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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934.
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) JANUARY 7, 1999
KAUFMAN AND BROAD HOME CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
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DELAWARE 1-9195 95-3666267
(STATE OR OTHER JURISDICTION OF (COMMISSION (IRS EMPLOYER
INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
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10990 WILSHIRE BOULEVARD, LOS ANGELES, 90024
CALIFORNIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (310) 231-4000
NOT APPLICABLE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Effective January 7, 1999, Kaufman and Broad Home Corporation (the
"Company") acquired substantially all of the homebuilding assets of the Lewis
Homes group of companies ("Lewis Homes"), including (i) all of the partnership
interests in Lewis Homes of California, a California general partnership, Lewis
Development Co., a California general partnership, Lewis Homes Enterprises, a
California general partnership, Lewis Homes of Nevada, a Nevada general
partnership, and Lewis Properties, a Nevada general partnership, (ii) all of the
issued and outstanding capital stock of Lewis Homes Management Corp., a
California corporation, and Branching Tree Corp., a California corporation, and
(iii) all the member interests of Mather Housing Company, LLC, a California
limited liability company, and Desert Inn Development, LLC, a Nevada limited
liability company, along with option agreements to purchase certain assets in
the future. Lewis Homes is engaged in the acquisition, development and sale of
residential real estate in California and Nevada.
Prior to the acquisition, Lewis Homes, based in Upland, California, was the
largest privately-held single family homebuilder in the United States based on
units delivered, with estimated revenues for the year ended December 31, 1998 of
$700 million on approximately 3,600 unit deliveries. Lewis Homes also owned or
controlled approximately 24,000 lots and had a backlog of approximately 900
homes at December 31, 1998. Lewis Homes' principal markets are Las Vegas and
Northern Nevada, Southern California, and the greater Sacramento area in
Northern California.
The estimated purchase price as of the filing of this Report for the
acquisition of Lewis Homes is approximately $449 million, comprised of the
assumption of approximately $303 million in debt and the issuance of 7,886,686
shares of the Company's common stock valued at approximately $146 million. This
price, together with the purchase price of real property assets which the
Company has the right to purchase under certain option agreements, is
substantially equivalent to the previously announced estimated purchase price of
$544 million, which included 7,886,686 shares of the Company's common stock plus
cash and debt assumed. The current estimated purchase price is based on the net
book values of the entities purchased and is subject to adjustment based on the
closing balance sheets as of December 31, 1998, which are expected to be
finalized on or before April 1, 1999. While it is anticipated that there will be
further adjustments to the purchase price, the Company does not expect such
adjustments to be material. The shares of Company common stock issued in the
acquisition are "restricted" shares and may not be resold without a registration
statement or compliance with Securities and Exchange Commission regulations that
limit the number of shares that may be resold in a given period. The Company has
agreed to file a registration statement for those shares in three increments at
the Lewis family's request from July 1, 2000 to July 1, 2002. Under the terms of
the purchase agreement, a Lewis family member has also been appointed to the
Company's board of directors.
In connection with the acquisition of Lewis Homes, the Company obtained a
$200 million unsecured term loan to refinance certain debt assumed. The
financing was obtained under a term loan agreement dated as of January 7, 1999
among the Company, Bank of America National Trust and Savings Association,
Credit Lyonnais Los Angeles Branch, The First National Bank of Chicago and Union
Bank of California and various other banks (the "Term Loan Agreement") which
provides for payments of $25 million due on January 31, 2000, April 30, 2000 and
July 31, 2000, with the remaining principal balance due on April 30, 2001.
Interest is payable monthly at the London Interbank Offered Rate plus an
applicable spread. Under the terms of the Term Loan Agreement, the Company is
required, among other things, to maintain certain financial statement ratios and
a minimum net worth and is subject to limitations on acquisitions, inventories
and indebtedness. The financing obtained under the Term Loan Agreement did not
impact the amounts available under the Company's pre-existing borrowing
arrangements. The Company used borrowings under its existing $500 million credit
agreement to refinance certain other debt assumed in the Lewis Homes
acquisition.
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The acquisition consideration for Lewis Homes was determined by
arm's-length negotiations between the parties. The acquisition will be accounted
for as a purchase with the results of Lewis Homes included in the Company's
financial statements as of January 7, 1999.
ITEM 7(A). FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
It is impracticable to provide the required financial statements at this
time. Such financial statements will be filed by amendment to this Form 8-K as
soon as practicable, but not later than 60 days after the required filing date
for this Form 8-K.
ITEM 7(B). PRO FORMA FINANCIAL INFORMATION.
It is impracticable to provide the required pro forma financial information
at this time. Such pro forma financial information will be filed by amendment to
this Form 8-K as soon as practicable, but not later than 60 days after the
required filing date for this Form 8-K.
ITEM 7(C). EXHIBITS.
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EXHIBIT
NUMBER DESCRIPTION
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2.1 Purchase Agreement dated as of October 20, 1998. None of the
schedules or exhibits, consisting of disclosure statements
and ancillary agreements, referred to in the agreement are
filed as exhibits herewith; however, the Company agrees to
furnish supplementally a copy of any omitted schedule or
exhibit to the Commission upon request.
2.2 Amendment to Purchase Agreement dated as of January 7, 1999.
Exhibit C: Purchase Agreement (Amended and Restated) thereto
is filed as Exhibit 2.3 herewith. None of the other
schedules or exhibits referred to in the agreement are filed
as exhibits herewith; however, the Company agrees to furnish
supplementally a copy of any omitted schedule or exhibit to
the Commission upon request.
2.3 Purchase Agreement (Amended and Restated) executed January
7, 1999. Exhibit E: Registration Rights Agreement, Exhibit
F: Shareholder Agreement and Exhibit P: Representation,
Warranty and Indemnity Agreement thereto are filed as
Exhibits 99.1, 99.2 and 2.4, respectively, herewith. None of
the other schedules or exhibits referred to in the agreement
are filed as exhibits herewith; however, the Company agrees
to furnish supplementally a copy of any omitted schedule or
exhibit to the Commission upon request.
2.4 Representation, Warranty and Indemnity Agreement dated
January 7, 1999.
10.1 Term Loan Agreement among the Company, Bank of America
National Trust and Savings Association, as Administrative
Agent and Lead Arranger, Credit Lyonnais Los Angeles Branch,
as Syndication Agent, The First National Bank of Chicago, as
Documentation Agent and Union Bank of California as Co-Agent
and the banks listed therein, dated as of January 7, 1999.
99.1 Registration Rights Agreement dated January 7, 1999.
99.2 Shareholder Agreement dated January 7, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated January 22, 1999
KAUFMAN AND BROAD HOME CORPORATION
Registrant
/s/ MICHAEL F. HENN
------------------------------------------
Michael F. Henn
Senior Vice President and Chief Financial
Officer
(Principal Financial Officer)
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EXHIBIT INDEX
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EXHIBIT
NUMBER DESCRIPTION PAGE
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2.1 Purchase Agreement dated as of October 20, 1998. None of the
schedules or exhibits, consisting of disclosure statements
and ancillary agreements, referred to in the agreement are
filed as exhibits herewith; however, the Company agrees to
furnish supplementally a copy of any omitted schedule or
exhibit to the Commission upon request.
2.2 Amendment to Purchase Agreement dated as of January 7, 1999.
Exhibit C: Purchase Agreement (Amended and Restated) thereto
is filed as Exhibit 2.3 herewith. None of the other
schedules or exhibits referred to in the agreement are filed
as exhibits herewith; however, the Company agrees to furnish
supplementally a copy of any omitted schedule or exhibit to
the Commission upon request.
2.3 Purchase Agreement (Amended and Restated) executed January
7, 1999. Exhibit E: Registration Rights Agreement, Exhibit
F: Shareholder Agreement and Exhibit P: Representation,
Warranty and Indemnity Agreement thereto are filed as
Exhibits 99.1, 99.2 and 2.4, respectively, herewith. None of
the other schedules or exhibits referred to in the agreement
are filed as exhibits herewith; however, the Company agrees
to furnish supplementally a copy of any omitted schedule or
exhibit to the Commission upon request.
2.4 Representation, Warranty and Indemnity Agreement dated
January 7, 1999.
10.1 Term Loan Agreement among the Company, Bank of America
National Trust and Savings Association, as Administrative
Agent and Lead Arranger, Credit Lyonnais Los Angeles Branch,
as Syndication Agent, The First National Bank of Chicago, as
Documentation Agent and Union Bank of California, as
Co-Agent and the banks listed therein, dated as of January
7, 1999.
99.1 Registration Rights Agreement dated January 7, 1999.
99.2 Shareholder Agreement dated January 7, 1999.
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Exhibit 2.1
PURCHASE AGREEMENT
dated as of
October 20, 1998
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TABLE OF CONTENTS
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PAGE
R E C I T A L S
A G R E E M E N T
DEFINITIONS/PURCHASE & SALE/CLOSING
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1.1 Definitions............................................................2
1.2 Purchase Price.........................................................7
1.3 Transfer of Stock by Sellers...........................................7
1.4 Transfer of Member Interests by Sellers................................7
1.5 Transfer of Partnership Interests......................................7
1.6 Post-Closing Adjustments to Purchase Price.............................8
1.7 The Closing............................................................9
1.8 Purchase Price Allocation.............................................10
REPRESENTATIONS AND WARRANTIES OF SELLERS
2.1 Management Corp. and Branching Tree...................................10
2.2 Stock.................................................................10
2.3 Mather and Desert Inn.................................................11
2.4 Parent Partnerships...................................................12
2.5 Financial Statements; Changes; Contingencies..........................12
2.6 Tax and Other Returns and Reports.....................................14
2.7 Material Contracts....................................................14
2.8 Real and Personal Property; Title to Property; Leases.................15
2.9 Intangible Property...................................................16
2.10 No Conflicts..........................................................17
2.11 Legal Proceedings and Certain Labor Matters...........................17
2.12 Minute Books..........................................................18
2.13 Accounting Records....................................................18
2.14 Insurance.............................................................18
2.15 Permits...............................................................18
2.16 Employee Benefits.....................................................19
2.17 Certain Interests.....................................................20
2.18 Bank Accounts, Powers, etc............................................20
2.19 No Brokers or Finders.................................................21
2.20 Environmental Compliance..............................................21
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TABLE OF CONTENTS
(CONTINUED)
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PAGE
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SELLERS
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3.1 Ownership by Sellers; No Conflicts.....................................22
3.2 Securities Act Matters.................................................23
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Organization and Related Matters.......................................24
4.2 Authorization..........................................................24
4.3 No Conflicts...........................................................24
4.4 No Brokers or Finders..................................................24
4.5 Legal Proceedings......................................................24
4.6 Investment Representation..............................................25
4.7 Financing..............................................................25
4.8 Capital Stock..........................................................25
4.9 SEC Filings; Financial Statements......................................25
COVENANTS PRIOR TO CLOSING
5.1 Access................................................................26
5.2 Material Adverse Changes..............................................26
5.3 Conduct of Business...................................................27
5.4 Notification of Certain Matters.......................................29
5.5 Permits and Approvals.................................................29
5.6 Preservation of Business Prior to Closing Date........................29
5.7 Government Filings....................................................30
5.8 Elimination of Intercompany and Affiliate Liabilities.................30
5.9 Representative........................................................30
5.10 Exchange Listing; Registration Rights.................................31
5.11 Shareholders Agreement................................................31
5.12 Cost Sharing Agreements and Option Agreement..........................31
5.13 Employees.............................................................31
ADDITIONAL CONTINUING COVENANTS
6.1 Noncompetition........................................................32
6.2 Non-disclosure of Proprietary Data....................................33
6.3 Tax Returns...........................................................33
6.4 Tax Cooperation.......................................................34
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TABLE OF CONTENTS
(CONTINUED)
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PAGE
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6.5 Other Cooperation.....................................................36
6.6 Employees and Employee Benefits.......................................36
6.7 Lewis Name and Mark License...........................................36
6.8 Fiscal 1998 Audited Financial Statements..............................36
6.9 Tenant Lists..........................................................37
6.10 Buyer's Right of First Offer..........................................37
CONDITIONS OF PURCHASE
7.1 General Conditions....................................................40
7.2 Conditions to Obligations of Buyer....................................40
7.3 Conditions to Obligations of Sellers..................................42
TERMINATION OF OBLIGATIONS; SURVIVAL
8.1 Termination of Agreement..............................................43
8.2 Effect of Termination.................................................43
8.3 Survival of Representations and Warranties............................44
INDEMNIFICATION
9.1 Obligations of Sellers................................................44
9.2 Obligations of Buyer..................................................44
9.3 Procedure.............................................................45
9.4 Survival..............................................................46
9.5 Limitation of Remedies................................................46
GENERAL
10.1 Amendments; Waivers...................................................46
10.2 Schedules, Exhibits, Integration......................................47
10.3 Efforts; Further Assurances...........................................47
10.4 Governing Law.........................................................47
10.5 No Assignment.........................................................47
10.6 Headings..............................................................47
10.7 Counterparts..........................................................48
10.8 Publicity and Reports.................................................48
10.9 Confidentiality.......................................................48
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TABLE OF CONTENTS
(CONTINUED)
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PAGE
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10.10 Alternative Dispute Resolution........................................48
10.11 Parties in Interest...................................................50
10.12 Knowledge Convention..................................................50
10.13 Notices...............................................................50
10.14 Expenses..............................................................51
10.15 Remedies; Waiver......................................................52
10.16 Attorney's Fees.......................................................52
10.17 Representation By Counsel; Interpretation.............................52
10.18 Severability..........................................................52
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PURCHASE AGREEMENT
This Purchase Agreement is entered into as of October 20, 1998,
among Kaufman and Broad Home Corporation, a Delaware corporation ("Buyer"), and
the individuals and corporations identified on the signature page of this
Agreement (individually a "Seller" and collectively, the "Sellers").
R E C I T A L S
WHEREAS, Sellers collectively own (i) all the partnership
interests in Lewis Homes of California, a California general partnership
("LHC"), Lewis Development Co., a California general partnership ("Lewis
Development"), Lewis Homes Enterprises, a California general partnership
("LHE"), Lewis Homes of Nevada, a Nevada general partnership ("LHN"), and Lewis
Properties, a Nevada general partnership ("Lewis Properties," and collectively
with LHC, Lewis Development, LHE and LHN, the "Parent Partnerships"), (ii) all
of the issued and outstanding capital stock of Lewis Homes Management Corp., a
California corporation ("Management Corp."), and Branching Tree Corp., a
California corporation ("Branching Tree"), and (iii) all the member interests of
Mather Housing Company, LLC, a California limited liability company ("Mather"),
and Desert Inn Development, L.L.C., a Nevada limited liability company ("Desert
Inn"). The Parent Partnerships, directly and through their interests in joint
ventures, general partnerships and limited liability companies, and Management
Corp., Branching Tree, Mather and Desert Inn, excluding the Excluded Assets (as
defined below), collectively constitute the homebuilding operations of the
members of the Lewis Homes group of companies in California and Nevada (the
"Homebuilding Business").
WHEREAS, certain non-Homebuilding Business and other assets and
liabilities of the Homebuilding Entities identified on Exhibit A hereto
(collectively, the "Excluded Assets" and "Excluded Liabilities") will be removed
by Sellers prior to the Closing (as defined below) or conveyed to Sellers or
their designees after the Closing, and certain Homebuilding Business assets and
liabilities of Sellers identified on Exhibit A hereto (the "Included Assets" and
"Included Liabilities") will be transferred by Sellers or their non-Homebuilding
Entity affiliates to the Homebuilding Entities prior to the Closing; and
WHEREAS, Sellers desire to sell and Buyer desires to buy the
partnership interests in the Parent Partnerships (the "Partnership Interests"),
all of the issued and outstanding capital stock of Management Corp. and
Branching Tree (the "Stock") and all the member interests of Mather and Desert
Inn (the "Member Interests") for the consideration set forth herein.
A G R E E M E N T
In consideration of the mutual promises contained herein and
intending to be legally bound the parties agree as follows:
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ARTICLE I
DEFINITIONS/PURCHASE & SALE/CLOSING
1.1 DEFINITIONS.
For all purposes of this Agreement, except as otherwise expressly
provided,
(a) the terms defined in this Article I have the meanings assigned to
them in this Article I and include the plural as well as the singular,
(b) all accounting terms not otherwise defined herein have the meanings
assigned under GAAP,
(c) all references in this Agreement to designated "Articles,"
"Sections" and other subdivisions are to the designated Articles, Sections and
other subdivisions of the body of this Agreement,
(d) pronouns of either gender or neuter shall include, as appropriate,
the other pronoun forms, and
(e) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision.
As used in this Agreement and the Exhibits and Schedules delivered
pursuant to this Agreement, the following definitions shall apply.
"Action" means any action, complaint, petition, investigation, suit or
other proceeding, whether civil or criminal, in law or in equity, or before any
arbitrator or Governmental Entity.
"Affiliate" means a Person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, a specified Person.
"Agreement" means this Agreement by and among Buyer and Sellers as
amended or supplemented together with all Exhibits and Schedules attached or
incorporated by reference.
"Approval" means any approval, authorization, consent, consent to
assignment or transfer, qualification or registration, or any waiver of any of
the foregoing, required to be obtained from, or any notice, statement or other
communication required to be filed with or delivered to, any Governmental Entity
or any other Person.
"Associate" of a Person means
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(i) a corporation or organization of which such Person is an officer or
partner or is, directly or indirectly, the beneficial owner of 10% or more of
any class of equity securities;
(ii) any trust or other estate in which such Person has a substantial
beneficial interest or as to which such person serves as trustee or in a similar
capacity; and
(iii) any relative or spouse of such Person or any relative of such
spouse.
"Auditors" means Ernst & Young LLP, independent public accountants to
Management Corp., Branching Tree, Mather, Desert Inn, the Parent Partnerships
and their respective Subsidiaries.
"Branching Tree Sellers" means the Sellers identified as such on Exhibit
B.
"Buyer Common Stock" has the meaning set forth in Section 1.2.
"Closing" means the consummation of the purchase and sale of the
Partnership Interests, Member Interests, and Stock under this Agreement.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contract" means any agreement, arrangement, bond, commitment,
franchise, indemnity, indenture, instrument, lease, license or understanding,
whether or not in writing.
"Cost Sharing Agreements" has the meaning set forth in Section 5.12.
"Desert Inn Sellers" means the Sellers identified as such on Exhibit B.
"Disclosure Schedule" means the Disclosure Schedules dated the date of
this Agreement and delivered by Sellers to Buyer, or Buyer to Sellers, as the
case may be, as exhibits to this Agreement. The Sections of the Disclosure
Schedules shall be numbered to correspond to the applicable Section of this
Agreement and, together with all matters under such heading, shall be deemed to
qualify only that Section.
"Encumbrance" means any claim, charge, easement, encumbrance, lease,
covenant, security interest, lien, option, pledge, rights of others, or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise, except
for any restrictions on transfer generally arising under any applicable federal
or state securities law.
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"Equity Securities" means any capital stock or other equity interest or
any securities convertible into or exchangeable for capital stock or other
equity interest or any other rights, warrants or options to acquire any of the
foregoing securities.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the related regulations and published interpretations.
"Excluded Assets" has the meaning set forth in the Recitals.
"Excluded Liabilities" has the meaning set forth in the Recitals.
"GAAP" means generally accepted accounting principles in the United
States, as in effect from time to time.
"Governmental Entity" means any government or any agency (including any
licensing agency), bureau, board, commission, court, department, official,
political subdivision, tribunal or other instrumentality of any government,
whether federal, state or local, domestic or foreign.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the related regulations and published
interpretations.
"Hazardous Substance" means (but shall not be limited to) substances
that are defined or listed in, or otherwise classified pursuant to, any
applicable Laws as "hazardous substances," "hazardous materials," "hazardous
wastes" or "toxic substances," or any other formulation intended to define, list
or classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, radioactivity or carcinogenicity, and petroleum and
drilling fluids, produced waters and other wastes associated with the
exploration, development, or production of crude oil, natural gas or geothermal
energy, derivatives of petroleum products, and asbestos or asbestos-containing
materials.
"Homebuilding Business" has the meaning set forth in the Recitals.
"Homebuilding Entities" means Management Corp., Branching Tree, Mather,
Desert Inn, the Parent Partnerships and their respective Subsidiaries.
"Homebuilding Line of Business Financial Information" means the
financial information in the column labeled "Homebuilding" in the Combined
Companies (California and Nevada) Line of Business Operations/Selected Financial
Information as of December 31, 1997 and for the year then ended included in the
audited financial statements of the Lewis Homes group of companies referred to
in Section 2.5(a).
"Included Assets" and "Included Liabilities" have the meanings set forth
in the Recitals.
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"Indemnifiable Claim" means any Loss for or against which any party is
entitled to indemnification under Article IX of this Agreement; "Indemnified
Party" means the party entitled to indemnity hereunder; and "Indemnifying Party"
means the party obligated to provide indemnification hereunder.
"Intangible Property" means any trade secret, secret process or other
confidential information or know-how and any and all Marks.
"IRS" means the Internal Revenue Service or any successor entity.
"Law" means any constitutional provision, statute or other law, rule,
regulation, or interpretation of any Governmental Entity and any Order.
"License Agreement" has the meaning set forth in Section 6.7.
"Loss" means any cost, damage, disbursement, expense, liability, loss,
deficiency, diminution in value, obligation, penalty or settlement of any kind
or nature, whether foreseeable or unforeseeable, including but not limited to,
interest or other carrying costs, penalties, reasonable legal, accounting and
other professional fees and expenses actually incurred in the investigation,
collection, prosecution and defense of claims, and amounts paid in settlement,
that may be imposed on or otherwise incurred or suffered by the specified
person.
"Management Corp. Sellers" means the Sellers identified as such on
Exhibit B.
"Mark" means any brand name, copyright, patent, service mark, trademark,
trademark, and all registrations or application for registration of any of the
foregoing.
"material adverse change," "material adverse effect," "material" or
related terms herein mean a material adverse effect on the business, financial
condition, results of operations or prospects of the Homebuilding Business of
the Homebuilding Entities, taken as a whole; provided, however, that a decline
in general economic conditions or matters generally affecting real estate
markets or homebuilding companies in California or Nevada (or both) shall not be
deemed to be a material adverse change or material adverse effect; and provided,
further that solely for the purposes of determining whether a breach of a
representation or warranty made in or pursuant to this Agreement by Sellers or
the nonperformance by Sellers of any of the covenants or agreements made
hereunder results in Losses that are indemnifiable under Article IX hereof,
"material adverse change," "material adverse effect", "material" or related
terms herein mean a change or effect that results in Losses exceeding $750,000.
"Material Contract" means any Contract material to the Homebuilding
Business and includes but is not limited to those Contracts deemed material by
Section 2.7.
"Mather Sellers" means the Sellers identified as such on Exhibit B.
"Member Interests" means the member interests in Mather and Desert Inn.
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"Net Worth" means the stockholders', members' and partners' equity of
each of the Homebuilding Entities determined on a combined basis in accordance
with GAAP applied consistently with the audited financial statements referred to
in Section 7.2(g); provided, however, that (i) any severance payments payable to
officers or employees of any Homebuilding Entity on or after the Closing Date
shall not be considered in determining Net Worth, (ii) any bonuses payable to
officers or employees of any Homebuilding Entity on or after the Closing Date
(which shall be limited in accordance with Section 5.3(g)) shall be pro rated
over the period from the date the employee was notified of the intent to pay
such a bonus to the end of such bonus period and only that portion of the bonus
allocated to periods prior to the Closing Date shall be considered in
determining Net Worth (it being understood that all bonuses with respect to the
fiscal year ended December 31, 1998 shall be paid prior to the Closing), and
(iii) no amount payable by any of the Homebuilding Entities to related parties
shall be treated as equity in determining Net Worth.
"Option Agreement" has the meaning set forth in Section 5.12.
"Order" means any decree, injunction, judgment, order, ruling,
assessment or writ.
"Partnership Interests" has the meaning set forth in the Recitals.
"Partnership Sellers" means the Sellers identified as such on Exhibit B.
"Permit" means any license, permit, franchise, certificate of authority,
consent, variance, development agreement, exemption, or order, or any waiver of
the foregoing, required to be issued by any Governmental Entity.
"Person" means an association, a corporation, an individual, a
partnership, a limited liability company, a trust or any other entity or
organization, including a Governmental Entity.
"Purchase Price" has the meaning set forth in Section 1.2.
"Registration Rights Agreement" has the meaning set forth in Section
5.10.
"Representative" has the meaning set forth in Section 5.9.
"Shareholders" means the equity owners of those Sellers that are "S"
corporations under the Code.
"Shareholders Agreement" has the meaning set forth in Section 5.11.
"Stock" means all of the outstanding capital stock of Management Corp.
and Branching Tree.
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"Subsidiary" means any Person in which any Homebuilding Entity has a
direct or indirect equity or ownership interest in excess of 10%, other than
Persons included in Excluded Assets.
"Tax" means any foreign, federal, state, county or local income, sales
and use, excise, franchise, real and personal property, transfer, gross receipt,
capital stock, production, business and occupation, disability, employment,
payroll, severance or withholding tax or charge imposed by any Governmental
Entity, any interest and penalties (civil or criminal) related thereto or to the
nonpayment thereof.
"Tax Return" means a report, return or other information required to be
supplied to a Governmental Entity with respect to Taxes including, where
permitted or required, combined or consolidated returns for any group of
entities that includes any Homebuilding Entity.
