5
Garza & Staples, P.C.
ATTORNIES AT LAW
5420 LBJ FREEWAY
1230 LINCOLN CENTRE
DALLAS , TEXAS 75240
Telephone (214) 373-3300
Fax (972) 404-1300
OCTOBER 13,1998
Steven C. Duvall
Assistant Director
Securities and Exchange Commission
Washington, D. C. 20549
Re: Woodhaven Hones, Inc.
File No. 333-62467
Dear Mr. Duvall:
We transmit herewith Amendment No. 1 to the above registration
statement in reply to your letter of comments dated September 29, 1998. The
numbered responses in this letter correspond to the numbered comments in your
letter.
1. The disclosure relating to the year 2000 issue has been revised in
compliance with your comment and SEC Release No. 33-7558.
2. A new section entitled "The Reorganization" has been added following
the Proforma Financial Section which describes the transaction between the
limited partnership and the Company. This information is also included in the
Prospectus Summary-The Company, in MD&A and Certain Relationships and Related
Transactions with appropriate cross references. Trendsetter Mortgage and the G.
M. Group are not part of the reorganization. The Company has only a
participation interest in mortgages originated by The GM Group (d/b/a
Trendsetters Mortgage) which is described under Business-Customer Financing in
response to your comment number 30.
Other than that, there is no relationship with The GM. Group.
The ownership of Dimensional Sales & Marketing and the fact that it is
no longer active is set forth under Certain Relationships and Related
Transactions. Affordable Lifestyle Housing, Inc. and Brio Builders, Inc. were
corporations set up solely for personal income tax purposes and were never
active. The ownership of these companies is described in Certain Relationships
and Related Transactions. None of Dimensional, Affordable or Brio are included
in the Reorganization and it is not believed necessary to deny this fact in the
description of the transaction.
3. The time at which the Warrants are redeemable has been reconciled on the
Prospectus Cover and elsewhere in the Prospectus.
4. This comment has been complied with.
5. This comment has been complied with.
6. A new sentence has been added to this Risk Factor to comply with this
comment.
7. This comment has been complied with.
8. This comment has been complied with.
9. This comment has been complied with.
10. We have discussed this comment with the American Stock Exchange and have
been advised that they prefer to leave the disclosure as is. The Exchange has
reviewed the initial registration statement and other requested information and
has indicated that it does not anticipate any problems based on the information
it now has. A formal application is not filed until the Exchange completes its
review of the principals and its financial statements. The Exchange examiner is
Dean Milcos at (212) 306-1474.
11. This comment has been complied with.
12. The reply to this comment is included under Certain Relationships and
Related Transactions.
13. The Company believes that this disclosure is as complete as it can be. At
any one time there may be 300 or more individual loans outstanding on individual
houses under construction under 10 lines of credit. These are short-term loans
of nine to twelve months and it is not practical to determine at any one point
in time which loans will be repaid early. As stated in the note, the Company
will pay those notes with the highest interest rates. Other factors may bear on
the Company's decision, such as keeping open a line of credit with a particular
bank.
14. This comment has been complied with.
15. This comment has been complied with.
16. This comment has been complied with.
17. The footnote reference has been deleted.
18. This comment has been complied with.
19. This comment has been complied with.
20. This comment has been complied with.
21. The Company has not changed its accounting principles as defined in APB 20.
A new sentence has been substituted in the referenced paragraph to accurately
describe the Company's accounting for interest costs.
22 , 23, and 24. These comments have been complied with in the new section, The
Reorganization
25. This comment has been complied with.
26. This comment has been complied with by a cross reference to Management
Information Systems which describes the Company's software program
designed for production homebuilders.
27. A reference to American Metro/Study Corporation has been added to this
section and that corporation's consent is included as an exhibit.
28. This comment has been complied with.
29 This comment has been complied with.
30. No homes are leased from affiliates. A reference to the Company's practice
of leasing the model homes from an unaffiliated third party has been added to
the fourth paragraph of the section, Comparison of the Six Months Ended June 30,
1997 and June 30, 1998 in MD&A.
31 and 32. The relationship with Trendsetters Mortgage is described under
Customer Financing and does not constitute a separate industry segment nor is
the Company's capital at risk. In February 1998, WH Management, Inc., the
general partner of Woodhaven Homes, Ltd. ("Ltd."), entered into a participation
agreement styled as a joint venture named Trendsetters Mortgage with The GM
Group, Inc. The agreement was entered into to provide Ltd. with a source of
mortgage financing for buyers of its homes, a practice customary in the
homebuilding industry. WH Management contributed $510 and The GM Group
contributed $490, establishing the 51-49% division of "profits." Under the
agreement, Ltd. refers home buyers seeking mortgaging financing to The GM Group,
which provides all services and funding for the mortgage loan, including
screening, paperwork and closing. WH Management provides no capital, no
personnel and has no assets at risk. The agreement is non-exclusive and either
party may deal with other lenders and builders. WH Management receives 51% of
the net fees and discount points on each loan after deducting a $400 loan
officer expense. Since the agreement became effective in February, it was
several months before it could be implemented. At September 30, 1998, WH
Management had received approximately $24,000 under the agreement. The Company
will succeed to WH Management's position in the reorganization. Even if the
amounts were material, based on the terms of the agreement the Company does not
believe that the transaction requires the use of the equity method of
accounting. Although not deemed material, the agreement is filed as an exhibit
because it is referred to in the Prospectus.
33. This comment has been complied with.
34. This comment has been complied with. The Company has not determined who will
be the second outside director.
35. No options have been granted and future options will be determined by the
Compensation Committee, when appointed.
36. Item 15 has been revised. Resland is a separate corporation owned by the
three partners of the limited partnership. The stock of Resland will be included
in the exchange in the Reorganization as described in this section.
37. The terms of the Resland note have been included. Note 3 to the
financial statements has been revised to reflect two notes.
38. This comment has been complied with.
39. The loans to Dimensional, Affordable and Brio have been included. Affordable
is a non-profit corporation and no stock was ever issued. Brio is owned by
Phillip Johns and a trust for his children. Affordable and Brio were set up only
for tax purposes and never conducted any business and will likely be dissolved
and there is no intention to make loans to these companies in the future.
40. There are no warrants currently outstanding and It has been made clear in
references to these warrants in the Prospectus that they are not currently
outstanding. Warrants will be granted to Joe B. Garza at the closing of the
offering. A description of these warrants has been added to comply with this
comment.
41. This comment has been complied with.
42. This comment has been complied with.
43. This disclosure has been added to Note 1 to the Financial Statements,
Principles of Combination.
44. This disclosure has been added to Note 1 to the Financial Statements,
Organization and Business.
45. This disclosure has been added to Note 1 to the Financial Statements,
Stockholders' Equity.
46. The Company believes that no financial reserve is necessary because,
historically, the Company has been able to resell all the houses for which there
was a sales contract on which the buyer was unable to close, normally within 30
days of the cancellation and at a higher sales price. Such cancellations,
typically, either have no negative impact or a minimal impact on the
profitability of such homes.
47. The Company has a participation interest in mortgages funded by Trendsetter
Mortgage and it does not constitute a business segment. See the response to
comments 2 and 31.
48. This comment has been complied with.
The Company believes that it has complied with all of the staff's
comments. If you have any questions or further comments please contact the
undersigned at (800) 442-7040.
Very truly yours,
Joe B. Garza
<PAGE>
As filed with the Securities and Exchange Commission on October 13, 1998
Registration No. 333-62467
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
under the
SECURITIES ACT OF 1933
Woodhaven Homes, Inc.
(Name of issuer in its charter)
Texas 1623 75-2777805
(State or jurisdiction of incorporation or organization)
(Primary Standard Industrial Classification Code Number)
(I.R.S.
Identification Number)
Woodhaven Homes, Inc
2501 Oaklawn, Suite 550
Dallas, Texas 75219
(214) 599-1999
(Address and telephone number of principal
executive offices and principal place of business)
Richard D. Laxton
Woodhaven Homes, Inc
2501 Oaklawn, Suite 550
Dallas, Texas 75219
(214) 599-1999
(Name, address and telephone number of agent for service)
Copies of all communications to:
Garza & Staples Maurice J. Bates, Esq.
Joe Garza Maurice J. Bates, L.L.C.
1230 Lincoln Center Two 8214 Westchester Suite 500
Dallas, Texas 75225 Dallas, Texas 75225
(800) 442-7040 (214) 692-3566
(972) 404-1300 FAX (214) 987-2091 FAX
Approximate date of proposed sale to public:As soon as practicable
after the effective date of the Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act, please check the following box. X
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
<TABLE>
<CAPTION>
(Registration Statement cover page cont'd)
Calculation of Registration Fee
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price per Share Aggregate Offering Price Registration Fee
(1) (1) (1)
<S> <C> <C> <C> <C>
Units 1,150,00 $10.00 $11,500,000 $3,450
Common Sock, par
value $0.01 (2) 1,150,000 (2) (2) (2)
Redeemable Common Stock
Purchase
Warrants (2) 1,150,000 (2) (2) (2)
Common Stock, par
Value $0.01 (3) 1,150,000 $12.00 $13,800,000 $4,140
Underwriter's Warrants (4) 100,000 $ 0.01 $100.00 $100
Units Underlying the
Underwriter's Warrants 100,000 $12.00 $1,200,000 $360
Common Stock, par
value $0.01 (5) 100,000 (5) (5) (5)
Redeemable Common Stock
Purchase Warrants 100,000 (5) (5) (5)
Common Stock, par
value $0.01 (6) 100,000 $12.00 $1,200,000 $360
Total $27,700,100 $8,310
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Included in the Units. No additional registration fee is required.
(3) Issuable upon the exercise of the Redeemable Common Stock Purchase Warrants.
Pursuant to Rule 416 there are also registered an indeterminate number of shares
of Common Stock which may be issued pursuant to the antidilution provisions
applicable to the Redeemable Common Stock Purchase Warrants, the Underwriter's
Warrants and the Redeemable Common Stock Purchase Warrants issuable under the
Underwriters Warrants. (4) Underwriters' Warrants to purchase up to 100,000
Units, consisting of an aggregate of 100,000 shares of Common Stock and 100,000
Redeemable Common Stock Purchase Warrants. (5) Included in the Units underlying
the Underwriters' Warrants. No additional registration fees are required. (6)
Issuable upon exercise of Redeemable Common Stock Purchase Warrants underlying
the Underwriters' Units.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 14, 1998
Woodhaven Homes, Inc.
1,000,000 Units
Consisting of 1,000,000 Shares of Common Stock and
1,000,000 Redeemable Common Stock Purchase Warrants
Woodhaven Homes, Inc. (the "Company") is hereby offering 1,000,000 Units,
each unit (the "Unit") consisting of one share (the "Shares") of common stock,
$0.01 par value (the " Common Stock"),and one Redeemable Common Stock Purchase
Warrant (the "Warrants") . The Units, the Shares and the Warrants offered hereby
are referred to collectively as the "Securities." The Shares and Warrants
included in the Units may not be separately traded until [six months after the
date of this Prospectus], unless earlier separated upon ten days' prior written
notice from 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 [twelve
months from the date of this Prospectus], the Warrants are subject to redemption
by the Company at $0.05 per Warrant at any time on thirty days prior written
notice, provided that the closing price quotation for the Common Stock has
equalled or exceeded $[200% of the offering price] for ten consecutive trading
days. The Warrant exercise price is subject to adjustment under certain
circumstances. See "Description of Securities."
Prior to this offering, there has been no public market for the Securities,
and there can be no assurance that an active market will develop. It is
currently anticipated that the initial public offering price of the Units will
range from $9.00 to $11.00 per Unit. See "Underwriting" for information relating
to the factors considered in determining the initial public offering price. The
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 7 HEREOF CONCERNING THE COMPANY AND THIS OFFERING.
PROSPECTIVE INVESTORS SHOULD ALSO CONSIDER THE FACT THAT THEIR INVESTMENT WILL
RESULT IN IMMEDIATE SUBSTANTIAL DILUTION. SEE "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discounts and Company(2)
Commissions(1)
<S> <C> <C> <C>
Per Unit $10.00 $1.00 $9.00
Total (2)(3)$10,000,000 $1,000,000 $9,000,000
</TABLE>
(1) In addition, the Company has agreed to pay the 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."
<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 (i) no exercise
of the Warrants, the Representative's Over-allotment Option and the
Representative's Warrant and (ii) consummation of the Reorganization prior to
the effective date of this Prospectus. See "The Reorganization" and "Certain
Relationships and Related Transactions."
The Company
The Company was organized in August 1998 to acquire all of the assets of
Woodhaven Homes, Ltd. (Woodhaven Ltd.") and all of the outstanding capital stock
of Resland Development Corp. ("Resland") from Richard D. Laxton, Phillip R.
Johns and Mark V. Johns, who will continue as officers and directors of the
Company. Immediately prior to the closing of this offering Woodhaven Ltd. will
exchange all of its assets for Common Stock of the Company and Messrs. Laxton,
Johns and Johns will exchange all of the outstanding capital stock of Resland
owned by them for Common Stock of the Company. The Company will own the assets
and succeed to the business of Woodhaven Ltd. and Resland will be operated as a
wholly-owned subsidiary of the Company. The Company began business in 1992 as
Woodhaven Homes, LLC, a Texas limited partnership and, under Texas law,
converted to Woodhaven Ltd., a Texas limited partnership in September 1997. All
references herein to the "Company" or "Woodhaven" refer to Woodhaven Homes,
Inc., Woodhaven Homes, Ltd. and Woodhaven Homes, LLC. See "The Reorganization"
and "Certain Relationships and Related Transactions."
The Company designs, builds and sells single-family homes in the
Dallas/Fort Worth metropolitan area, with a focus on the "entry level" and
relocation market segments. Typically, homes range in size from 1,186 square
feet to over 3,000 square feet and range in price from $67,950 to $238,000, with
an average sales price of $104,000 for homes closed during 1997. The Dallas/Fort
Worth market has experienced population and job growth above the national
average over the last several years. The Company operated in 17 subdivisions in
the metropolitan area, and had 204 homes under construction at December 31,
1997. The Company is also actively engaged in residential land acquisition and
development, which enables it to provide lots for its homebuilding operations.
At December 31, 1997, the Company owned or had under option contract 1,366 lots
available for future growth.
The Company's homebuilding operation is positioned to compete with
high-volume builders by offering a broader selection of homes with more
amenities and greater design flexibility than typically offered by volume
builders. The Company offers the homebuyer the ability to select various design
features in accordance with his personal preferences. Through a volume building
approach the Company's custom homes generally offer more value than those
offered by local, lower-volume custom builders, primarily due to the Company's
effective purchasing, construction and marketing programs. While most design
modifications are significant to the homebuyer, they typically involve
relatively minor adjustments that allow the Company to maintain construction
efficiencies and result in greater profitability due to increased sales prices
and margins. The Company believes that its ability to meet the design tastes of
prospective homebuyers at competitive prices distinguishes itself from many of
its competitors.
Subcontractors perform virtually all of the Company's construction work.
The Company's construction superintendents monitor the construction of each
home, coordinate the activities of subcontractors and suppliers, subject the
work of subcontractors to quality and cost controls and monitor compliance with
zoning and building codes. Subcontractors typically are retained pursuant to a
contract that obligates the subcontractor to complete construction in a
workmanlike manner that provides standard indemnifications and warranties.
