors of the
Federal Reserve System and under Title I (Truth in Lending Act) and Title V
(General Provisions) of the Consumer Credit Protection Act, and no disclosures
are required to be given under such regulations and Federal laws in connection
with said transaction, and the Lender is making said loan without giving the
Borrower the disclosures that may otherwise be required under such law and
regulations.
<PAGE>
12. The Borrower is solvent.
13. No Event of Default has occurred under the Loan Agreement."
EXECUTED as of the _____ day of ______________, 1997.
Name:________________________________
Affiant
SUBSCRIBED AND SWORN TO BEFORE ME by _____ day of __________________
on this the
, 1997.
Notary Public in and for the State of Texas
<PAGE>
AFFIDAVIT OF BILLS PAID
THE STATE OF TEXAS ss.
ss. KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF ____________ ss.
BEFORE ME, the undersigned authority, a Notary Public in and for the
State of Texas, on this day personally appeared:
______________________________ as the ______________________ of
WOODHAVEN HOMES, L.L.C., a Texas Limited Liability Company, (the "Borrower"),
who, being duly sworn by me, upon oath says:
WOODHAVEN HOMES, L.L.C. is the owner of the following described
property upon which the Improvements are being erected, and on behalf
of the Borrower, I certify that all bills for labor and materials have
been paid, with the exception of current bills not yet due and payable,
and that I have received no notice of any liens other than that of BANK
UNITED, Houston, Texas (the "Lender") being in existence on the
following described property, to-wit:
That the facts herein stated are within my knowledge both individually and as
such officer.
On behalf of the Borrower, I further acknowledge the receipt of
$_________________ from the Lender pursuant to the terms of the Loan Agreement
executed by and between the Lender and the Borrower for Improvements on and to
the above described property. As used herein, "Improvements" shall have the same
meaning as described in and defined by the Loan Agreement.
WOODHAVEN HOMES,
L.L.D., A Texas
Limited Liability
Company
By:_______________________
Name:_____________________
Title:
SWORN TO AND SUBSCRIBED BEFORE ME by ______________________ the
______________________ of WOODHAVEN HOMES, L.L.C., a Texas limited liability
company, on this the ______ day of ___________ 1997.
Notary Public in and for
the State of T E X A S
<PAGE>
EXHIBIT "D"
LINE OF CREDIT NOTE
$3,000,000.00 Houston, Texas July 2 , 1997
--
WOODHAVEN HOMES, L.L.C., a Texas limited liability company (hereinafter
called the "the Borrower"), with offices at 2501 Oaklawn, Suite 550, Dallas,
Texas 75219, for value received, promises and agrees to pay on the earlier of
(i) July 1998 (the "Maturity Date") or (ii) the Completion Date of the last
Interim Construction Loan or the last Lot Purchase Loan originated prior to the
Maturity Date, to the order of BANK UNITED (hereinafter called the "the
Lender"), at its offices at 3200 Southwest Freeway, Suite 2000, Houston, Texas
77027, in coin or currency of the United States of America, which at the time of
payment is legal tender for the payment of public and private debts, the
principal sum of THREE MILLION AND NO/100 DOLLARS ($3,000,000.00), or so much
thereof as may be advanced pursuant to the Loan Agreement hereinafter described.
All capitalized terms which are used but not defined in this note shall
have the same meanings as in the Loan Agreement executed by the Borrower and the
Lender, dated of even date herewith (such Loan Agreement, as the same may be
amended, modified or supplemented from time to time, being called the "Loan
Agreement").
Except as hereinafter otherwise provided, this Note shall bear interest
from the date hereof until maturity at a varying rate per annum which is 1.00%
per annum above the Prime Rate (but in no event to exceed the Highest Lawful
Rate).
Accrued interest is due and payable monthly, the first such
payment being due and payable on August 1, 1997, and the remaining payments
being due and payable on the first (1st) day of each and every succeeding
calendar month thereafter and at the maturity of this Note.
Past-due principal and interest shall bear interest at a varying rate
per annum which is equal to five percent (5%) per annum plus the Prime Rate, but
in no event to exceed the Highest Lawful Rate. Adjustments in the varying
interest rate shall be made on the same day as each change announced in the
Prime Rate and, to the extent allowed by law, on the effective date of any
change in the Highest Lawful Rate.
The Borrower and any and each co--maker, guarantor, accommodation
party, endorser or other Person liable for the payment or collection of this
Note expressly waive notice, presentment, demand for payment, protest, notice of
protest and nonpayment or dishonor, notice of intent to demand, notice of intent
to accelerate, notice of acceleration, bringing of suit, and diligence in taking
any action to collect amounts called for hereunder and in the handling of
Property at any time existing as security in connection herewith, and shall be
directly and primarily liable for the payment of all sums owing and to be owing
herein, regardless of and without any notice, diligence, act or omission as or
with respect to the collection of any amount called for hereunder or in
connection with any Lien at any time had or existing as security for any amount
called for hereunder.
<PAGE>
This Note is issued pursuant to and is entitled to the benefits of the
Loan Agreement. Reference is made to the Loan Agreement for provisions for the
acceleration of the maturity hereof on the occurrence of certain events
specified therein, for interest rate computations in the event that the
otherwise agreed rate is at any time limited by the Highest Lawful Rate, for the
reimbursement of attorneys' fees or other costs of collection or enforcement,
and for all other pertinent purposes. It is contemplated that by reason of
prepayment hereon there may be times when no Indebtedness is owing hereunder;
but notwithstanding such occurrences, this Note shall remain valid and shall be
in full force and effect as to loans made pursuant to the Loan Agreement
subsequent to each occurrence.