1.2 PURCHASE PRICE.
Subject to the terms and conditions of this Agreement, the Buyer agrees
to acquire the Stock, Partnership Interests and Member Interests for an
aggregate purchase price (the "Purchase Price") of $271,000,000 in cash and
7,886,686 shares of the common stock, par value $1.00 per share, of Buyer (the
"Buyer Common Stock"), subject to adjustment as set forth in Section 1.6.
1.3 TRANSFER OF STOCK BY SELLERS.
Subject to the terms and conditions of this Agreement, the Management
Corp. Sellers and the Branching Tree Sellers agree to sell the Stock of
Management Corp. and Branching Tree, respectively, and deliver the certificates
evidencing such Stock to Buyer or it nominee(s) at the Closing. The certificates
will be properly endorsed for transfer to or accompanied by a duly executed
stock power in favor of Buyer or its nominee(s) as Buyer may have directed prior
to the Closing Date and otherwise in a form acceptable for transfer on the books
of said corporation.
1.4 TRANSFER OF MEMBER INTERESTS BY SELLERS.
Subject to the terms and conditions of this Agreement, the Mather
Sellers and the Desert Inn Sellers agree to sell the Member Interests of Mather
and Desert Inn, respectively, to Buyer or its nominee(s) at the Closing by
executing and delivering to Buyer or its nominee(s) an assignment, in the form
attached hereto as Exhibit C, of all such Seller's right, title and interest in
the Member Interests.
1.5 TRANSFER OF PARTNERSHIP INTERESTS.
Subject to the terms and conditions of this Agreement, Partnership
Sellers agree to sell the Partnership Interests to Buyer or its nominee(s) at
the Closing by executing and
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delivering to Buyer or its nominees(s) at the Closing an assignment, in the form
attached hereto as Exhibit D, of all such Partnership Seller's right, title and
interest in the Parent Partnerships.
1.6 POST-CLOSING ADJUSTMENTS TO PURCHASE PRICE.
(a) As soon as practicable after the Closing, and in any event within 45
days following the Closing Date, Sellers shall cause to be delivered to Buyer a
combined balance sheet of the Homebuilding Entities as of December 31, 1998 (if
the Closing occurs on or before January 8, 1999) or the Closing Date (if the
Closing occurs after January 8, 1999), prepared in accordance with GAAP (the
"Closing Date Balance Sheet") applied on a basis consistent with that used in
preparation of the audited financial statements referred to in Section 7.2(g), a
combined statement of the Net Worth of the Homebuilding Business of the
Homebuilding Entities as of December 31, 1998 (if the Closing occurs on or
before January 8, 1999) or the Closing Date (if the Closing occurs after January
8, 1999), and a certificate signed by Sellers' to the effect that such
statements have been prepared in accordance with GAAP applied on a basis
consistent with that used in the preparation of the audited financial statements
referred to in Section 7.2(g) and the terms of this Agreement (the "Post-Closing
Certificate"). Buyer shall cooperate fully with Sellers and shall provide
Sellers with access to the books and records of the Homebuilding Entities and
such other assistance as Sellers reasonably request (including, without
limitation, assignment of Buyer's or Homebuilding Entities' personnel to this
project). Buyer will reimburse Sellers upon request 50% of all reasonable
out-of-pocket costs and expenses actually incurred by Sellers in the preparation
of such statement. Within 30 days following the delivery of such information,
Buyer shall notify Sellers in writing whether Buyer agrees or disagrees with the
determination of the Net Worth of the Homebuilding Business of the Homebuilding
Entities set forth in the Post-Closing Certificate. If Buyer disagrees with such
determination, Buyer shall specify in writing in reasonable detail the nature
and amount of its disagreement. Unless such disagreement is resolved (or to the
extent not resolved) by Buyer and Sellers in writing within 10 days after
delivery of Buyer's statement of disagreement, the Closing Date Balance Sheet
shall be audited, and the Net Worth of the Homebuilding Business of the
Homebuilding Entities as of the Closing Date shall be determined, by E & Y
Kenneth Leventhal Real Estate Group of Ernst & Young LLP or another independent
public accounting firm selected by mutual agreement of the Sellers and Buyer.
Such accounting firm shall resolve the disagreement consistent with the language
of this Agreement. The determination of the Net Worth of the Homebuilding
Business of the Homebuilding Entities as of December 31, 1998 (if the Closing
occurs on or before January 8, 1999) or the Closing Date (if the Closing occurs
after January 8, 1999), shall be made by such accounting firm within 30 days of
submission of the disagreement to it, shall be final and binding on Buyer and
the Sellers (absent manifest error in calculations) and the fees and expenses of
such accounting firm shall be borne equally by the Sellers, on the one hand, and
Buyer, on the other hand. If the Net Worth of the Homebuilding Business of the
Homebuilding Entities as of December 31, 1998 (if the Closing occurs on or
before January 8, 1999) or the Closing Date (if the Closing occurs after January
8, 1999), as finally determined pursuant to this Section 1.6, is greater than
$215 million, Buyer shall pay to the Sellers the amount of such excess, plus
interest thereon at the rate of interest per annum publicly announced from time
to time by Morgan Guaranty Trust Company of New York as its prime commercial
lending rate (the "Agreed Rate") from (and including) the Closing Date to (but
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excluding) the date of such payment. If the Net Worth of the Homebuilding
Business of the Homebuilding Entities as of December 31, 1998 (if the Closing
occurs on or before January 8, 1999) or the Closing Date (if the Closing occurs
after January 8, 1999), as finally determined pursuant to this Section 1.6, is
less than $215 million, the Sellers shall pay to Buyer the amount of such
deficiency, plus interest thereon at the Agreed Rate from (and including) the
Closing Date to (but excluding) the date of such payment. Any payment
contemplated by this Section 1.6 shall be made by wire transfer in federal or
other immediately available funds on or before the tenth day following the final
determination thereof, and any payment by Buyer to Sellers shall be delivered to
the accounts and in the names designated by the Representative prior to the
Closing Date unless the Representative gives Buyer other instructions at least
one day prior to the date of payment.
(b) Notwithstanding the requirements in Section 1.6(a) of consistency in
the preparation of the Closing Date Balance Sheet and Net Worth statement, and
notwithstanding any other provision of this Agreement, for purposes of the
preparation and review of, and any resolution of disagreements regarding, the
Closing Date Balance Sheet and Net Worth of the Homebuilding Business of the
Homebuilding Entities as of December 31, 1998 (if the Closing occurs on or
before January 8, 1999) or the Closing Date (if the Closing occurs after January
8, 1999), the distribution or transfer of all of the Excluded Assets and
Excluded Liabilities by the Homebuilding Entities and transfer of all of the
Included Assets and Included Liabilities to the Homebuilding Entities shall be
deemed to have occurred prior to December 31, 1998 (if the Closing occurs on or
before January 8, 1999) or the Closing Date (if the Closing occurs after January
8, 1999), even if not all such transfers have been effected as of such date.
(c) Notwithstanding any other provision of this Agreement, no fractional
shares of Buyer Common Stock, or certificates therefore, will be issued in
payment of the Purchase Price. Each Seller who would otherwise be entitled to
receive a fractional share of Buyer Common Stock in payment of the Purchase
Price (after aggregating all whole and fractional shares of Buyer Common Stock
to which such Seller would be entitled but for this Section in consideration for
all Stock, Member Interests and Partnership Interests delivered by such Seller)
shall receive, in lieu of such fractional share, cash equal to the product of
such fraction and the average closing price of Buyer Common Stock for the ten
trading days ending two business days prior to the Closing Date as reported on
the New York Stock Exchange Composite Tape.
1.7 THE CLOSING.
The Closing will take place at the offices of O'Melveny & Myers LLP, 400
South Hope Street, Los Angeles, California 90071. The Closing will take place no
earlier than January 7, 1999 or, if later, the fifth business day after the
satisfaction of the conditions set forth in Sections 7.1(b), 7.1(c), 7.2(c),
7.2(f), 7.2(g), 7.3(b) and 7.3(d) or such later date as Sellers and Buyer may
agree. The parties shall use their best efforts to effectuate the Closing on
January 7, 1999. At the Closing, Buyer, in exchange for the Stock, Partnership
Interests and Member Interests, shall pay to Sellers the Purchase Price by wire
transfer of the cash portion of the Purchase Price to an account designated by
the Representative at least three business days prior to the Closing and by
delivery to the Representative, on behalf of the Sellers, of stock certificates
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in the Sellers' names as designated by the Representative at least three
business days prior to the Closing.
1.8 PURCHASE PRICE ALLOCATION.
The Purchase Price shall be allocated among the Stock, the Member
Interests and the Partnership Interests in a manner that will facilitate
allocations being made in accordance with Section 6.4(c), and that is consistent
with the other provisions of this Agreement. The parties intend that the
acquisitions of Stock be taxable purchases, and a sufficient amount of the cash
portion of the Purchase Price shall be allocated to each of the acquisitions of
the Stock of Management Corp. and the Stock of Branching Tree so that neither
acquisition will qualify as a reorganization within the meaning of Section
368(a) of the Code. Subject to the foregoing, Sellers shall direct the manner in
which the cash and Buyer Common Stock portions of the Purchase Price are
allocated among the Sellers.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as otherwise indicated on the Sellers' Disclosure Schedule as
applying to a particular Section in this Article II, Sellers, jointly and
severally, represent, warrant and agree as follows:
2.1 MANAGEMENT CORP. AND BRANCHING TREE.
Each of Management Corp. and Branching Tree is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Each of Management Corp. and Branching Tree has all necessary
corporate power and authority to own its properties and to carry on its business
as now conducted and is duly qualified to do business as a foreign corporation
in good standing in all jurisdictions in which the character or the location of
its assets owned or leased or the nature of its business requires qualification,
except where the failure to be so qualified would not have a material adverse
effect on the Homebuilding Business. Neither Management Corp. nor Branching Tree
has any Subsidiaries.
2.2 STOCK.
Management Corp. Sellers own all of the outstanding shares of the
capital stock of Management Corp. The authorized capital stock of Management
Corp. consists of 10,000 shares of common stock, no par value, of which 1,000
shares are issued and outstanding. Branching Tree Sellers own all the
outstanding shares of the capital stock of Branching Tree. The authorized
capital stock of Branching Tree consists of 10,000 shares of common stock, no
par value, of which 480 shares are issued and outstanding. There are no
outstanding Contracts or other rights to subscribe for or purchase, or Contracts
or other obligations to issue or grant any rights to acquire, any Equity
Securities of Management Corp. or Branching Tree, or to
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restructure or recapitalize Management Corp. or Branching Tree. There are no
outstanding Contracts of Sellers or Management Corp. or Branching Tree to
repurchase, redeem or otherwise acquire any Equity Securities of Management
Corp. or Branching Tree. All Equity Securities of Management Corp. and Branching
Tree are duly authorized, validly issued and outstanding and are fully paid and
nonassessable and were issued in conformity with applicable Laws. There are no,
and never have been, preemptive rights in respect of any Equity Securities of
Management Corp. or Branching Tree. Except as described in Schedule 2.2, neither
Management Corp. nor Branching Tree owns any Equity Securities of any Person.
2.3 MATHER AND DESERT INN.
Each of Mather and Desert Inn is a limited liability company duly formed
and validly existing and in good standing under the laws of the state of its
organization. Continuously since its formation, each of Mather and Desert Inn
has been treated as a partnership for purposes of federal, state, and local
Taxes. Each of Mather and Desert Inn has all necessary power and authority under
its organizational documents to own its properties and carry on its business as
now conducted. Each of Mather and Desert Inn is duly qualified to do business as
a foreign limited liability company in good standing in all jurisdictions in
which the character or the location of its assets owned or leased or the nature
of its business requires qualification, except where the failure to be so
qualified would not have a material adverse effect on the Homebuilding Business.
The Mather Sellers and Desert Inn Sellers own all of the outstanding membership
interests in Mather and Desert Inn, respectively. There are no outstanding
Contracts or other rights to subscribe for or purchase, or Contracts or other
obligations to issue or grant any rights to acquire, any interest in Mather or
Desert Inn, or to restructure or recapitalize Mather or Desert Inn. There are no
outstanding Contracts of Sellers or Mather or Desert Inn to repurchase, redeem
or otherwise acquire any interest in Mather or Desert Inn. All Member Interests
were issued in conformity with all applicable Laws. Schedule 2.3 lists all
Subsidiaries of Mather or Desert Inn and correctly sets forth their respective
ownership interests therein, any other interest of any other Person in such
Subsidiary and the jurisdiction in which each such Subsidiary was organized.
Except as set forth on Schedule 2.3, all of the Equity Securities, partnership
interests, membership interests, or other interests owned by Mather or Desert
Inn in any such Subsidiary are validly issued and outstanding, fully paid and
nonassessable, were issued in conformity with applicable Laws and without
violation of, and are free of, any preemptive rights, and are owned by Mather or
Desert Inn, as applicable, free and clear of any and all covenants, conditions,
or other Encumbrances. Each of such Subsidiaries is duly formed and validly
existing and in good standing under the laws of the jurisdiction of its
organization. Each such Subsidiary has all necessary power and authority under
its organizational documents to own its properties and to carry on its business
as now conducted and is duly qualified to do business in all jurisdictions in
which the character or the location of the assets owned or leased by it or the
nature of the business conducted by it requires qualification, except where the
failure to be so qualified would not have a material adverse effect on the
Homebuilding Business. Except for such Subsidiaries or as set forth on Schedule
2.3, neither Mather nor Desert Inn own any Equity Securities of any Person.
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2.4 PARENT PARTNERSHIPS.
Each of the Parent Partnerships is a duly formed and validly existing
general partnership in good standing under the laws of the state of its
organization. Each Parent Partnership has all necessary power and authority
under its partnership agreement to own its property and to carry on its business
as now conducted and is duly qualified to do business in all jurisdictions in
which the character or the location of the assets owned or leased by it or the
nature of its business requires qualification, except where the failure to be so
qualified would not have a material adverse effect on the Homebuilding Business.
The Partnership Sellers own all the outstanding partnership interests in the
Parent Partnerships. There are no outstanding Contracts or other rights to
subscribe for or purchase, or Contracts or other obligations to issue or grant
any rights to acquire, any interest in the Parent Partnerships, or to
restructure or recapitalize the Parent Partnerships. There are no outstanding
Contracts of Sellers or the Parent Partnerships to repurchase, redeem or
otherwise acquire any interest in the Parent Partnerships. All Partnership
Interests were issued in conformity with all applicable Laws. Schedule 2.4 lists
all Subsidiaries of the Parent Partnerships and correctly sets forth the Parent
Partnership's ownership interest and profit or loss allocation (and any special
allocations with priority over the Parent Partnership's profit or loss
allocation) therein, any other interest of any other Person in such Subsidiary
and the jurisdiction in which each such Subsidiary was organized. Except as set
forth on Schedule 2.4, all of the Equity Securities, partnership interests,
membership interests, or other interests owned by a Parent Partnership in any
such Subsidiary are validly issued and outstanding, fully paid and
nonassessable, were issued in conformity with applicable Laws and without
violation of, and are free of, any preemptive rights, and are owned by such
Parent Partnership free and clear of any and all covenants, conditions, or other
Encumbrances. Each of such Subsidiaries is duly formed and validly existing
under the laws of the jurisdiction of its organization. Each such Subsidiary has
all necessary power and authority under its organizational documents to own its
properties and to carry on its business as now conducted and is duly qualified
to do business in all jurisdictions in which the character or the location of
the assets owned or leased by it or the nature of the business conducted by it
requires qualification, except where the failure to be so qualified would not
have a material adverse effect on the Homebuilding Business. Except for such
Subsidiaries or as set forth on Schedule 2.4, the Parent Partnerships own no
Equity Securities of any Person.
2.5 FINANCIAL STATEMENTS; CHANGES; CONTINGENCIES.
(a) Audited Financial Statements. Sellers have delivered to Buyer
combined balance sheets for the Lewis Homes group of companies at December 31,
1997 (the "Audited Balance Sheet Date") and 1996 and the related combined
statements of operations, equity and cash flows for the years ended December 31,
1997 and 1996. Such balance sheets and statements of operations, equity and cash
flows have been examined by the Auditors whose audit report thereon is included
with such statements. All such financial statements have been prepared in
conformity with GAAP applied on a consistent basis (except for changes, if any,
required by GAAP and disclosed therein) and present fairly, in all material
respects, the combined financial position of the Lewis Homes group of companies
at December 31, 1997 and 1996 and the combined results of their operations and
cash flows for the years then ended.
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Sellers have also delivered to Buyer combined Line of Business Operations/
Selected Financial Information for the Homebuilding Business at and for the year
ended December 31, 1997. Such combined Line of Business Operations/Selected
Financial Information has been subjected to the auditing procedures applied in
the audit by Auditors of the audited combined financial statements referred to
above, except as noted , and exclude the Excluded Assets (other than the
properties identified on Exhibit A as Sierra Lakes and Fontana (Zee) property)
and Excluded Liabilities and include the Included Assets and Included
Liabilities.
(b) Interim Financial Statements Sellers have delivered to Buyer a
combined balance sheet of the Homebuilding Business at June 30, 1998 and a
related combined income statement for the six months ended June 30, 1998. Such
financial statements have been prepared in conformity with GAAP on a basis
consistent with the audited financial statements referred to in Section 7.2(g)
(except for changes, if any, required by GAAP, the lack of notes thereto and the
exclusion of the Excluded Assets (other than the properties identified on
Exhibit A as Sierra Lakes and Fontana (Zee) property) and Excluded Liabilities
and the inclusion of the Included Assets and Included Liabilities) and present
fairly, in all material respects, the combined financial position of the
Homebuilding Business of the Homebuilding Entities at June 30, 1998 and the
combined results of operations for the six months ended June 30, 1998.
(c) No Material Adverse Changes. Except as set forth in Schedule 2.5,
since June 30, 1998, the Homebuilding Entities have conducted the Homebuilding
Business in the ordinary course of business consistent with past practices
(except for the exclusion of Excluded Assets and Excluded Liabilities and the
inclusion of the Included Assets and Included Liabilities) and, whether or not
in the ordinary course of the Homebuilding Business, there has not been,
occurred or arisen:
(i) any change in or event affecting the Homebuilding Business that
has had or is reasonably expected to have a material adverse effect on the
Homebuilding Business,
(ii) any agreement, condition, action or omission which would be
proscribed by (or require consent under) subsections (e), (f), (g), (h), (i),
(j), (k), (p), (q), (t), (u) or (v) (solely as it relates to subsections (e),
(f), (g), (h), (i), (j), (k), (p), (q), (t) and (u)) of Section 5.3 had it
existed, occurred or arisen after the date of this Agreement,
(iii) any strike or other labor dispute, or
(iv) any casualty, loss, damage or destruction (whether or not
covered by insurance) of any property of the Homebuilding Entities that
constitutes a material adverse change and that has involved or may involve a
loss to any of the Homebuilding Entities in excess of applicable insurance
coverage.
(d) No Other Liabilities or Contingencies. None of the Homebuilding
Entities has any material liabilities of any nature, whether accrued, absolute,
contingent, known, unknown, or otherwise, except liabilities that (i) are
reflected or disclosed in the most recent of
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the financial statements referred to in subsection (b) above, (ii) were incurred
after June 30, 1998 in the ordinary course of business, or (iii) are set forth
in Schedule 2.5 hereto.
(e) Reserves. At December 31, 1997, the reserves for construction
defects and litigation, but not including any warranty reserves, aggregated $5.5
million and on the Closing Date will be no less than $2.7 million.
2.6 TAX AND OTHER RETURNS AND REPORTS.
The Homebuilding Entities have timely filed (taking into account any
extensions) all required Tax Returns required to be filed by them before the
date hereof and have paid all Taxes shown on such Tax Returns to be due. The
Homebuilding Entities shall timely file (taking into account any applicable
extensions) all Tax Returns that are required to be filed by them on or after
the date hereof and before the Closing Date and shall pay all Taxes shown on any
such Tax Return to be due. All Tax Returns referred to above in this section
were or shall be complete and correct in all material respects. Adequate
provision has been made in the books and records of the Homebuilding Entities
and in the financial statements referred to in Section 2.5 above, for all Taxes
required to be paid or withheld for the periods covered by such financial
statements, whether or not disputed and whether or not due and payable. Except
as listed on Schedule 2.6, there is no audit, examination or similar proceeding
pending or, to Sellers' knowledge, threatened, or claim or assessment of
deficiency pending or, to the Sellers' knowledge, threatened, with respect to
any Tax Return of the Homebuilding Entities, and there are no outstanding
agreements or waivers extending the statutory period of limitation applicable to
any such Tax Return. None of the Sellers is a "foreign person" within the
meaning of Section 1445(b)(2) of the Code. Each of Management Corp. and
Branching Tree is, and has for all taxable periods beginning on and after its
incorporation, qualified to be, and with all required consents of its
shareholders has validly elected to be, taxed as an "S corporation" under the
Code and analogous state tax law. Such elections have never been terminated or
revoked, are currently in effect, and will be in effect through such time as
they terminate as a result of the Closing. Since such elections, neither
Management Corp. nor Branching Tree has acquired assets with a carryover basis
from a C corporation under the Code. The Homebuilding Entities have no liability
for any Taxes of any person or entity other than themselves under Treasury
Regulation Section 1.1502.6 (or any similar provision of state, local,
territorial, or foreign law), as transferee or successor, or by contract or
otherwise. Except as set forth in Schedule 2.6, none of the Homebuilding
Entities is a party to any agreement, contract, arrangement, or plan that has
resulted or would result, separately or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Section 280G of the Code.
2.7 MATERIAL CONTRACTS.
Schedule 2.7 lists each Contract to which any Homebuilding Entity is a
party or to which any Homebuilding Entity or any of their respective properties
is subject or by which any thereof is bound that is deemed a Material Contract
under this Agreement. Each Contract that (a) after June 30, 1998, obligates any
Homebuilding Entity to pay an amount of $500,000 or more, (b) represents a
Contract upon which the Homebuilding Business is substantially dependent, (c)
provides for an extension, assumption, or guarantee of credit to or by a
Homebuilding Entity in
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an amount of $500,000 or more, (d) limits or restricts the ability of any
Homebuilding Entity to compete or otherwise to conduct its business in any
manner or place, (e) provides for a guaranty or indemnity by any Homebuilding
Entity, (f) grants a power of attorney, agency or similar authority to another
person or entity, (g) contains a right of first refusal, (h) contains a right or
obligation of any Affiliate, officer or director or any Associate of any
Homebuilding Entity with respect to any Homebuilding Entity that cannot be
terminated by Buyer within 30 days after the Closing without penalty or payment,
(i) requires any Homebuilding Entity to buy or sell goods or services with
respect to which there will be material losses or will be costs and expenses
materially in excess of expected receipts (other than as provided for or
otherwise reserved against on the most recent of the balance sheet referred to
in Section 2.5), (j) provides for the acquisition or disposition of real
property in an amount of $500,000 or more, (k) provides for a joint venture,
partnership, or other profit or loss sharing arrangement, or (l) is a
development, entitlement, or similar agreement with any Governmental Entity,
shall be deemed to be a Material Contract and has been identified on such
Schedule 2.7. True copies of the agreements appearing on Schedule 2.7, including
all amendments and supplements, have been made available to Buyer. Each Material
Contract is valid and enforceable; each Homebuilding Entity, as applicable, has
duly performed all its obligations thereunder to the extent that such
obligations to perform have accrued; and no breach or default, alleged breach or
default, or event which would (with the passage of time, notice or both)
constitute a breach or default thereunder by any Homebuilding Entity, or, to the
knowledge of Sellers, any other party or obligor with respect thereto, has
occurred or, except as set forth in Schedule 2.7, as a result of this Agreement
or the consummation of the transactions contemplated hereby will occur. Except
as set forth in Schedule 2.7, consummation of the transactions contemplated by
this Agreement will not (and will not give any person a right to) terminate or
modify any rights of, or accelerate or augment any obligation of, any
Homebuilding Entity. The parties agree that special assessment districts need
not be listed on Schedule 2.7.
2.8 REAL AND PERSONAL PROPERTY; TITLE TO PROPERTY; LEASES.
(a) The Homebuilding Entities have good and marketable title to, a valid
leasehold interest in, or other right to use, all properties and assets material
to the conduct of the Homebuilding Business as reflected in the balance sheet as
of June 30, 1998 referred to in Section 2.5(b) or acquired since that date,
except for properties and assets in an aggregate amount that would not
constitute a material adverse change in the Homebuilding Business that were
disposed of since such date in the ordinary course of business consistent with
past practice. Except as set forth on Schedule 2.8(a), the Homebuilding Entities
hold all such title, interest, or right free and clear of Encumbrances other
than (i) liens securing taxes, assessments, or payments not yet due, (ii) such
imperfections or irregularities in title, easements, or other liens as are not
substantial in character, amount or extent and do not interfere with the
Homebuilding Entity's or Subsidiary's current use of the property subject
thereto or affected thereby or the development of such property in accordance
with current entitlement, development, or similar agreements with Governmental
Entities, and (iii) other matters which, individually or in the aggregate, do
not and would not have a material adverse effect with respect to the
Homebuilding Entities. The Homebuilding Entities have obtained title insurance
policies covering all real property owned by a Homebuilding Entity with an
initial purchase price in excess of $1 million.