Consistent with historical experience, 95% of the homes in backlog at
December 31, 1997 were closed by June 30, 1998. Based upon dollar volume,
contract cancellations were less than 10% of the home sales contracts signed and
started during each of 1995, 1996 and 1997. Although cancellations can disrupt
anticipated home closings, the Company believes that cancellations have not had
a material negative impact on operations or liquidity of the Company during the
last several years. The Company attempts to reduce cancellations by reviewing
each homebuyer's ability to obtain mortgage financing early in the sales process
and by closely monitoring the mortgage
<PAGE>
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.
<PAGE>
The Offering
<TABLE>
<S> <C>
Securities offered hereby................... 1,000,000 Units, each Unit consisting of one share of Common
Stock and one Warrant, each Warrant entitling the holder to
purchase one share of Common Stock at a price of $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............................. Reduction of outstanding indebtedness, lot
acquisition/development and working capital. See "Use of
Proceeds."
Risk Factors................................ The Securities offered hereby are speculative and involve a high
degree of risk and should not be purchased by investors who
cannot afford the loss of their entire investment. See "Risk
Factors."
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 to be issued at the closing of this offering. See
"Description of Securities-Other Warrants."
(2) Does not include (i) up to 150,000 Warrants issuable upon exercise of the
Over-allotment Option, (ii) 100,000 Warrants underlying the Underwriters'
Warrants, and (iii) 100,000 other warrants to be issued at the closing.
<PAGE>
SUMMARY HISTORICAL AND PROFORMA FINANCIAL INFORMATION
(dollars in thousands, except per share data)
The following selected financial data has been derived from the
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
---- ---- ---- ---- ---- ---- ----
Operating Data:
<S> <C> <C> <C> <C> <C> <C> <C>
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
---- ---- ---- ---- ---- ---- ----
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.
(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.
<PAGE>
The Reorganization
The Company was organized in August 1998 to acquire all of the assets of
Woodhaven Ltd. and all of the outstanding capital stock of Resland in exchange
for 2,000,000 shares of its Common Stock. The exchange is intended to qualify as
a tax-free reorganization (the "Reorganization") pursuant to Section 351 of the
Internal Revenue Code of 1986. The exchange will be consummated immediately
prior to the effective date of this offering and the Company will acquire all of
the assets [and all of the stock of its general partner, W. H. Management, Inc.
("W. H. Management")] and succeed to the business of Woodhaven Ltd. and will
acquire all of the outstanding capital stock of Resland, which will be operated
as a wholly-owned subsidiary of the Company. In the past, Resland has been used
by Woodhaven Ltd. as an off-balance sheet corporation to buy and sell
residential lots for development. The lots were sold primarily to Woodhaven
Ltd., but occasionally to other developers. The Company expects to continue to
utilize Resland to buy and hold its lots for development. Richard D. Laxton,
Phillip R. Johns and Mark V. Johns, the limited partners of Woodhaven Ltd. and
sole managers of its business (through W. H. Management) will continue as
officers and directors of the Company. The terms of the reorganization,
including the values assigned to the assets of Woodhaven Ltd., Resland and
Common Stock of the Company to be exchanged were determined in negotiations
between the three principals of Woodhaven Ltd. and the Representative of the
Underwriters.
In connection with the Reorganization, the Company will distribute $700,000
to the three limited partners of Woodhaven Ltd. for payment of income taxes
applicable to Woodhaven Ltd's. income from operations. The distribution will be
made to allow Richard D. Laxton, Phillip R. Johns and Mark V. Johns to pay the
individual income taxes they owe on their shares of Woodhaven Ltd's. earnings.
See "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Certain Relationships and Related
Transactions."
<PAGE>
RISK FACTORS
An investment in the Securities offered hereby involves a high degree
of risk. Prospective investors should consider the following factors in addition
to other information set forth in the prospectus before purchasing the
securities offered hereby. Prospective investors should note that this
Prospectus contains certain "forward-looking statements," including without
limitation, statements containing the words "believes," "anticipates,"
"expects," "intends," "plans," "should," "seeks to," and similar words.
Prospective investors are cautioned that such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties. Actual
results may differ materially from those in the forward-looking statements as a
result of various factors, including but not limited to, the risk factors set
forth in this Prospectus. The accompanying information contained in this
Prospectus identifies important factors that could cause such differences.
General Real Estate, Economic and Other Conditions
The homebuilding industry is significantly affected by changes in
national and local economic and other conditions, including employment levels,
availability of financing, interest rates, consumer confidence and housing
demand. The homebuilding industry historically has been susceptible to cyclical
economic conditions, and consumer demand for housing generally lessens during
economic downturns. The possibility of reduced consumer demand as a result of
changing general economic conditions, in turn, increases the risks inherent to
homebuilders in purchasing and developing large tracts of land, since they must
purchase and develop land significantly in advance of the sale of any homes. In
addition, homebuilders are subject to various risks, many of them outside the
control of the homebuilder, including competitive overbuilding, availability and
cost of building lots, availability of materials and labor and adverse weather
conditions which can cause delays in construction schedules, cost overruns,
changes in government regulation and increases in real estate taxes and other
local government fees.
Dependence Upon Key Personnel
The Company's success is largely dependent on the skills, experience
and performance of certain key members of its management, including particularly
Richard D. Laxton, the Company's Chief Executive Officer, Phillip 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."
<PAGE>
Voting Control by Management
Upon completion of this offering, the Company's officers and directors,
will own approximately 66.7% of the outstanding Common Stock of the Company. As
a result, these shareholders will be able to control the vote on most matters
submitted to shareholders, including the election of directors. See "Principal
Shareholders."
Integration of Acquisitions
A material element of Woodhaven's growth strategy is to expand its
existing business in the Texas area and, in the future, in other geographic
markets. This expansion may be made through internal growth or through strategic
acquisitions. The Company is currently evaluating opportunities to make
strategic acquisitions, although it has no present commitments or agreements
with respect to any material acquisitions. There can be no assurance that the
Company will be able to identify and acquire such companies or that it will be
able to successfully integrate the operations of any companies it acquires.
Further, any acquisition may initially have an adverse effect upon the Company's
operating results while the acquired businesses are adopting the Company's
management and operating practices. The Company's lack of positive cash flow may
adversely affect its ability to make any such acquisitions. 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."
Offering to Increase Value of Current Shareholders Holdings
The current shareholders of the Company acquired their shares of Common
Stock at a cost per share substantially less than that at which the Company
intends to sell its Common Stock included in the Units. Consummation of the
offering will result in a substantial increase in the value of the current
shareholders' holdings and a resulting dilution in the price paid by the public
shareholders. See "Dilution."
Government Regulations and Environmental Concerns
The housing industry and the Company are subject to increasing local,
state and Federal statutes, ordinances, rules and regulations concerning zoning,
resource protection (preservation of woodlands and hillside areas), building
design, construction and similar matters, including local regulations which
impose restrictive zoning and density requirements in order to limit the number
of residences that can eventually be built within the boundaries of a particular
location. Such regulation affects construction activities, including
construction materials that must be used in certain aspects of building design,
as well as sales activities and other dealings with consumers. The Company must
also obtain certain licenses, permits and approvals from various governmental
agencies for its development activities, the granting of which are beyond the
Company's control. Furthermore, increasingly stringent requirements may be
imposed on homebuilders and developers in the future. Although the Company
cannot predict the impact on the Company of compliance with any such
requirements, such requirements could result in time consuming and expensive
compliance programs. See "Business- Government Regulation and Environmental
Matters."
Representative's Experience.
The 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."
<PAGE>
Business Concentration
The Company's operations are focused in the North Texas area. The
Company intends to expand operations within this market by entering additional
communities and subdivisions. The Company is continually reviewing potential lot
acquisition and development opportunities, which may take as long as one or two
years to finalize. The Company has allocated $2,000,000 of the proceeds of this
offering to payments for the equity portion of lot acquisition and development
and may expend such amounts within six to nine months from the date hereof. The
Company has operated successfully in its current market, but there can be no
assurance that the stability of this market or the Company's favorable results
will continue. Adverse general economic conditions in this market could have a
material adverse impact upon the operations of the Company. The Company also may
expand into new geographic markets, which could reduce the Company's dependence
on its existing market. The risks for expansion outside the Company's existing
market include significant start-up costs, the hiring of additional personnel
and developing new supplier and subcontractor relationships.
Absence of Prior Public Market - American Stock Exchange Listing
Prior to this offering, there has been no public market for the
Securities. The 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 six 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 will be less than the market value of the Warrants at
the time of the redemption. See "Description of Securities - Warrants."
Investors May Be Unable to Exercise Warrants
For the life of the Warrants, the Company will use its best efforts to
maintain a current effective registration statement with the Commission relating
to the shares of Common Stock issuable upon exercise of the Warrants. If the
Company is unable to maintain a current registration statement the Warrant
holders would be unable to exercise the Warrants and the Warrants may become
valueless. Although the Underwriters have agreed to not knowingly sell the
Warrants in any jurisdiction in which the shares of Common Stock issuable upon
exercise of the Warrants are not registered, exempt from registration or
otherwise qualified, a purchaser of the Warrants may relocate to a jurisdiction
in which the shares of Common Stock underlying the Warrants are not so
registered or qualified. In addition, a purchaser of the Warrants in the open
market may reside in a jurisdiction in which the shares of Common Stock
underlying the Warrants are not registered, exempt or qualified. If the Company
is unable or chooses not to register or qualify or maintain the registration or
qualification of the shares of Common Stock underlying the Warrants for sale in
all of the states in which the Warrant holders reside, the Company would not
permit such Warrants to be exercised and Warrant holders in those states may
have no choice but to either sell their Warrants or let them expire. Prospective
investors and other interested persons who wish to know whether or not shares of
Common Stock may be issued upon the exercise of Warrants by Warrant holders in a
particular state should consult with the securities department of the state in
question or send a written inquiry to the Company. The 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."
<PAGE>
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."
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
<PAGE>
favorable than those provided herein. The Company has agreed that, under certain
circumstances, it will register under federal and state securities laws the
Underwriters' Warrants and/or the securities issuable thereunder. Exercise of
these registration rights could involve substantial expense to the Company at a
time when it could not afford such expenditures and may adversely affect the
terms upon which the Company may obtain financing. See "Description of
Securities" and "Underwriting."
Representatives' Influence on the Market
A significant amount of the Securities offered hereby may be sold to
customers of the 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."
<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>
<CAPTION>
Amount Percent
<S> <C> <C>
Reduction of existing debt(1) $3,000,000 35.3%
Special distribution to principal shareholders (2) 700,000 8.2
Lot acquisition/development 2,000,000 23.6
Working capital(3) 2,800,000 32.9
- --------- ----
Total $8,500,000 100.0%
========== ======
</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 interest rates ranging from 9% to 10.5% which mature in 12
months or less from issuance. The Company will pay off the loans and
smaller lines of credit that bear the highest interest rates.
(2) The Company intends to pay $700,000 to the Company's shareholders, Richard
D. Laxton, Mark V. Johns and Phillip R. Johns to pay taxes due in
connection with the termination and merger of Woodhaven Homes, Ltd. into
the Company. See "The Reorganization", "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Certain
Relationships and Related Transactions."
(2) The Company may also use as much as $2,000,000 of the net proceeds from
this offering to take advantage of future business opportunities as part of
its expansion plans, although it has not identified any specific businesses
it intends to acquire and has not entered into negotiations with respect to
any acquisitions.
Pending application of the net proceeds of this offering, the Company
may invest such net proceeds in interest-bearing accounts, United States
Government obligations, certificates of deposit or short-term interest-bearing
securities.
DIVIDEND POLICY
The Company has operated as a limited liability company and a limited
partnership and has made cash distributions to the partners of $0 in 1996,
$335,445 in 1997 and $225,000 for the six months ended June 30, 1998. The
Company does not anticipate paying dividends on the Common Stock at any time in
the foreseeable future. The Company's Board of Directors plans to retain
earnings for the development and expansion of the Company's business. The Board
of Directors also plans to regularly review the Company's dividend policy. Any
future determination as to the payment of dividends will be at the discretion of
the Board of Directors of the Company and will depend on a number of factors,
including future earnings, capital requirements, financial condition and such
other factors as the Board of Directors may deem relevant.
<PAGE>
DILUTION
As of 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>
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 3,000,000 (1) 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 be issued. To the extent that these options and warrants are exercised,
there will be further share dilution to new investors. As of the date of
this Prospectus, there are no outstanding employee stock options or
warrants which are exercisable.
(2) Upon exercise of the Over-allotment Option, the number of shares held by
new investors would increase to 1,150,000 or 36.5% of the total number of
shares to be outstanding after the offering and the total consideration
paid by new investors will increase to $11,500,000. See "Principal
Shareholders."
(3) This amount assumes the attribution of the Unit purchase price solely to
the Common Stock included in each Unit. See "Use of Proceeds."
<PAGE>
CAPITALIZATION
The following table sets forth the proforma capitalization of the
Company as of 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$ 10,244,000
------------------------------------
Total short-term debt............................... $ 13,244,300 $ 10,244,000
============= =============
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)......................... 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."
<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.
<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. The
majority of the sales increase was due to an increase in the number of homes
sold during the period as the Company sold 204 homes versus 139 in the prior
period. The increase in average sales price provided $318,500 of the sales
increase during the period. See "Business-Backlog."
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. Interest costs incurred on construction
indebtedness (secured by specific real estate inventories) are capitalized until
completion of construction. Interest costs incurred after completion of
construction and interest incurred on non-construction related indebtedness are
expensed.
General and administrative expense increased by 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 1997, the Company started leasing the model homes from an
unaffiliated third party that eliminated the interest expense associated with
owning them. Leasing expense is recorded on the financial statements under
Selling, General and Administrative Expense.
<PAGE>
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.
Comparison of the Years Ended December 31, 1996 and December 31, 1997
Net sales for the year ended December 31, 1997 increased by $7.7
million, or 30.6%, to $33.0 million from $25.3 million for the prior year. The
increase was primarily due to increased marketing efforts by the Company and
general improvement in real estate conditions in the Company's markets. During
the year, the Company increased the number of sales centers from eight in 1996
to fifteen in 1997. Further, the number of salespeople was increased to eighteen
from twelve. The majority of the sales increase during the year was due to the
increase in the number of homes sold as the Company closed 320 homes during the
year compared to 270 in the prior year. Revenues also benefited from an increase
in the average sales price of a home to $104,000 from $94,000 in the prior year.
The increase in average sales price per home contributed $500,000 to the overall
increase in sales during the year.
Gross profit for the year ended December 31, 1997 increased by 79.7% to
$4.4 million from $2.5 million in the prior year. Gross margin increased 3.7% to
13.5% from 9.8%. These improvements reflect an increase in the average selling
price of homes sold by the Company combined with a reduction in financing costs.
Selling, general and administrative expenses for the year ended
December 31, 1997 increased by approximately $938,000, or 54.8%, to $2.6 million
from $1.7 million in the prior year. The increase was primarily due to increased
marketing expenses in the form of advertising and maintenance of model homes. In
addition, the Company increased employee benefit expenditures by adding a health
insurance program and retirement plan.
Interest expense for the year ended December 31, 1997 increased to
approximately $326,000 from $226,000 in the prior year. The increase resulted
from differences in the amount of construction interest capitalized during the
periods.
Net income increased to approximately $1.4 million for the fiscal year
end December 31, 1997 from $511,000 in the prior year, an increase of 177.4%.
The increase in net income reflects the increase in sales with correspondingly
lower increases in cost of sales and selling, general and administrative
expenses.