It is the intention of the parties hereto to conform strictly to usury
laws applicable to the Lender. Accordingly, if the transactions contemplated
hereby would be usurious under applicable law (including the laws of the United
States of America and the State of Texas), then, in that event, notwithstanding
anything to the contrary in this Note in any Security Instrument or agreement
entered into in connection with or as security for this Note, it is agreed as
follows: (i) the aggregate of all consideration which constitutes interest under
law applicable to the Lender that is contracted for, taken, reserved, charged or
received under this Note or under any of the Security Instruments or agreements
or otherwise in connection with this Note shall under no circumstances exceed
the maximum amount allowed by such applicable law, and any excess shall be
credited by the Lender on the principal amount of the Indebtedness (or, if the
principal amount of the Indebtedness shall have, been paid in full, refunded by
the Lender to the Borrower); and (ii) in the event that the maturity of this
Note is accelerated by reason of an election of the Lender resulting from any
Event of Default under the Loan Agreement or otherwise, or in the event of any
required or permitted prepayment, then such consideration that constitutes
interest under law applicable to the Lender may never include more than the
maximum amount allowed by such applicable law, and excess interest, if any,
provided for in this Note or otherwise shall be cancelled automatically as of
the date of such acceleration or prepayment and, if theretofore paid, shall be
credited by the Lender on the principal amount of the Indebtedness (or, if the
principal amount of the Indebtedness shall have been paid in full, refunded by
the Lender to the Borrower). Without limiting the foregoing, all calculations of
the rate of interest taken, reserved, contracted for, charged, received or
provided for under this Note or any of the Security Instruments.
To the extent that Article 5069-1.04 of the Texas Revised Civil
Statutes is relevant to the Lender for the purpose of determining the Highest
Lawful Rate, the Lender hereby elects to determine the applicable rate ceiling
under such Article by the indicated (weekly) rate ceiling from time to time in
effect, subject to the Lender's right subsequently to change such method in
accordance with applicable law.
If at any time the sum of the Margin Percentage plus the Prime Rate
exceeds the Highest Lawful Rate, the rate of interest to accrue on this Note
shall be limited to the Highest Lawful Rate, but any subsequent reductions in
the Prime Rate shall not reduce the interest to accrue on this Note below the
Highest Lawful Rate until the total amount of interest accrued on this Note
equals the amount of interest which would have accrued if a varying rate per
annum equal to the sum of the Margin Percentage plus the Prime Rate had at all
times been in effect. If at maturity or final payment of this Note the total
amount of interest paid or accrued on this Note under the foregoing provisions
is less than the total amount of interest which would have accrued if a varying
<PAGE>
rate per annum equal to the sum of the Margin Percentage plus the Prime Rate had
at all times been in effect, then the Borrower agrees, to the fullest extent
permitted by law, to pay to the Lender an amount equal to the difference between
(a) the lesser of (i) the amount of interest which would have accrued on this
Note if the Highest Lawful Rate had at all times been in effect or (ii) the
amount of interest which would have accrued on this Note if a varying rate per
annum equal to the sum of the Margin Percentage plus the Prime Rate had at all
times been in effect, and (b) the amount of interest accrued in accordance with
the other provisions of this Note.
THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
WOODHAVEN H0MES, L.L.D.
NAME:
EXHIBIT "E"
BORROWERS DISCLOSURES
TURNER, STONE & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
A REGISTERED LIMITED LIABILITY PARTNERSHIP
12700 PARK CENTRAL DR., SUITE 1610
DALLAS, TEXAS 75251
TELEPHONE (972) 239-1660
FACSIMILE (972) 239-1665
MEMBER MEMBER
TEXAS SOCIETY AMERICAN INSTITUE OF
CERTIFIED PUBLIC ACCOUNTANTS CERTIFIED PUBLIC ACCOUNTANTS
AND ITS
PRIVATE COMPANIES PRACTICE SECTION
SEC PRACTICE SESSION
Independent Auditors' Consent
The Board of Directors and
Stockholders/Partners of Woodhaven Homes, Inc.
We consent to the use and inclusion in this Form S-1 Registration Statement and
the Prospectus, which is part of this Registration Statement, of our report
dated August 11, 1998 on our audit of the combined financial statements of
Woodhaven Homes, Inc. at December 31, 1997 and 1996 and for the three year
period ended December 31, 1997.
We also consent to the reference of our Firm under the caption "Experts" in the
Registration Statement and Prospectus.
By __/s/_Turner, Stone & Company, L.L.P.
Turner, Stone & Company, L.L.P.
Certified Public Accountants
Dallas, Texas
August 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001068729
<NAME> WOODHAVEN HOMES
<MULTIPLIER> 1
<CURRENCY> $US
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAY-30-1998
<EXCHANGE-RATE> 1
<CASH> 209,164
<SECURITIES> 0
<RECEIVABLES> 501,232
<ALLOWANCES> 0
<INVENTORY> 16,315,565
<CURRENT-ASSETS> 17,202,408
<PP&E> 707,203
<DEPRECIATION> 325,311
<TOTAL-ASSETS> 17,657,729
<CURRENT-LIABILITIES> 14,630,859
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 2,951,686
<TOTAL-LIABILITY-AND-EQUITY> 17,657,729
<SALES> 21,388,746
<TOTAL-REVENUES> 21,388,746
<CGS> 18,352,290
<TOTAL-COSTS> 18,352,290
<OTHER-EXPENSES> 1,606,447
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114,708
<INCOME-PRETAX> 1,315,031
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,315,031
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,315,031
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
</TABLE>