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All of such tangible properties and assets are in good operating condition and
repair (ordinary wear and tear excepted and subject to normal scheduled
maintenance). Schedule 2.8(a) lists all of the real property owned or leased by
any Homebuilding Entity and with respect to leased property sets forth the
lessor, lease term (including any renewal rights), and lease payment amounts and
schedule. All leased real property held by any Homebuilding Entity, as lessee or
sublessee, as the case may be, under a lease providing for annual lease payments
exceeding $25,000 are held under valid, binding and enforceable leases or
subleases, and none of the Homebuilding Entities are in default thereunder. To
the knowledge of Sellers, there is no pending or threatened Action that would
materially interfere with the quiet enjoyment of any such leased real property
by any Homebuilding Entity.
(b) Except as set forth on Schedule 2.8(b), to the knowledge of Sellers,
(i) there are no endangered species or protected natural habitat, flora or fauna
located on any of the real property owned or leased by any Homebuilding Entity
constituting part of the Homebuilding Business and no such real property is
designated as wetlands, (ii) none of such real property is located within a
100-year flood plain as designated by any United States Governmental Entity or
is subject to seismic safety problems that prevent residential development
thereon, (iii) none of the Homebuilding Entities has received any notice of any
condemnation or eminent domain proceedings with respect to any of such real
property, or negotiations for the purchase of any such real property in lieu of
condemnation, and (iv) there are no moratoriums (including utility moratoriums)
by Governmental Entities responsible for issuing approvals or according other
entitlements with respect to any such real property.
(c) Schedule 2.8(c) sets forth: (i) a true and complete list of all
those matters for which a file was opened by Management Corp.'s Legal Department
(which employs all the in-house lawyers serving the Homebuilding Entities) on
behalf of a Homebuilding Entity on or after January 1, 1997, relating to a claim
or complaint by the purchaser (a "Lewis Homeowner") of a residence (a "Lewis
Home") developed or constructed by a Homebuilding Entity with respect to his/her
Lewis Home; (ii) the aggregate net customer service expenditures (excluding any
overhead allocation) of the Homebuilding Entities for 1996, 1997, and January 1
through August 31, 1998 (whether or not such customer service expenditures
related to requests for customer service from Lewis Homeowners during the
Homebuilding Entities' formal one-year warranty period) by tract; (iii) a true
and complete list of all home repurchases by any of the Homebuilding Entities
which closed escrow between January 1, 1997 and September 30, 1998; and (iv) the
number of customer service requests by tract with respect to any Lewis Home
which were open and not resolved as of September 30, 1998. Except as set forth
on Schedule 2.8(c), to the knowledge of Sellers, there are no warranty claims
exceeding $12,000 per individual house pending or settled or which resulted in
home purchases since January 1, 1997 against any Homebuilding Entity.
2.9 INTANGIBLE PROPERTY.
Schedule 2.9 lists all Marks and other items of Intangible Property in
which any Homebuilding Entity has an interest, other than Marks or Intangible
Property the loss of which would not have a material adverse effect on the
Homebuilding Entities, and the nature of such interest. Schedule 2.9 also lists
all Permits or other rights with respect to any of the foregoing.
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The Homebuilding Entities have the rights to and ownership of all Intangible
Property required for use in connection with the Homebuilding Business, the
absence of which would have a material adverse effect on the Homebuilding
Business. Without limiting the foregoing, Branching Tree owns the exclusive
right to the distinctive tree symbol used in the Homebuilding Business. Except
as set forth in Schedule 2.9, none of the Homebuilding Entities use any
Intangible Property by consent of any other person or are required to and do
make any payments to others with respect thereto. The Homebuilding Entities have
in all material respects performed all obligations required to be performed by
them, and none of such entities is in default in any material respect under any
Contract relating to any of the foregoing. Except as set forth in Schedule 2.9,
none of the Homebuilding Entities has received any notice to the effect that the
Intangible Property or any use by any Homebuilding Entity of any such property
conflicts with or allegedly conflicts with or infringes the rights of any
Person, and, to the knowledge of Sellers, no other person is infringing upon the
rights of any of the Homebuilding Entities with respect to any Marks or other
Intangible Property.
2.10 NO CONFLICTS.
Except as set forth on Schedule 2.10, the execution, delivery and
performance of this Agreement by Sellers and the performance by Sellers of any
of the transactions contemplated hereby will not violate, or constitute a breach
or default (whether upon lapse of time or notice or both) under, or give rise to
a right of termination, cancellation or acceleration of any obligation under,
the charter, partnership, or other operating documents of any Homebuilding
Entity or any Material Contract of any of such entities, result in the
imposition of any Encumbrance against any material asset or material properties
of any Homebuilding Entity, or violate any Law (assuming that the appropriate
governmental approvals are received as contemplated by Section 7.1(b)), except
for such violations, breaches, defaults, terminations, cancellations,
accelerations, or impositions that would not have a material adverse effect on
the Homebuilding Business. Except as set forth in Schedule 2.10, the execution
and delivery of this Agreement by Sellers and the performance of this Agreement
by Sellers will not require a filing or registration with, or the issuance of
any Permit or Approval by, any other third party or Governmental Entity.
2.11 LEGAL PROCEEDINGS AND CERTAIN LABOR MATTERS.
Except as set forth in Schedule 2.11, there is no Order or Action
pending, or, to the knowledge of Sellers, threatened, against or affecting any
Homebuilding Entity or any of their respective properties or assets that
individually or when aggregated with one or more other Orders or Actions has or
is reasonably expected to have a material adverse effect on the Homebuilding
Entities or on Sellers' ability to perform this Agreement. Schedule 2.l1 sets
forth all Orders or Actions pending or, to the knowledge of Sellers, threatened
against or affecting any Homebuilding Entity or any of their respective
properties or assets involving a claim for more than $100,000 or seeking or
imposing injunctive or other equitable relief against any Homebuilding Entity.
Except as set forth in Schedule 2.11, (i) each Homebuilding Entity is in
compliance in all material respects with the terms and requirements of each
Order listed on Schedule 2.11, which it, or any of the assets owned or used by
it, is or has been subject and (ii) to Sellers' knowledge, no Homebuilding
Entity has received any notice or other communication
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(whether oral or written) from any Governmental Entity or any other person
regarding any actual, alleged, possible, or potential violation of, or failure
to comply with, any term or requirement of any Order listed on Schedule 2.11,
except for any such violation that, individually or in the aggregate, will not
or could not reasonably be expected to result in a material adverse change to
the Homebuilding Entities. Except as set forth in Schedule 2.11, there is no
organized labor strike, dispute, slowdown or stoppage, or collective bargaining
or unfair labor practice claim pending or, to the knowledge of Sellers,
threatened against or affecting any Homebuilding Entity or the Homebuilding
Business. To Sellers' knowledge, none of the Homebuilding Entities nor any of
their respective officers, directors, partners, employees or agents has given or
made or agreed to give or make any illegal commissions, payment, gratuity, gift,
political contribution or similar benefit to any governmental employee who is in
a position to help or hinder the business of the Homebuilding Entities.
2.12 MINUTE BOOKS.
The minute books and similar records of organizational proceedings of
each of the Homebuilding Entities, to the extent required, accurately reflect
all actions and proceedings taken to date by the shareholders, board of
directors and committees, partners, or members (to the extent that any consent
of partners or members as a class has been required) of the Homebuilding
Entities, and such minute books and similar records contain true and complete
copies of the charter documents, partnership agreements, or operating agreement,
as applicable, of the Homebuilding Entities, and all related amendments. The
stock, partnership interest, or membership interest record books of each of the
Homebuilding Entities reflect accurately all transactions in its capital stock,
partnership interests, or membership interests of all classes.
2.13 ACCOUNTING RECORDS.
The Homebuilding Entities have records that accurately and validly
reflect their respective transactions, and accounting controls sufficient to
insure that such transactions are (i) executed in accordance with management's
general or specific authorization and (ii) recorded in conformity with GAAP so
as to maintain accountability for assets.
2.14 INSURANCE.
Schedule 2.14 lists all insurance policies and bonds held by the
Homebuilding Entities as of September 30, 1998. None of the Homebuilding
Entities is in default under any policy or bond. None of the Homebuilding
Entities has received any notice from any insurer or agent of any intent to
cancel or not to renew any insurance policy.
2.15 PERMITS.
The Homebuilding Entities hold all Permits that are required by any
Governmental Entity to permit each of them to conduct their respective
businesses as now conducted, and the Homebuilding Entities are in compliance
with such Permits, except (i) where the failure to hold or be in compliance with
such Permits would not, individually or in the aggregate, have a material
adverse effect on the Homebuilding Entities, and (ii) for Permits and
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entitlements for the development of real property which is not yet developed or
Permits not yet required in the development process of real property, and all
such Permits are valid and in full force and effect. To the knowledge of
Sellers, no suspension, cancellation or termination of any of such Permits is
threatened or imminent and no event has occurred that has resulted or would
reasonably be expected to result (with the passage of time, or notice, or both)
in a suspension, cancellation or termination of any such Permit.
2.16 EMPLOYEE BENEFITS.
(a) Employee Benefit Plans, Collective Bargaining and Employee
Agreements, and Similar Arrangements.
(i) Schedule 2.16 lists all employee benefit plans and collective
bargaining, employment or severance agreements or other similar arrangements to
which any Homebuilding Entity is a party or by which any of them is bound,
including, without limitation, (a) any profit-sharing, deferred compensation,
bonus (including any change-of-control, continuance or stay bonus), stock
option, stock purchase, phantom stock, restricted stock, pension, retainer,
consulting, retirement severance, termination, welfare or incentive plan,
agreement or arrangement, (b) any plan, agreement or arrangement providing for
"fringe benefits" or perquisites to employees, officers, directors or agents,
including but not limited to benefits relating to automobiles, clubs, vacation,
child care, parenting, sabbatical, sick leave, medical, dental, hospitalization,
life insurance and other types of insurance, (c) any employment agreement, or
(d) any other "employee benefit plan" (within the meaning of Section 3(3) or
ERISA).
(ii) Sellers have made available to Buyer true and complete copies
of all documents and summary plan descriptions with respect to such plans,
agreements and arrangements, or summary descriptions of any such plans,
agreements or arrangements not otherwise in writing.
(iii) The Homebuilding Entities are in full compliance with the
applicable provisions of ERISA (as amended through the date of this Agreement),
the regulations and published authorities thereunder, and all other Laws
applicable with respect to all such employee benefit plans, agreements and
arrangements, except where the failure to be in compliance would not have a
material adverse effect on the Homebuilding Entities. The Homebuilding Entities
have performed all of their obligations under all such plans, agreements and
arrangements. There are no Actions (other than routine claims for benefits)
pending or threatened against such plans or their assets, or arising out of such
plans, agreements or arrangements, and, to the knowledge of Sellers, no facts
exist which could give rise to any such Actions.
(iv) Except as set forth in Schedule 2.16, each of the plans,
agreements or arrangements can be terminated by the Homebuilding Entities within
a period of 30 days following the Closing Date, without payment of any
additional compensation or amount or the additional vesting or acceleration of
any such benefits.
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(v) Sellers shall pay or reimburse Buyer, upon request, for (A) any
severance payments made by Buyer or any Homebuilding Entity within the first 12
months after the Closing Date to Leon C. Swails pursuant to that certain
Employment Agreement dated as of February 27, 1995, as amended February 27,
1998, and (B) any "Deferred Salary" and "Special Bonus" under Section 3 of that
agreement if Mr. Swails' employment is terminated in the first 12 months of the
Closing Date as if Mr. Swails' employment was terminated as of the Closing Date.
(b) Qualified Plans. None of the Homebuilding Entities have a stock
bonus, pension or profit-sharing plan within the meaning of Section 401(a) of
the Code.
(c) Health Plans. All group health plans of the Homebuilding Entities
have been operated in substantial compliance with the group health plan
continuation coverage requirements of Section 162(k) and Section 4980B of the
Code to the extent such requirements are applicable.
(d) Fines and Penalties. There has been no act or omission by any
Homebuilding Entity or any ERISA Affiliate that has given rise to or may give
rise to fines, penalties, taxes, or related charges under Section 502(c) or (k)
or Section 4071 of ERISA or Chapter 43 of the Code.
(e) Other Plans. None of the Homebuilding Entities have an employee
pension benefit plan, a multi-employer plan (as defined in Section 3(37) of
ERISA) or a voluntary employees' beneficiary association as defined in Section
501(c) of the Code.
2.17 CERTAIN INTERESTS.
Except as set forth in Schedule 2.17, no Affiliate of any Seller or
Homebuilding Entity nor any officer, director, or partner of any thereof, nor
Associate of any such individual, has any material interest in any property or
other asset used in or pertaining to the Homebuilding Business. Except as set
forth in Schedule 2.17, the consummation of the transactions contemplated by
this Agreement will not (either alone, or upon the occurrence of any act or
event, or with the lapse of time, or both) result in any benefit or payment
(severance or other) arising or becoming due from any Homebuilding Entity or the
successor or assign of any thereof to any Person.
2.18 BANK ACCOUNTS, POWERS, ETC.
Schedule 2.18 lists each bank, trust company, savings institution,
brokerage firm, mutual fund or other financial institution with which any
Homebuilding Entity has an account or safe deposit box and the names and
identification of all Persons authorized to draw thereon or to have access
thereto, and lists the names of each Person holding powers of attorney or agency
authority from any Homebuilding Entity.
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2.19 NO BROKERS OR FINDERS.
No agent, broker, finder, or investment or commercial banker, or other
Person or firm engaged by or acting on behalf of Sellers or any Homebuilding
Entity or any of their respective Affiliates in connection with the negotiation,
execution or performance of this Agreement or the transactions contemplated by
this Agreement, is or will be entitled to any brokerage or finder's or similar
fee or other commission as a result of this Agreement or such transactions,
except Salomon Smith Barney, Inc. as to which Sellers shall have full
responsibility and neither Buyer nor any Homebuilding Entity shall have any
liability.
2.20 ENVIRONMENTAL COMPLIANCE.
Except as set forth in Schedule 2.20, (i) none of the Homebuilding
Entities has generated, used, transported, treated, stored, released or disposed
of, nor has suffered or permitted anyone else to generate, use, transport,
treat, store, release or dispose of any Hazardous Substance in violation of any
Laws, nor is in violation of or liable under any Laws relating to environmental
protection and compliance; (ii) there has not been any generation, use,
transportation, treatment, storage, release or disposal of any Hazardous
Substance in connection with the conduct of the Homebuilding Business or on or
in connection with the use of any property or facility of any Homebuilding
Entity or, to the knowledge of Sellers, any nearby or adjacent properties or
facilities, which has created or might reasonably be expected to create any
liability under any Laws or which would require reporting to or notification of
any Governmental Entity; (iii) no asbestos or polychlorinated biphenyl or
underground storage tank is contained in or located at any facility of any
Homebuilding Entity; and (iv) any Hazardous Substance handled or dealt with in
any way in connection with the businesses of any Homebuilding Entity has been
and is being handled or dealt with in all respects in compliance with applicable
Laws, in each case of clauses (i) through (iv) except where such action would
not have a material adverse effect on the Homebuilding Business. Sellers have
made available to Buyer true and complete copies of all reports, studies,
analyses, tests, or monitoring prepared or made by or on behalf of Sellers or
the Homebuilding Entities pertaining to Hazardous Materials in, on, or under
property now or previously owned or operated by any Homebuilding Entity,
including without limitation any Phase I or Phase II assessments referred to in
Schedule 2.20 of Sellers' Disclosure Schedule. With respect to properties that
are the subject of any such Phase I or Phase II assessments, Sellers' have no
knowledge of facts or circumstances inconsistent with the assessments therein.
ARTICLE III
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as otherwise indicated on the Sellers' Disclosure Schedule as
applying to a particular Section of this Article III, each Seller individually
represents, warrants and agrees as follows:
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3.1 OWNERSHIP BY SELLERS; NO CONFLICTS.
(a) Seller owns the number of shares of Stock, the Member Interests or
the Partnership Interests, as the case may be, set forth opposite his, her or
its name on Exhibit B hereto.
(b) Seller has good and marketable title to, and sole record and
beneficial ownership of, the shares of the Stock, the Member Interests or the
Partnership Interests, as the case may be, which are to be transferred to Buyer
by Seller pursuant hereto, free and clear of any and all covenants, conditions,
marital property rights, or other Encumbrances.
(c) If Seller is a entity, it has been duly incorporated or formed and
is validly existing in good standing under the laws of its state of
incorporation or formation. Whether an individual or an entity, Seller has the
right, power and authority to enter into this Agreement and any ancillary
agreements hereto, to transfer, convey and sell to Buyer at the Closing the
Stock, the Member Interests or the Partnership Interests, as the case may be, to
be sold to Buyer by such Seller, and otherwise to perform its obligations under
this Agreement and any ancillary agreements. Upon consummation of the Closing,
Buyer will acquire from such Seller legal and beneficial ownership of, and all
right to vote and other rights (including the right to admission as a partner or
member of the pertinent partnership or limited liability company) inhering in
the Stock, the Member Interests or the Partnership Interests, as the case may
be, to be sold to Buyer by such Seller, free and clear of all covenants,
conditions, marital property rights, or other Encumbrances.
(d) Seller is not a party to, subject to or bound by any Law or Order,
and no Action is pending against Seller or any Homebuilding Entity or, to such
Seller's knowledge, threatened, that would prevent the execution, delivery or
performance of this Agreement by Seller or the transfer, conveyance and sale of
the Stock, Member Interests, or Partnership Interests, as the case may be, to be
sold by Seller to Buyer pursuant to the terms hereof.
(e) This Agreement has been duly authorized by all necessary corporate,
partnership, or limited liability company action on the part of Seller, if
Seller is a corporation, partnership or limited liability company, has been
executed and delivered by Seller and is a valid and binding obligation of
Seller, enforceable against Seller in accordance with its terms, except as may
be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws limiting creditors' rights generally and equitable principles.
(f) Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby by Seller violates or will
violate or results or will result in a breach of any of the terms and provisions
of, or constitutes or will constitute a default under, or results or will result
in any augmentation or acceleration of rights, benefits or obligations of any
party under, any Contract to which Seller is a party or is bound or which
applies to the Stock, Member Interests, or Partnership Interests being sold, or
any Order applicable to Seller or to the Stock, Member Interests, or Partnership
Interests being sold.
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(g) If and to the extent required, Seller hereby consents to the
execution, delivery, and performance of this Agreement by each other Seller and
consents to the admission of Buyer as a stockholder, partner, or member of each
Homebuilding Entity, as applicable.
3.2 SECURITIES ACT MATTERS.
(a) Seller will acquire the shares of Buyer Common Stock comprising the
stock portion of the Purchase Price for investment for Seller's own accounts and
not with a view to or for offer or sale in connection with any distribution
thereof. Seller understands that the shares of Buyer Common Stock delivered
pursuant to this Agreement will not have been registered under the Securities
Act of 1933, as amended (the "Securities Act") or any applicable state
securities laws by reason of a specific exemption or exception from the
registration requirements thereof which depend upon, among other things, the
accuracy of Seller's representations and warranties in this Section. Seller
understands that, until such time as a registration statement covering the
resale of such shares of Buyer Common Stock is effective under the Securities
Act, or such shares may otherwise be freely traded by Seller without
registration under the Securities Act, each stock certificate evidencing such
shares may bear a legend substantially to the effect that the shares represented
by such certificate have not been registered under the Securities Act or any
applicable state securities laws and may be offered and sold only if so
registered or upon delivery to Buyer of an opinion of counsel that an exemption
or exception from such registration is applicable.
(b) Seller acknowledges receipt, either directly or through the
Representative, of all information requested from Buyer and considered by Seller
to be necessary or appropriate for deciding whether to acquire the shares of
Buyer Common Stock to be delivered pursuant to this Agreement, including,
without limitation, the Buyer SEC Reports referred to in Section 4.9. Seller is
an "accredited investor" within the meaning of Rule 501(a) under the Securities
Act or has such knowledge and experience in financial and business matters that
Seller is capable of evaluating the merits and risks of, and Seller is able to
bear the economic risk of, acquiring such shares of Buyer Common Stock. Seller
has had the opportunity to ask questions and receive answers regarding the terms
and conditions of the acquisition of Buyer Common Stock pursuant to this
Agreement.
(c) Seller does not currently own, beneficially or of record, any shares
of Buyer Common Stock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Except as otherwise indicated on the Buyer's Disclosure Schedule as
applying to a particular Section in this Article IV, Buyer represents, warrants
and agrees as follows:
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4.1 ORGANIZATION AND RELATED MATTERS.
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Buyer has all necessary
corporate power and authority to carry on its business as now being conducted.
Buyer has the necessary corporate power and authority to execute, deliver and
perform this Agreement.
4.2 AUTHORIZATION.
The execution, delivery and performance of this Agreement by Buyer have
been duly and validly authorized by the Board of Directors of Buyer and by all
other necessary corporate action on the part of Buyer. This Agreement has been
duly executed and delivered by Buyer and constitutes the legal, valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms except as may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or limiting creditors' rights
generally and equitable principles.
4.3 NO CONFLICTS.
The execution, delivery and performance of this Agreement by Buyer will
not violate the provisions of, or constitute a breach or default (whether upon
lapse of time and/or the occurrence of any act or event or otherwise) under (a)
the certificate of incorporation or bylaws of Buyer, (b) any Law or Order to
which Buyer is subject or (c) any Contract to which Buyer is a party that is
material to the financial condition, results of operations or conduct of the
business of Buyer, provided (as to clauses (b) and (c) respectively) that the
appropriate regulatory approvals set forth on Schedule 4.3 are received as
contemplated by Section 7.1(b). Except as set forth in Schedule 4.3, the
execution and delivery of this Agreement by Buyer and the performance of this
Agreement by Buyer will not require a filing or registration with, or the
issuance of any Permit or Approval by, any other third party or Governmental
Entity.
4.4 NO BROKERS OR FINDERS.
No agent, broker, finder or investment or commercial banker, or other
Person or firms engaged by or acting on behalf of Buyer or its Affiliates in
connection with the negotiation, execution or performance of this Agreement or
the transactions contemplated by this Agreement, is or will be entitled to any
broker's or finder's or similar fees or other commissions as a result of this
Agreement or such transactions, except Warburg Dillon Read LLC, as to which
Buyer shall have full responsibility and none of the Sellers or the Homebuilding
Entities shall have any liability.
4.5 LEGAL PROCEEDINGS.
Except as set forth in Schedule 4.5, there is no Order or Action pending
or to the knowledge of Buyer, threatened against or affecting Buyer that
individually or when aggregated with one or more other Actions has or might
reasonably be expected to have a material adverse effect on Buyer's ability to
perform this Agreement.
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4.6 INVESTMENT REPRESENTATION.
Buyer is acquiring the Stock and Partnership Interests from Sellers for
Buyer's own accounts for investment purposes only and not with a view to or for
sale in connection with the public distribution thereof. Buyer is knowledgeable
and experienced in the purchase of businesses and securities of the type
contemplated by this Agreement and has the capacity to protect its own interest
in connection with the transactions contemplated hereby. Buyer acknowledges that
neither the Shares nor the Partnership Interests have been registered under the
Securities Act of 1933, as amended, or qualified under any state securities or
blue sky laws.
4.7 FINANCING.
The Buyer has available sufficient funds to enable it to consummate the
transactions contemplated hereby.
4.8 CAPITAL STOCK.
The shares of Buyer Common Stock to be issued as the stock portion of
the Purchase Price have been duly authorized by all necessary corporate action
on the part of the Buyer and, when issued pursuant to this Agreement, will be
validly issued, fully paid and nonassessable, and such shares will be issued
without any violation of preemptive rights.
4.9 SEC FILINGS; FINANCIAL STATEMENTS.
Buyer has delivered to the Sellers, in the form filed with the SEC, (i)
its Annual Report to Shareholders and Annual Report on Form 10-K for the fiscal
year ended November 30, 1997, (ii) its Proxy Statement for Annual Meeting of
Shareholders on April 2, 1998, (iii) its Quarterly Reports on Form 10-Q for the
quarters ended February 28, 1998, May 30, 1998, and August 30, 1998, (iv) its
Current Reports on Form 8-K, dated June 23, 1998 and August 14, 1998, and (v)
any amendments and supplements to any such reports filed by Buyer with the SEC
(collectively, the "Buyer SEC Reports"). The Buyer SEC Reports did not at the
time they were filed (or if amended or superseded by a filing prior to the date
hereof, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The consolidated financial statements of Buyer included in
the Buyer SEC Reports comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP (except, in the case
of unaudited consolidated quarterly statements, as permitted by Form 10-Q of the
SEC) applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated financial
position of Buyer and its consolidated subsidiaries as of the dates thereof and
the consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited quarterly statements, to normal
year-end audit adjustments). Neither Buyer nor any of its subsidiaries has any
material liability of any nature, whether accrued, absolute, contingent or
otherwise, except liabilities that (i) are reflected or disclosed in the most
recent financial
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statements included in the Buyer SEC Reports, (ii) were incurred after August
30, 1998 in the ordinary course of business, or (iii) are set forth in Schedule
4.5 hereto. Since August 30, 1998, there has not been, occurred or arisen any
change in or event affecting Buyer or any of its subsidiaries that has or is
reasonably expected to have a material adverse effect on Buyer, except as set
forth in Schedule 4.5.