Comparison of the Years Ended December 31, 1995 and December 31, 1996
Net sales for the year ended December 31, 1996 increased by 65.7% to
$25.3 million from $15.2 million for the year ended December 31, 1995. The
majority of the sales increase was due to an increase in the number of homes
sold during the year as the Company sold 270 homes versus 172 in the prior year.
Revenues also benefited from an increase in the average sales price of a home to
$93,000 from $87,000 in the prior year. The increase in average sales price per
home contributed $588,000 to the overall increase in sales during the year.
Gross profit for the year ended December 31, 1996 increased to $2.5
million from $1.6 million from 1995. The increase in gross profit was primarily
due to the higher revenue base. For the year ended December 31, 1996, gross
margin was 9.8% compared to 10.8% for the year ended December 31, 1995. The
decline in gross margin was primarily due to the reclassification of certain
expense items that were not included in cost of sales in the prior year.
General and administrative expense declined to $1.7 million for the
year ended December 31, 1996 from $1.8 million for the year ended December 31,
1995. As a percentage of sales, general and administrative expense was 6.8%
compared to 11.6% in the prior year. The decline in general and administrative
expense was primarily due to the reclassification of certain expense items that
were no longer included in general and administrative expense for the current
year.
Interest expense increased by $194,000 to $226,400 for the year ended
December 31, 1996 from $32,000 in the prior year. The increase was primarily due
to the increase in the number of homes sold by the Company that required funding
before they were closed.
<PAGE>
Net earnings for the year ended December 31, 1996 were $511,000
compared to a loss of ($157,000) for the year ended December 31, 1995. The
increase was primarily due to the higher level of sales.
Liquidity and Capital Resources
The Company has financed its working capital requirements through the
use of bank debt, notes payable from shareholders, and capital leases. As of
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.
The Reorganization
The Company was incorporated in August 1998 to acquire all of the
assets of Woodhaven Ltd., and all of the outstanding capital stock of Resland in
a tax-free reorganization pursuant to Section 351 of the Internal Revenue Code
of 1986. This transaction, which will be consummated immediately prior to the
effective date of this Prospectus, will be accounted for similar to a pooling of
interests with the transferred assets and liabilities being recorded at their
historical cost basis. The only expected impact on operations resulting from the
transaction is expected to be corporate income tax expense attributable to the
Company's earnings. Previously, earnings were taxed under a partnership
structure, and going forward they will be subject to the standard corporate
income tax rate of approximately 35%. In connection with the Reorganization, the
Company will distribute $700,000 to the three partners of Woodhaven Ltd. for
payment of income taxes applicable to Woodhaven Ltd's. income from operations.
The distribution will be made to allow Richard D. Laxton, Phillip R. Johns and
Mark V. Johns to pay the individual income taxes they owe on their shares of
Woodhaven Ltd's. earnings. See "The Reorganization," "Use of Proceeds," and
"Certain Relationships and Related Transactions."
Year 2000
The Company conducted a review of its computerized systems to determine
how its systems would be affected by the Year 2000 issues. Additionally, the
Company is assessing certain third parties with which the Company has material
relationships, particularly lenders, suppliers, sub-contractors and title
companies, to
<PAGE>
determine their compliance with Year 2000 issues. The Company intends
to obtain confirmation that all such third parties are or will be Year 2000
compliant. The Company believes that such confirmation will be completed by
March 31, 1999.
The Company's primary system hardware and software package have been
reviewed by IBM, Renaissance Systems, Inc.,(an IBM business partner) and Systems
Analyses, Inc., the Company's software developer. As of June 30, 1998, and as a
result of such review, the Company purchased at a cost of $32,000 the latest
upgrade of the "HomeBuilder" software which has been certified by the software
developer to be Year 2000 compliant. Further, the Company has ordered new IBM
hardware (A/S 400) and operating software at a cost of $40,000, including
installation, all of which will be certified as Year 2000 compliant. The
upgraded software and new hardware is expected to be installed and tested for
compliance by December 31, 1998. See "Business-Management Information Systems."
The foregoing costs represent approximately 50% of the Company's 1998
budget for information technology and these costs will be paid out of working
capital and charged to income over a three year period. No additional
significant costs are anticipated and no other information technology projects
have been deferred as a result of Year 2000.
Accounting Standards
The Financial Accounting Standards Board ("FASB") periodically issues
statements of financial accounting standards. In April 1997, FASB issued
Statement of Financial Accounting Standards (SFAS) No. 128. The new standard
replaces primary and fully diluted earnings per share with basic and diluted
earnings per share. The Company has adopted FASB 128 and has restated all prior
periods presented to comply with this standard. The adoption did not impact
reported earnings per share.
In June 1997, the FASB issued SFAS No. 130 and 131. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components. SFAS No. 131 establishes standards for reporting about operating
segments, products and services, geographic areas, and major customers. The
standards become effective for fiscal years beginning after December 15, 1997.
Management believes that provisions of SFAS No. 130 and 131 will not have a
material effect on its financial condition or reported results of operation.
In February 1998, the Financial Accounting Standards Board issued SFAS
132, Employers' Disclosures about Pensions and Other Postretirement Benefits -
An Amendment of FASB Statements No. 87,88, and 106. This Statement revises
employers' disclosures about pension and other 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 is effective and the Company believes it will not have a
material effect on its financial condition or results of operations.
In August 1998, the Financial Accounting Standards Board issued SFAS
133, Accounting for Derivative Instruments and Hedging Activities. This
statement, which applies to all entities, requires derivative instruments to be
measured at fair value and recognized as either assets or liabilities on the
balance sheet. The statement is effective for fiscal years beginning after June
15, 1999 with earlier application encouraged but permitted only as of the
beginning of any fiscal quarter beginning after June 1998. Retroactive
application is prohibited. The Company does not believe this statement will be
applicable to its financial condition or its results of operations.
<PAGE>
BUSINESS
General
The Company designs, builds and sells single-family homes in the
Dallas/Fort Worth metropolitan area. This market has experienced population and
job growth above the national average over the last several years. The Company
operated in 17 subdivisions in this metropolitan area, and had 204 homes under
construction at December 31, 1997. The Company is also actively engaged in
residential land acquisition and development, which enables it to provide lots
for its homebuilding operations. At December 31, 1997, the Company owned or had
under option contract 1,366 lots available for future growth.
The Company offers high-quality homes, designed principally for the "entry
level" and relocation market segments. Typically, homes range in size from 1,186
square feet to over 3,000 square feet and range in price from $67,950 to
$238,000, with an average sales price of $104,000 for homes closed during 1997.
The Company's homebuilding operation is positioned to compete with
high-volume builders by offering a broader selection of homes with more
amenities and greater design flexibility than typically offered by volume
builders. The Company gives the homebuyer the ability to select various design
features in accordance with their personal preferences. Through a volume
building approach the Company's custom homes generally offer more value than
those offered by local, lower-volume custom builders, primarily due to the
Company's effective purchasing, construction and marketing programs. While most
design modifications are significant to the homebuyer, they typically involve
relatively minor adjustments that allow the Company to maintain construction
efficiencies and result in greater profitability due to increased sales prices
and margins. The Company believes that its ability to meet the design tastes of
prospective homebuyers at competitive prices distinguishes itself from many of
its competitors.
Strategy
The Company's objective is to provide its customers with homes that offer
both quality and value, while seeking to maximize its return on invested
capital. Management believes that a balanced and disciplined approach to home
construction, land purchases and marketing is essential to the Company's
anticipated growth. To achieve this objective, the Company has developed a
strategy that focuses on the following elements:
Growth Markets. The Company's primary market has experienced population
and job growth in excess of the national average over the past several
years. The Company believes that there are significant growth
opportunities in this market. The Company also continues to evaluate new
markets that have significant "move-up" and relocation segments that would
satisfy the Company's profitability, investment return and other criteria.
While the Company anticipates entering new markets primarily through
start-up operations, it will also consider the acquisition of homebuilding
companies that have complementary management styles. Entry into new
markets is preceded by extensive due diligence and research conducted by
management. The Company currently has no specific markets or acquisitions
under consideration for expansion. Initially, it may be expected that the
Company will expand into new communities and developments adjacent to or
near the Company's current area of operations.
Centralized Purchasing. The Company utilizes centralized purchasing to
leverage its purchasing power into volume discounts, a practice which
reduces costs, ensures timely deliveries and reduces the risk of supply
shortages due to allocations of materials. The Company has negotiated
favorable price arrangements with high quality national and regional
suppliers for appliances, heating and air conditioning, counter tops,
bathroom fixtures, roofing and insulation products, floor coverings, and
other housing components. Major materials, such as lumber, sheet rock,
concrete and brick are also centrally purchased to obtain volume
discounts. There are no minimum purchase requirements for these
arrangements.
Cost Management. The Company controls its overhead costs by centralizing
administrative and accounting functions, eliminating the need for redundant
functions at the community level. The Company controls construction costs
through the efficient design of its homes and by obtaining favorable pricing,
where possible, from subcontractors based on the high volume of work performed
for the Company. The Company also
<PAGE>
controls its warranty costs through quality control that ensures that the
home has been totally finished prior to the buyer moving in, thus
enhancing customer satisfaction. The Company controls its advertising
expenses through sophisticated budgeting of expenses with extensive review
of all expenditures. Some of the Company's major suppliers and contractors
also contribute advertising dollars for special promotions of houses and
products. These campaigns feature the key suppliers' products and enhance
the image of the Company's homes through brand recognition. In addition,
the Company seeks to better manage its corporate overhead costs by
utilizing the Homebuilder software package written specifically for
production homebuilders. See "-Management Information Systems."
Limited Real Estate Exposure. The Company seeks to maximize its return on
capital and limit its exposure to changes in land valuation by obtaining
options to purchase lots whenever feasible. The Company will also directly
acquire, where appropriate, quality residential properties that are in
high demand for use in its homebuilding operations and for sale to
third-party builders. The Company's executive management establishes
targeted levels of lot options and land for development based on its
strategic plan for the overall growth of the Company. The Company targets
properties for acquisition that are both suitable for its homebuilding
product and in locations that are anticipated to maintain the homebuyers'
property values. The Company believes this strategy improves inventory
turnover and enables the Company to develop and dispose of the developed
lots typically within two to three years. The Company does not acquire
land that is not suitable for lot development and residential construction
and does not speculate on land values by acquiring and holding land for
resale or for future development.
The Company seeks to limit its exposure to real estate inventory risks
by (i) closely monitoring its unsold inventory of new homes and the stage of
completion of homes under construction on an ongoing basis, (ii) centralizing
control for the start of new homes and (iii) closely monitoring local job market
and demographic trends, housing preferences and related economic developments,
such as new job opportunities, local growth initiatives and trends in work force
median income levels.
Markets
The Company conducts homebuilding activities in the Dallas/Fort Worth
metropolitan area. The Company plans to focus its development activity based on
the following factors, among others: regional economic conditions, job growth,
land availability, the local land development process, consumer tastes,
competition from other builders of new homes and secondary home sales activity.
The statistical information presented below has been compiled by American
Metro/Study Corporation from a number of public sources.
Dallas/Fort Worth, Texas. The combined Dallas/Fort Worth metropolitan area
(the "Metroplex") exceeded 4.5 million in total population in 1997. With
an employment base of more than 2.3 million jobs, the metroplex has added
between 80,000 and 130,000 jobs annually during 1994 to 1997 (a 4.5%
annual growth rate) which ranks it number 1 in the nation. This growth is
partially attributable to the emergence of the "Telecom Corridor," a new
center for high-technology communication companies, Dallas, Ft. Worth
International Airport the worlds busiest, and Alliance Airport region, a
hub for the manufacturing and service industries in Fort Worth. The
Metroplex has positioned itself as an attractive market for corporate
relocations and expansions due to the relatively low cost of living and
ease of accessibility to the Metroplex. The single-family market in
Dallas/ Fort Worth is characterized by rising home values in a market
which has grown to a new homes start annual rate of 25,000 units per year
over the period 1994 to 1997.
The Company has positioned itself to increase its market share in the
Dallas/Fort Worth market, as this area continues its economic expansion.
The Company was first established in 1992 and is achieving the image,
brand awareness and improved lot position, which the Company believes,
will support its continued expansion in this market.
<PAGE>
Backlog
At December 31, 1997, the Company's backlog was $19,589,583, which
consisted of 198 homes. At June 30, 1998, the backlog was $31,135,171, which
consisted of 274 homes. Backlog represents home purchase contracts which have
been executed and for which earnest money deposits have been received. Home
sales are not recorded as revenues until the closings occur. Sales value
represents the product of the number of homes for which earnest money contracts
have been received multiplied by the contract sales price for each home. Backlog
does not include speculative homes.
Consistent with historical experience, 95% of the homes in backlog at
December 31, 1997 were closed by June 30, 1998. Based upon dollar volume,
contract cancellations were less than 10% of the home sales contracts signed and
started during each of 1995, 1996 and 1997. Although cancellations can disrupt
anticipated home closings, the Company believes that cancellations have not had
a material negative impact on operations or liquidity of the Company during the
last several years. The Company attempts to reduce cancellations by reviewing
each homebuyer's ability to obtain mortgage financing early in the sales process
and by closely monitoring the mortgage approval process.
Land Policies and Position
The Company provides lot positions for its homebuilding operations by
acquiring lot options and by purchasing land for the development of lots. When
appropriate, developed lots are occasionally sold to third-party builders to
increase inventory turnover and to enhance earnings for the Company.
Design
The Company's home designs and floor plans are prepared by outside
architects in each of the Company's markets to appeal to the local tastes and
preferences of the community. The Company's design department has the capability
to change its standard floor plans to accommodate the individual homebuyer.
While most design modifications are significant to the homebuyer, they typically
involve relatively minor adjustments that allow the Company to maintain
construction efficiencies and result in greater profitability due to increased
margins. The design department also verifies that each floor plan will fit on a
particular lot before construction begins. To contain costs, the design
department periodically alters the Company's most popular floor plans, so that
they remain current with design trends, product updates and consumer tastes.
Construction
Subcontractors perform virtually all of the Company's construction work.
The Company's construction superintendents monitor the construction of each
home, coordinate the activities of subcontractors and suppliers, subject the
work of subcontractors to quality and cost controls and monitor compliance with
zoning and building codes. Subcontractors typically are retained pursuant to a
contract that obligates the subcontractor to complete construction in a
workmanlike manner that provides standard indemnifications and warranties. The
subcontractor is paid on a per unit basis which fluctuates depending on the size
of the home. Typically, the Company works with the same subcontractors in each
city. The Company's subcontractors are not subject to any collective bargaining
agreements. While the Company competes with other homebuilders for qualified
subcontractors, it has established long-standing relationships with many of its
subcontractors. To date, by providing both timely payments and steady work
assignments, the Company has not experienced any inability to obtain qualified
subcontractors.
The Company's purchasing and cost accounting practices are designed to
facilitate construction flexibility. This process permits homebuyers to modify
their designs, while allowing the Company to monitor and maintain its
profitability. Construction time for the Company's homes depends on weather,
availability of labor, materials and supplies and other factors. The Company
typically completes the construction of a home within four to five months.
The Company does not maintain inventories of construction materials.
Typically, the construction materials used in the Company's operations are
readily available from numerous sources. The Company has favorable price
arrangements or contracts with suppliers of certain of its building materials,
but it is not under any specific
<PAGE>
purchasing requirements. In recent years, the Company has not experienced any
significant delays in construction due to shortages of materials or labor.
Marketing and Sales
The Company markets and sells its homes through commissioned employees.