ARTICLE V
COVENANTS PRIOR TO CLOSING
5.1 ACCESS.
Seller shall cause the Homebuilding Entities to authorize and permit
Buyer and its representatives (which term shall be deemed to include its
independent accountants and counsel) to have reasonable access during normal
business hours, upon reasonable notice and in such manner as will not
unreasonably interfere with the conduct of their respective businesses, to all
of their respective properties, books, records, operating instructions and
procedures, Tax Returns and all other information with respect to the
Homebuilding Business as Buyer may from time to time reasonably request, and to
make copies of such books, records and other documents and to discuss their
respective businesses with such other Persons, including, without limitation,
their respective directors, officers, employees, accountants, counsel,
suppliers, customers, and creditors, as Buyer considers necessary or appropriate
for the purposes of familiarizing itself with the Homebuilding Business,
obtaining any necessary Approvals of or Permits for the transactions
contemplated by this Agreement and conducting an evaluation of the organization
and Homebuilding Business. Without limiting the generality of the foregoing,
Buyer shall be entitled to conduct or cause to be conducted (at its expense) on
any real property of the Homebuilding Entities such soils and geological tests
and environmental inspections, audits and tests (including the taking of soils
and ground water samples) and such structural and other physical inspections as
Buyer shall deem necessary or useful in connection with the transactions
contemplated by this Agreement. Buyer shall cause any damages resulting from any
such testing, inspection or audit to be repaired at Buyer's sole cost, and Buyer
agrees to indemnify and hold the Sellers and the Homebuilding Entities harmless
from any loss, cost, expense or liability incurred by any Seller or Homebuilding
Entity relating to or arising out of the conduct of any such tests, inspections
or audits. Neither Buyer's making nor omitting to make any such test,
inspection, or audit shall affect the representations and warranties of Sellers
or the conditions to Buyer's obligations hereunder, or Seller's indemnification
obligations.
5.2 MATERIAL ADVERSE CHANGES.
Sellers will promptly notify Buyer of any event of which such Seller
obtains knowledge which has had or is reasonably expected to have a material
adverse effect on the Homebuilding Business or which if known as of the date
hereof would have been required to be included on a Schedule to this Agreement.
No such notification shall affect the representations
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or warranties of Sellers or the conditions to Buyer's obligations hereunder, or
Seller's indemnification obligations. Sellers will promptly notify Buyer of any
Action that commences or is threatened on or after the date hereof and before
the Closing Date that involves a claim for damages in excess of $50,000 or seeks
injunctive relief, specific performance, or other equitable remedies.
5.3 CONDUCT OF BUSINESS.
Sellers shall cause the Homebuilding Entities not to take, any of the
following actions without the prior consent in writing of Buyer (which consent
shall not be unreasonably withheld, except that Buyer may give or withhold its
consent in its sole discretion with respect to the matters specified in clauses
(f), (h), (i), (k), (l), (m), (n), (s) and (u)):
(a) conduct the Homebuilding Business in any manner except in the
ordinary course substantially as now conducted; or
(b) amend, terminate, renew, fail to renew or renegotiate any Material
Contract or default (or take or omit to take any action that, with or without
the giving of notice or passage of time, would constitute a default) in any of
its obligations under any Material Contract or enter into any new Material
Contract; or
(c) terminate, amend or fail to renew any existing insurance coverage;
or
(d) terminate or fail to renew or preserve any Permits; or
(e) create, incur, assume or guarantee any long-term debt or capitalized
lease obligation of more than $250,000 in any specific case or $1,000,000 in the
aggregate; or
(f) create, incur, assume or guarantee any long-term debt or capitalized
lease obligation of more than $500,000 in any specific case or $2,000,000 in the
aggregate, or assume or guarantee any debt or obligation of any person that is
not one of the Homebuilding Entities; or
(g) make any loan, guaranty or other extension of credit, or enter into
any commitment to make any loan, guaranty or other extension of credit, to or
for the benefit of, or enter into any agreement for the acquisition or
disposition of property from or to, any director, officer, employee,
stockholder, partner or any of their respective Associates or Affiliates of less
than or equal to $500,000 in any specific case or $1,000,000 in the aggregate;
or
(h) make any loan, guaranty or other extension of credit, or enter into
any commitment to make any loan, guaranty or other extension of credit, to or
for the benefit of, or enter into any agreement for the acquisition or
disposition of property from or to, any director, officer, employee,
stockholder, partner or any of their respective Associates or Affiliates of more
than $500,000 in any specific case or $1,000,000 in the aggregate.
(i) grant any general or uniform increase in the rates of pay or
benefits to officers, directors or employees (or a class thereof) or any
increase in salary or benefits of or pay
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any bonus to any officer, director, employee or agent, or enter into any new, or
amend, supplement, or renew any existing, employment, collective bargaining,
severance, change in control, bonus, profit sharing, deferred compensation,
fringe benefit, consultancy, or other employee benefit agreement or plan, or
increase or accelerate any benefits payable under any of the foregoing; or
(j) sell, transfer, mortgage, encumber or otherwise dispose of any
assets, except (i) for dispositions of property not greater than $250,000 in any
specific case or $1,500,000 in the aggregate, (ii) the disposition of Excluded
Assets or (iii) in the ordinary course of business consistent with past
practice; or
(k) sell, transfer, mortgage, encumber or otherwise dispose of any
assets, except (i) for dispositions of property not greater than $500,000 in any
specific case or $3,000,000 in the aggregate, (ii) the disposition of Excluded
Assets or (iii) in the ordinary course of business consistent with past
practice; or
(l) issue, sell, redeem or acquire for value, or agree to do so, any
debt obligations or Equity Securities of any Homebuilding Entity; or
(m) split, combine, dividend, distribute or reclassify any shares of the
Equity Securities of Management Corp., Branching Tree, Mather, Desert Inn or the
Parent Partnerships; or declare, issue, make or pay any dividend or other
distribution of assets, whether consisting of money, other personal property,
real property or other thing of value, to the shareholders of Management Corp.
or Branching Tree, the members of Mather or Desert Inn or the partners of the
Parent Partnerships, other (i) than the distribution of the Excluded Assets,
(ii) pursuant to those agreements existing on the date of this Agreement and
identified on Schedules 2.3 or 2.4 and (iii) cash on hand so long as the Net
Worth of the Homebuilding Business of the Homebuilding Entities as of the
Closing Date is not less than $215 million; or
(n) change or amend the charter documents or bylaws of Management Corp.
or Branching Tree or the governing agreements of Mather, Desert Inn or the
Parent Partnerships or any of their Subsidiaries or merge, consolidate, transfer
substantially all the assets of (other than Excluded Assets), liquidate, or
dissolve any of the Homebuilding Entities; or
(o) make any investment, by purchase, contributions to capital, property
transfers, loan, or otherwise, in any other Person; or
(p) make any Tax election or make any change in any method or period of
accounting or in any accounting policy, practice or procedure; or
(q) introduce any new method of management or operation in respect of
the Homebuilding Business; or
(r) acquire or agree to acquire any assets the consideration for which
would exceed $250,000 individually or $1,000,000 in the aggregate; or
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(s) acquire or agree to acquire any assets the consideration for which
would exceed $500,000 individually or $2,000,000 in the aggregate; or
(t) settle or compromise any Action; or
(u) settle or consent to the entry in any Action of any Order that would
have or reasonably be expected to have a material adverse effect on the
Homebuilding Business; or
(v) agree to or make any commitment to take any actions prohibited by
this Section 5.3.
5.4 NOTIFICATION OF CERTAIN MATTERS.
Each Seller shall give prompt written notice to Buyer, and Buyer shall
give prompt written notice to Sellers, of (i) the occurrence, or failure to
occur, of any event that is reasonably likely to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect (or with respect to those representations and warranties that are
qualified by reference to materiality or a material adverse effect, to be untrue
or inaccurate in any respect taking into account such qualification) at any time
from the date of this Agreement to the Closing Date and (ii) any failure of
Buyer or Sellers, as the case may be, to comply with or satisfy, in any material
respect, any covenant, condition or agreement to be complied with or satisfied
by it under this Agreement.
No such notification shall affect the representations or warranties of
the parties or the conditions to their respective obligations hereunder, or
their respective indemnification obligations.
5.5 PERMITS AND APPROVALS.
(a) Sellers and Buyer each agree to cooperate and use their commercially
reasonable efforts to obtain (and will promptly prepare all registrations,
filings and applications, requests and notices preliminary to all) Approvals and
Permits that may be necessary to consummate the transactions contemplated by
this Agreement.
(b) To the extent that the Approval of a third party with respect to any
Material Contract is required in connection with the transactions contemplated
by this Agreement, Sellers shall use its commercially reasonable efforts to
obtain such Approval prior to the Closing Date and in the event that any such
Approval is not obtained (but without limitation on Buyer's rights under Section
7.2), Sellers shall cooperate with Buyer to ensure that Buyer obtains the
benefits of each such Contract.
5.6 PRESERVATION OF BUSINESS PRIOR TO CLOSING DATE.
During the period beginning on the date hereof and ending on the Closing
Date, (a) Sellers will use their commercially reasonable efforts to preserve the
Homebuilding Business and to preserve the goodwill of employees, customers,
suppliers and others having business relations with the Homebuilding Entities
and (b) Sellers and Buyer will consult with each other
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concerning, and Sellers will cooperate to keep available to Buyer, the services
of the officers and employees of the Homebuilding Entities that Buyer may wish
to have any Homebuilding Entity retain.
5.7 GOVERNMENT FILINGS.
Buyer will make and Sellers will make, and will cause the Homebuilding
Entities to make, any and all filings required under the Hart-Scott-Rodino Act.
Sellers and Buyer shall furnish each other such necessary information and
reasonable assistance as the other may reasonably request in connection with its
preparation of necessary filings or submissions under the provisions of such
law, and shall provide each other a reasonable opportunity to review, prior to
filing, any filing with a Governmental Entity related to this Agreement. Sellers
and Buyer will supply to each other copies of all correspondence, filings or
communications, including file memoranda evidencing telephonic conferences, by
such party or its affiliates with any Governmental Entity or members of its
staff, with respect to the transactions contemplated by this Agreement and any
related or contemplated transactions, except for documents filed pursuant to
Item 4(c) of the Hart-Scott Rodino Notification and Report Form or
communications regarding the same.
5.8 ELIMINATION OF INTERCOMPANY AND AFFILIATE LIABILITIES.
No later than the Closing Date, Sellers shall purchase, cause to be
repaid or (with respect to guarantees) assume liability for any and all loans or
other extensions of credit made or guaranteed by any Homebuilding Entity to or
for the benefit of a Seller or any of such Seller's Associates. At the Closing
Date, neither Buyer nor any Homebuilding Entity shall have any continuing
commitment, obligation or liability of any kind with respect to any Seller or
any Associates of any Seller, except as set forth in Schedule 5.8.
5.9 REPRESENTATIVE.
Each Seller hereby appoints John M. Goodman as representative (the
"Representative") to represent such Seller in connection with the transactions
contemplated by this Agreement, and to take any and all action, and to receive
any and all notices, on Seller's behalf hereunder that may be taken or received
by Seller under the terms hereof. Without giving notice to the Sellers, the
Representative shall have full and irrevocable authority on behalf of the
Sellers to (i) deal with Buyer, (ii) accept and give notices and other
communications relating to this Agreement, (iii) settle any disputes relating to
this Agreement, (iv) waive any condition to the obligations of the Sellers
included in this Agreement, (v) execute any document or instrument that the
Representative may deem necessary or desirable in the exercise of the authority
granted under this Section, and (vi) act in connection with all matters arising
out of, based upon, or in connection with, this Agreement and the transactions
contemplated hereby. Each Seller understands and agrees that the Representative
has been appointed as the Representative by each of the other Sellers. Buyer
shall be entitled to rely on the advice, information and decisions of the
Representative evidenced by a writing signed by him without any obligation
independently to verify, authenticate or seek the confirmation or approval of
the Representative's advice, information or decisions or any other facts from
Sellers or any other Person. Any certificate or other document to be delivered
by Sellers at the Closing may be executed and delivered by the
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Representative on behalf of all Sellers and shall constitute a reaffirmation of
any representations herein as of the Closing by such Seller unless he, she or it
otherwise notifies Buyer in writing on or prior to the Closing of any exceptions
thereto.
5.10 EXCHANGE LISTING; REGISTRATION RIGHTS.
Buyer will use its best efforts to cause the shares of Buyer Common
Stock comprising the stock portion of the Purchase Price to be authorized for
listing on the New York Stock Exchange, upon notice of issuance, prior to the
Closing Date. On the Closing Date, Buyer will enter into an agreement in
substantially the form of Exhibit E providing for registration rights upon the
terms and conditions set forth therein (the "Registration Rights Agreement").
5.11 SHAREHOLDERS AGREEMENT.
On the Closing Date, Buyer and Sellers shall enter into a shareholders
agreement in substantially the form of Exhibit F hereto (the "Shareholder
Agreement").
5.12 COST SHARING AGREEMENTS AND OPTION AGREEMENT.
On the Closing Date, Buyer and Sellers (or their designee(s)) shall
enter into cost sharing agreements with respect to the Highland/Lytle Creek and
Terra Vista projects in substantially the forms of Exhibit G and H,
respectively, hereto (collectively, the "Cost Sharing Agreements"), and an
option agreement with respect to the Sierra Lakes project in substantially the
form of Exhibit I hereto (the "Option Agreement").
5.13 EMPLOYEES.
The parties agree to consult in good faith with each other prior to the
Closing and prior to soliciting Homebuilding Entities' employees to determine
which employees of the Homebuilding Entities will remain with the Homebuilding
Business of the Homebuilding Entities and which employees of the Homebuilding
Entities will become employees of the non-Homebuilding Business of Sellers.
Sellers shall provide to Buyer such information regarding the employees of the
Homebuilding Entities as Buyer may reasonably request. The parties agree to
consult in good faith with each other prior to the Closing to determine which
employees, if any, of the Homebuilding Entities need to be loaned on a
short-term basis between them and the reasonable expense charges for any loaned
employees.
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ARTICLE VI
ADDITIONAL CONTINUING COVENANTS
6.1 NONCOMPETITION.
(a) Restrictions on Competitive Activities. Subject to the provisions of
Section 6.10, each Seller agrees that after the Closing, Buyer and the
Homebuilding Entities shall be entitled to the goodwill and going concern value
of the Homebuilding Business and to protect and preserve the same to the maximum
extent permitted by law. For these and other reasons and as an inducement to
Buyer to enter into this Agreement, each Seller, other than John M. Goodman,
agrees that for a period of four years after the Closing Date or one year after
termination of that Seller's employment or consulting agreement with Buyer or
any of the Homebuilding Entities, whichever is later, and in the case of John M.
Goodman, for a period of two years after the Closing Date, such Seller will not,
in the States of California or Nevada, directly or indirectly, for its own
benefit or as agent for another carry on or participate in the ownership,
management or control of, or be employed by, or consult for, or serve as a
director of, or otherwise render services to, the business of constructing or
selling single family homes of any business entity.
(b) Exceptions. Nothing contained herein shall limit the right of a
Seller as an investor to hold and make investments in securities of any
corporation or limited partnership that is registered on a national securities
exchange or admitted to trading privileges thereon or actively traded in a
generally recognized over-the-counter market, provided such Seller's equity
interest therein does not exceed 5% of the outstanding shares or interests in
such corporation or partnership.
(c) Nonsolicitation. During the period of one year after the Closing
Date, Sellers and their affiliates (excluding the Homebuilding Entities after
the Closing Date) shall refrain from soliciting for employment, directly or
indirectly, any then employees of the Homebuilding Entities. This prohibition
shall not extend to employing any such person who contacts Sellers or their
affiliates on his or her own initiative without any direct or indirect
solicitation or encouragement from any Seller or its affiliates or employees (it
being understood that placing a general advertisement does not constitute
solicitation).
(d) Special Remedies and Enforcement. Each Seller recognizes and agrees
that a breach by such Seller of any of the covenants set forth in this Section
6.1 could cause irreparable harm to Buyer, that Buyer's remedies at law in the
event of such breach would be inadequate, and that, accordingly, in the event of
such breach a restraining order or injunction or both may be issued against such
Seller, in addition to any other rights and remedies which are available to
Buyer. If this Section 6.1 is more restrictive than permitted by the Laws of the
jurisdiction in which Buyer seeks enforcement hereof, this Section 6.1 shall be
limited to the extent required to permit enforcement under such Laws. Without
limiting the generality of the foregoing, the parties intend that the covenants
contained in the preceding portions of this Section 6.1 shall be construed as a
series of separate covenants, one for each state. Except for
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geographic coverage, each such separate covenant shall be deemed identical in
terms. If, in any judicial proceeding, a court shall refuse to enforce any of
the separate covenants deemed included in this Section 6.1, then such
unenforceable covenant shall be deemed eliminated from these provisions for the
purpose of those proceedings to the extent necessary to permit the remaining
separate covenants to be enforced.
6.2 NON-DISCLOSURE OF PROPRIETARY DATA.
Each Seller agrees that such Seller will not, at any time, make use of,
divulge or otherwise disclose, directly or indirectly, any trade secret or other
proprietary data concerning the business or policies of any Homebuilding Entity
as they relate to the Homebuilding Business, other than form documents used by
any Homebuilding Entity, or of Buyer obtained in connection with the
negotiation, execution, or performance of this Agreement. In addition, each
Seller agrees not to make use of, divulge or otherwise disclose, directly or
indirectly, to persons other than Buyer, any confidential information concerning
the business or policies of any Homebuilding Entity as they relate to the
Homebuilding Business which may have been learned in any such capacity or of
Buyer which may have been learned in connection with the negotiation, execution,
or performance of this Agreement. The Seller's obligations under this Section
with respect to any trade secret, other proprietary data, or confidential
information of Buyer shall survive the termination of this Agreement if this
Agreement is terminated prior to the Closing.
6.3 TAX RETURNS.
(a) The Sellers shall cause to be prepared and timely filed (or provided
to Buyer for execution and filing, if applicable) when due (taking into account
all extensions properly obtained) all income and franchise Tax Returns of the
Homebuilding Entities for taxable periods ending on or before the Closing Date,
and all other Tax Returns required to be filed by or on behalf of such entities
on or before the Closing Date. All Tax Returns described in this Section 6.3(a)
shall be prepared and filed in a manner consistent with past practice and, on
such Tax Returns, no position shall be taken, election made or method adopted
without Buyer's written consent (which shall not be unreasonably withheld) that
is inconsistent with positions taken, elections made or methods used in
preparing and filing similar Tax Returns in prior periods (including, but not
limited to, positions, elections or methods which would have the effect of
deferring income to periods after the Closing Date).
(b) Buyer shall cause to be prepared and timely filed all Tax Returns of
the Homebuilding Entities that are not described in Section 6.3(a) above. If any
such Tax Return covers a period beginning before the Closing Date, Sellers shall
have the right to review and approve (which approval shall not be unreasonably
withheld) such Tax Return before it is filed if it could affect the Sellers' or
Shareholders' liability for Taxes to any taxing authority or their
indemnification obligations to Buyer under this Agreement. Any Tax Return
described in the preceding sentence shall be provided to the Sellers not less
than 14 days prior to the proposed filing date together with any underlying
information or records requested by the Sellers to assist their review.
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6.4 TAX COOPERATION.
(a) After the Closing, the Sellers and the Buyer shall, and shall cause
their respective Affiliates to, cooperate fully with each other in the
preparation and filing of all Tax Returns and any Tax investigation, audit or
other proceeding respecting the Homebuilding Business (a "Tax Proceeding") and
shall provide, or cause to be provided, any records and other information in
their possession or control or in the control of their agents reasonably
requested by such other party in connection therewith as well as access to, and
the cooperation of, their respective auditors. Buyer shall notify Sellers in
writing promptly upon receipt by Buyer or any Affiliate of any notice of any
pending or threatened audits or assessments relating to Taxes with respect to
any Homebuilding Entity other than Taxes as to which Sellers or the Shareholders
have no indemnification obligation or other liability relating to Taxes. Sellers
shall have the right to control the handling and disposition of such audit and
any administrative or court proceeding relating thereto (and to employ counsel
of their choice at their expense) to the extent that such audit or proceeding
might result in increased Tax liabilities of the Sellers or the Shareholders for
the period covered by the Tax Proceeding or an increase in their indemnification
obligations to Buyer under this Agreement; provided, however, that Buyer may
monitor the Tax Proceeding. Sellers shall not agree to any settlement concerning
Taxes of any Homebuilding Entity for any taxable period which would result in an
increase in Taxes of Buyer or any Homebuilding Entity for any taxable period
ending after the Closing Date, without the prior written consent of the Buyer
(which consent shall not be unreasonably withheld). The Buyer and the Sellers
shall bear their respective costs and expenses in connection with any Tax
Proceeding. Any information obtained pursuant to this Section 6.4 or pursuant to
any other Section hereof providing for the sharing of information or the review
of any Tax Return or other information relating to Taxes shall be subject to
Section 10.9.
(b) At Buyer's election, made not less than 60 days before any such
election must be made, (i) the Management Corp. Sellers and Branching Tree
Sellers, jointly with Buyer, shall make timely and irrevocable elections under
Section 338(h)(10) of the Code and similar elections under any applicable state
or local Tax laws for Management Corp. and Branching Tree (the "Section
338(h)(10) Elections"), (ii) the Partnership Sellers shall cause the Parent
Partnerships and their Subsidiaries to make, timely and irrevocable elections
under Section 754 of the Code and similar elections under any applicable state
or local Tax laws for the Parent Partnerships and their Subsidiaries, and (iii)
the Mather Sellers and Desert Inn Sellers shall cause Mather, Desert Inn, and
their Subsidiaries to make timely and irrevocable elections under Section 754 of
the Code and similar elections under any applicable state or local Tax laws for
Mather, Desert Inn, and their Subsidiaries (collectively with the elections for
the Parent Partnerships and their Subsidiaries, the "Section 754 Elections" and
collectively with the Section 338(h)(10) Elections, the "Tax Elections"). If the
Tax Elections are made, Buyer, Sellers, and the Homebuilding Entities shall
report the transactions contemplated herein consistently with the Tax Elections
and shall take no position contrary thereto unless and to the extent required to
do so pursuant to a final determination of liability in respect of a Tax that,
under applicable law, is not subject to further appeal, review, or modification
through proceedings or otherwise). To the extent possible, Buyer, Sellers, and
the Homebuilding Entities, as applicable, shall execute at the Closing any and
all documents, statements, and other forms that are required to be submitted to
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any Taxing authority in connection with the Tax Elections (the "Tax Election
Forms"). If any Tax Election Forms are not executed at the Closing, Buyer,
Sellers, and the Homebuilding Entities, as applicable, shall prepare and
complete each such Tax Election Form no later than 30 days before the date such
Tax Election Form is required to be filed, shall cause such Tax Election Forms
to be duly executed by their respective authorized persons, and shall timely
file such Tax Election Forms in accordance with applicable Tax laws.
(c) Buyer and Sellers agree to use their best efforts to agree upon a
schedule and supporting sub-allocation schedules, in substantially the form of
(but without regard to the specific numbers on) Schedule 6.4(c) hereto
(collectively the "Allocation Agreement"), and Sellers and Buyer agree to cause
each of the Homebuilding Entities to agree to the Allocation Agreement insofar
as the Allocation Agreement addresses them, (i) to allocate the Management Corp.
Stock Purchase Price and the liabilities of Management Corp. (and other relevant
items) to the assets of Management Corp. and the Branching Tree Stock Purchase
Price and liabilities of Branching Tree (and other relevant items) to the assets
of Branching Tree, in both cases for all applicable Tax purposes, including the
Section 338(h)(10) Elections, and (ii) to make and allocate the basis
adjustments to the assets of Mather, the assets of Desert Inn and its
Subsidiary, and the assets of the Parent Partnerships and their respective
Subsidiaries, in each case for all applicable Tax purposes, including the
Section 754 Elections and the allocation of inside basis adjustments resulting
from the Section 754 Elections. Sellers shall initially prepare the schedules
setting forth the allocations described above and submit the proposed
allocations to Buyer within the later of (x) 30 days after the date of delivery
to Buyer of the 1998 audited financial statements referred to in Section 6.8
hereof, and (y) 30 days after the final determination of the adjustment to the
Purchase Price pursuant to Section 1.6 hereof, but in no event later than 120
days after the Closing Date. If, within 30 days after Sellers' submission, Buyer
has not objected in writing to such allocation, specifying in reasonable detail
the nature and amount of the disagreement, Sellers' proposed allocation shall
become the Allocation Agreement. If Buyer objects, then unless Buyer and Sellers
resolve such disagreement within 10 days after delivery of Buyer's notice of
disagreement, the disagreement shall be resolved by an accounting firm chosen as
stated in Section 1.6. Such accounting firm shall resolve such disagreement
within 30 days of submission of the disagreement to it. The determination of
such accounting firm shall be final and binding on Buyer and Sellers (absent
manifest error in calculations) and the fees and expenses of such accounting
firm shall be borne equally by Sellers, on the one hand, and Buyer, on the other
hand. Notwithstanding the foregoing, Buyer and Sellers hereby agree that (A)
subject to any adjustment imposed by clause (E) below to avoid suspended basis,
(1) unless either the "Goodwill Cap" imposed by (B) below or the "Goodwill
Floor" imposed by clause (C) below applies, an amount equal to 75% of the Basis
Increase (defined below) shall be allocated on the Allocation Agreement to
goodwill, and 25% of the Basis Increase shall be allocated on the Allocation
Agreement to real property inventory, and (2) if either the Goodwill Cap or the
Goodwill Floor applies, then the amount of the Basis Increase allocated to
goodwill shall be equal to the Goodwill Cap or the Goodwill Floor, as
applicable, and the amount of the Basis Increase allocated to real property
inventory shall be increased (if the Goodwill Cap applies) or decreased (if the
Goodwill Floor applies) accordingly from the 25% amount otherwise allocable; (B)
the aggregate amount of the Basis Increase that is allocated on the Allocation
Agreement to goodwill and all other assets that would be Class IV or Class V
assets within the meaning of the
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Treasury Regulations under Section 338 of the Code (collectively, "Goodwill")
shall not exceed an amount (the "Goodwill Cap") equal to 36% of the Purchase
Price (as adjusted pursuant to Section 1.6); (C) the aggregate amount of the
Basis Increase that is allocated to Goodwill shall not be less than an amount
(the "Goodwill Floor") equal to the lesser of (1) 30% of the Purchase Price (as
adjusted pursuant to Section 1.6) and (2) the Basis Increase; (D) 65% of the
amount allocated to real property inventory pursuant to clause (A) shall be
allocated on the Allocation Agreement to real property inventory located in
California; and (E) the parties will use their best efforts to cause the
allocations to be made such that no suspended basis adjustments result, but
notwithstanding clauses (A) through (D) above any amount otherwise allocable to
inventory under clause (A) that would result in a suspended basis will instead
be allocated to goodwill. "Basis Increase" means the aggregate net increase to
the tax basis of the assets of the Homebuilding Entities resulting from the
Section 754 Elections and the Section 338(h)(10) Elections.
6.5 OTHER COOPERATION.
After the Closing, the Buyer will afford the Sellers, and their
respective accountants, counsel and other representatives, reasonable access
during normal business hours to the books and records of the Homebuilding
Entities for the periods prior to the Closing. Sellers, or their respective
representatives may, at such Seller's own expense, make copies of such books and
records.
6.6 EMPLOYEES AND EMPLOYEE BENEFITS.
Buyer shall provide, or cause the Homebuilding Entities to provide,
employee benefits to the Homebuilding Entities employees who are retained after
the Closing Date that are at least as favorable to such employees in the
aggregate as the benefits provided by the Homebuilding Entities to their
employees as of the date of this Agreement.
6.7 LEWIS NAME AND MARK LICENSE.
Upon the Closing, Buyer, Branching Tree and Sellers will enter into an
agreement in substantially the form of Exhibit J hereto (the "License
Agreement"). Nothing in this Agreement shall prohibit Sellers or their
affiliates from using the name "Lewis" alone or in combination with any of the
following words: Industrial, Commercial, Retail, Apartment Communities,
Retirement, Asset Management, Family Asset Management, Holdings, Family Holdings
and any name consisting of initials, and in each case such names may include the
words "Company," "Inc.," "LLC," or similar words.
6.8 FISCAL 1998 AUDITED FINANCIAL STATEMENTS.
As soon as practicable after the Closing, and in any event within 60
days following the Closing Date, Sellers shall cause to be delivered to Buyer a
combined balance sheet for the Homebuilding Business of the Homebuilding
Entities as of December 31, 1998 and related combined statements of operations,
equity and cash flows of the Homebuilding Business of the Homebuilding Entities
for the year then ended, all examined by Ernst & Young LLP (or
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another independent public accounting firm selected by mutual agreement of the
Sellers and Buyer) whose audit report thereon shall be included with such
statements, prepared in conformity with GAAP applied on a basis consistent with
the audited financial statements referred to in Section 7.2(g). Buyer shall
cooperate fully with Sellers and shall provide Sellers with access to the books
and records of the Homebuilding Entities and such other assistance as Sellers
reasonably request (including, without limitation, assignment of Buyer's or
Homebuilding Entities' personnel to the project). Buyer will reimburse Sellers
upon request 50% of all reasonable out-of-pocket costs and expenses actually
incurred by Sellers in the preparation of such statements.
6.9 TENANT LISTS.
At the Closing, Sellers shall deliver to Buyer a list of the then
current tenants of apartment buildings owned by Sellers or their Affiliates who
are entitled to participate in Sellers or their Affiliates "Rent to Own"
program. For so long as both Buyer and Sellers, in their respective sole
discretion, determine to continue to participate in the "Rent to Own" program,
Sellers will provide to Buyer at least semiannually a list of tenants of
apartment buildings owned by Sellers or their Affiliates who are entitled to
participate in such program.
6.10 BUYER'S RIGHT OF FIRST OFFER.
(a) Right of First Offer. Restricted Party agrees that during the period
from the Closing Date to the fourth anniversary of the Closing Date (the "Right
of First Offer Period"), the Restricted Party shall not, and the Restricted
Party shall cause any Controlled Entity not to, offer to sell or sell, or
propose to enter into any joint venture with respect to, any Covered Properties
without first offering such Covered Properties for sale or joint venture to
Buyer pursuant to the procedures described below (the "Right of First Offer").
Notwithstanding the foregoing, neither the Restricted Party nor the Controlled
Entity shall be required to offer any Covered Properties to Buyer hereunder if
such Covered Properties (i) are being transferred to another Controlled Entity
or to any other Seller, or (ii) if such Covered Properties consists of 20 or
fewer lots (provided that not more than 40 lots may be excluded from the Right
of First Offer pursuant to this clause (ii) during any calendar year) or (iii)
the project in which the Covered Lots is located consists of 20 or fewer lots.
For the purposes of this Section 6.10, (A) "Restricted Party" means the Seller
which is developing the Covered Property in question; (B) "Covered Properties"
means any for sale residential lots that are developed by a Restricted Party or
any Controlled Entity in California or Nevada, whether for attached or detached
housing, other than lots to be sold for $300,000 or more or to a governmental
entity; and (C) "Controlled Entity" means any entity in which direct or indirect
beneficial ownership (as described in Rule 13d-3 under the Securities Exchange
Act of 1934) of voting securities represents at least 51% of the outstanding
voting power of a Person is held by one or more Restricted Parties. In the event
that a Restricted Party or a Controlled Entity is developing a mixed use
project, only the lots included therein that would constitute Covered Properties
as defined above shall be deemed Covered Properties.
(b) Offer. Prior to offering for sale or joint venture any Covered
Properties, the Restricted Party shall (or the Restricted Party shall cause the
Controlled Entity to) provide
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written notice to Buyer describing such Covered Properties (the "Offered
Properties") and stating the lot prices or joint venture terms, whether such
Offered Properties are being offered as finished lots, mapped lots or in another
entitlement state, and other material terms at which the Restricted Party (or
the Controlled Entity) offers to sell or joint venture the Offered Properties to
Buyer (the "Offer").
(c) Evaluation Notice. Within ten (10) days following receipt of the
Initial Offer, Buyer shall notify the Restricted Party in writing whether or not
Buyer intends to evaluate the Offered Properties (an "Evaluation Notice"). If
the Evaluation Notice indicates that Buyer does not wish to evaluate the Offered
Properties or if Buyer fails to deliver an Evaluation Notice to the Restricted
Party within such ten (10) day period, the Restricted Party (or the Controlled
Entity) shall be free to negotiate and conclude a sale or joint venture, as
specified in the Offer, of the Offered Properties with other Persons for a
period of one (1) year following receipt by the Buyer of the Offer. If the
Evaluation Notice is received by the Restricted Party within such ten (10) day
period and it indicates that Buyer wishes to evaluate the Offered Properties,
then for thirty (30) days following receipt by the Restricted Party of the
Evaluation Notice, Buyer shall have the right to evaluate the Offered Properties
(the "Evaluation Period") and the remainder of this Section 6.10 shall apply.
(d) Certain Information. During the first ten (10) days of the
Evaluation Period, the Restricted Party shall, or shall cause the Controlled
Entity to, promptly provide Buyer with such documents and information concerning
the Offered Properties as Buyer shall reasonably request to the extent such
documents and information are possessed by or reasonably available (without cost
or expense) to the Restricted Party and the Controlled Entity. The type of
information to be provided shall include the square footage minimums applicable
to such lots and other restrictions (including deed restrictions, if applicable)
relating to such lots. Neither the Restricted Party nor the Controlled Entity
makes or shall be deemed to make any representation or warranty as to the
accuracy or completeness of such documents and information. Buyer will maintain
the confidentiality of such documents and information, provided that this will
not prevent disclosure by Buyer to the extent that such disclosure is required
by law or court order.
(e) Acceptance; Rejection; Matching. Prior to the end of the Evaluation
Period, Buyer shall either accept or reject the Offer. If Buyer accepts the
Offer, the Restricted Party and Buyer shall use their, and the Restricted Party
shall cause the Controlled Entity to use its, good faith efforts to conclude the
sale or joint venture, as the case may be, of such Offered Properties on the
terms contained in the Offer as expeditiously as practicable. If Buyer rejects
the Offer, the Restricted Party (or the Controlled Party) shall be free to
negotiate with, and sell or joint venture, as specified in the Offer, the
Offered Properties to, other Persons provided that:
(i) the Restricted Party may not (or the Restricted Party shall
cause the Controlled Entity not to) accept any offer to purchase or
joint venture, as the case may be, the Offered Properties from any other
Person during the Right of First Offer Period without first re-offering
the Offered Properties on the same terms to Buyer if (a) the other offer
contains a closing sales price for the Offered Properties that is less
than the closing sales price contained in the Offer or, if the Offer
relates to a joint venture, contains terms in the aggregate less
favorable to the Restricted Party (or the Controlled Entity), (b) the
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Restricted Party (or the Controlled Entity) changes the entitlement
state of the Offered Properties, or (c) the other offer is for the
purchase of the Offered Properties and the Offer was for a joint venture
of the Offered Properties, or vice versa. For this purpose, if the price
contained in either the Offer or in the other offer is payable over time
in whole or in part (the "financed portion"), then the present value of
the financed portion shall be calculated using an 8% discount rate, and
such present value shall be deemed to be included in the "price" for
comparison purposes; and
(ii) the Restricted Party shall be required to give (or the
Restricted Party shall cause the Controlled Entity to give) to Buyer ten
(10) days to match any offer described in Section 6.10(e)(i) above.
(f) Reoffer in Certain Circumstance. Subject to the terms of Section
6.10(g), the Restricted Party shall be required to (and the Restricted Party
shall cause the Controlled Entity to) offer Buyer another Evaluation Period in
accordance with this Section 6.10 with respect to any Offered Properties which
the Restricted Party or a Controlled Entity, as the case may be, is continuing
to offer for sale or propose to joint venture if such Offered Properties have
not been sold or joint ventured by the later of one (1) year after the
expiration of (i) the previous Evaluation Period with respect to such Offered
Properties or (ii) if applicable, to such Offered Properties, the ten (10) day
match period described in Section 6.10(e)(ii).
(g) Termination of Right of First Offer. In the event of a breach or
default by Buyer under (i) an agreement for purchase and sale or joint venture
for any of the Offered Properties or (ii) any obligations or restrictions
imposed by the documents of conveyance of any Offered Properties to Buyer (the
Offered Properties described in (i) or (ii) being the "Subject Offered
Properties") and such breach or default is not cured within any applicable cure
period provided in the applicable agreement or document and after any notice
required by any such agreement or document has been given, the provisions of
this Section 6.10 shall automatically terminate and be of no further force and
effect with respect to all Subject Offered Properties and with respect to all
other Covered Properties located in the project(s) in which the Subject Offered
Properties are located.
(h) No Obligation to Sell. It is understood that neither the Restricted
Party nor any Controlled Entity has an obligation to market or sell any Covered
Properties (provided that the foregoing shall not relieve the Restricted Party
from complying with this Section 6.10 if it decides to offer for sale any
Covered Properties) or to accept any offer made by Buyer.
(i) Sierra Lakes Adjacent Property. Without Buyer's consent in its sole
discretion, Sellers will not enter into any joint venture, partnership, or
similar agreement with a third party with respect to the approximately 135-acre
property adjacent to the Sierra Lakes property, if such agreement would prevent
Sellers from offering such property to Buyer in accordance with this Section
6.10.
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ARTICLE VII
CONDITIONS OF PURCHASE
7.1 GENERAL CONDITIONS.
The obligations of the parties to effect the Closing shall be subject to
the following conditions unless waived in writing by all parties:
(a) No Orders, Legal Proceedings. No Law or Order shall have been
enacted, entered, issued, promulgated or enforced by any Governmental Entity,
nor shall any Action by a Governmental Entity have been instituted and remain
pending at what would otherwise be the Closing Date, which prohibits or
restricts the transactions contemplated by this Agreement.
(b) Approvals. All Permits and Approvals required to be obtained from
any Governmental Entity shall have been received or obtained on or prior to the
Closing Date and any applicable waiting period under the Hart-Scott-Rodino Act
shall have expired or been terminated.
(c) Removal and Inclusion of Assets and Liabilities. The Excluded Assets
shall have been distributed and the Excluded Liabilities shall have been assumed
by Sellers, and the Included Assets and Included Liabilities shall have been
transferred to and assumed by the Homebuilding Entities, all in form and
substance reasonably satisfactory to Sellers and Buyer, without the imposition
or any tax or other adverse tax consequences to the Homebuilding Entities;
provided, however, that if Sellers are unable to distribute any of the Excluded
Assets or assume the Excluded Liabilities or transfer the Included Assets and
Included Liabilities prior to the Closing Date, Buyer will, and will cause the
Homebuilding Entities to, cooperate with Sellers after the Closing to ensure
that any such transfers and assumptions are effected as soon as practicable.
(d) Execution and Delivery of Agreements. Each of the Cost Sharing
Agreements, License Agreement, Option Agreement, Registration Rights Agreement,
Shareholders Agreement and Consulting and Noncompetition Agreement between Buyer
and John M. Goodman, in the form of Exhibit O (it being understood, however,
that only Exhibit A to such Consulting and Noncompetition Agreement is subject
to completion, which Buyer and Mr. Goodman shall proceed to do reasonably and in
good faith), shall have been executed and delivered by the parties thereto and
the employment agreements, dated the date of this Agreement, and executed by
Buyer or a Homebuilding Entity and the persons named on Schedule 7.1(d) shall be
in full force and effect.
7.2 CONDITIONS TO OBLIGATIONS OF BUYER.
The obligations of Buyer to effect the Closing shall be subject to the
following conditions except to the extent waived in writing by Buyer:
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(a) Representations and Warranties and Covenants of Sellers. The
representations and warranties of Sellers herein contained (as qualified by
matters set forth as exceptions thereto in the Disclosure Schedule of Sellers)
shall be true in all material respects (except for such representations and
warranties as are qualified by their terms by reference to materiality, a
material adverse change or a material adverse effect, which representations and
warranties as so qualified shall be true in all respects) at the Closing Date
with the same effect as though made at such time; Sellers shall have performed
all obligations and complied with all covenants and conditions required by this
Agreement to be performed or complied with by it at or prior to the Closing Date
(except for such failures to perform as have not had and are not reasonably
expected to have, individually or in the aggregate, a material adverse effect
with respect to the Homebuilding Entities or to adversely affect the ability of
Sellers to consummate the transactions contemplated by this Agreement); and
Sellers shall have delivered to Buyer a certificate of Sellers in form and
substance satisfactory to Buyer, dated the Closing Date, and signed by the
Representative, to such effect; provided, however, that if any exceptions are
noted on the certificate of the Sellers, which would otherwise have entitled
Buyer to elect not to close, and Buyer elects to close notwithstanding the
exceptions noted, Buyer shall have irrevocably waived any indemnification rights
under Article IX with respect to any reasonably forseeable Losses arising from
or relating to any of the noted exceptions. Sellers shall use their reasonable
efforts to provide a draft of such certificate, with any exceptions known to
Sellers at that time, to Buyer at least ten business days prior to the Closing
Date.
(b) Opinion of Counsel. Buyer shall receive at the Closing from
O'Melveny & Myers LLP and Kenneth P. Corhan, Esq., General Counsel to Management
Corp., opinions dated the Closing Date, in form and substance substantially as
set forth in Exhibits K and L, respectively.
(c) Consents. Sellers shall have obtained and provided to Buyer the
Approvals of third parties set forth on Schedule 2.10 in form and substance
reasonably acceptable to Buyer.
(d) Resignation of Directors and Certain Officers. The directors and
officers of Management Corp., Branching Tree, Mather and Desert Inn listed in a
letter to be delivered by Buyer to Sellers not less than 10 days prior to the
Closing Date, shall have submitted their resignations in writing to Management
Corp., Branching Tree, Mather, and Desert Inn, as the case may be. Such
resignations shall be effective as of the Closing.
(e) Delivery of Stock, Member Interests and Partnership Interests and
Other Deliveries. All Sellers shall have delivered for sale to Buyer on or
before the Closing, stock certificates representing all shares of Stock as
contemplated hereby and Bills of Sale representing all Member Interests and
Partnership Interests as contemplated hereby, and such other customary closing
documents as Buyer may reasonably request for the consummation of the
transactions contemplated hereby.
(f) Release from Obligations. Buyer and each of the Homebuilding
Entities shall have been released from any liability with respect to the
obligations identified in Schedule 7.2(f) by instruments reasonably acceptable
to Buyer.
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(g) Audited Financial Statements. Sellers shall have delivered to Buyer
audited combined balance sheets for the Homebuilding Business of the
Homebuilding Entities as of December 31, 1996 and 1997, and related audited
combined statements of operations, equity, and cash flows of the Homebuilding
Business of the Homebuilding Entities for the years ended December 31, 1996 and
1997, along with the Auditor's audit report thereon (collectively, the "Audited
Homebuilding Financial Statements"), prepared in conformity with GAAP applied on
a consistent basis for the periods reflected therein, and such Audited
Homebuilding Financial Statements shall not reflect any material adverse change
in the financial position or results of operations of the Homebuilding Entities
as of or for the year ended December 31, 1997 from the financial position and
results of operations of the Homebuilding Entities reflected in the Homebuilding
Line of Business Financial Information as of and for the year ended December 31,
1997.
7.3 CONDITIONS TO OBLIGATIONS OF SELLERS.
The obligations of Sellers to effect the Closing shall be subject to the
following conditions, except to the extent waived in writing by Sellers:
(a) Representations and Warranties and Covenants of Buyer. The
representations and warranties of Buyer herein contained (as qualified by
matters set forth as exceptions thereto in the Disclosure Schedule of Buyer)
shall be true in all material respects (except for such representations and
warranties as are qualified by their terms by reference to materiality, a
material adverse change, or a material adverse effect, which representations and
warranties as so qualified shall be true in all respects) at the Closing Date
with the same effect as though made at such time; Buyer shall have in performed
all obligations and complied with all covenants and conditions required by this
Agreement to be performed or complied with by it at or prior to the Closing Date
(except for such failures to perform as have not had and are not reasonably
expected to have, individually or in the aggregate, a material adverse effect
with respect to Buyer or to adversely affect the ability of Buyer to consummate
the transactions contemplated by this Agreement); and Buyer shall have delivered
to Sellers a certificate of Buyer in form and substance satisfactory to Sellers,
dated the Closing Date and signed by its chief executive officer and chief
financial officer, to such effect; provided, however, that if any exceptions are
noted on the certificate of Buyer, which would otherwise have entitled Sellers
to elect not to close, and Sellers elect to close notwithstanding the exceptions
noted, Sellers shall have irrevocably waived any indemnification rights under
Article IX with respect to any reasonably forseeable Losses arising from or
relating to any of the noted exceptions. Buyer shall use its reasonable efforts
to provide a draft of such certificate, with any exceptions known to Buyer at
that time, to Sellers at least ten business days prior to the Closing Date.
(b) Consents. Buyer shall have obtained all Approvals of third parties
set forth on Schedule 4.3 in form and substance reasonably acceptable to
Sellers.
(c) Opinion of Counsel. Seller shall receive at the Closing from Munger,
Tolles & Olson LLP and Barton P. Pachino, Senior Vice President, General Counsel
of Buyer, opinions dated the Closing Date, in form and substance substantially
as set forth in Exhibits M and N, respectively.
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(d) Assumption of Guarantees; Other Deliveries. Buyer shall have assumed
the guarantees identified in Schedule 7.3(d) by instruments reasonably
acceptable to Sellers that fully and completely release each Seller and
Shareholder from any liability under said guarantees, and shall have delivered
to Sellers such other customary closing documents as Sellers may reasonably
request for the consummation of the transactions contemplated hereby.
ARTICLE VIII
TERMINATION OF OBLIGATIONS; SURVIVAL
8.1 TERMINATION OF AGREEMENT.
Anything herein to the contrary notwithstanding, this Agreement and the
transactions contemplated by this Agreement shall terminate upon written notice
by Buyer or Sellers if the Closing does not occur on or before the close of
business on February 15, 1999 and otherwise may be terminated at any time before
the Closing as follows and in no other manner:
(a) Mutual Consent. By mutual consent in writing of Buyer and Sellers.
(b) Conditions to Buyer's Performance Not Met. By Buyer by written
notice to Sellers if any event occurs or condition exists which would render
impossible the satisfaction of one or more conditions to the obligations of
Buyer to consummate the transactions contemplated by this Agreement as set forth
in Section 7.1 or 7.2.
(c) Conditions to Sellers' Performance Not Met. By Sellers by written
notice to Buyer if any event occurs or condition exists which would render
impossible the satisfaction of one or more conditions to the obligation of
Seller to consummate the transactions contemplated by this Agreement as set
forth in Section 7.1 or 7.3.
(d) Material Breach. By Buyer or Sellers if there has been a
misrepresentation or other breach by the other party in its representations,
warranties, or covenants set forth in or pursuant to this Agreement sufficient
to result in a material adverse change; provided, however, that if such breach
is susceptible to cure, the breaching party shall have ten business days after
receipt of notice from the other party of its intention to terminate this
Agreement if such breach continues in which to cure such breach.
8.2 EFFECT OF TERMINATION.
In the event that this Agreement shall be terminated pursuant to Section
8.1, all further obligations of the parties under this Agreement shall terminate
without further liability of any party to another; provided that the obligations
of the parties contained in Section 6.2, Section 10.9 and Section 10.14 shall
survive any such termination. A termination under Section 8.1 shall not relieve
any party of any liability for a breach of, or for any misrepresentation under,
this
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Agreement, or be deemed to constitute a waiver of any available remedy
(including specific performance if available) for any such breach or
misrepresentation.
8.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties contained in or made pursuant to this
Agreement shall survive the Closing and shall remain in full force and effect
until March 31, 2001, except that (i) the representations and warranties in
Sections 2.2, 2.3, 2.4, 2.5(d), and 2.20 shall remain in full force and effect
until March 31, 2002 and (ii) the representation and warranty in the second
sentence of Section 2.8(a) shall terminate upon the Closing. The parties
acknowledge and agree that the only representations and warranties regarding
product or construction warranties, construction defects and product defects are
the representations and warranties contained in Section 2.8(c) and shall not be
deemed to be covered by Section 2.5(d).
ARTICLE IX
INDEMNIFICATION
9.1 OBLIGATIONS OF SELLERS.
Sellers, jointly and severally, agree to indemnify and hold harmless
Buyer (including with respect to claims for indemnification by its officers,
directors and agents) and, after the Closing, the Homebuilding Entities, from
and against any and all Losses of such an Indemnified Party as a result of, or
based upon or arising from, (i) any breach of any of the representations or
warranties made by Sellers in or pursuant to this Agreement (other than the
second sentence of Section 2.8(a)) or any nonperformance of any of the covenants
or agreements of Sellers hereunder, in each case except for any exceptions noted
in the certificate referred to in Section 7.2(a), (ii) the litigation identified
on Schedule 9.1, (iii) the severance payments referred to in Section 2.16(a)
(v), or (iv) any Excluded Assets or Excluded Liabilities (including without
limitation any non-Homebuilding Business conducted by the Homebuilding Entities
prior to the Closing Date and any non-Homebuilding Business conducted by
entities in the Lewis group of companies other than the Homebuilding Entities at
any time).
9.2 OBLIGATIONS OF BUYER.
Buyer agrees to indemnify and hold harmless Sellers (including with
respect to claims for indemnification by its officers, directors and agents) and
Shareholders from and against any Losses of such an Indemnified Party as a
result of, or based upon or arising from, (i) any breach of any of the
representations or warranties made by Buyer in or pursuant to this Agreement or
any nonperformance of any of the covenants or agreement of Buyer hereunder, in
each case except for any exceptions noted in the certificate referred to in
Section 7.3(a) or (ii) the Included Liabilities and the Homebuilding Business of
the Homebuilding Entities after the Closing Date (including, without limitation,
all litigation existing on the Closing Date or
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instituted thereafter relating to the Homebuilding Business of the Homebuilding
Entities, except for litigation referred to in Schedule 9.1).
9.3 PROCEDURE.
(a) Notice. Any party seeking indemnification with respect to any Loss
shall give notice to the Indemnifying Party on or before the applicable date
specified in Section 9.4.
(b) Defense. If any claim, demand or liability is asserted by any third
party against any Indemnified Party, the Indemnifying Party shall have the
right, if requested by the Indemnifying Party, and shall upon the written
request of the Indemnified Party, defend any actions or proceedings brought
against the Indemnified Party in respect of matters embraced by the indemnity.
In any such action or proceeding, the Indemnified Party shall have the right to
retain its own counsel, but the fees and expenses of such counsel shall be at
its own expense unless (i) the Indemnifying Party and the Indemnified Party
mutually agree to the retention of such counsel or (ii) the named parties to any
such suit, action or proceeding (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party, and in the reasonable judgment
of the Indemnified Party, representation of the Indemnifying Party and the
Indemnified Party by the same counsel would be inadvisable due to potential
conflicts of interests between them. The parties shall cooperate in the defense
of all third party claims which may give rise to Indemnifiable Claims hereunder.