Approximately forty percent (40%) of such sales are made in cooperation with
independent real estate brokers. The Company targets both first-time home buyers
and the relocation market segments and employs sophisticated marketing
techniques to attract potential home buyers through its Internet website, as
well as print and radio advertising. Home sales are typically conducted from
sales offices located in furnished model homes used in each sub-division. At
December 31, 1997, the Company owned and/or leased 15 model homes. The Company
sales personnel assist prospective buyers by providing them with floor plans,
pricing information, tours of model homes and the selection of option and other
custom features. These sales and marketing personnel are kept informed as to the
availability of financing, construction schedules, and marketing and advertising
plans. In addition to using model homes, the speculative homes built in each
home division enhance the Company's marketing and sales activities. Speculative
homes are attractive to real estate brokers who need homes to show to
prospective buyers and to buyers who do not want to wait for completion of a
contract home. Construction of these speculative homes is also necessary to
satisfy the requirements of relocated personnel, some move-up buyers and
independent brokers, who often represent homebuyers requiring a completed home
within sixty days. Approximately eighty percent (80%) of the speculative homes
were sold while under construction in 1997. The number of speculative homes the
Company builds in any given subdivision is influenced by local market factors,
such as new employment opportunities, significant job relocations, growing
housing demand and the length of time the Company has built in the market. At
December 31, 1997, the Company was operating in seventeen subdivisions. The
ratio of pre-sold homes to speculative homes under construction is typically
approximately 75% pre-sold to 25% speculative. The Company advertises in
newspapers and in real estate and mortgage broker company publications,
brochures, newsletter and billboards. Because real estate brokers are important
to sales, the Company sponsors realtor luncheons and other events to increase
awareness of the Company's subdivisions and products.
Sales of the Company's homes generally are made pursuant to a standard
sales contract. The contract includes a financing contingency, which permits the
customer to cancel in the event mortgage financing at prevailing rates is
unattainable within a specified period, typically four to six weeks, and may
include other contingencies such as the sale of an existing home. The Company
includes a home sale in its backlog upon execution of the sales contract and
receipt of the initial down payment. The Company does not recognize revenue
until the home is closed and title passes to the homebuyer. The Company
estimates that the average period between execution of the sales contract for a
home and closing is approximately five months for pre-sold homes.
Customer Financing
In February 1998, the Company entered into a profit participation and joint
venture agreement with The GM. Group d/b/a Trendsetters Mortgage. Trendsetters
Mortgage underwrites, originates and sells mortgages for homebuyers referred by
the Company. The mortgages are funded by Trendsetter Mortgage and the Company's
capital is not at risk in connection with this agreement.
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.
<PAGE>
Year 2000
The Company conducted a review of its computer systems to identify how
its computer systems could be affected by the "Year 2000" issues. As a result of
this review, during the six months ended June 30, 1998, the Company purchased at
a cost of approximately $32,000 the latest upgrade of the "HomeBuilder" software
to be Year 2000 compliant. In addition, the Company has ordered new hardware and
operating software at a cost of $40,000 which will be certified as Year 2000
compliant. When the new software and hardware are installed and other steps
being taken by management are completed, the Company believes that it will be in
compliance with the Year 2000 issues. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Year 2000."
Customer Service and Quality Control
The Company's operating divisions are responsible for pre-closing, quality
control inspections and responding to customer's post-closing needs. The Company
believes that the prompt, courteous response to homebuyers' needs during and
after construction reduces post-closing repair costs, enhances the Company's
reputation for quality and service, and ultimately leads to significant repeat
and referral business. The Company conducts pre-closing inspections with
homebuyers immediately prior to closing. In conjunction with the inspections, a
list of items for home completion is created. It is the Company's policy that
the sale is not closed until all items are completed to the homebuyer's
satisfaction.
All warranty requests are processed through the central customer service
department located in the corporate office. In most instances, a customer
service manager inspects the warranty request within 48 hours of receipt. The
repair work is approved by the homeowner upon satisfactory completion. A
post-closing interview involves an analysis of the homebuyer's experiences with
the sales counselor, the title company, the mortgage company and the
construction department as well as their satisfaction with the product.
Typically, after a year, another interview is conducted with the homeowner to
determine their continued satisfaction. The subsequent interview provides
management a direct link to the customer's perception of the entire buying
experience as well as valuable feedback on the quality of the product.
Warranty Program
The Company provides a two-year limited warranty of workmanship and
materials with each of its homes. The first year of such warranty, the Company
provides coverage on workmanship and materials, plumbing, electrical, heating,
cooling, ventilation systems and major structural defects. The second year the
Company is responsible for major structural defects and specific types of
defects in plumbing, electrical, heating, cooling and ventilation systems
exclusive of effects in appliances, fixtures and equipment. The Company
subcontracts its homebuilding work to subcontractors who provide the Company
with an indemnity and a certificate of insurance prior to receiving payments for
their work and, therefore, claims relating to workmanship and materials are
generally the primary responsibility of the Company's subcontractors. The next
eight years the Company provides a limited homeowners' warranty covering major
structural defects through a single national agreement with the Residential
Warranty Corporation ("RWC"). A reserve of approximately 0.5% of the sale price
of a home is established to cover warranty expenses, although this reserve is
subject to adjustment in special circumstances. The Company's historical
experience is that such warranty expenses generally fall within the amount
established for such reserve. The Company does not currently have any material
litigation or claims regarding warranties or latent defects with respect to
construction of homes. Current claims and litigation are expected to be
substantially covered by the Company's reserve or insurance. Generally, warranty
claims are handled by the construction superintendent who built the particular
home to ensure that prompt and appropriate corrective action is taken by the
appropriate subcontractor.
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
<PAGE>
in which it operates, due primarily to: (i) its experience within its
geographic markets, which allows it to vary its product offerings to reflect
changing market conditions; (ii) its responsiveness to market conditions,
enabling it to capitalize on the opportunities for advantageous land
acquisitions in desirable locations; and (iii) its reputation for service and
quality. There can be no assurance that the Company will be able to continue to
compete successfully in any of its markets. The inability of the Company to
continue to compete successfully in any of its markets could have a material
adverse effect on the Company's business, financial condition or results of
operations.
Government Regulation and Environmental Matters
All of the Company's land is purchased with the right to obtain building
permits upon compliance with specified conditions, which generally are within
the Company's control. Upon compliance with such conditions, the Company seeks
building permits. The length of time necessary to obtain such permits and
approvals affects the carrying costs of unimproved property acquired for the
purpose of development and construction. In addition, the continued
effectiveness of permits already granted is subject to several factors, such as
changes in policies, rules and regulations and their interpretation and
application. To date, the governmental approval processes discussed above have
not had a material adverse effect on the Company's development activities. There
can be no assurance, however, that these and other restrictions will not
adversely affect the Company in the future.
Local and state governments also have broad discretion regarding the
imposition of development fees for projects in their jurisdiction. These are
normally established, however, when the Company receives recorded final maps and
building permits. The Company is also subject to a variety of local, state and
federal statutes, ordinances, rules and regulations concerning the protection of
health, zoning and the environment. These laws may result in delays, cause the
Company to incur compliance and other costs, and prohibit or restrict
development in certain environmentally sensitive markets.
Employees
At December 31, 1997, the Company employed 56 persons on a full and
part-time basis, of whom 28 were sales and marketing personnel, 14 were
executive, administrative and clerical personnel, and 14 were involved with
construction. None of the Company's employees are covered by collective
bargaining agreements. The Company believes its relations with its employees are
good.
Properties
The Company leases a 10,000 square foot facility in Dallas, Texas, which
serves as the Company's headquarters and primary residential homebuilding office
at an annual rental of $132,000. The lease expires in August 2000. The Company
believes this facility is adequate for its needs for the foreseeable future.
Litigation
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of the Company's management, the
ultimate disposition of these matters is not expected to have a material adverse
effect on the financial condition or results of operations of the Company.
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information regarding the
Company's directors and executive officers:
Name Age Position
Richard D. Laxton 60 Chief Executive Officer,
Director
Phillip R. Johns 38 President, Director
Mark V. Johns 40 Vice President, Director
Lynda M. Presley 47 Secretary
Richard D. Laxton joined the Company in 1996 as Chief Executive
Officer. Mr. Laxton has spent the majority of his professional career in
executive management positions within the construction industry. Prior to
joining the Company from 1994 to 1996, Mr. Laxton was employed as Chief Lending
Officer of First American Savings Bank where he was responsible for construction
and mortgage lending. He also served as a consultant to a retailer of lumber and
building materials. From 1984 to 1994, Mr. Laxton was President and General
Manager of Hurst Lumber Company. Under Mr. Laxton's tenure, Hurst Lumber Company
achieved annual sales of $19,000,000. During this time, he was also active real
estate developer in the Dallas area. He received an accounting degree from St.
Mary's University and is a Certified Public Accountant.
Phillip R. Johns has been President of the Company since its inception
in 1992. He has been involved in the construction business for his entire career
beginning in 1982. Before starting the Company, Mr. Johns owned and operated
Prestique Construction, a builder offering services from renovation to full
construction of single family homes and office and retail buildings. He was
involved in all aspects of the business from administrative duties to design and
craftsmanship. From 1978 to 1981, he attended North Texas State University as an
accounting major.
Mark V. Johns has been Vice President of the Company since its
inception in 1992. His management duties with the Company have been focused on
sales management, site selection, product design, pricing and development of
advertising and marketing. He has been employed in the real estate sales,
development and/or construction business since 1980. Prior to joining the
Company, Mr. Johns worked for several homebuilders in the Dallas area in
management, sales and marketing.
Lynda M. Presely has been secretary of the Company and its predecessor
limited partnership since October 1, 1997, and has been office and accounting
manager of the Company since July 1995. Prior to that time, she worked in a
supervisory capacity in the accounting department of Goodman Homes, Inc., a
privately owned, high volume homebuilder in the Dallas/Ft. Worth area for more
than five years.
Directors of the Company are elected at each annual meeting of shareholders. The
officers of the Company are elected annually by the Board of Directors. Officers
and directors hold office until their respective successors are elected and
qualified or until they're earlier resignation or removal.
Outside Directors
The Company has agreed to appoint two directors who are not officers,
employees or 5% shareholders or related to an officer, employee or 5%
shareholder upon conclusion of the offering. One director nominee, designated by
the Representative of the Underwriters, is Robert A. Shuey, III. Mr. Shuey is
Chief Executive Officer of Tejas Securities Group, Inc., the Representative of
the Underwriters in this offering. Mr. Shuey has been associated with Tejas
Securities Group, Inc. since September 1997. He has been in the investment
banking business for more than the past five years, with National Securities
Corporation from September 1996 until August 1997; with La Jolla Securities
Corporation from April 1995 until August 1996, with Dillon Gage Securities
Corporation from January 1994 until April 1995 and Dickinson & Co. from March
1993 to December 1993. Mr. Shuey is a member of the Board of Directors of
EuroMed, Inc., AutoBond Corporation, Westower Corporation and Transnational
Financial Corporation. Mr. Shuey is a graduate of Babson with a degree in
Economics and Finance. The other director has not been selected but will be
appointed by the current board as permitted by the by-laws. Shareholders will
not vote on the appointment of either of these proposed directors. The Company
will form an audit and compensation committee composed of the outside directors
and a member of management.
<PAGE>
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 will be administered by the Board of Directors or
a committee of the Board of Directors (the "Committee") which will be composed
solely of two or more directors who are "non-employee directors" as defined in
Rule 16b-3 of the Securities Exchange Act of 1934, as amended. The Stock Option
Plan provides for the grant of incentive stock options ("ISO's") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and
non-qualified options at the discretion of the Board of Directors The exercise
price of any option will not be less than the fair market value of the shares at
the time the option is granted. The options granted are exercisable within the
times or upon the events determined by the Board or Committee set forth in the
grant, but no option is exercisable beyond ten years from the date of the grant.
The Board of Directors or Committee administering the Stock Option Plan will
determine whether each option is to be an ISO or non-qualified stock option, the
number of shares, the exercise price, the period during which the option may be
exercised, and any other terms and conditions of the option. The holder of an
option may pay the option price in (1) cash, (2) check, (3) other shares of the
Company, (4) authorization for the Company to retain from the total number of
shares to be issued that number of shares
<PAGE>
having a fair market value on the date of exercise equal to the exercise price
for the total number of shares, (5) irrevocable instructions to a broker to
deliver to the Company the amount of sale or loan proceeds required to pay the
exercise price, (6) delivery of an irrevocable subscription agreement for the
shares which irrevocably obligates the option holder to take and pay for shares
not more than 12 months after the date of the delivery of the subscription
agreement, (7) any combination of the foregoing methods of payment, or (8) other
consideration or method of payment for the issuance of shares as may be
permitted under applicable law. The options are nontransferable except by will
or by the laws of descent and distribution. Upon dissolution, liquidation,
merger, sale of stock or sale of substantially all assets, outstanding options,
notwithstanding the terms of the grant, will become exercisable in full at least
10 days prior to the transaction. The Stock Option Plan is subject to amendment
or termination at any time and from time to time, subject to certain
limitations. As of the date of this Prospectus, no options had been granted. Any
future options to be granted will be determined by the Board of Directors or the
Committee.
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership as of June 30, 1998 of the Common Stock by (a) each person
known by the Company to be a beneficial owner of more than 5% of the outstanding
shares of Common Stock, (b) each director of the Company, (c) each Named
Executive Officer, and (d) all directors and executive officers of the Company
as a group. Unless otherwise noted, each beneficial owner named below has sole
investment and voting power with respect to the Common Stock shown below as
beneficially owned by him.
<TABLE>
<CAPTION>
Shares Owned Shares Owned
Prior to Offering After Offering
Name and Address of Number of Percent Number of Percent
Beneficial Owner Shares Owned Owned Shares Owned Owned
<S> <C> <C> <C> <C>
Richard D. Laxton (1) 666,667 33.34 666,667 22.23%
Phillip R. Johns (1) 666,666 33.33 666,666 22.22
Mark V. Johns (1) 666,666 33.33 666,666 22.22
All Executive Officers and Directors
as a group (3 persons) 2,000,000 100.00% 2,000,000 66.67%
- -----------
</TABLE>
(1) The address of each of the shareholders is 2501 Oaklawn Suite 550 Dallas,
Texas 75219.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was incorporated in August 1998, to acquire all of the assets
of Woodhaven 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, evidenced by a note bearing interest at 12% per year for the
purchase of land. The note was secured by a second deed of trust on the land
purchased by the Company. At June 30, 1998, the outstanding balance was $49,000
on the Woodhaven Ltd. note and $70,000 on the Resland note. Subsequent to June
30, 1998, the Resland note was repaid in full and the proceeds loaned to the
Company. During 1998, Mr. Laxton made total advances to the Company of $178,503
and has been repaid $83,500. The advances were evidenced by unsecured demand
notes bearing interest at 12.5% per year which were used for working capital. At
September 30, 1998 the outstanding balance of the advances owed to Mr. Laxton
was $144,004.
Through October 1, 1997, Dimensional Sales & Marketing, Inc.,
("Dimensional"), conducted the Company's marketing and sales activities. The
outstanding capital stock of Dimensional is owned 49% by a sister of Phillip R.
Johns and Mark V. Johns, 26% by a trust for Mark V. John's children and 25% by
Mr. Johns' mother. During the fiscal year ended December 31, 1997, the Company
paid Dimensional sales commissions of $423,889 and advertising fees of $356,705.
Upon the conversion of the Company to a limited partnership in October 1997,
Dimensional became inactive and the sales and marketing activities were assumed
by the Company. It is not intended that such activities will be resumed by
Dimensional.
During the fiscal years ended December 31, 1997 and 1996, the Company
made unsecured, non interest bearing advances due on demand to Dimensional,
Affordable Lifestyle Housing, Inc. ("Affordable") and Brio Builders, Inc.
("Brio") of $92,748, and $49,991 respectively, for working capital and was
repaid $142,143 and 0, respectively. At December 31, 1997, the amount
outstanding was $1,131 from Dimensional, $17,135 from Affordable and $7,785 from
Brio. Affordable and Brio were established for tax purposes and never conducted
any business. They are currently inactive and there are no plans to reactivate
them. Affordable is a non-profit corporation which has no shareholders. Brio is
owned 25% by Phillip R. Johns and 75% by a trust for the benefit of his
children. The trustee is a family friend.
During the fiscal years ended December 31, 1997 and 1996, the Company
made unsecured, demand, non interest bearing advances totaling $42,391 and
$57,850 respectively, to Phillip R. Johns and Mark V. Johns.
These advances were repaid at September 30, 1998.
The Company does not intend to make loans to or from
affiliates in the future.
<PAGE>
DESCRIPTION OF SECURITIES
Units
Each Unit consists of one share of Common Stock and one Warrant. The
Shares and the Warrants included in the Units may not be separately traded until
six months after the date of this prospectus unless earlier separated upon ten
day's written notice from the Representatives to the Company. Separation of the
Units is in the sole discretion of the Representative and the Company is unable
to state whether the Units will be separated prior to six months from the date
of this Prospectus. Factors which the Representative will consider in
determining whether to separate the Units prior to six months from the date of
this Prospectus are expected to be the trading price and volume of trading in
the Units and the volatility of the trading price for the Units. Common Stock
The Company is authorized to issue 20,000,000 shares of Common Stock,
$0.01 par value. As of 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.
<PAGE>
Other Warrants
At the closing of this offering, the Company will grant to its counsel
warrants to purchase 100,000 Units. The warrants will have the same terms as the
Underwriters Warrants, except that they will be exercisable at 100% of the
offering price of the Units in this offering. The exercise price of the warrants
included in the Units will be the same exercise price as the public Warrants,
120% of the offering price of the Units in this offering. The warrants will be
exercisable for a period of four years, beginning one year from the date of this
Prospectus. See "Underwriting-Underwriters' Warrants." Preferred Stock
The Board of Directors, without further action by the shareholders, is
authorized to issue up to 3,000,000 shares of preferred stock, $1.00 par value,
in one or more series and to fix and determine as to any series, any and all of
the relative rights and preferences of shares in each series, including without
limitation, preferences, limitations or relative rights with respect to
redemption rights, conversation rights, voting rights, dividend rights and
preferences on liquidation. The issuance of preferred stock with voting and
conversion rights could have an adverse affect on the voting power of the
holders of the Common Stock. The issuance of preferred stock could also decrease
the amount of earnings and assets available for distribution to holders of the
Common Stock. In addition, the issuance of preferred stock may have the effect
of delaying, deferring or preventing a change in control of the Company. The
Company has no plans or commitments to issue any shares of preferred stock.
Transfer Agent and Registrar
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.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 3,000,000
shares of Common Stock issued and outstanding. Of these shares, the 1,000,000
shares sold in this offering (1,150,000 if the over-allotment option is
exercised in full) will be freely tradable in the public market without
restriction under the Securities Act, except shares purchased by an "affiliate"
(as defined in the Securities Act) of the Company. The remaining 2,000,000
shares, (the "Restricted Shares"), will be "restricted shares" within the
meaning of the Securities Act and may be publicly sold only if registered under
the Securities Act or sold in accordance with an applicable exemption from
registration, such as those provided by Rule 144 under the Securities Act.
In general, under Rule 144, as currently in effect, a person (or
persons whose shares are aggregated) is entitled to sell Restricted Shares if at
least one year has passed since the later of the date such shares were acquired
from the Company or any affiliate of the Company. Rule 144 provides, however
that within any three-month period such person may only sell up to the greater
of 1% of the then outstanding shares of the Company's Common Stock
(approximately 30,000 shares following the completion of this offering) or the
average weekly trading volume in the Company's Common Stock during the four
calendar weeks immediately preceding the date on which the notice of the sale is
filed with the Commission. Sales pursuant to Rule 144 also are subject to
certain other requirements relating to manner of sale, notice of sale and
availability of current public information. Any person who has not been an
affiliate of the Company for a period of 90 days preceding a sale of Restricted
Shares is entitled to sell such shares under Rule 144 without regard to such
limitations if at least two years have passed since the later of the date such
shares were acquired from the Company or any affiliate of the Company. Shares
held by persons who are deemed to be affiliated with the Company are subject to
such volume limitations regardless of how long they have been owned or how they
were acquired.
After this offering, executive officers, directors and senior
management will own 2,000,000 shares of the Common Stock. The Company's
shareholders and directors and the Sellers will enter into an agreement with the
Representatives providing that they will not sell or otherwise dispose of any
shares of Common Stock held by them for a period of one year after the date of
this Prospectus without the prior written consent of the Representatives.
The Company can make no prediction as to the effect, if any, that offer
or sale of these shares would have on the market price of the Common Stock.
Nevertheless, sales of significant amounts of Restricted Shares in the public
markets could adversely affect the fair market price of Common Stock, as well as
impair the ability of the Company to raise capital through the issuance of
additional equity securities.
<PAGE>
UNDERWRITING
Pursuant to the terms and subject to the conditions contained in the
Underwriting Agreement, the Company has agreed to sell to the Underwriters named
below, and each of the Underwriters, for whom 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.
<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 140% 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.
LEGAL MATTERS
The validity of the issuance of the Securities offered hereby will be
passed upon for the Company by Garza & Staples, P.C. , Dallas, Texas. Joseph B.
Garza Esq., an officer of that firm owns 100,000 warrants. Certain legal matters
in connection with the sale of the Securities offered hereby will be passed upon
for the Underwriters by Maurice J. Bates, L.L.C., Dallas, Texas.
EXPERTS
The financial statements for each of the years in the three-year period
ended December 31, 1997, have been included herein and in the registration
statement in reliance upon the report of Turner Stone & Company, LLP,
independent certified accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
<PAGE>
C O N T E N T S
AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . 1
COMBINED BALANCE SHEETS. . . . . . . . . . . . . . . . . . . . . . . . . 2-3
COMBINED STATEMENTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . 4
COMBINED STATEMENTS OF STOCKHOLDERS'/PARTNERS' EQUITY. . . . . . . . 5
COMBINED STATEMENTS OF CASH FLOWS . . . . . . . . . . . . . . . 6-7
NOTES TO COMBINED FINANCIAL STATEMENTS . . . . . . . . . . . . . 8-16
<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
1
<PAGE>
WOODHAVEN HOMES, INC.
AND RELATED COMPANIES
COMBINED BALANCE SHEETS
<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 501,232 215,579 102,925
Inventories 16,315,565 14,959,290 9,749,642
Due from partners - 100,241 57,850
Due from affiliates - 26,051 75,446
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.
2
<PAGE>
WOODHAVEN HOMES, INC.
AND RELATED COMPANIES
COMBINED BALANCE SHEETS
<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 11,292,727 11,662,566 7,669,882
Note payable, partner 119,000 139,000 165,000
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.
3
<PAGE>
WOODHAVEN HOMES, INC.
AND RELATED COMPANIES
COMBINED STATEMENTS OF OPERATIONS
<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 $ 25,253,378 $ 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.
5
<PAGE>
WOODHAVEN HOMES, INC.
AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended Years ended
June 30, December 31,
1998 1997 1997 1996 1995
---- ----
<S> <C> <C> <C> <C> <C>
(Unaudited)
Cash flow from operating activities:
Cash received from customers $ 21,204,793 $ 13,769,285 32,946,631 $ 25,313,625 $ 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 (528,982) ( 1,258,635) ( 3,593,961) ( 2,398,955) ( 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 - - (92,748) (49,991) ( 246,223)
Repayments from affiliates 26,051 142,143 142,143 - 62,508
Advances paid to owners - - ( 42,391) ( 57,850) -
Repayments from owners 100,241 - - - -
-------------- -------------- ------- ----------
Net cash provided by (used in)
investing activities 37,018 138,512 ( 183,715) ( 283,484) (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 ( 369,839) 1,686,654 3,992,684 2,138,888 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 - 24,000 165,000
Repayments of note payable, partner ( 45,000) ( 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.
6
<PAGE>
WOODHAVEN HOMES, INC.
AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
Reconciliation of Net Income to Net Cash
Provided by (Used in) Operating Activities
<TABLE>
<CAPTION>
Six Months Ended 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 (285,653) ( 167,130) ( 112,654) 35,608 ( 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 ( 1,844,013) ( 1,712,427) (5,010,833) ( 2,909,783) ( 3,076,741)
-------------- -------------- ----------
Net cash provided by (used in) operating activities $(528,982) $( 1,258,635) $(3,593,961) $(2,398,955) $ 3,233,672)
============== ================= ================
</TABLE>
The accompanying notes are an
integral part of these financial statements.
7
<PAGE>
WOODHAVEN HOMES, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations and business
Woodhaven Homes, Ltd., a limited partnership, was originally organized in the
state of Texas as Woodhaven Homes, L.L.C., a limited liability company,
(collectively hereinafter referred to as the Company) on October 21, 1992. On
September 30, 1997, the Company was reorganized as a limited partnership with
the assets and liabilities of the limited liability company transferred to the
limited partnership at their historical cost bases. The Company is engaged in
the construction and sale of single-family homes in the Dallas, Texas
metropolitan area.
Principles of combination
The accompanying combined financial statements include the general accounts of
the Company and the following companies wholly owned by the same individuals.
They are collectively referred to as "the Company."
<TABLE>
<CAPTION>
Company Type of Entity Date Incorporated
<S> <C> <C>
Woodhaven Homes, Inc. (WHI) C corporation August 7, 1998
Resland Development Corporation (RDC) C corporation December 20, 1993
</TABLE>
All intercompany accounts and balances have been eliminated in the combination.
Each of the companies have a fiscal year end of December 31 except for RDC which
has a fiscal year end of November 30. There have been no intervening events or
transactions that would have a material effect on the combined financial
position or results of operations. Net income (loss) has been allocated to
retained earnings and partners' equity of each combined company based on their
respective earnings.
The accompanying financial statements include the financial activities of
Woodhaven Homes, L.L.C. for the period January 1, 1995 through September 30,
1997, and the financial activities of Woodhaven Homes, Ltd. for the period
October 1, 1997 through 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. This transaction will
be accounted similar to a pooling of interest with the transferred assets and
liabilities being recorded at their historical cost bases. The exchange is
intended to qualify as a tax free reorganization under Section 351 of the
Internal Revenue Code of 1986.
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.
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
================
10
<PAGE>
WOODHAVEN HOMES, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS
Partners
The Company has two notes payable to one of its partners with an aggregate
outstanding balance of $139,000 and $165,000 at December 31, 1997 and 1996,
respectively. One note is due on demand and unsecured with interest payable
monthly at 12.5%. The other note is due September 30, 1998, bears interest at
12.0% and is secured by a second deed of trust on land and lots.
During the years ended December 31, 1997 and 1996, the Company also made
non-interest bearing advances to its two other partners of $42,391 and $57,850,
respectively. These advances are unsecured and due on demand. At December 31,
1997 and 1996, the amount of these advances due to the Company totaled $100,241
and $57,850, respectively.
Corporations
The Company is also affiliated with the following corporations through common
ownership and/or management control.
Dimensional Sales & Marketing, Inc.
Affordable Lifestyle Housing, Inc.
Brio Builders, Inc.
During the years ended December 31, 1997, 1996 and 1995, the Company made non
interest bearing advances to these corporations of $92,748, $49,991 and
$246,223, respectively, and received repayments of these advances of $142,143,
$0 and $62,508, respectively. These advances are unsecured and due upon demand.
At December 31, 1997 and 1996, the amount of these advances due to the Company
totaled $26,051 and $75,446, respectively.
During the years ended December 31, 1997, 1996 and 1995, the Company also paid
Dimensional Sales & Marketing, Inc. sales commissions of $423,889, $412,083 and
$51,905, respectively, and advertising fees of $356,705, $267,127 and $14,991,
respectively.
4. NOTES PAYABLE
The Company's notes payable consist of interim construction loans and loans from
banks and other financial institutions financing lots and items of property and
equipment. The notes, which contain no significant restrictions, bear interest
at rates of 8.5% to 12.0% and are secured by homes, lots and the items of
property and equipment which they are financing. Interim construction loans are
repaid as individual houses are closed. Lot loans are generally repaid with the
proceeds of construction loans when construction of new houses has commenced.
During the years ended December 31, 1997, 1996 and 1995, total interest expense
incurred approximated $1,082,000, $872,600 and $243,400, of which approximately
$756,000, $646,200 and $211,000 was capitalized, respectively. At December 31,
1997 and 1996, the weighted average interest rates on outstanding short-term
borrowings were 10.45 and 10.74, respectively.
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 $ 11,662,566 $ 7,669,882
Notes payable to financial institutions,
due on various dates through 1998;
interest payable monthly at 8.9% to
11.5% based on the prime
rate; collateralized by lots 1,052,761 386,763
Other notes payable, due on various
dates from March 1999 through February 2000;
payable in monthly installments
including interest of 8.5% to 11.5%;
collateralized by vehicles
and equipment 175,497 287,715
--------------- --- -----
$ 12,890,824 $ 8,344,360
================ =================
Future maturities required under the terms of the above notes and construction
loans payable are as follows:
Year Ended
December 31, Amount
1998 $ 12,838,552
1999 41,040
2000 11,232
----
$ 12,890,824
5. COMMITMENTS AND CONTINGENIES
Leases
The Company conducts its operations from leased facilities located in Dallas,
Texas under a noncancellable operating lease agreement, which expires in August
2000. In addition, the Company also leases two vehicles under operating leases
which expire in September 2000.
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 $32,000 of costs related
to this effort. Management does not believe any additional significant cost will
be incurred and the accompanying financial statements do not contain any reserve
for this contingency.
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:
1997 1996 1995
---- ---- ----
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 $ -
=== =========== ============
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.
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.
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.
16
<PAGE>
No person has been authorized to give any information or to make any
representation in connection with this offering other than those contained in
this Prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company or any Underwriter.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the securities to which it relates or an
offer to sell or the solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstance, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information herein is
correct as of any time subsequent to the date hereof.
TABLE OF CONTENTS
PAGE
Additional Information.................... 2
Prospectus Summary........................ 3
Risk Factors.............................. 7
Use of Proceeds........................... 12
Dividend Policy........................... 12
Dilution.................................. 13
Capitalization............................ 14
Selected Combined
Financial Information..................... 15
Management's Discussion and
Analysis of Financial Condition
and Results of Operation................. 16
Business.................................. 21
Management................................ 27
Principal Shareholders.................... 29
Certain Relationships
and Related Transactions............... 30
Description of Securities................. 31
Shares Eligible For
Future Sale............................ 33
Underwriting.............................. 34
Legal Matters............................. 36
Experts................................... 36
Index to Financial Statements............. 37
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
<TABLE>
<S> <C>
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.
</TABLE>
Item 14. Indemnification of Directors and Officers.
Pursuant to Section 2.02-1 of the Texas Business Corporation Act, a corporation
may indemnify an individual made a party to a proceeding because the individual
is or was a director against liability incurred in his official capacity with
the corporation including expenses and attorneys fees.