In connection with the defense of any claim, each party shall make available to
the party controlling such defense, any books, records or other documents within
its control that are reasonably requested in the course of or necessary or
appropriate for such defense. Neither the Indemnifying Party nor the Indemnified
Party (a "Settling Party") will, without the written consent of the other, (i)
settle or compromise any third party claim or consent to the entry of any
judgment with respect to a third party claim that does not include as an
unconditional term thereof the delivery by the third party claimant to the other
of a written release from all liability in respect of such third party claim or
(ii) settle or compromise any third party claim in any manner or consent to the
entry of any judgment or order that may adversely affect the other, except for
or as a result of money damages or other money payments for which the
Indemnifying Party has acknowledged in writing its obligation and ability to
indemnify the Indemnified Party in full.
(c) Calculation of Loss. The amount of any Loss for which
indemnification is provided under Section 9.1 or 9.2 shall be net of any
insurance proceeds received by the Indemnified Party. If such insurance proceeds
are received after payment by the Indemnifying Party of any amount otherwise
required to be paid to an Indemnified Party pursuant to Section 9.1 or 9.2, the
Indemnified Party shall repay to the Indemnifying Party promptly after such
receipt any amount the Indemnifying Party would not have had to pay pursuant to
Section 9.1 or 9.2 had such receipt occurred at the time of such payment.
(d) Tax Treatment of Indemnification Payments; Reduction for Tax
Benefits. Any payment under this Article IX shall be treated by the parties as
an adjustment to the Purchase Price. Any payment under Section 9.1 otherwise due
and payable hereunder shall be decreased to the extent of any net reduction in
Taxes payable by the Buyer and/or any affiliate thereof resulting from the Loss
(whether such reduction is realized with respect to the year in
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which the Loss occurs or with respect to an earlier or later year), such net
reduction to be determined at an assumed marginal tax rate equal to 40%.
9.4 SURVIVAL.
This indemnification shall survive the Closing and shall remain
in effect until March 31, 2001, except that this indemnification shall remain in
effect until March 31, 2002 with respect to the representations and warranties
in Sections 2.2, 2.3, 2.4, 2.5(d), and 2.20 and until the expiration according
to its terms of any covenant herein contemplating performance for a longer
period. Any matter as to which a claim has been asserted by notice to the other
party that is pending or unresolved at March 31, 2001 or 2002, as applicable,
shall continue to be covered by this Article IX until such matter is finally
terminated or otherwise resolved by the parties under this Agreement and any
amounts payable hereunder are finally determined and paid.
9.5 LIMITATION OF REMEDIES.
The remedies provided in this Article IX shall constitute the sole and
exclusive remedy with respect to matters set forth in this Article IX. The
indemnification obligations of Sellers set forth in clauses (ii), (iii) and (iv)
of Section 9.1 and the indemnification obligations of Buyer set forth in Section
9.2(ii) shall be unlimited as to time or amount. With respect to the
indemnification obligations of Sellers set forth in Section 9.1(i) and the
indemnification obligations of Buyer set forth in Section 9.2(i), neither Buyer
or Sellers shall be obligated to indemnify the Indemnified Parties until the
aggregate amount of Losses for which indemnity would otherwise be available is
in excess of $750,000, in which event the Indemnifying Party shall be obligated
to indemnify for Losses in excess of such amount; provided, however, that
Sellers, in the aggregate, and Buyer shall be obligated to indemnify for Losses
up to $25 million and, for Losses in excess of $25 million and less than or
equal to $51.5 million, one-half of such Losses, it being understood that
neither Sellers, in the aggregate, or Buyer shall have any obligation to
indemnify with respect to Losses in excess of $51.5 million.
ARTICLE X
GENERAL
10.1 AMENDMENTS; WAIVERS.
This Agreement and any schedule or exhibit attached hereto may be
amended only by agreement in writing of all parties. No waiver of any provision
nor consent to any exception to the terms of this Agreement shall be effective
unless in writing and signed by the party to be bound and then only to the
specific purpose, extent and instance so provided.
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10.2 SCHEDULES, EXHIBITS, INTEGRATION.
Each schedule and exhibit delivered pursuant to the terms of this
Agreement shall be in writing and shall constitute a part of this Agreement,
although schedules need not be attached to each copy of this Agreement. This
Agreement, together with such schedules and exhibits, constitutes the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements and understandings of the parties in connection
therewith.
10.3 EFFORTS; FURTHER ASSURANCES.
Each party will use its commercially reasonable efforts to cause all
conditions to its obligations hereunder to be timely satisfied and to perform
and fulfill all obligations on its part to be performed and fulfilled under this
Agreement, to the end that the transactions contemplated by this Agreement shall
be effected substantially in accordance with its terms as soon as reasonably
practicable. The parties shall cooperate with each other in such actions and in
securing requisite Approvals. Each party shall execute and deliver both before
and after the Closing such further certificates, agreements and other documents
and take such other actions as the other party may reasonably request to
consummate or implement the transactions contemplated hereby or to evidence such
events or matters.
10.4 GOVERNING LAW.
This Agreement, the legal relations between the parties and any Action,
whether contractual or non-contractual, instituted by any party with respect to
matters arising under or growing out of OR in connection with or in respect of
this Agreement, including but not limited to the negotiation, execution,
interpretation, coverage, scope, performance, breach, termination, validity, or
enforceability of this Agreement, shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts made
and performed in such State and without regard to conflicts of law doctrines.
10.5 NO ASSIGNMENT.
Neither this Agreement nor any rights or obligations under it are
assignable except that (i) Buyer may assign its rights hereunder (including but
not limited to its rights under Article IX) to any Affiliates of Buyer, in which
event Buyer shall remain liable to Sellers for the payment of the Purchase Price
and other obligations of Buyer hereunder notwithstanding a permitted assignment,
and (ii) Sellers may assign their rights hereunder to any Affiliates of Sellers,
in which event Sellers shall remain liable to Buyer for the delivery of the
Stock, Partnership Interests and Member Interests and other obligations of
Sellers hereunder notwithstanding a permitted assignment.
10.6 HEADINGS.
The descriptive headings of the Articles, Sections and subsections of
this Agreement are for convenience only and do not constitute a part of this
Agreement.
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10.7 COUNTERPARTS.
This Agreement may be executed in any number of identical counterparts,
each of which when executed and delivered shall be an original, but all such
counterparts shall constitute but one and the same instrument. Any signature
page of this instrument may be detached from any counterpart without impairing
the legal effect of any signatures thereof, and may be attached to another
counterpart, identical in form thereto, but having attached to it one or more
additional signature pages. Delivery by any party or its respective
representatives of telecopied (counterpart) signature pages shall be as binding
an execution and delivery of this Agreement by such party as if the other party
had received the actual physical copy of the entire Agreement with an ink
signature from such party.
10.8 PUBLICITY AND REPORTS.
Sellers and Buyer shall coordinate all publicity relating to the
transactions contemplated by this Agreement and no party shall issue any press
release, publicity statement or other public notice relating to this Agreement,
or the transactions contemplated by this Agreement, without consulting with the
other party except to the extent that a particular action is required by
applicable law or rule of or listing agreement with a securities exchange on
which such party's securities are listed for trading or quotation.
10.9 CONFIDENTIALITY.
All information disclosed by any party (or its representatives) whether
before or after the date hereof, in connection with the transactions
contemplated by, or the discussions and negotiations preceding, this Agreement
to any other party (or its representatives) shall be kept confidential by such
other party and its representatives and shall not be used by any such Persons
other than as contemplated by this Agreement, except to the extent that such
information (i) was known by the recipient when received, (ii) it is or
hereafter becomes lawfully obtainable from other sources, (iii) is necessary or
appropriate to disclose to a Governmental Entity having jurisdiction over the
parties, (iv) as may otherwise be required by law or (v) to the extent such duty
as to confidentiality is waived in writing by the other party; provided,
however, that following the Closing Date nothing in this section shall apply to
or restrict the use of information by Buyer or the Homebuilding Entities in
their businesses. If this Agreement is terminated in accordance with its terms,
each party shall use all reasonable efforts to return upon written request from
the other party all documents (and reproductions thereof) received by it or its
representatives from such other party (and, in the case of reproductions, all
such reproductions made by the receiving party) that include information not
within the exceptions contained in the first sentence of this Section 10.9,
unless the recipients provide assurances reasonably satisfactory to the
requesting party that such documents have been destroyed.
10.10 ALTERNATIVE DISPUTE RESOLUTION.
(a) Negotiation. In the event of any dispute or disagreement between
Sellers and Buyer as to the interpretation of any provision of this Agreement or
any other agreement or
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instrument delivered in connection with this Agreement, or the performance of
obligations hereunder or thereunder, the matter, upon written request of either
party, shall be referred to representatives of the parties for decision, each
party being represented by a senior executive officer of the party or a
controlling affiliate (a "Dispute Representative"). The Dispute Representatives
shall promptly meet in a good faith effort to resolve the dispute. If the
Dispute Representatives do not agree upon a decision within thirty (30) calendar
days after reference of the matter to them, Sellers and Buyer shall be free to
exercise the remedies available to them under subsection (b).
(b) Arbitration. Any controversy, dispute or claim (a "Claim") arising
out of or relating in any way to this Agreement or any other agreement or
instrument delivered in connection with this Agreement, or the transactions
arising hereunder or thereunder that cannot be resolved by negotiation pursuant
to subsection (a) shall be settled exclusively by a binding arbitration
("Arbitration"), conducted by a single arbitrator (the "Arbitrator") chosen by
the parties as described below. Any party may initiate the Arbitration by
written notice to the other and to the Arbitration Tribunal (as defined below).
The date on which the notice is given is called the "Arbitration Initiation
Date." The fees and expenses of the Arbitration Tribunal and the Arbitrator
shall be shared equally by the parties and advanced by them from time to time as
required; provided, however, that at the conclusion of the Arbitration, the
Arbitrator may award costs and expenses (including the costs of the Arbitration
previously advanced and the fees and expenses of attorneys, accountants and
other experts) to the prevailing party. Except as expressly modified herein, the
Arbitration shall be conducted in accordance with the provisions of Section 1280
et seq. of the California Code of Civil Procedure or their successor sections
("CCP"), and shall constitute the exclusive remedy for the determination of any
Claim, including whether the Claim is subject to arbitration. The Arbitration
shall be conducted under the procedures of the Arbitration Tribunal, except as
modified herein. The Arbitration Tribunal shall be the Los Angeles Office of
JAMS/ENDISPUTE ("JAMS"), unless the parties to the dispute cannot agree on a
JAMS arbitrator, in which case the Arbitration Tribunal shall be the Los Angeles
Office of the American Arbitration Association ("AAA"). The Arbitrator shall be
a retired judge or other arbitrator employed by JAMS selected by mutual
agreement of the parties to the dispute, and if they cannot so agree within 30
days after the Arbitration Initiation Date, then the Arbitrator shall be
selected from the Large and Complex Case Project ("LCCP") panel of the AAA, by
mutual agreement of the parties to the dispute. If the parties to the dispute
cannot agree on an Arbitrator within 60 days after the Arbitration Initiation
Date, the Arbitrator shall be selected by the AAA, from its LCCP panel, through
such procedures as the AAA regularly follows. In all events, the Arbitrator must
have had not less than 15 years experience as a practitioner or arbitrator of
complex business transactions. If for any reason the AAA does not so act, any
party to the dispute may apply to the Superior Court in and for Los Angeles
County, California, for the appointment of a single arbitrator. No
pre-arbitration discovery shall be permitted, except that the Arbitrator shall
have the power in his or her sole discretion, on application by either party, to
order pre-arbitration examination solely of those witnesses and documents that
the other party intends to introduce in its case-in-chief at the arbitration
hearing. Prior to the commencement of arbitration hearings, the Arbitrator shall
have the power, in his or her discretion, upon either party's motion but not on
his or her own initiative, to order the parties to engage in pre-arbitration
mediation for a period not exceeding 30 days before a mediator mutually
acceptable
49
<PAGE> 55
to the parties. The Arbitrator shall try any and all issues of law or fact and
be prepared to make the award within 90 days after the close of evidence in the
Arbitration. When prepared to make the award, the Arbitrator shall first so
inform the parties, who shall have 10 days to attempt to resolve the matter by a
binding agreement between them. If the parties so resolve the matter, the
Arbitrator shall not make any award. If the parties do not so resolve the
matter, the Arbitrator shall make the award on the eleventh day following his
notice of being prepared to make the award. The Arbitrator's award shall dispose
of all of the claims that are the subject of the Arbitration and shall follow
California law and precedent, and shall include written statements of fact and
conclusions of law. The Arbitrator shall be empowered to (i) enter equitable as
well as legal relief, (ii) provide all temporary and/or provisional remedies,
and (iii) enter binding equitable orders. The award rendered by the Arbitrator
shall be final and not subject to judicial review, and judgment thereon may be
entered in any court of competent jurisdiction.
10.11 PARTIES IN INTEREST.
This Agreement shall be binding upon and inure to the benefit of each
party, and nothing in this Agreement, express or implied, is intended to confer
upon any other person any rights or remedies of any nature whatsoever under or
by reason of this Agreement except for Sections 6.6, 9.1 and 10.5 (which are
intended to be for the benefit of the persons provided for therein and may be
enforced by such persons).
10.12 KNOWLEDGE CONVENTION.
Whenever any statement herein or in any schedule, exhibit, certificate
or other documents delivered to any party pursuant to this Agreement is made "to
Sellers' knowledge" or words of similar intent or effect, such statement shall
be deemed to mean the actual conscious knowledge of (i) any Seller who is an
individual, (ii) the Shareholders, for any Seller that is a corporation or (iii)
any Seller after inquiry of Kenneth P. Corhan, Leon C. Swails and Leah S. Bryant
as to the subject matter.
10.13 NOTICES.
Any notice or other communication hereunder must be given in writing and
delivered in person or sent by telecopy, by a nationally-recognized overnight
courier service or by certified or registered mail, postage prepaid, receipt
requested, addressed as follows:
IF TO BUYER, ADDRESSED TO:
Kaufman and Broad Home Corporation
10990 Wilshire Boulevard
Los Angeles, California 90024
Attention: Michael Henn
Chief Financial Officer
Barton P. Pachino
General Counsel
Fax No.: 310-231-4280
50
<PAGE> 56
with a copy to
Munger, Tolles & Olson LLP
355 South Grand Avenue
Los Angeles, California 90071
Attention: R. Gregory Morgan
Fax No.: 213-687-3702
IF TO SELLERS, ADDRESSED TO:
John M. Goodman
Lewis Homes Management Corp.
11 56 N. Mountain Ave.
Upland, CA 91785
Fax No.: (909) 912-6770
WITH A COPY TO:
O'Melveny & Myers LLP
400 S. Hope Street
Los Angeles, California 90071
Attention: Richard A. Boehmer, Esq.
Fax: No.: (213) 430-6407
or to such other address or to such other person as any party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (i) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
Section 10.13 and an appropriate answer back is received, (ii) if given by
overnight courier, one business day following delivery by sender to such
overnight courier, (iii) if given by mail, three days after such communication
is deposited in the mails with first class postage prepaid, addressed as
aforesaid or (iv) if given by any other means, when actually received at such
address.
10.14 EXPENSES.
Except as set forth in Sections 10.10 and 10.16, Sellers and Buyer shall
each pay their own expenses incident to the negotiation, preparation and
performance of this Agreement and the transactions contemplated hereby,
including but not limited to the fees, expenses and disbursements of their
respective investment bankers, accountants and counsel. Any such expenses of
Company, or any expenses paid by Company on behalf of Sellers, shall be paid by
Sellers prior to or concurrently with the Closing.
51
<PAGE> 57
10.15 REMEDIES; WAIVER.
To the extent permitted by Law, all rights and remedies existing under
this Agreement are cumulative to and not exclusive of, any rights or remedies
otherwise available under applicable Law. No failure on the part of any party to
exercise or delay in exercising any right hereunder shall be deemed a waiver
thereof, nor shall any single or partial exercise preclude any further or other
exercise of such or any other right.
10.16 ATTORNEY'S FEES.
In the event of any Action by any party arising under or out of, in
connection with or in respect of, this Agreement or the transactions
contemplated hereby, the prevailing party shall be entitled to reasonable
attorney's fees, costs and expenses incurred in such Action. Attorney's fees
incurred in enforcing any judgement in respect of this Agreement are recoverable
as a separate item. The parties intend that the preceding sentence be severable
from the other provisions of this Agreement, survive any judgment and, to the
maximum extent permitted by law, not be deemed merged into such judgment.
10.17 REPRESENTATION BY COUNSEL; INTERPRETATION.
Sellers and Buyer each acknowledge that each party to this Agreement has
been represented by counsel in connection with this Agreement and the
transactions contemplated by this Agreement. Accordingly, any rule of Law,
including but not limited to Section 1654 of the California Civil Code, or any
legal decision that would require interpretation of any claimed ambiguities in
this Agreement against the party that drafted it has no application and is
expressly waived. The provisions of this Agreement shall be interpreted in a
reasonable manner to effect the intent of Buyer and Sellers.
10.18 SEVERABILITY.
If any provision of this Agreement is determined to be invalid, illegal
or unenforceable by any Governmental Entity, the remaining provisions of this
Agreement shall remain in full force and effect provided that the economic and
legal substance of the transactions contemplated is not affected in any manner
materially adverse to any party. In event of any such determination, the parties
agree to negotiate in good faith to modify this Agreement to fulfill as closely
as possible the original intents and purposes hereof. To the extent permitted by
Law, the parties hereby to the same extent waive any provision of Law that
renders any provision hereof prohibited or unenforceable in any respect.
52
<PAGE> 58
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by its duly authorized officers as of the day and year first
above written.
BUYER
KAUFMAN AND BROAD HOME CORPORATION
By: /s/ MICHAEL F. HENN
------------------------------------
Its: Senior Vice President & Chief
Financial Officer
SELLERS
/s/ RALPH M. LEWIS
------------------------------------
Ralph M. Lewis
By: /s/ GOLDY S. LEWIS
------------------------------------
Goldy S. Lewis, his attorney-in-fact
/s/ GOLDY S. LEWIS
------------------------------------
Goldy S. Lewis
/s/ RICHARD A. LEWIS
------------------------------------
Richard A. Lewis
/s/ ROBERT E. LEWIS
------------------------------------
Robert E. Lewis
/s/ ROGER G. LEWIS
------------------------------------
Roger G. Lewis
/s/ RANDALL W. LEWIS
------------------------------------
Randall W. Lewis
/s/ JOHN M. GOODMAN
------------------------------------
John M. Goodman
S-1
<PAGE> 59
ROSEBUD CONSTRUCTION, INC.
By: /s/ RICHARD A. LEWIS
------------------------------------
Name: Richard A. Lewis
Title: President
WESTERN SUPPLY CORP.
By: /s/ RICHARD A. LEWIS
------------------------------------
Name: Richard A. Lewis
Title: President
KIMMEL ENTERPRISES, INC.
By: /s/ ROBERT E. LEWIS
------------------------------------
Name: Robert E. Lewis
Title: President
REPUBLIC SALES CO., INC.
By: /s/ RANDALL W. LEWIS
------------------------------------
Name: Randall W. Lewis
Title: President
HILLSIDE CONSTRUCTION CO., INC.
By: /s/ RICHARD A. LEWIS
------------------------------------
Name: Richard A. Lewis
Title: President
S-2
<PAGE> 60
PARKSIDE CONSTRUCTION CO., INC.
By: /s/ ROBERT E. LEWIS
------------------------------------
Name: Robert E. Lewis
Title: President
REGAL CONSTRUCTION CO., INC.
By: /s/ RANDALL W. LEWIS
------------------------------------
Name: Randall W. Lewis
Title: President
ORCHARD CONSTRUCTION CO., INC.
By: /s/ ROGER G. LEWIS
------------------------------------
Name: Roger G. Lewis
Title: President
SOUTH STAR DEVELOPMENT CORP.
By: /s/ RICHARD A. LEWIS
------------------------------------
Name: Richard A. Lewis
Title: President
FOREHAND DEVELOPMENT CORP.
By: /s/ JOHN M. GOODMAN
------------------------------------
Name: John M. Goodman
Title: President
S-3
<PAGE> 61
COLLINE ENTERPRISES, INC.
By: /s/ RICHARD A. LEWIS
------------------------------------
Name: Richard A. Lewis
Title: President
TERRAIN ENTERPRISES, INC.
By: /s/ ROBERT E. LEWIS
------------------------------------
Name: Robert E. Lewis
Title: President
MARMOT ENTERPRISES, INC.
By: /s/ ROGER G. LEWIS
------------------------------------
Name: Roger G. Lewis
Title: President
GITAN ENTERPRISES, INC.
By: /s/ RANDALL W. LEWIS
------------------------------------
Name: Randall W. Lewis
Title: President
TOPSPIN ENTERPRISES, INC.
By: /s/ JOHN M. GOODMAN
------------------------------------
Name: John M. Goodman
Title: President
S-4
<PAGE> 62
REVERS ENTERPRISES, INC.
By: /s/ RANDALL W. LEWIS
------------------------------------
Name: Randall W. Lewis
Title: President
EMPIRE BUILDING CORP.
By: /s/ ROBERT E. LEWIS
------------------------------------
Name: Robert E. Lewis
Title: President
ROSEMONT OF NEVADA, INC.
By: /s/ ROBERT E. LEWIS
------------------------------------
Name: Robert E. Lewis
Title: President
LARKWOOD DEVELOPMENT OF NEVADA, INC.
By: /s/ RICHARD A. LEWIS
------------------------------------
Name: Richard A. Lewis
Title: President
FLAGSTONE DEVELOPMENT OF NEVADA, INC.
By: /s/ RICHARD A. LEWIS
------------------------------------
Name: Richard A. Lewis
Title: President
S-5
<PAGE> 63
CRESTVIEW CONSTRUCTION OF NEVADA, INC.
By: /s/ ROBERT E. LEWIS
------------------------------------
Name: Robert E. Lewis
Title: President
CORONET CONSTRUCTION OF NEVADA, INC.
By: /s/ RANDALL W. LEWIS
------------------------------------
Name: Randall W. Lewis
Title: President
COSMIC CONSTRUCTION OF NEVADA, INC.
By: /s/ ROGER G. LEWIS
------------------------------------
Name: Roger G. Lewis
Title: President
BACKHAND DEVELOPMENT CORP.
By: /s/ JOHN M. GOODMAN
------------------------------------
Name: John M. Goodman
Title: President
SOUTH STAR DEVELOPMENT OF NEVADA, CORP.
By: /s/ ROBERT E. LEWIS
------------------------------------
Name: Robert E. Lewis
Title: President
S-6
<PAGE> 1
EXHIBIT 2.2
AMENDMENT TO PURCHASE AGREEMENT
THIS AMENDMENT TO PURCHASE AGREEMENT (the "Amendment") is entered
into as of January 7, 1999, by and among Kaufman and Broad Home Corporation, a
Delaware corporation ("Buyer"), and the individuals and corporations identified
on the signature pages of this Amendment as "Sellers" (individually a "Seller"
and collectively the "Sellers"), with respect to that certain Purchase Agreement
dated October 20, 1998 (the "Agreement") among Buyer and Sellers. All
capitalized terms used herein and not otherwise defined have the meanings given
to them in the Agreement.
RECITALS
WHEREAS, Buyer and Sellers entered into the Agreement to provide
for the purchase and sale of the Homebuilding Business of the Homebuilding
Entities of the Lewis group of companies, with a Closing Date of January 7,
1999; and
WHEREAS, the Agreement contemplates the transfer of Excluded
Assets and Excluded Liabilities from the Homebuilding Entities and the transfer
of Included Assets and Included Liabilities to the Homebuilding Entities prior
to the Closing; and
WHEREAS, the Agreement contemplates that Buyer and Sellers may
assign their respective rights, but not their obligations, under the Agreement
to their respective Affiliates prior to the Closing; and
WHEREAS, the Agreement contemplates that Buyer and Sellers may
update their respective Disclosure Schedules prior to the Closing Date; and
WHEREAS, Buyer and Sellers desire to enter into this Amendment
for the purpose of memorializing the accomplishment of such pre-Closing actions
and certain other agreements among them with respect to the Agreement and the
Closing; and
NOW, THEREFORE, in consideration of the foregoing and the
covenants and agreements contained in this Amendment, Buyer and Sellers agree as
follows:
1. Amendments to Agreement. The Agreement is hereby amended as
follows:
1.1. Buyer. Buyer has assigned its right to purchase under the
Agreement to its wholly owned subsidiary KB Holdings One, Inc., a California
corporation ("KB Holdings One"). Certificates evidencing the Stock of Management
Corp. and Branching Tree, assignments of Member Interests and Partnership
Interests, and other closing certificates and documents delivered to Buyer at
the Closing will be in the name of or addressed to KB Holdings One. Buyer
remains liable for the payment of the Purchase Price and the other obligations
of Buyer under the Agreement.
1
<PAGE> 2
1.2 Sellers. The Partnership Sellers have assigned their rights
under the Agreement to their respective Affiliates as follows: (a) by the
Partnership Sellers of LHC to LHC Platte, LLC, a Delaware limited liability
company; (b) by the Partnership Sellers of Lewis Development to LDC Platte, LLC,
a Delaware limited liability company; (c) by the Partnership Sellers of LHE to
LHE Platte, LLC, a Delaware limited liability company, (d) by the Partnership
Sellers of LHN to LHN Platte, LLC, a Delaware limited liability company, and (e)
by the Partnership Sellers of Lewis Properties to LP Platte, LLC, a Delaware
limited liability company. Certificates evidencing Buyer Common Stock and other
closing certificates and documents delivered to the Partnership Sellers at the
Closing will be in the name of or addressed to such assignee limited liability
companies. The Partnership Sellers remain liable for the delivery of the
Partnership Interests and the other obligations of the Partnership Sellers under
the Agreement.