Article Nine of the Articles of Incorporation provides that a director
of the Corporation shall not be liable to the corporation or the shareholders
for any act or omission in such capacity as a director to the fullest extent
permitted by Texas statutory or decisional law.
Item 15. Recent Sales of Unregistered Securities
The Registrant has not issued any unregistered securities during the
last three years but intends to issue 2,000,000 shares of its common stock to
Richard D. Laxton, Phillip R. Johns and Mark V. Johns, the three principals of
Woodhaven Homes, Ltd., a Texas limited partnership (the "Partnership") in
exchange for all of the assets of the Partnership, all of the outstanding
capital stock of the corporate general partner, W. H. Management, Inc. and all
of the outstanding capital stock of Resland Development Company, Inc.
("Resland") prior to the effective date of this offering. The three principals
are the registrant's officers and directors and have been the managers of the
Partnership and its predecessor limited liability company and Resland and have
access to all corporate information. The exchange of stock for assets is
designed to qualify as a tax free exchange under section 351 of the Internal
Revenue Code of 1986 and will be exempt from registration under the Securities
Act provided by Section 4(2) thereunder as a transaction not involving a public
offering.
No underwriter was involved in the transaction
Item 16. Exhibits and Financial Statement Schedules
(a). Exhibits:
Exhibit No Item
Exhibit 1.1 Form of Underwriting Agreement.(3)
Exhibit 1.2 Form of Underwriters' Warrant Agreement.(31)
Exhibit 3.1 Articles of Incorporation of the Registrant. (3)
Exhibit 3.2 Bylaws of the Registrant (3)
Exhibit 4.1 Form of Warrant Agreement between Company and
Securities Transfer Corporation (3)
Exhibit 4.3 Specimen of Warrant Certificate. (3) Contained in
Exhibit 4.1
Exhibit 4.4 Form of Warrant of Joe B. Garza (1)
<PAGE>
Exhibit 5.1 Opinion of Garza & Staples.(1)
Exhibit 10.1 Stock Option Plan (3)
Exhibit 10.2 Lease between the Registrant and Gaedeke Holdings,
Ltd. (3)
Exhibit 10.3 Form of Bank Loan Agreement between the Registrant and
its lenders.(3)
Exhibit 10.4 Joint Venture Agreement with The GM Group, Inc. (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.(1)
Exhibit 23.3 Consent of American Metro/Study Corporation (1)
Exhibit 23.4 Consent of Robert A. Shuey (1)
Exhibit 27.1 Financial Data Schedule (1)
-----------------------
(1) Filed herewith
(2) To be filed by amendment (3) Previously filed
(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 October 14, 1998.
WOODHAVEN HOMES, INC.
By: /s/ Richard D. Laxton
Richard D. Laxton, Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints RICHARD D.
LAXTON and PHILLIP R. JOHNS and each of them, his true and
lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and
all amendments to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in
connection therewith with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents
full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitutes
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Richard D. Laxton
Richard D. Laxton Chief Executive Officer, October 14 , 1998
Director (Principal Executive
Officer and Principal Financial
and Accounting Officer)
/s/ Phillip R. Johns
Phillip R. Johns President, Director October 14, 1998
/s/ Mark V. Johns October 14, 1998
Mark V. Johns Vice President, Director
Warrant Agreement
28331_1 - 75205/00003
GARZA'S
WARRANT AGREEMENT
___________, 1998
Joe B. Garza, Esq.
Garza & Staples
130 Lincoln center Two
Dallas, Texas, 75240
Dear Sir:
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 "Garza'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 Garza'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>
10
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 Garza's Warrants at any time shall be
entitled to receive, or shall have received, upon the exercise of the Garza'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 100% 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 Garza's Warrants.
The term "Warrant Stock" refers to shares of Common Stock issuable upon
the exercise of the Warrants or the Garza's Warrants.
The purchase and sale of the Garza'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 Garza'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.
3.Compliance with the Act.
(a) Transferability of Garza's Warrants. You agree that the Garza'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; and (iv) your shareholders in the event
you are liquidated or dissolved.
(b) Registration of Underlying Securities. The Underlying Securities
issuable upon the exercise of the Garza'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
"Subject 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 Garza's Warrants exercises such Garza'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 Garza'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.
(iv) During the time when a Prospectus is required to be
delivered under the Act during the period required for the distribution
of the Subject Stock, comply so far as it is able with all requirements
imposed upon it by the Act, as hereafter amended, and by the Rules and
Regulations promulgated thereunder, as from time to time in force, so
far as necessary to permit the continuance of sales of or dealings in
the Subject Stock. If at any time when a Prospectus relating to the
Subject Stock is required to be delivered under the Act any event shall
have occurred as a result of which, in the opinion of counsel for the
Company or your counsel, the Prospectus relating to the Subject Stock
as then amended or supplemented includes an untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or if it
is necessary at any time to amend such Prospectus to comply with the
Act, the Company will promptly prepare and file with the Commission an
appropriate amendment or supplement (in form satisfactory to you).
(v) Endeavor in good faith, in cooperation with you, at or
prior to the time the Registration Statement becomes effective, to
qualify the Subject Stock for offering and sale under the securities
laws relating to the offering or sale of the Subject Stock of such
jurisdictions as you may reasonably designate and to continue the
qualifications in effect so long as required for purposes of the sale
of the Subject Stock; provided that no such qualification shall be
required in any jurisdiction where, as a result thereof, the Company
would be subject to service of general process, or to taxation as a
foreign corporation doing business in such jurisdiction. In each
jurisdiction where such qualification shall be effected, the Company
will, unless you agree that such action is not at the time necessary or
advisable, file and make such statements or reports at such times as
are or may reasonably be required by the laws of such jurisdiction. For
the purposes of this paragraph, "good faith" is defined as the same
standard of care and degree of effort as the Company will use to
qualify its securities other than the Subject Stock.
(vi) Make generally available to its security holders as soon
as practicable, but not later than the first day of the eighteenth full
calendar month following the effective date of the Registration
Statement, an earnings statement (which need not be certified by
independent public or independent certified public accountants unless
required by the Act or the rules and regulations promulgated
thereunder, but which shall satisfy the provisions of Section 11(a) of
the Act) covering a period of at least twelve months beginning after
the effective date of the Registration Statement.
(vii) After the effective date of such Registration Statement,
prepare, and promptly notify you of the proposed filing of, and
promptly file with the Commission, each and every amendment or
supplement thereto or to any Prospectus forming a part thereof as may
be necessary to make any statements therein not misleading; provided
that no such amendment or supplement shall be filed if you shall object
thereto in writing promptly after being furnished a copy thereof.
(viii) Furnish to you, as soon as available, copies of any
such Registration Statement and each preliminary or final Prospectus,
or supplement or amendment prepared pursuant thereto, all in such
quantities as you may from time to time reasonably request;
(ix) Make such representations and warranties to any
underwriter of the Subject Stock, and use your best efforts to cause
Company counsel to render such opinions to such underwriter, as such
underwriter may reasonably request; and
(x) Pay all costs and expenses incident to the performance of
the Company's obligations under Sections 3(c) and (d), including,
without limitation, the fees and disbursements of the Company's
auditors and legal counsel, fees and disbursements of legal counsel for
you, registration, listing and filing fees, printing expenses and
expenses in connection with the transfer and delivery of the Underlying
Securities; provided, however, that the Company shall not be
responsible for compensation and reimbursement of expenses to
underwriters or selling agents for the included Subject Stock.
(e) Agreements by Warrant Holder. In connection with the filing of a
Registration Statement pursuant to Section 3(c) above, if you participate in the
offering of the Subject Stock by including shares owned by you, you agree:
(i) To furnish the Company all material information requested
by the Company concerning yourself and your holdings of securities of
the Company and the proposed method of sale or other disposition of the
Subject Stock and such other information and undertakings as shall be
reasonably required in connection with the preparation and filing of
any such Registration Statement covering all or a part of the Subject
Stock and in order to ensure full compliance with the Act; and
(ii) To cooperate in good faith with the Company and its
underwriters, if any, in connection with such registration, including
placing the shares of Subject Stock to be included in such Registration
Statement in escrow or custody to facilitate the sale and distribution
thereof.
(f) Indemnification. The Company shall indemnify and hold harmless you
and any underwriter (as defined in the Act) for you, and each person, if any,
who respectively controls you or such underwriter within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against any loss, liability,
claim, damage and expense whatsoever (including but not limited to any and all
expense whatsoever reasonably incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever), joint
or several, to which any of you or such underwriter or such controlling person
becomes subject, under the Act or otherwise, insofar as such loss, liability,
claim, damage and expense (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in (i) a Registration Statement covering the Subject Stock, in the
prospectus contained therein, or in an amendment or supplement thereto or (ii)
in any application or other document or communication (in this Section
collectively called "application") executed by or on behalf of the Company or
based upon written information furnished by or on behalf of the Company filed in
any jurisdiction in order to qualify the Subject Stock under the securities laws
thereof or filed with the Commission, or arise out of or based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that the Company shall not be obligated to indemnify in any such case
to the extent that any such loss, claim, damage, expense or liability arises out
of or is based upon any untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon, and in conformity with, written
information respectively furnished by you or such underwriter or such
controlling person for use in the Registration Statement, or any amendment or
supplement thereto, or any application, as the case may be.
If any action is brought against a person in respect of which indemnity may be
sought against, the Company pursuant to the foregoing paragraph, such person
shall promptly notify the Company in writing of the institution of such action
and the Company shall assume the defense of the action, including the employment
of counsel (satisfactory to the indemnified person in its reasonable judgment)
and payment of expenses. The indemnified person shall have the right to employ
its or their own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of such indemnified person or unless the
employment of such counsel shall have been authorized in writing by the Company
in connection with the defense of the action or the Company shall not have
employed counsel to have charge of the defense of the action or the indemnified
person shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to the
Company (in which case the Company shall not have the right to direct the
defense of the action on behalf of the indemnified person), in any of which
events these fees and expenses shall be borne by the Company. Anything in this
paragraph to the contrary notwithstanding, the Company shall not be liable for
any settlement of any claim or action effected without its written consent. The
Company's indemnity agreements contained in this Section shall remain in full
force and effect regardless of any investigation made by or on behalf of any
indemnified person, and shall survive any termination of this Agreement. The
Company agrees promptly to notify you of the commencement of any litigation or
proceedings against the Company or any of its officers or directors in
connection with the Registration Statement pursuant to Section 3(c) above.
If you choose to include any Subject Stock in a public offering
pursuant to Section 3(c) above, then you agree to indemnify and hold harmless
the Company and each of its directors and officers who have signed any such
Registration Statement, and any underwriter for the Company (as defined in the
Act), and each person, if any, who controls the Company or such underwriter
within the meaning of the Act, to the same extent as the indemnity by the
Company in this Section 3(f) but only with respect to statements or omissions,
if any, made in such Registration Statement, or any amendment or supplement
thereto, or in any application in reliance upon, and in conformity with, written
information furnished by you to the Company for use in the Registration
Statement, or any amendment or supplement thereto, or any application, as the
case may be. In case any action shall be brought in respect of which indemnity
may be sought against you, you shall have the rights and duties given to the
Company, and the persons so indemnified shall have the rights and duties given
to you by the provisions of the first paragraph of this Section.
The Company further agrees that, if the indemnity provisions of the
foregoing paragraphs are held to be unenforceable, any holder of the Garza'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 Garza's Warrants.
(a) Cash Exercise. Each Garza'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 Garza's Warrants may elect to exercise the
Garza's Warrants in full or in part and receive shares on a "net exercise" basis
in an amount equal to the value of the Garza's Warrants by delivery of the form
of subscription attached to the Warrant Certificate and surrender of the Garza'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 Garza's Warrants being exercised (expressed as a
fraction).
Y=the total number of shares of Common Stock issuable upon exercise of
the Garza's Warrants.
A=the Current Market Price of one share of Common Stock.
B=Purchase Price.
(c) Partial Exercise. Prior to the expiration of the Garza'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 Garza'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 Garza'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 Garza'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 Garza'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 Garza'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 Garza's Warrants until further adjusted as
provided herein.
(c) Reorganizations. In case the Company shall be recapitalized by
reclassifying its outstanding Common Stock (or Other Securities) into a stock
with a different par value or by changing its outstanding Common Stock (or Other
Securities) with par value to stock without par value, then, as a condition of
such reorganization, lawful and adequate provision shall be made whereby each
holder of the Garza'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 Garza'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 Garza'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 Garza'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 Garza'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 Garza's
Warrants shall have been given a reasonable opportunity to then elect to receive
upon the exercise of the Garza'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
6(c) of any holder of the Garza's Warrants and (ii) if the Company's Board of
Directors shall propose to dissolve or liquidate the Company, each holder of the
Garza'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 Garza'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
Garza'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 Garza's Warrants
in connection with any exercise from time to time of all or any portion of the
Garza'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 Garza'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 Garza'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
Garza's Warrants, all shares of the Underlying Securities from time to time
issuable upon the exercise of the Garza'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 Garza's Warrants shall be validly issued, fully paid and
nonassessable; each holder of the Garza'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 Garza's
Warrants, and maintain such listing of, all of the Underlying Securities from
time to time issuable upon the exercise of the Garza'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.
(d) Exchange of Garza'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 Garza'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 Garza'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 Garza'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 Garza'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 Garza's Warrants properly
endorsed shall take such Garza'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 Garza'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 Garza'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 Garza'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 Garza'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.
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed on the date
hereof.
WOODHAVEN HOMES, INC.
By:__________________________________
Richard D. Laxton, Chief Executive Officer
<PAGE>
EXHIBIT A
WOODHAVEN HOMES, INC.
COMMON STOCK PURCHASE WARRANT
to Purchase 100,000 Units
This is to certify that______________ ("Garza") 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 Garza (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
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:______________________________
Garza & Staples, P.C.
ATTORNIES AT LAW
5420 LBJ FREEWAY
1230 LINCOLN CENTRE
DALLAS , TEXAS 75240
Telephone (214) 373-3300
Fax (972) 404-1300
October13, 1998
WOODHAVEN HOMES, INC.
Richard D. Laxton, President
2501 Oaklawn
Suite 550
Dallas, Texas 75219
Re: Registration Statement on Form SB-2
Public Offering of 1,000,000 Units
Gentlemen:
I have acted as counsel to Woodhaven Homes, Inc., a Texas corporation
(the "Company"), in connection with the registration under the Securities Act of
1933, as amended, (the "Securities Act"), of 1,000,000 units, each unit
consisting of one share (the "Shares") of common stock, $.01 par value, (the
"Common Stock") and one Redeemable Common Stock Purchase Warrant (the
"Warrants") to purchase one share of Common Stock of the Company (the "Units")
to be offered to the public by the Company in a firm commitment underwriting by
Tejas Securities Group, Inc.. The Registration Statement (defined below) also
includes 150,000 additional Units to cover over-allotments, if any.
A registration statement on Form SB-2 (SEC File No. 333-62467) was
filed with the Securities and Exchange Commission on August 28, 1998 (the
"Registration Statement") and Amendment No. 1 thereto is being filed herewith.