1.3 Updated Disclosure Schedules. At the Closing, Buyer and
Sellers shall deliver their respective Disclosure Schedules updated to the
Closing Date. Section 7.2(a) and Section 7.3(a) are each hereby amended to
delete the proviso to the first sentences thereof and to delete the second
sentences thereof.
1.4 Revised Exhibits. The Shareholder Agreement set forth as
Exhibit F to the Agreement is amended and restated in full in the form of
Exhibit A hereto. The Cost Sharing Agreement set forth as Exhibit G to the
Agreement may be amended and restated in full in the form as determined by the
parties.
1.5 Former Partnership Properties. Transferred as Excluded
Assets, contemplated by the parties to be transferred before the Closing, are
those properties listed on Exhibit B hereto (the "Former Partnership
Properties"), which will be transferred by the Homebuilding Entities to other
entities controlled by the Sellers. Representations, warranties, and indemnities
in the Agreement applicable to the Former Partnership Properties shall continue
to apply to the Former Partnership Properties, and the Homebuilding Business
shall be deemed to include the Former Partnership Properties, despite their
status as Excluded Assets.
1.6 Form of Consideration; Post-Closing Adjustment. In order to
facilitate the repayment of those certain loan agreements dated November 30,
1998 between Wells Fargo Bank and LHN, LHE, Lewis Development, and Lewis
Properties (the "Wells Fargo Loans"), Buyer agrees to assume (in which case
Buyer will obtain releases of guarantees and pledges by certain of the Lewis
group of companies relating to the Wells Fargo Loans) or repay in full the Wells
Fargo Loans at the Closing, and Sellers agree to reduce the cash portion of the
Purchase Price by the amount of principal, accrued interest through the Closing
Date, and any fees due upon repayment of the Wells Fargo Loans by Buyer. Buyer
and Sellers further agree to adjust appropriately the benchmark Net Worth of
$215 million stated in Section 1.6 of the Agreement in order to recognize the
effects of the Wells Fargo Loans and the transfers of the Former Partnership
Properties on the Net Worth of the Homebuilding Business of the Homebuilding
Entities. Buyer and Sellers expressly intend and agree that the adjustments to
reflect the Wells Fargo Loans represent a mere change in form of the cash
portion of the Purchase Price (from cash consideration to debt assumption) and a
mere mathematical adjustment to the benchmark Net Worth set forth in Section
1.6, and do not represent any change in the aggregate amount of
2
<PAGE> 3
the cash portion of the Purchase Price; and that the adjustments to reflect the
transfers of the Former Partnership Properties represent a mere change in the
manner by which and time at which Buyer may acquire such properties, and do not
represent any change in the aggregate assets that Sellers may sell or Buyer may
acquire. This Amendment makes no change of any kind to the stock portion of the
Purchase Price, which shall be in the amount stated in the Agreement.
2. Integrated Purchase Agreement. Solely for the convenience of the
parties and in order to avoid confusion or ambiguity in implementing the
foregoing amendments in the Agreement, and to memorialize other understandings
among the parties, the Agreement will be amended and restated in full in the
form of Exhibit C hereto and signed by all appropriate parties on or before the
Closing Date. Thereafter, references to the "Purchase Agreement dated January 7,
1999" appearing in closing or other documents delivered among the parties shall
mean the Purchase Agreement dated October 20, 1998 as amended and restated in
full in the form of Exhibit C hereto and signed by the appropriate parties.
3. General.
3.1 Incorporation by Reference. Sections 10.1 (Amendments;
Waivers), 10.4 (Governing Law), 10.6 (Headings), 10.7 (Counterparts), 10.10
Alternative Dispute Resolution), 10.13 (Notices), 10.15 (Remedies; Waiver),
10.16 (Attorneys' Fees), and 10.18 (Severability) of the Purchase Agreement in
the form of Exhibit C hereto are hereby incorporated by reference in full into
this Amendment with the same force and effect as if stated in full herein.
3.2 Further Assurances. Subject to the specific terms of this
Amendment, each of the parties hereto shall make, execute, acknowledge and
deliver such other instruments and documents, and take all such other actions,
as may be reasonably required in order to effectuate the purposes of this
Amendment.
3.3 Entire Agreement. The exhibits to this Amendment constitute a
part of this Amendment. This Amendment contains the entire understanding of the
parties with respect to the amendment of the Agreement. This Amendment
supersedes all prior agreements and understandings between the parties, whether
written or oral, with respect to the amendment of the Agreement.
3.4 Assignment. Neither this Agreement nor any rights or
obligations under it are assignable.
3.5 Representation by Counsel. Buyer and Sellers each acknowledge
that each party to this Amendment has been represented by counsel in connection
with this Amendment. Accordingly, any rule of law, including but not limited to
Section 1654 of the California Civil Code, or any legal decision that would
require interpretation of any claimed ambiguities in this Amendment against the
party that drafted it has no application and is expressly waived. The provisions
of this Amendment shall be interpreted in a reasonable manner to effect the
intent of Buyer and Sellers.
3
<PAGE> 4
IN WITNESS WHEREOF, Buyer and Sellers have executed this
Amendment, by their duly authorized officers as applicable, as of the date first
written above.
BUYER
KAUFMAN AND BROAD HOME CORPORATION
By: /s/ MICHAEL F. HENN
----------------------------------------
Its: Senior Vice President and Chief
Financial Officer
---------------------------------------
SELLERS
----------------------------------------
Ralph M. Lewis
By: /s/ ROBERT E. LEWIS
-------------------------------------
Robert E. Lewis
/s/ ROBERT E. LEWIS ON
BEHALF OF GOLDY S. LEWIS
----------------------------------------
Goldy S. Lewis
/s/ RICHARD A. LEWIS
----------------------------------------
Richard A. Lewis
/s/ ROBERT E. LEWIS
----------------------------------------
Robert E. Lewis
/s/ ROGER G. LEWIS
----------------------------------------
Roger G. Lewis
/s/ RANDALL W. LEWIS
----------------------------------------
Randall W. Lewis
/s/ JOHN M. GOODMAN
----------------------------------------
John M. Goodman
4
<PAGE> 5
ROSEBUD CONSTRUCTION, INC.
By: /s/ RICHARD A. LEWIS
-------------------------------------
Name: Richard A. Lewis
Title: President
WESTERN SUPPLY CORP.
By: /s/ RICHARD A. LEWIS
-------------------------------------
Name: Richard A. Lewis
Title: President
KIMMEL ENTERPRISES, INC.
By: /s/ ROBERT E. LEWIS
-------------------------------------
Name: Robert E. Lewis
Title: President
REPUBLIC SALES CO., INC.
By: /s/ RANDALL W. LEWIS
-------------------------------------
Name: Randall W. Lewis
Title: President
HILLSIDE CONSTRUCTION CO., INC.
By: /s/ RICHARD A. LEWIS
-------------------------------------
Name: Richard A. Lewis
Title: President
5
<PAGE> 6
PARKSIDE CONSTRUCTION CO., INC.
By: /s/ ROBERT E. LEWIS
-------------------------------------
Name: Robert E. Lewis
Title: President
REGAL CONSTRUCTION CO., INC.
By: /s/ RANDALL W. LEWIS
-------------------------------------
Name: Randall W. Lewis
Title: President
ORCHARD CONSTRUCTION CO., INC.
By: /s/ ROGER G. LEWIS
-------------------------------------
Name: Roger G. Lewis
Title: President
SOUTH STAR DEVELOPMENT CORP.
By: /s/ RICHARD A. LEWIS
-------------------------------------
Name:
Title:
FOREHAND DEVELOPMENT CORP.
By: /s/ JOHN M. GOODMAN
-------------------------------------
Name:
Title:
6
<PAGE> 7
COLLINE ENTERPRISES, INC.
By: /s/ RICHARD A. LEWIS
-------------------------------------
Name: Richard A. Lewis
Title: President
TERRAIN ENTERPRISES, INC.
By: /s/ ROBERT E. LEWIS
-------------------------------------
Name: Robert E. Lewis
Title: President
MARMOT ENTERPRISES, INC.
By: /s/ ROGER G. LEWIS
-------------------------------------
Name: Roger G. Lewis
Title: President
GITAN ENTERPRISES, INC.
By: /s/ RANDALL W. LEWIS
-------------------------------------
Name: Randall W. Lewis
Title: President
TOPSPIN ENTERPRISES, INC.
By: /s/ JOHN M. GOODMAN
-------------------------------------
Name: John M. Goodman
Title: President
7
<PAGE> 8
REVERS ENTERPRISES, INC.
By: /s/ RANDALL W. LEWIS
-------------------------------------
Name: Randall W. Lewis
Title: President
EMPIRE BUILDING CORP.
By: /s/ ROBERT E. LEWIS
-------------------------------------
Name: Robert E. Lewis
Title: President
ROSEMONT OF NEVADA, INC.
By: /s/ ROBERT E. LEWIS
-------------------------------------
Name: Robert E. Lewis
Title: President
LARKWOOD DEVELOPMENT OF NEVADA, INC.
By: /s/ RICHARD A. LEWIS
-------------------------------------
Name: Richard A. Lewis
Title: President
FLAGSTONE DEVELOPMENT OF NEVADA, INC.
By: /s/ RICHARD A. LEWIS
-------------------------------------
Name: Richard A. Lewis
Title: President
8
<PAGE> 9
CRESTVIEW CONSTRUCTION OF NEVADA, INC.
By: /s/ ROBERT E. LEWIS
-------------------------------------
Name: Robert E. Lewis
Title: President
CORONET CONSTRUCTION OF NEVADA, INC.
By: /s/ RANDALL W. LEWIS
-------------------------------------
Name: Randall W. Lewis
Title: President
COSMIC CONSTRUCTION OF NEVADA, INC.
By: /s/ ROGER G. LEWIS
-------------------------------------
Name: Roger G. Lewis
Title: President
BACKHAND DEVELOPMENT CORP.
By: /s/ JOHN M. GOODMAN
-------------------------------------
Name: John M. Goodman
Title: President
SOUTH STAR DEVELOPMENT OF NEVADA,
CORP.
By: /s/ ROBERT E. LEWIS
-------------------------------------
Name: Robert E. Lewis
Title: President
9
<PAGE> 1
Exhibit 2.3
PURCHASE AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
R E C I T A L S
A G R E E M E N T
DEFINITIONS/PURCHASE & SALE/CLOSING
<S> <C> <C>
1.1 Definitions.............................................................................................2
1.2 Purchase Price..........................................................................................7
1.3 Transfer of Stock by Sellers............................................................................7
1.4 Transfer of Member Interests by Sellers.................................................................8
1.5 Transfer of Partnership Interests.......................................................................8
1.6 Post-Closing Adjustments to Purchase Price..............................................................8
1.7 The Closing............................................................................................10
1.8 Purchase Price Allocation..............................................................................10
REPRESENTATIONS AND WARRANTIES OF SELLERS
2.1 Management Corp. and Branching Tree....................................................................10
2.2 Stock..................................................................................................11
2.3 Holding LLCs, Mather and Desert Inn....................................................................11
2.4 Parent Partnerships....................................................................................12
2.5 Financial Statements; Changes; Contingencies...........................................................13
2.6 Tax and Other Returns and Reports......................................................................14
2.7 Material Contracts.....................................................................................15
2.8 Real and Personal Property; Title to Property; Leases..................................................16
2.9 Intangible Property....................................................................................17
2.10 No Conflicts...........................................................................................17
2.11 Legal Proceedings and Certain Labor Matters............................................................18
2.12 Minute Books...........................................................................................18
2.13 Accounting Records.....................................................................................19
2.14 Insurance..............................................................................................19
2.15 Permits................................................................................................19
2.16 Employee Benefits......................................................................................19
2.17 Certain Interests......................................................................................21
2.18 Bank Accounts, Powers, etc.............................................................................21
2.19 No Brokers or Finders..................................................................................21
2.20 Environmental Compliance...............................................................................21
2.21 Certain Indebtedness...................................................................................22
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SELLERS
3.1 Ownership by Sellers; No Conflicts.....................................................................23
3.2 Securities Act Matters.................................................................................24
3.3 Authority of Corporations; No Conflicts................................................................25
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Organization and Related Matters.......................................................................25
4.2 Authorization..........................................................................................26
4.3 No Conflicts...........................................................................................26
4.4 No Brokers or Finders..................................................................................26
4.5 Legal Proceedings......................................................................................26
4.6 Investment Representation..............................................................................26
4.7 Financing..............................................................................................27
4.8 Capital Stock..........................................................................................27
4.9 SEC Filings; Financial Statements......................................................................27
COVENANTS PRIOR TO CLOSING
5.1 Access.................................................................................................28
5.2 Material Adverse Changes...............................................................................28
5.3 Conduct of Business....................................................................................29
5.4 Notification of Certain Matters........................................................................31
5.5 Permits and Approvals..................................................................................31
5.6 Preservation of Business Prior to Closing Date.........................................................31
5.7 Government Filings.....................................................................................32
5.8 Elimination of Intercompany and Affiliate Liabilities..................................................32
5.9 Representative.........................................................................................32
5.10 Exchange Listing; Registration Rights..................................................................33
5.11 Shareholders Agreement.................................................................................33
5.12 Cost Sharing Agreements and Option Agreement...........................................................33
5.13 Employees..............................................................................................33
ADDITIONAL CONTINUING COVENANTS
6.1 Noncompetition.........................................................................................34
6.2 Non-disclosure of Proprietary Data.....................................................................35
6.3 Tax Returns............................................................................................35
6.4 Tax Cooperation........................................................................................36
6.5 Other Cooperation......................................................................................38
6.6 Employees and Employee Benefits........................................................................38
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6.7 Lewis Name and Mark License............................................................................38
6.8 Fiscal 1998 Audited Financial Statements...............................................................38
6.9 Tenant Lists...........................................................................................39
6.10 Buyer's Right of First Offer...........................................................................39
6.11 Wells Fargo Loans......................................................................................41
CONDITIONS OF PURCHASE
7.1 General Conditions.....................................................................................42
7.2 Conditions to Obligations of Buyer.....................................................................43
7.3 Conditions to Obligations of Sellers...................................................................44
TERMINATION OF OBLIGATIONS; SURVIVAL
8.1 Termination of Agreement...............................................................................45
8.2 Effect of Termination..................................................................................45
8.3 Survival of Representations and Warranties.............................................................46
INDEMNIFICATION
9.1 Obligations of Sellers and Corporation.................................................................46
9.2 Obligations of Buyer...................................................................................46
9.3 Procedure..............................................................................................47
9.4 Survival...............................................................................................48
9.5 Limitation of Remedies.................................................................................48
GENERAL
10.1 Amendments; Waivers....................................................................................48
10.2 Schedules, Exhibits, Integration.......................................................................49
10.3 Efforts; Further Assurances............................................................................49
10.4 Governing Law..........................................................................................49
10.5 No Assignment..........................................................................................49
10.6 Headings...............................................................................................50
10.7 Counterparts...........................................................................................50
10.8 Publicity and Reports..................................................................................50
10.9 Confidentiality........................................................................................50
10.10 Alternative Dispute Resolution.........................................................................51
10.11 Parties in Interest....................................................................................52
10.12 Knowledge Convention...................................................................................52
10.13 Notices................................................................................................52
10.14 Expenses...............................................................................................54
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10.15 Remedies; Waiver.......................................................................................54
10.16 Attorney's Fees........................................................................................54
10.17 Representation By Counsel; Interpretation..............................................................54
10.18 Severability...........................................................................................54
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<PAGE> 6
PURCHASE AGREEMENT
This Purchase Agreement is entered into among Kaufman and
Broad Home Corporation, a Delaware corporation ("Buyer"), the individuals,
corporations and limited liability companies identified on the signature page of
this Agreement as "Sellers" (individually a "Seller" and collectively, the
"Sellers") and the corporations identified on the signature page of this
Agreement as "Corporations" (individually a "Corporation" and collectively, the
"Corporations").
R E C I T A L S
WHEREAS, Sellers collectively own (i) all the partnership
interests in Lewis Homes of California, a California general partnership
("LHC"), Lewis Development Co., a California general partnership ("Lewis
Development"), Lewis Homes Enterprises, a California general partnership
("LHE"), Lewis Homes of Nevada, a Nevada general partnership ("LHN"), and Lewis
Properties, a Nevada general partnership ("Lewis Properties," and collectively
with LHC, Lewis Development, LHE and LHN, the "Parent Partnerships"), (ii) all
of the issued and outstanding capital stock of Lewis Homes Management Corp., a
California corporation ("Management Corp."), and Branching Tree Corp., a
California corporation ("Branching Tree"), and (iii) all the member interests of
(a) LDC Arctic, LLC, a Delaware limited liability company, LHC Arctic, LLC, a
Delaware limited liability company, LHE Arctic, LLC, a Delaware limited
liability company, LHN Arctic, LLC, a Delaware limited liability company, and LP
Arctic, LLC, a Delaware limited liability company (collectively, the "Holding
LLCs"), (b) Mather Housing Company, LLC, a California limited liability company
("Mather"), and (c) Desert Inn Development, L.L.C., a Nevada limited liability
company ("Desert Inn"). The Parent Partnerships, directly and through their
interests in joint ventures, general partnerships and limited liability
companies, and Management Corp., Branching Tree, Mather and Desert Inn,
excluding the Excluded Assets (as defined below), collectively constitute the
homebuilding operations of the members of the Lewis Homes group of companies in
California and Nevada (the "Homebuilding Business");
WHEREAS, certain non-Homebuilding Business and other assets
and liabilities of the Homebuilding Entities identified on Exhibit A hereto
(collectively, the "Excluded Assets" and "Excluded Liabilities") will be removed
by Sellers prior to the Closing (as defined below) or conveyed to Sellers or
their designees after the Closing, and certain Homebuilding Business assets and
liabilities of Sellers identified on Exhibit A hereto (the "Included Assets" and
"Included Liabilities") will be transferred by Sellers or their non-Homebuilding
Entity affiliates to the Homebuilding Entities prior to the Closing;
WHEREAS, Sellers desire to sell and Buyer desires to buy the
partnership interests in the Parent Partnerships (the "Partnership Interests"),
all of the issued and outstanding capital stock of Management Corp. and
Branching Tree (the "Stock") and all the member interests of the Holding LLCs,
Mather and Desert Inn (the "Member Interests") for the consideration set forth
herein.
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WHEREAS, the Corporations, who were formerly partners of one
or more of the Parent Partnerships and are currently members of one or more of
the Partnership Sellers, desire to make certain representations and warranties
to and agreements with Buyer and Buyer desires to make certain representations
and warranties to and agreements with the Corporations, all in accordance with
the terms of this Agreement.
A G R E E M E N T
In consideration of the mutual promises contained herein and
intending to be legally bound the parties agree as follows:
ARTICLE I
DEFINITIONS/PURCHASE & SALE/CLOSING
1.1 DEFINITIONS.
For all purposes of this Agreement, except as otherwise
expressly provided,
(a) the terms defined in this Article I have the meanings
assigned to them in this Article I and include the plural as well as the
singular,
(b) all accounting terms not otherwise defined herein have the
meanings assigned under GAAP,
(c) all references in this Agreement to designated "Articles,"
"Sections" and other subdivisions are to the designated Articles, Sections and
other subdivisions of the body of this Agreement,
(d) pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms, and
(e) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
As used in this Agreement and the Exhibits and Schedules
delivered pursuant to this Agreement, the following definitions shall apply.
"Action" means any action, complaint, petition, investigation,
suit or other proceeding, whether civil or criminal, in law or in equity, or
before any arbitrator or Governmental Entity.
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<PAGE> 8
"Affiliate" means a Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, a specified Person.
"Agreement" means this Agreement by and among Buyer and
Sellers as amended or supplemented together with all Exhibits and Schedules
attached or incorporated by reference.
"Approval" means any approval, authorization, consent, consent
to assignment or transfer, qualification or registration, or any waiver of any
of the foregoing, required to be obtained from, or any notice, statement or
other communication required to be filed with or delivered to, any Governmental
Entity or any other Person.
"Associate" of a Person means
(i) a corporation or organization of which such
Person is an officer or partner or is, directly or indirectly, the beneficial
owner of 10% or more of any class of equity securities;
(ii) any trust or other estate in which such Person
has a substantial beneficial interest or as to which such person serves as
trustee or in a similar capacity; and
(iii) any relative or spouse of such Person or any
relative of such spouse.
"Auditors" means Ernst & Young LLP, independent public
accountants to Management Corp., Branching Tree, Mather, Desert Inn, the Parent
Partnerships and their respective Subsidiaries.
"Branching Tree Sellers" means the Sellers identified as such
on Exhibit B.
"Buyer Common Stock" has the meaning set forth in Section 1.2.
"Closing" means the consummation of the purchase and sale of
the Partnership Interests, Member Interests, and Stock under this Agreement.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contract" means any agreement, arrangement, bond, commitment,
franchise, indemnity, indenture, instrument, lease, license or understanding,
whether or not in writing.
"Cost Sharing Agreements" has the meaning set forth in Section
5.12.
"Desert Inn Sellers" means the Sellers identified as such on
Exhibit B.
"Disclosure Schedule" means the Disclosure Schedules dated
January 7, 1999 and delivered by Sellers to Buyer, or Buyer to Sellers, as the
case may be, as exhibits to this Agreement. The Sections of the Disclosure
Schedules shall be numbered to correspond to the
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<PAGE> 9
applicable Section of this Agreement and, together with all matters under such
heading, shall be deemed to qualify only that Section.
"Encumbrance" means any claim, charge, easement, encumbrance,
lease, covenant, security interest, lien, option, pledge, rights of others, or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise, except
for any restrictions on transfer generally arising under any applicable federal
or state securities law.
"Equity Securities" means any capital stock or other equity
interest or any securities convertible into or exchangeable for capital stock or
other equity interest or any other rights, warrants or options to acquire any of
the foregoing securities.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the related regulations and published interpretations.
"Excluded Assets" has the meaning set forth in the Recitals.
"Excluded Liabilities" has the meaning set forth in the
Recitals.
"Former Partnership Properties" means those Excluded Assets
listed on Exhibit O.
"GAAP" means generally accepted accounting principles in the
United States, as in effect from time to time.
"Governmental Entity" means any government or any agency
(including any licensing agency), bureau, board, commission, court, department,
official, political subdivision, tribunal or other instrumentality of any
government, whether federal, state or local, domestic or foreign.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the related regulations and published
interpretations.
"Hazardous Substance" means (but shall not be limited to)
substances that are defined or listed in, or otherwise classified pursuant to,
any applicable Laws as "hazardous substances," "hazardous materials," "hazardous
wastes" or "toxic substances," or any other formulation intended to define, list
or classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, radioactivity or carcinogenicity, and petroleum and
drilling fluids, produced waters and other wastes associated with the
exploration, development, or production of crude oil, natural gas or geothermal
energy, derivatives of petroleum products, and asbestos or asbestos-containing
materials.
"Holding LLCs" has the meaning set forth in the Recitals.
"Holding LLC Sellers" means the Sellers identified as such on
Exhibit B.
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<PAGE> 10
"Homebuilding Business" has the meaning set forth in the
Recitals and shall be deemed to include the Former Partnership Properties
despite their status as Excluded Assets.
"Homebuilding Entities" means Management Corp., Branching
Tree, Mather, Desert Inn, the Holding LLCs, the Parent Partnerships and their
respective Subsidiaries.
"Homebuilding Line of Business Financial Information" means
the financial information in the column labeled "Homebuilding" in the Combined
Companies (California and Nevada) Line of Business Operations/Selected Financial
Information as of December 31, 1997 and for the year then ended included in the
audited financial statements of the Lewis Homes group of companies referred to
in Section 2.5(a).
"Included Assets" and "Included Liabilities" have the meanings
set forth in the Recitals.
"Indemnifiable Claim" means any Loss for or against which any
party is entitled to indemnification under Article IX of this Agreement;
"Indemnified Party" means the party entitled to indemnity hereunder; and
"Indemnifying Party" means the party obligated to provide indemnification
hereunder.
"Intangible Property" means any trade secret, secret process
or other confidential information or know-how and any and all Marks.
"IRS" means the Internal Revenue Service or any successor
entity.
"Law" means any constitutional provision, statute or other
law, rule, regulation, or interpretation of any Governmental Entity and any
Order.
"License Agreement" has the meaning set forth in Section 6.7.
"Loss" means any cost, damage, disbursement, expense,
liability, loss, deficiency, diminution in value, obligation, penalty or
settlement of any kind or nature, whether foreseeable or unforeseeable,
including but not limited to, interest or other carrying costs, penalties,
reasonable legal, accounting and other professional fees and expenses actually
incurred in the investigation, collection, prosecution and defense of claims,
and amounts paid in settlement, that may be imposed on or otherwise incurred or
suffered by the specified person.
"Management Corp. Sellers" means the Sellers identified as
such on Exhibit B.
"Mark" means any brand name, copyright, patent, service mark,
trademark, trademark, and all registrations or application for registration of
any of the foregoing.