In connection with rendering this opinion I have examined executed copies of the
Registration Statement and all exhibits thereto and Amendment No. 1 and all
exhibits thereto. I have also examined and relied upon the original, or copies
certified to my satisfaction, of (i) the Articles of Incorporation and the
By-laws of the Company, (ii) minutes and records of the corporate proceedings of
the Company with respect to the issuance of the Units, the Common Stock and the
Warrants, and related matters, and (iii) such other agreements and instruments
relating to the Company as I deemed necessary or appropriate for purposes of the
opinion expressed herein. In rendering such opinion, I have made such further
investigation and inquiries relevant to the transaction contemplated by the
Registration Statement as I have deemed necessary for the opinion expressed
herein, and I have relied, to the extent I deemed reasonable, on certificates
and certain other information provided to me by officers of the Company and
public officials as to matters of fact of which the maker of such certificate or
the person providing such other information had knowledge.
Furthermore, in rendering my opinion, I have assumed that the signatures on all
documents examined by me are genuine, that all documents and corporate record
books submitted to me as originals are accurate and complete, and that all
documents submitted to me are true, correct and complete copies of the originals
thereof.
Based upon the foregoing, I am of the opinion that the Units, the
Shares, the Warrants and the shares of Common Stock issuable upon the exercise
of the Warrants, to be issued by the Company as described in the Registration
Statement, have been duly authorized for issuance and sale and the Units, the
Shares, the Warrants and the shares of Common Stock issuable upon exercise of
the Warrants, when issued by the Company, will be validly issued, fully paid and
nonassessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
Garza & Staples, P.C.
----------------
By: Joe B. Garza
<PAGE>
Garza & Staples, P.C.
ATTORNIES AT LAW
5420 LBJ FREEWAY
1230 LINCOLN CENTRE
DALLAS , TEXAS 75240
Telephone (214) 373-3300
Fax (972) 404-1300
October 13 , 1998
Woodhaven Homes, Inc.
2501 Oaklawn
Suite 550
Dallas, Texas 75219
Re: Registration Statement on Form SB-2
Offering of 200,000 Units by the Company
Gentlemen:
I have acted as counsel for Woodhaven Homes, Inc., a Texas corporation
(the "Company"), in connection with the registration and sale under the
Securities Act of 1933, as amended, (the "Securities Act"), of 200,000 units
(the "Units"), each Unit consisting of one share (the "Shares") of common stock,
$.01 par value, (the "Common Stock") and one Redeemable Common Stock Purchase
Warrant (the "Warrants") to purchase one share of Common Stock of the Company
(plus the underwriters' over-allotment option of 30,000 Units) to be offered to
the public by the Company and certain Selling Shareholders. The Units are being
registered pursuant to that certain Registration Statement on Form SB-2, filed
pursuant to Rule 462(b) promulgated under the Securities Act, and are being sold
to the Underwriters (as defined below) pursuant to the terms of that certain
Underwriting Agreement (the "Underwriting Agreement") to be entered into between
the Company, the Selling Shareholders and Tejas Securities Group, Inc, as
representative of the several underwriters named therein (collectively, the
"Underwriters"). The Shares included in the Units subject to the Underwriters'
over-allotment option will be purchased from the Selling Shareholders and the
Warrants included in such Units will be issued by the Company.
In connection with rendering this opinion, I have examined executed
copies of the Registration Statement and all exhibits thereto and such
documents, records and matters of law as I deemed necessary or appropriate for
purposes of the opinion expressed herein.
Based upon the foregoing, I am of the opinion that the Units, the
Shares, the Warrants and the shares of Common Stock issuable upon the exercise
of the Warrants, to be issued by the Company as described in the Registration
Statement have been duly authorized for issuance and sale of the Units, the
Shares, the Warrants and the shares of Common Stock issuable upon exercise of
the Warrants, when issued by the Company against payment of the consideration
therefor pursuant to the terms of the Underwriting Agreement, will be legally
issued, fully paid and nonassessable.
My opinion is limited to the Corporation Law of the State of Texas and
the federal law of the United States and I assume no responsibility as to the
applicability thereto, or the effect thereon, of the laws of any other
jurisdiction.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to my firm under the heading "Legal
Matters" in the Prospectus contained therein. In giving my consent, I do not
thereby admit that I am in the category of persons whose consent is required
under Section 7 of the Securities Act or the rules and regulations of the
securities and Exchange Commission.
Very truly yours,
Garza & Staples, P.C.
----------------
By: Joe B. Garza
AGREEMENT OF JOINT VENTURE
OF
TRENDSETTERS MORTGAGE JOINT VENTURE
STATE OF TEXAS ss.
ss.
COUNTY OF DALLAS ss. KNOW ALL MEN BY THESE PRESENTS:
That this AGREEMENT OF JOINT VENTURE OF TRENDSETTERS MORTGAGE JOINT
VENTURE, a Texas joint venture, made and entered into this 2nd day of February,
1998, by and among THE GM GROUP, INC., a Texas corporation, and WH MANAGEMENT,
INC., a Texas corporation (sometimes hereinafter collectively referred to as the
("Venturers") is to witness the following:
WITNESSETH:
1. CERTAIN DEFINITIONS. As used herein, the following items shall have the
meanings respectively indicated: --------------------
A. "ACT" means the Texas Uniform Partnership Act, as amended from time to
time.
B. "ADJUSTED NET INCOME OR LOSS" of the Venture for any period means Gross
income during such period reduced by the Deductible Expenses of the Venture
-----------------------------
for such period.
C. "AGREEMENT" means this Agreement of Joint Venture, as amended from
time to time.
D. "AVAILABLE CASH" of the Venture means all cash funds of the Venture
on hand from time to time (except cash funds obtained as contributions
to the capital of the Venture by the Venturers or from loans made by
Venturers to the Venture) after (a) payment of all expenses of the
Venture as of such time and (b) provision for payment of all
outstanding and unpaid current obligations of the Venture as of such
time, and (c) provision for an adequate reserve determined by the
Venturers to be reasonably necessary for holding, operation and
ultimate disposition of the Property.
E. "CAPITAL ACCOUNT" means the Capital Account of each Venturer,
determined in accordance with Section 7.E. (1) through (4), inclusive.
F. "CAPITAL UNIT" means an ownership interest in the Venture. The
Capital Units held by each Venturer are set forth on Exhibit "A"
attached hereto and fully incorporated herein as though set forth at
this point verbatim.
G. "CODE" means the internal Revenue Code of 1986, as amended.
H. "DEDUCTIBLE EXPENSES" of the Venture for any period means all items
of expense or deduction available to the Venture for the period in
question (excluding any expense or deduction attributable to a
Terminating Capital Transaction) for federal income tax purposes. As of
the execution of this Agreement, the Venturers hereby expressly agree
that such expenses are anticipated to include: (i) an expense for the
services of the Loan Officer closing each loan transaction (currently
$400.00 per loan); (ii) other expenses payable to Manager (which shall
not exceed forty-nine percent (49%) of Gross income); and (iii) other
expenses payable to WHM (which shall not exceed fifty-one percent (51%)
of Gross income).
I. "DEPRECIATION" of the Venture for any period means the amount that
the Venture is entitled to claim as a deduction for such period for
federal income tax purposes pursuant to Sections 167 or 168 of the
Code.
J. "GROSS INCOME" of the Venture for any period means the gross
revenues from operations (i.e., other than from a Terminating Capital
Transaction) of the Venture during such period as calculated for
federal income tax purposes. Gross income shall specifically include,
but is not limited to, pricing income, origination fees, and premium
and / or discount income.
K. "MANAGER" means The GM Group, inc.
L. "NET PROCEEDS OF A TERMINATING CAPITAL TRANSACTION" means the
proceeds received by the Venture in connection with a Terminating
Capital Transaction after payments of all costs and expenses of the
Venture in connection with such Terminating Capital Transaction
including commissions, fees, and payments necessitated by such
Terminating Capital Transaction.
M. "PARTICIPATION PERCENTAGE" in respect of any Venturer means that
percentage which, expressed as a fraction has as its numerator the
number of Capital Units held by such Venturer and having as its
denominator the total number of Capital Units held by all Venturers.
The Participation Percentages of the Venturers are set forth on Exhibit
"A".
N. "REGULATORY REQUIREMENTS" means state or federal law, rule or
regulation relating to the making of or brokerage in residential
mortgages and/or settlement services including, but not limited to, the
Real Estate Settlement Procedures Act of 1974, 12 U.S.C. ss. 2601 et
seq. ("RESPA") (including Regulation X promulgated thereto), the
National Housing Act of 1934, as amended or any law, rule or regulation
promulgated by or relating to the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, the Government
National Mortgage Association, the Department of Housing and Urban
Development, the Federal Housing Administration, the Veteran's
Administration or the State of Texas.
O. "TERMINATING CAPITAL TRANSACTION" means any sale or other
disposition of all or substantially all of the assets of the Venture
and/or a termination of the Venture.
P. "VENTURE" means the joint venture formed February _, 1998, known as
Trendsetters Mortgage Joint Venture.
Q. "VENTURE RETURN" means the U.S. Partnership Return of income of the
Venture.
R. "VENTURERS" means the following parties:
The GM Group, inc., a Texas corporation ("GM Group")
2323 N. Central Expressway
Suite 110
Richardson, Texas 75080
WH Management, inc., a Texas corporation ("WHM")
2501 Oak Lawn Avenue
Suite 550
Dallas, Texas 75219
2. ORGANIZATION. The Venturers have formed a Texas joint venture under and
pursuant to the ACT. The name of the Venture is Trendsetters Mortgage Joint
- ------------- Venture.
3. PRINCIPAL PLACE OF BUSINESS. The principal place of business of the
Venture shall be located at 2323 North Central Expressway, Suite 110,
Richardson, Texas 75080 or at such other place as the Manager may from time to
time determine.
4. BUSINESS The purpose of the Venture shall be to own and operate a
residential mortgage banking business which shall be operated as a "Controlled
Business Arrangement."
5. SCOPE OF VENTURERS' AUTHORITY. Except as expressly provided in this
Agreement, none of the Venturers shall have any authority to act for, or to
assume any obligations on behalf of, any other Venturer or the Venture.
6. TERM. The term of the Venture shall be ten (10) years, commencing on
the date of hereof, unless terminated sooner because of the dissolution and
winding up of the Venture in accordance with the provisions of Section 10
hereof.
7. CAPITAL CONTRIBUTIONS.
A. INITIAL CAPITAL CONTRIBUTIONS. The initial capital contribution
obligations of the Venturers are set forth on Exhibit "A".
B. ADDITIONAL CAPITAL CONTRIBUTIONS. Notwithstanding any other
provision contained in this Agreement to the contrary, in the
event that at any time during the term hereof the cash funds of
the Venture on hand at such time are not sufficient for (a)
payment of all expenses of the Venture as of such time, (b)
provision for payment of all outstanding and unpaid current
obligations of the Venture as of such time, and (c) provision
for an adequate reserve for the projected expenses and
obligations of the Venture for the next calendar quarter as the
Venturers may determine to be reasonably necessary, the Manager
may, upon the approval of all Venturers, by written notice to
all the Venturers, call for additional contributions to the
capital of the Venture to be made by all Venturers in the
amount set forth in such written notice, which amount shall not
exceed the amount necessary to make such payments. Each
Venturer shall contribute in cash to the capital of the Venture
its Participation Percentage of the aggregate additional
contribution within fifteen (15) days after such notice.
C. NO INTEREST. Contributions to the capital of the Venture
will not bear interest.
D. FAILURE TO MAKE CAPITAL CONTRIBUTIONS. If any Venturer shall
fail to make any of the capital contributions set forth in
Section 7.A. or 7.B., within fifteen (15) days after the date
on which such contribution (the "Noncontributed Amount") was
due, the other Venturer shall have the option to contribute all
of the Noncontributed Amount within fifteen (15) days after the
date the Noncontributed Amount was due. Upon such contribution,
the Capital Units of the defaulting Venturer shall be
transferred to the contribution Venturer. Notwithstanding the
foregoing, the defaulting Venturer shall have the right to
reclaim all, but not less than all, of its Capital Units within
thirty (30) days after the date the Non Contributed Amount was
contributed by such Venturer by tendering to the contributing
Venturer an amount equal to the sum of: (a) the Noncontributed
Amount; plus (b) interest at a rate per annum equal to two
percent (2%) in excess of the Prime Rate (but in no event in
excess of the highest rate permitted by applicable law) on the
Noncontributed Amount from the date contributed until such
amount is tendered by the defaulting Venturer to such
contributing Venturer. In the event the defaulting Venturer
does so reclaim its interest, the Capital Units shall be
retransferred to the defaulting Venturer.
E. CAPITAL ACCOUNTS. Each Venturer shall have a Capital Account
equal to:
(1) The amount from time to time of its respective Capital Contributions to
the Venture pursuant to Sections 7.A. and B.; plus
(2) The amount of income or gain of the Venture allocated
to the Venturer pursuant to this Agreement; and less
(3) The amount of losses and deductions of the Venture
allocated to the Venturer pursuant to this Agreement; and less
(4)All amounts distributed to the Venturer pursuant to the Agreement.
8. MANAGEMENT AND OPERATION OF THE VENTURE.
A. DUTIES AND AUTHORITY OF MANAGER. Subject to the provisions
of Section 9.B. hereof, the management and control of the
Venture and its business and affairs shall rest exclusively
with the Manager, who shall have all the rights and powers as
are necessary, advisable, or convenient, in the Manager's sole
discretion, to the discharge of its duties under this Agreement
and to the management of the business and affairs of the
Venture. WHM acknowledges that Manager has entered into
arrangements similar to this Agreement with other parties and
may in the future enter into arrangements similar to this
Agreement with other parties in the State of Texas. WHM hereby
consents and waives any objection to Manager having entered
into such arrangements in the past, and consents and waives any
objection to Manager entering into similar business
relationships with other third parties and/or otherwise
engaging in activities similar to that of the Venture in any
geographic area at any time in the future without the consent
of and without compensation to the Venture or WHM therefor.
Notwithstanding the foregoing, Manager agrees to not enter into
any similar business arrangements with other home builders
during the term of this Agreement without the prior written
consent of WHM; provided however, that WHM hereby expressly
approves of such an arrangement with Kimball-Hill Builders. In
addition to the foregoing and subject to the referrals
described in Section 8.B. below, Manager shall make all
appropriate disclosures to the prospective borrowers referred
by WHM pursuant to Section 8.B. so that the Venture shall be in
compliance with all Regulatory Requirements. Specifically,
Manager shall make the following disclosures to the prospective
borrower at the time of referral:
(1) That a "controlled business arrangement" exists (as
that term is defined by RESPA) between the Venturers of the Venture.
(2) A description of the nature and scope of the
relationship between the Venturers of the Venture.
Manager will provide the following disclosures to any prospective
borrowers:
(1) An estimated charge or range of charges generally made
by the Venture.
(2) That the referral may not require the use of any
particular provider, including GM Group and/or the
Venture, of settlement services (except for certain
instances - use of a particular lender attorney,
credit reporting agency, or real estate appraiser).
In furtherance of the foregoing, it shall be the responsibility of
Manager to secure the signature of the borrower on the Disclosure Form
attached hereto as Exhibit "B".
B. DUTIES AND AUTHORITY OF WHM. WHM shall at its discretion
refer prospective borrowers to the Venture for the purpose of
securing mortgage loans. WHM shall cooperate with the Manager
to obtain all government agency approvals or authorizations
which Manager deems reasonably necessary or advisable for
carrying out the purposes of this Venture including, without
limitation, approval of the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, the
Government National Mortgage Association, the Department of
Housing and Urban Development, the Federal Housing
Administration, the Veteran's Administration (hereinafter
collectively referred to as "Governmental Agencies") and
applicable real estate and licensing authorities in the State
of Texas.
C. EXONERATION AND INDEMNIFICATION OF MANAGER. Except in the
case of gross negligence, fraud, criminal misconduct, or
willful misconduct, the doing of any act or the failure to do
any act by the Manager, the effect of which may cause or
result in loss or damage to the Venture, shall not subject the
Manager to any liability to the other Venturers or the
Venture. The Venture and WHM shall indemnify and hold harmless
the Manager against any and all claims, actions, demands,
losses, costs, expenses (including attorneys fees), damages,
loss, and threat of loss, as a result of any claim or legal
proceeding relating to the activities of the Venture,
including, but not limited to the failure by WHM or the
Venture to comply with any of the Regulatory Requirements or
the duties set forth in Section 8.B. above.
D. EXONERATION AND INDEMNIFICATION OF VENTURERS. Except in the
case of gross negligence, fraud, criminal misconduct, or
willful misconduct, the doing of any act or the failure to do
any act by the Venturers, the effect of which may cause or
result in loss or damage to the Venture, shall not subject the
Venturers to any liability to the other Venturers or the
Venture. The Venture and the GM Group shall indemnify and hold
harmless the Venturers against any and all claims, actions,
demands, losses, costs, expenses (including attorneys fees),
damages, loss, and threat of loss, as a result of any claim or
legal proceeding relating to the activities of the Venture,
including, but not limited to the failure by the GM Group or
the Venture to comply with any of the Regulatory Requirements
or the duties set forth in Section 8.B. above.
E. RESIGNATION OF MANAGER. The Manager may resign after
delivery of thirty (30) days written notice to the Venturers.
Upon resignation of the Manager, the Venturers shall jointly
manage the Venture until such time as a new Manager is elected
by unanimous vote of the Venturers.
9. DISTRIBUTIONS TO VENTURERS.
A.DISTRIBUTION OF AVAILABLE CASH. Periodically, but not less
frequently than annually, the Manager shall distribute to the
Venturers the Available Cash of the Venture, pro rata, in
accordance with their Participation Percentages. No Venturer
shall receive any payment or other thing of value for such
referrals or from the Venture other than a return on its
ownership investment and profits. All profits and returns on
ownership interest must be bona fide distributions of capital
related to the ownership in the Venture and shall not be tied
in any way to the volume or value of loan application
referrals made by any Venturer.
B. DISTRIBUTION OF NET PROCEEDS OF TERMINATING CAPITAL
TRANSACTION. The Net Proceeds of a Terminating Capital
Transaction shall, after payment of the debts and liabilities
of the Venture and the expenses of liquidation, as provided in
Section 10.B., be distributed to the Venturers first to return
capital account balances to zero and then in accordance with
their Participation Percentages.
C. ALLOCATION OF NET INCOME OR NET LOSS FROM OPERATIONS. The
Adjusted Net income or Loss of the Venture shall be allocated
to the Venturers, pro rata, in accordance with their
respective Participation Percentages.
D.ALLOCATION OF INCOME AND LOSS FROM TERMINATING CAPITAL
TRANSACTION. Income (including gain) or loss of the Venture
resulting from a Terminating Capital Transaction shall be
allocated to the Venturers, after allocating to the Venturers
the appropriate portion of all income or loss of the Venture
for the then current year in accordance with Section 9.C. and
after crediting to their respective Capital Accounts all cash
distributed during such year pursuant to Section 9.A. hereof,
shall be allocated first to return capital account balances to
their original condition and then in accordance with their
respective Participation Percentages.
10. DISSOLUTION AND WINDING UP OF THE VENTURE.
A. DISSOLUTION OF THE VENTURE. The Venture shall be dissolved upon the
first to occur of any of the following events:
(1) The giving of written notice, thirty (30) days in
advance, by any Venturer to the other Venturer.
(2) The expiration of the term of the Venture.
(3) The sale of all the assets of the Venture, unless the
Venture has any continuing rights or responsibilities with
respect to any other party.
(4) The entry of an order for relief with respect to a
Venturer under a proceeding under the United States
Bankruptcy Code, as amended (or the seeking of such an
order by or on behalf of such Venturer).
(5) The appointment of a conservator, custodian, guardian,
trustee or receiver for a Venturer's assets.
(6)The dissolution of one of the Venturers.
B. WINDING UP OF THE VENTURE. Upon a dissolution of the
Venture, the Manager (or, if Venture has been dissolved as a
result of the bankruptcy of the Manager), the other Venturer
shall take full account of the Venture's assets and
liabilities, the assets shall be liquidated as promptly as is
consistent with obtaining the fair value thereof, and the
proceeds therefrom, to the extent sufficient therefor, shall be
applied and distributed in the following order:
(1) To the payment and discharge of all of the Venture's
debts and liabilities to persons other than Venturers or
former Venturers and the expenses of liquidation.
(2) To the payment and discharge of all of the Venture's
debts and liabilities to Venturers and former Venturers.
(3)To the Venturers in accordance with Section 9,B.
11. BOOKS OF ACCOUNT, ACCOUNTING, REPORTS, FISCAL YEAR, BANKING, AND TAX
ELECTION
A. BOOKS OF ACCOUNT. The Venture's books and records and this
Agreement shall be maintained at the principal office of the
Venture, and each Venturer shall have access thereto at all
reasonable times. The books and records shall be kept on the
cash receipts and disbursements method of accounting applied
in a consistent manner by the Venture and shall reflect all
Venture transactions and be appropriate and adequate for the
Venture's business.
B. BANKING. All funds of the Venture shall be deposited in a
separate bank account or accounts or in an account or accounts
of savings and loan associations or in reputable money market
funds as shall be determined by the Manager.
C. FISCAL YEAR The fiscal year of the Venture shall be the
calendar year. The first fiscal year shall be the partial
calendar year ending December 31, 1998.
D. TAX ELECTION. Upon the transfer of an interest in the
Venture or in the event of a distribution of the Venture's
property, the Venture may elect pursuant to Section 754 of the
CODE, to adjust the basis of the Venture's property as allowed
by Section 734(b) and Section 743(b) thereof (or successor
provisions).
E. VENTURE TAX RETURNS. The Manager shall provide a copy of all
tax returns prepared on behalf of the Venture fifteen (15) days
prior to any filing date. Upon approval by all Venturers, the
Manager shall, for each fiscal year, file on behalf of the
Venture all appropriate state and federal tax returns within
the time prescribed by law (including extensions) for such
filing.
12. RIGHT OF FIRST REFUSAL. No Venturer shall sell or otherwise dispose
of all, or any part of, its CAPITAL UNITS without having first complied
with the provisions of this Section 12.
A. NOTICE OF INTENT TO TRANSFER A Venturer who desires to sell
or otherwise dispose of all, or any part of its Capital Units
shall deliver written notice to the other Venturer setting
forth (a) the number of Capital Units such Venturer desires to
sell; (b) the identity and address of the proposed purchaser
or other transferee thereof; (c) that the Venturer has
received a bona fide offer therefor, if a sale is
contemplated; (d) the cash and other consideration (per
Capital Unit and in the aggregate) to be received by the
Venturer in connection with such disposition of such Capital
Units or if no consideration is to be received, a statement to
that effect; (e) a true copy of the offer or agreement, if
any, for such sale and a certification by the Venturer that,
to the best of its knowledge and belief, the offer or
agreement is genuine and in all respects what it purports to
be; and (f) such other information as may be necessary or
desirable in order to afford to the other Venturers the
benefits intended to be conferred by this Section 12.
B. RIGHT TO PURCHASE. The other Venturers shall have the
right, but not the obligation, to purchase pro rata the
Capital Units held by such Venturer for the price and on the
terms set forth in the notice of intent to transfer.
C. NOTICE OF INTENT TO EXERCISE RIGHT TO PURCHASE.The other
Venturer shall have a period of thirty (30) days after the
date of delivery of such notice of intent to transfer, to
notify the transferring Venturer in writing whether it elects
to exercise its right of first refusal set forth in this
Section 12. Failure of the other Venturer to notify the
transferring Venturer of its intent to exercise within such
thirty (30) day period shall be deemed to be an election not
to exercise.
D. TRANSFER. If the other Venturer notifies the transferring
Venturer that it does not elect to purchase all of the Capital
Units offered by such transferring Venturer, or if the other
Venturer fails to notify such transferring Venturer within
such thirty (30) day period, the transferring Venturer shall
have the right to dispose of its Capital Units to the proposed
purchaser or other transferee in accordance with the terms and
conditions and within the time period set forth in the notice
of intent to transfer, or if no time period was specified,
within forty-five (45) days after the earlier of the date the
other Venturer notifies the transferring Venturer or the
expiration of such thirty (30) day period, to purchase all of
such Capital Units. If such sale of the Capital Units should
fail to close, the transferring Venturer shall not sell or
otherwise dispose of all or any part of its Capital Units
without again complying with the terms of this Section 12. If
the other Venturer notifies the transferring Venturer that it
does elect to purchase all of the Capital Units offered by the
transferring Venturer, the closing of such transfer shall take
place in accordance with the terms and conditions and within
the time period specified in the notice of intent to transfer,
or if no time period was specified, within forty-five (45)
days after the other Venturer notifies the transferring
Venturer.
13. MISCELLANEOUS.
A. NOTICES. Any notice, demand, offer, or communication
required or permitted to be given by any provision of this
Agreement shall be deemed to have been delivered and given for
all purposes (a) when delivered, if delivered personally to the
party to whom the same is directed or (b) forty-eight (48)
hours after sent by registered or certified mail, postage and
charges prepaid, addressed to the address set forth in the
books and records of the Venture, or to such other address as
such party may from time to time specify by written notice to
the Manager.
B. SECTION CAPTIONS. Section and other captions contained in
this Agreement are for reference purposes only and are in no
way intended to describe, interpret, define, expend, or limit
the scope, extent, or intent of this Agreement or any provision
hereof.
C. SEVERABILITY. Every provision of this Agreement is intended
to be severable. If any term or provision hereof is illegal or
invalid for any reason whatsoever, such illegality or
invalidity shall not affect the validity of the remainder of
this Agreement. If any term or provision of this Agreement is
determined to be illegal or invalid, a legal and valid
provision shall be deemed to be substituted in its place.
D. AMENDMENTS. Any amendment to this Agreement shall be binding
only if documented in writing and executed by all of the Venturers.
E. MEETINGS AND MEANS OF VOTING. Meetings of the Venturers may
be called by any one of the Venturers. The call shall state the
reason for calling the meeting. Notice of any such meeting
shall be delivered to all Venturers in the manner prescribed in
Section 14.A. hereof not less than seven (7) days or more than
thirty (30) days prior to the date of such meeting. Venturers
may vote in person or by proxy at any such meeting.
F. TEXAS LAW. The local, internal laws of Texas govern the
validity of this Agreement the construction of its terms, and
the interpretation of the rights and duties of the parties.
G. WAIVER OF ACTION FOR PARTITION. Each of the parties hereto
irrevocably waives, during the terms of the Venture and during
the period of its liquidation following any dissolution, any
right that he may have to maintain any action for partition
with respect to any of the assets of the Venture.
H. COUNTERPART EXECUTION. This Agreement may be executed in any
number of counterparts with the same effect as if all parties
hereto had signed the same document. All counterparts shall be
construed together and shall constitute one Agreement.
I. PARTIES IN INTEREST. Each and every covenant, term,
provision, and agreement herein contained shall be binding upon
and inure to the benefit of the heirs, successors, and assigns
of the respective parties hereto.
J. INTEGRATED AGREEMENT. This Agreement constitutes the entire
understanding and agreement between the parties hereto with
respect to the subject matter hereof, and there are no
agreements, understandings, restrictions, representations, or
warranties relating to the subject matter of this Agreement
between the parties other than those set forth herein or herein
provided for.
K. RIGHT TO RELY UPON THE AUTHORITY OF MANAGER. No person
dealing with the Manager shall be required to determine its
authority to make any commitment or undertaking on behalf of
the Venture, or to determine any fact or circumstance bearing
upon the existence of its authority.
L. CONFlDENTIALITY / NON-DISCILOSURE. All parties to this
Agreement expressly agree that they will not discuss or divulge
the terms or conditions of this Agreement or any other matters
relating hereto, including but not limited, to policies,
procedures, practices, systems or disclosure documents, except
as required to be disclosed pursuant to the terms of RESPA, or
to an attorney or accountant consulted for tax purposes in
connection herewith, or if compelled to do so by a court of
competent jurisdiction. This Agreement is strictly
confidential. WHM further acknowledges and agrees that all
memoranda, lists, policy statements, disclosure forms,
descriptions, records, files or other materials produced by or
on behalf of the Venture, or made available to the Venture by
the Manager, shall at all times be and remain the sole and
exclusive property of the Venture and upon its dissolution or
liquidation, the sole and exclusive property of the Manager.
IN WITNESS WHEREOF, this Agreement of Joint Venture has been executed
effective as of the date first above written.
VENTURERS:
GM GROUP:
THE GM GROUP, INC.,
a Texas corporation
/S/ Linda LeFevre
/S/ Linda LeFevre
By:
Linda LeFevre, President
WHM:
WH MANAGEMENT, INC.,
a Texas corporation
/S/ Richard D. Laxton
/S/ Richard D. Laxton
By:
Printed Name: Richard D. Laxton
Title: CEO
<PAGE>
EXHIBIT " A "
INITIAL CAPITAL CONTRIBUTION OF VENTURERS
Venturer Capital Contribution Participation Percentage
A. The GM Group, Inc. $490.00 49 %
B. WHM $510.00 51 %
<PAGE>
EXHIBIT " B "
DISCLOSURE NOTICE CONCERNING
CONTROLLED BUSINESS ARRANGEMENT
From: The GM Group, Inc. and
2323 N. Central Expressway, Suite 110
Richardson, Texas 75080
Property:
1. This is to give you notice that The GM Group, Inc., a Texas
corporation ("GM Group") and _____________
_________________________("______") have a business relationship with
_____________________ ______________, a Texas joint venture ("*****").
The nature of the relationship between GM Group and ________________ is
that ***** is owned by such parties in the following manner:
___________________ - ____________ percent ( ____%)
GM Group - ____________ percent (_____%)
Because of this relationship, this referral may provide GM Group and
______________________ a financial or other benefit.
2. Set forth below is the estimated charge or range of charges by for the
settlement services provided by *****. You are NOT required to use
***** as a condition for settlement of your loan on the subject
property. THERE ARE FREQUENTLY OTHER SETTLEMENT SERVICE PROVIDERS
AVAILABLE WITH SIMILAR SERVICES. YOU ARE FREE TO SHOP AROUND TO
DETERMINE THAT YOU ARE RECEIVING THE BEST SERVICES AND THE BEST RATE
FOR THESE SERVICES.
Origination Fee: $_________.00
Discount Fee: $_________.00
Processing Fee: $_________.00
Closing Fee: $_________.00
3. Set forth below is the estimated charge or range or charges for the
settlement services of an attorney, credit reporting agency, or real
estate appraiser that we as your lender, will require you to use, as a
condition of your loan on this property, to represent our interests in
the transaction.
[Attorney] $_________.00
[Credit Reporting Agency] $_________.00
[Real Estate Appraiser] $_________.00
<PAGE>
ACKNOWLEDGMENT
I/we have read this disclosure form, and understand that GM Group and
Woodhaven are referring me/us to purchase the above-described
settlement services(s) and may receive a financial or other benefit as
a result of this referral.
Printed Name:
Date:
Printed Name:
Date:
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.
Turner, Stone & Company, L.L.P.
Certified Public Accountants
Dallas, Texas
October 7, 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> JUN-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>