"material adverse change," "material adverse effect,"
"material" or related terms herein mean a material adverse effect on the
business, financial condition, results of operations or prospects of the
Homebuilding Business of the Homebuilding Entities, taken as a whole; provided,
however, that a decline in general economic conditions or matters generally
affecting real estate markets or homebuilding companies in California or Nevada
(or both) shall not be
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<PAGE> 11
deemed to be a material adverse change or material adverse effect; and provided,
further that solely for the purposes of determining whether a breach of a
representation or warranty made in or pursuant to this Agreement by Sellers or
the nonperformance by Sellers of any of the covenants or agreements made
hereunder results in Losses that are indemnifiable under Article IX hereof,
"material adverse change," "material adverse effect", "material" or related
terms herein mean a change or effect that results in Losses exceeding $750,000.
"Material Contract" means any Contract material to the
Homebuilding Business and includes but is not limited to those Contracts deemed
material by Section 2.7.
"Mather Sellers" means the Sellers identified as such on
Exhibit B.
"Member Interests" means the member interests in the Holding
LLCs, Mather and Desert Inn.
"Net Worth" means the stockholders', members' and partners'
equity of each of the Homebuilding Entities determined on a combined basis in
accordance with GAAP applied consistently with the audited financial statements
referred to in Section 7.2(g); provided, however, that (i) any severance
payments payable to officers or employees of any Homebuilding Entity on or after
the Closing Date shall not be considered in determining Net Worth, (ii) any
bonuses payable to officers or employees of any Homebuilding Entity on or after
the Closing Date (which shall be limited in accordance with Section 5.3(g))
shall be pro rated over the period from the date the employee was notified of
the intent to pay such a bonus to the end of such bonus period and only that
portion of the bonus allocated to periods prior to the Closing Date shall be
considered in determining Net Worth (it being understood that all bonuses with
respect to the fiscal year ended December 31, 1998 shall be paid prior to the
Closing), and (iii) no amount payable by any of the Homebuilding Entities to
related parties shall be treated as equity in determining Net Worth.
"Option Agreement" has the meaning set forth in Section 5.12.
"Order" means any decree, injunction, judgment, order, ruling,
assessment or writ.
"Partnership Interests" has the meaning set forth in the
Recitals.
"Partnership Sellers" means the Sellers identified as such on
Exhibit B.
"Permit" means any license, permit, franchise, certificate of
authority, consent, variance, development agreement, exemption, or order, or any
waiver of the foregoing, required to be issued by any Governmental Entity.
"Person" means an association, a corporation, an individual, a
partnership, a limited liability company, a trust or any other entity or
organization, including a Governmental Entity.
"Purchase Price" has the meaning set forth in Section 1.2.
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<PAGE> 12
"Registration Rights Agreement" has the meaning set forth in
Section 5.10.
"Representative" has the meaning set forth in Section 5.9.
"Shareholders" means the equity owners of those Sellers or
Corporations that are "S" corporations under the Code.
"Shareholders Agreement" has the meaning set forth in Section
5.11.
"Stock" means all of the outstanding capital stock of
Management Corp. and Branching Tree.
"Subsidiary" means any Person in which any Homebuilding Entity
has a direct or indirect equity or ownership interest in excess of 10%, other
than Persons included in Excluded Assets.
"Tax" means any foreign, federal, state, county or local
income, sales and use, excise, franchise, real and personal property, transfer,
gross receipt, capital stock, production, business and occupation, disability,
employment, payroll, severance or withholding tax or charge imposed by any
Governmental Entity, any interest and penalties (civil or criminal) related
thereto or to the nonpayment thereof.
"Tax Return" means a report, return or other information
required to be supplied to a Governmental Entity with respect to Taxes
including, where permitted or required, combined or consolidated returns for any
group of entities that includes any Homebuilding Entity.
1.2 PURCHASE PRICE.
Subject to the terms and conditions of this Agreement, the
Buyer agrees to acquire the Stock, Partnership Interests and Member Interests
for an aggregate purchase price (the "Purchase Price") of $51,000 in cash and
7,886,686 shares of the common stock, par value $1.00 per share, of Buyer (the
"Buyer Common Stock"), subject to adjustment as set forth in Section 1.6.
1.3 TRANSFER OF STOCK BY SELLERS.
Subject to the terms and conditions of this Agreement, the
Management Corp. Sellers and the Branching Tree Sellers agree to sell the Stock
of Management Corp. and Branching Tree, respectively, and deliver the
certificates evidencing such Stock to Buyer or its nominee(s) at the Closing.
The certificates will be properly endorsed for transfer to or accompanied by a
duly executed stock power in favor of Buyer or its nominee(s) as Buyer may have
directed prior to the Closing Date and otherwise in a form acceptable for
transfer on the books of said corporation.
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1.4 TRANSFER OF MEMBER INTERESTS BY SELLERS.
Subject to the terms and conditions of this Agreement, the
Holding LLC Sellers, the Mather Sellers and the Desert Inn Sellers agree to sell
the Member Interests of the Holding LLCs, Mather and Desert Inn, respectively,
to Buyer or its nominee(s) at the Closing by executing and delivering to Buyer
or its nominee(s) an assignment, in the form attached hereto as Exhibit C, of
all such Seller's right, title and interest in the Member Interests.
1.5 TRANSFER OF PARTNERSHIP INTERESTS.
Subject to the terms and conditions of this Agreement,
Partnership Sellers agree to sell the Partnership Interests to Buyer or its
nominee(s) at the Closing by executing and delivering to Buyer or its
nominees(s) at the Closing an assignment, in the form attached hereto as Exhibit
D, of all such Partnership Seller's right, title and interest in the Parent
Partnerships.
1.6 POST-CLOSING ADJUSTMENTS TO PURCHASE PRICE.
(a) As soon as practicable after the Closing, and in any event
within 45 days following the Closing Date, Sellers shall cause to be delivered
to Buyer a combined balance sheet of the Homebuilding Entities as of December
31, 1998 (if the Closing occurs on or before January 8, 1999) or the Closing
Date (if the Closing occurs after January 8, 1999), prepared in accordance with
GAAP (the "Closing Date Balance Sheet") applied on a basis consistent with that
used in preparation of the audited financial statements referred to in Section
7.2(g), a combined statement of the Net Worth of the Homebuilding Business of
the Homebuilding Entities as of December 31, 1998 (if the Closing occurs on or
before January 8, 1999) or the Closing Date (if the Closing occurs after January
8, 1999), and a certificate signed by Sellers' to the effect that such
statements have been prepared in accordance with GAAP applied on a basis
consistent with that used in the preparation of the audited financial statements
referred to in Section 7.2(g) and the terms of this Agreement (the "Post-Closing
Certificate"). Buyer shall cooperate fully with Sellers and shall provide
Sellers with access to the books and records of the Homebuilding Entities and
such other assistance as Sellers reasonably request (including, without
limitation, assignment of Buyer's or Homebuilding Entities' personnel to this
project). Buyer will reimburse Sellers upon request 50% of all reasonable
out-of-pocket costs and expenses actually incurred by Sellers in the preparation
of such statement. Within 30 days following the delivery of such information,
Buyer shall notify Sellers in writing whether Buyer agrees or disagrees with the
determination of the Net Worth of the Homebuilding Business of the Homebuilding
Entities set forth in the Post-Closing Certificate. If Buyer disagrees with such
determination, Buyer shall specify in writing in reasonable detail the nature
and amount of its disagreement. Unless such disagreement is resolved (or to the
extent not resolved) by Buyer and Sellers in writing within 10 days after
delivery of Buyer's statement of disagreement, the Closing Date Balance Sheet
shall be audited, and the Net Worth of the Homebuilding Business of the
Homebuilding Entities as of the Closing Date shall be determined, by E & Y
Kenneth Leventhal Real Estate Group of Ernst & Young LLP or another independent
public accounting firm selected by mutual agreement of the Sellers and Buyer.
Such accounting firm shall resolve the disagreement consistent with the language
of this Agreement. The determination of the Net Worth of the Homebuilding
Business of the Homebuilding Entities as of December 31, 1998 (if
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<PAGE> 14
the Closing occurs on or before January 8, 1999) or the Closing Date (if the
Closing occurs after January 8, 1999), shall be made by such accounting firm
within 30 days of submission of the disagreement to it, shall be final and
binding on Buyer and the Sellers (absent manifest error in calculations) and the
fees and expenses of such accounting firm shall be borne equally by the Sellers,
on the one hand, and Buyer, on the other hand. If the Net Worth of the
Homebuilding Business of the Homebuilding Entities as of December 31, 1998 (if
the Closing occurs on or before January 8, 1999) or the Closing Date (if the
Closing occurs after January 8, 1999), as finally determined pursuant to this
Section 1.6, is greater than $192,849,362, Buyer shall pay to the Sellers the
amount of such excess, plus interest thereon at the rate of interest per annum
publicly announced from time to time by Morgan Guaranty Trust Company of New
York as its prime commercial lending rate (the "Agreed Rate") from (and
including) the Closing Date to (but excluding) the date of such payment. If the
Net Worth of the Homebuilding Business of the Homebuilding Entities as of
December 31, 1998 (if the Closing occurs on or before January 8, 1999) or the
Closing Date (if the Closing occurs after January 8, 1999), as finally
determined pursuant to this Section 1.6, is less than $192,849,362, the Sellers
shall pay to Buyer the amount of such deficiency, plus interest thereon at the
Agreed Rate from (and including) the Closing Date to (but excluding) the date of
such payment. Any payment contemplated by this Section 1.6 shall be made by wire
transfer in federal or other immediately available funds on or before the tenth
day following the final determination thereof, and any payment by Buyer to
Sellers shall be delivered to the accounts and in the names designated by the
Representative prior to the Closing Date unless the Representative gives Buyer
other instructions at least one day prior to the date of payment.
(b) Notwithstanding the requirements in Section 1.6(a) of
consistency in the preparation of the Closing Date Balance Sheet and Net Worth
statement, and notwithstanding any other provision of this Agreement, for
purposes of the preparation and review of, and any resolution of disagreements
regarding, the Closing Date Balance Sheet and Net Worth of the Homebuilding
Business of the Homebuilding Entities as of December 31, 1998 (if the Closing
occurs on or before January 8, 1999) or the Closing Date (if the Closing occurs
after January 8, 1999), the distribution or transfer of all of the Excluded
Assets and Excluded Liabilities by the Homebuilding Entities and transfer of all
of the Included Assets and Included Liabilities to the Homebuilding Entities
shall be deemed to have occurred prior to December 31, 1998 (if the Closing
occurs on or before January 8, 1999) or the Closing Date (if the Closing occurs
after January 8, 1999), even if not all such transfers have been effected as of
such date.
(c) Notwithstanding any other provision of this Agreement, no
fractional shares of Buyer Common Stock, or certificates therefore, will be
issued in payment of the Purchase Price. Each Seller who would otherwise be
entitled to receive a fractional share of Buyer Common Stock in payment of the
Purchase Price (after aggregating all whole and fractional shares of Buyer
Common Stock to which such Seller would be entitled but for this Section in
consideration for all Stock, Member Interests and Partnership Interests
delivered by such Seller) shall receive, in lieu of such fractional share, cash
equal to the product of such fraction and the average closing price of Buyer
Common Stock for the ten trading days ending two business days prior to the
Closing Date as reported on the New York Stock Exchange Composite Tape.
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1.7 THE CLOSING.
The Closing will take place at the offices of Munger, Tolles &
Olson LLP, 355 South Grand Avenue, Los Angeles, California 90071. The Closing
will take place no earlier than January 7, 1999 or, if later, the fifth business
day after the satisfaction of the conditions set forth in Sections 7.1(b),
7.1(c), 7.2(c), 7.2(f), 7.2(g), 7.3(b) and 7.3(d) or such later date as Sellers
and Buyer may agree. The parties shall use their best efforts to effectuate the
Closing on January 7, 1999. At the Closing, Buyer, in exchange for the Stock,
Partnership Interests and Member Interests, shall pay to Sellers the Purchase
Price by wire transfer of the cash portion of the Purchase Price to an account
designated by the Representative at least three business days prior to the
Closing and by delivery to the Representative, on behalf of the Sellers, of
stock certificates in the Sellers' names as designated by the Representative at
least three business days prior to the Closing.
1.8 PURCHASE PRICE ALLOCATION.
The Purchase Price shall be allocated among the Stock, the
Member Interests and the Partnership Interests in a manner that will facilitate
allocations being made in accordance with Section 6.4(c), and that is consistent
with the other provisions of this Agreement. The parties intend that the
acquisitions of Stock be taxable purchases, and a sufficient amount of the cash
portion of the Purchase Price shall be allocated to each of the acquisitions of
the Stock of Management Corp. and the Stock of Branching Tree so that neither
acquisition will qualify as a reorganization within the meaning of Section
368(a) of the Code. Subject to the foregoing, prior to the Closing Sellers shall
provide a schedule to Buyer, to become a part of this Agreement, that shall set
forth the manner in which the Purchase Price shall be allocated among the
Sellers.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as otherwise indicated on the Sellers' Disclosure
Schedule as applying to a particular Section in this Article II, Sellers and the
Corporations, jointly and severally, represent, warrant and agree as follows:
2.1 MANAGEMENT CORP. AND BRANCHING TREE.
Each of Management Corp. and Branching Tree is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California. Each of Management Corp. and Branching Tree has all
necessary corporate power and authority to own its properties and to carry on
its business as now conducted and is duly qualified to do business as a foreign
corporation in good standing in all jurisdictions in which the character or the
location of its assets owned or leased or the nature of its business requires
qualification, except where the failure to be so qualified would not have a
material adverse effect on the Homebuilding Business. Neither Management Corp.
nor Branching Tree has any Subsidiaries.
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2.2 STOCK.
Management Corp. Sellers own all of the outstanding shares of
the capital stock of Management Corp. The authorized capital stock of Management
Corp. consists of 10,000 shares of common stock, no par value, of which 2,000
shares are issued and outstanding. Branching Tree Sellers own all the
outstanding shares of the capital stock of Branching Tree. The authorized
capital stock of Branching Tree consists of 10,000 shares of common stock, no
par value, of which 480 shares are issued and outstanding. There are no
outstanding Contracts or other rights to subscribe for or purchase, or Contracts
or other obligations to issue or grant any rights to acquire, any Equity
Securities of Management Corp. or Branching Tree, or to restructure or
recapitalize Management Corp. or Branching Tree. There are no outstanding
Contracts of Sellers, Corporations, Management Corp. or Branching Tree to
repurchase, redeem or otherwise acquire any Equity Securities of Management
Corp. or Branching Tree. All Equity Securities of Management Corp. and Branching
Tree are duly authorized, validly issued and outstanding and are fully paid and
nonassessable and were issued in conformity with applicable Laws. There are no,
and never have been, preemptive rights in respect of any Equity Securities of
Management Corp. or Branching Tree. Except as described in Schedule 2.2, neither
Management Corp. nor Branching Tree owns any Equity Securities of any Person.
2.3 HOLDING LLCS, MATHER AND DESERT INN.
Each of the Holding LLCs, Mather and Desert Inn is a limited
liability company duly formed and validly existing and in good standing under
the laws of the state of its organization. Continuously since its formation,
each of Mather and Desert Inn has been treated as a partnership, and the Holding
LLCs have been treated by the Holding LLC Sellers as disregarded entities, for
purposes of federal, state, and local Taxes. Each of the Holding LLCs, Mather
and Desert Inn has all necessary power and authority under its organizational
documents to own its properties and carry on its business as now conducted. Each
of the Holding LLCs, Mather and Desert Inn is duly qualified to do business as a
foreign limited liability company in good standing in all jurisdictions in which
the character or the location of its assets owned or leased or the nature of its
business requires qualification, except where the failure to be so qualified
would not have a material adverse effect on the Homebuilding Business. The
Holding LLC Sellers, Mather Sellers and Desert Inn Sellers own all of the
outstanding membership interests in the Holding LLCs, Mather and Desert Inn,
respectively. Each Holding LLC Seller holds all of the membership interests in
its respective Holding LLC. There are no outstanding Contracts or other rights
to subscribe for or purchase, or Contracts or other obligations to issue or
grant any rights to acquire, any interest in the Holding LLCs, Mather or Desert
Inn, or to restructure or recapitalize the Holding LLCs, Mather or Desert Inn.
There are no outstanding Contracts of Sellers, the Corporations or the Holding
LLCs, Mather or Desert Inn to repurchase, redeem or otherwise acquire any
interest in the Holding LLCs, Mather or Desert Inn. All Member Interests were
issued in conformity with all applicable Laws. Schedule 2.3 lists all
Subsidiaries of the Holding LLCs, Mather or Desert Inn and correctly sets forth
their respective ownership interests therein, any other interest of any other
Person in such Subsidiary and the jurisdiction in which each such Subsidiary was
organized. Except as set forth on Schedule 2.3, all of the Equity Securities,
partnership interests, membership interests, or other interests owned by the
Holding LLCs, Mather or Desert Inn in any such Subsidiary are validly issued and
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outstanding, fully paid and nonassessable, were issued in conformity with
applicable Laws and without violation of, and are free of, any preemptive
rights, and are owned by the Holding LLCs, Mather or Desert Inn, as applicable,
free and clear of any and all covenants, conditions, or other Encumbrances. Each
of such Subsidiaries is duly formed and validly existing and in good standing
under the laws of the jurisdiction of its organization. Each such Subsidiary has
all necessary power and authority under its organizational documents to own its
properties and to carry on its business as now conducted and is duly qualified
to do business in all jurisdictions in which the character or the location of
the assets owned or leased by it or the nature of the business conducted by it
requires qualification, except where the failure to be so qualified would not
have a material adverse effect on the Homebuilding Business. Except for such
Subsidiaries or as set forth on Schedule 2.3, neither the Holding LLCs, Mather
nor Desert Inn own any Equity Securities of any Person.
2.4 PARENT PARTNERSHIPS.
Each of the Parent Partnerships is a duly formed and validly
existing general partnership in good standing under the laws of the state of its
organization. As of the Closing Date, each of the Parent Partnerships shall be
treated by the Partnership Sellers as a disregarded entity for purposes of
federal, state and local Taxes. Each Parent Partnership has all necessary power
and authority under its partnership agreement to own its property and to carry
on its business as now conducted and is duly qualified to do business in all
jurisdictions in which the character or the location of the assets owned or
leased by it or the nature of its business requires qualification, except where
the failure to be so qualified would not have a material adverse effect on the
Homebuilding Business. The Partnership Sellers and the Holding LLCs own all the
outstanding partnership interests in the Parent Partnerships. There are no
outstanding Contracts or other rights to subscribe for or purchase, or Contracts
or other obligations to issue or grant any rights to acquire, any interest in
the Parent Partnerships, or to restructure or recapitalize the Parent
Partnerships. There are no outstanding Contracts of Sellers, the Corporations,
the Holding LLCs or the Parent Partnerships to repurchase, redeem or otherwise
acquire any interest in the Parent Partnerships. All Partnership Interests were
issued in conformity with all applicable Laws. Schedule 2.4 lists all
Subsidiaries of the Parent Partnerships and correctly sets forth the Parent
Partnership's ownership interest and profit or loss allocation (and any special
allocations with priority over the Parent Partnership's profit or loss
allocation) therein, any other interest of any other Person in such Subsidiary
and the jurisdiction in which each such Subsidiary was organized. Except as set
forth on Schedule 2.4, all of the Equity Securities, partnership interests,
membership interests, or other interests owned by a Parent Partnership in any
such Subsidiary are validly issued and outstanding, fully paid and
nonassessable, were issued in conformity with applicable Laws and without
violation of, and are free of, any preemptive rights, and are owned by such
Parent Partnership free and clear of any and all covenants, conditions, or other
Encumbrances. Each of such Subsidiaries is duly formed and validly existing
under the laws of the jurisdiction of its organization. Each such Subsidiary has
all necessary power and authority under its organizational documents to own its
properties and to carry on its business as now conducted and is duly qualified
to do business in all jurisdictions in which the character or the location of
the assets owned or leased by it or the nature of the business conducted by it
requires qualification, except where the failure to be so qualified would not
have a material adverse effect
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on the Homebuilding Business. Except for such Subsidiaries or as set forth on
Schedule 2.4, the Parent Partnerships own no Equity Securities of any Person.
None of the Holding LLCs have any assets or liabilities of any nature
whatsoever, other than a Partnership Interest in one of the Parent Partnerships
and $100 in cash. Each of the Holding LLCs was formed solely for the purpose of
holding such Partnership Interest and has conducted no other business activities
whatsoever.
2.5 FINANCIAL STATEMENTS; CHANGES; CONTINGENCIES.
(a) Audited Financial Statements. Sellers have delivered to
Buyer combined balance sheets for the Lewis Homes group of companies at December
31, 1997 (the "Audited Balance Sheet Date") and 1996 and the related combined
statements of operations, equity and cash flows for the years ended December 31,
1997 and 1996. Such balance sheets and statements of operations, equity and cash
flows have been examined by the Auditors whose audit report thereon is included
with such statements. All such financial statements have been prepared in
conformity with GAAP applied on a consistent basis (except for changes, if any,
required by GAAP and disclosed therein) and present fairly, in all material
respects, the combined financial position of the Lewis Homes group of companies
at December 31, 1997 and 1996 and the combined results of their operations and
cash flows for the years then ended. Sellers have also delivered to Buyer
combined Line of Business Operations/Selected Financial Information for the
Homebuilding Business at and for the year ended December 31, 1997. Such combined
Line of Business Operations/Selected Financial Information has been subjected to
the auditing procedures applied in the audit by Auditors of the audited combined
financial statements referred to above, except as noted , and exclude the
Excluded Assets (other than the properties identified on Exhibit A as Sierra
Lakes and Fontana (Zee) property) and Excluded Liabilities and include the
Included Assets and Included Liabilities.
(b) Interim Financial Statements Sellers have delivered to
Buyer a combined balance sheet of the Homebuilding Business at June 30, 1998 and
a related combined income statement for the six months ended June 30, 1998. Such
financial statements have been prepared in conformity with GAAP on a basis
consistent with the audited financial statements referred to in Section 7.2(g)
(except for changes, if any, required by GAAP, the lack of notes thereto and the
exclusion of the Excluded Assets (other than the properties identified on
Exhibit A as Sierra Lakes and Fontana (Zee) property) and Excluded Liabilities
and the inclusion of the Included Assets and Included Liabilities) and present
fairly, in all material respects, the combined financial position of the
Homebuilding Business of the Homebuilding Entities at June 30, 1998 and the
combined results of operations for the six months ended June 30, 1998.
(c) No Material Adverse Changes. Except as set forth in
Schedule 2.5, since June 30, 1998, the Homebuilding Entities have conducted the
Homebuilding Business in the ordinary course of business consistent with past
practices (except for the exclusion of Excluded Assets and Excluded Liabilities
and the inclusion of the Included Assets and Included Liabilities) and, whether
or not in the ordinary course of the Homebuilding Business, there has not been,
occurred or arisen:
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(i) any change in or event affecting the Homebuilding
Business that has had or is reasonably expected to have a material adverse
effect on the Homebuilding Business,
(ii) any agreement, condition, action or omission
which would be proscribed by (or require consent under) subsections (e), (f),
(g), (h), (i), (j), (k), (p), (q), (t), (u) or (v) (solely as it relates to
subsections (e), (f), (g), (h), (i), (j), (k), (p), (q), (t) and (u)) of Section
5.3 had it existed, occurred or arisen after the date of this Agreement,
(iii) any strike or other labor dispute, or
(iv) any casualty, loss, damage or destruction
(whether or not covered by insurance) of any property of the Homebuilding
Entities that constitutes a material adverse change and that has involved or may
involve a loss to any of the Homebuilding Entities in excess of applicable
insurance coverage.
(d) No Other Liabilities or Contingencies. None of the
Homebuilding Entities has any material liabilities of any nature, whether
accrued, absolute, contingent, known, unknown, or otherwise, except liabilities
that (i) are reflected or disclosed in the most recent of the financial
statements referred to in subsection (b) above, (ii) were incurred after June
30, 1998 in the ordinary course of business, or (iii) are set forth in Schedule
2.5 hereto.
(e) Reserves. At December 31, 1997, the reserves for
construction defects and litigation, but not including any warranty reserves,
aggregated $5.5 million and on the Closing Date will be no less than $2.7
million.
2.6 TAX AND OTHER RETURNS AND REPORTS.
The Homebuilding Entities have timely filed (taking into
account any extensions) all required Tax Returns required to be filed by them
before the date hereof and have paid all Taxes shown on such Tax Returns to be
due. The Homebuilding Entities shall timely file (taking into account any
applicable extensions) all Tax Returns that are required to be filed by them on
or after the date hereof and before the Closing Date and shall pay all Taxes
shown on any such Tax Return to be due. All Tax Returns referred to above in
this section were or shall be complete and correct in all material respects.
Adequate provision has been made in the books and records of the Homebuilding
Entities and in the financial statements referred to in Section 2.5 above, for
all Taxes required to be paid or withheld for the periods covered by such
financial statements, whether or not disputed and whether or not due and
payable. Except as listed on Schedule 2.6, there is no audit, examination or
similar proceeding pending or, to Sellers' knowledge, threatened, or claim or
assessment of deficiency pending or, to the Sellers' knowledge, threatened, with
respect to any Tax Return of the Homebuilding Entities, and there are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any such Tax Return. None of the Sellers is a "foreign person"
within the meaning of Section 1445(b)(2) of the Code. Each of Management Corp.
and Branching Tree is, and has for all taxable periods beginning on and after
its incorporation, qualified to be, and with all required consents of its
shareholders has validly elected to be, taxed as an "S corporation" under the
Code
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and analogous state tax law. Such elections have never been terminated or
revoked, are currently in effect, and will be in effect through such time as
they terminate as a result of the Closing. Since such elections, neither
Management Corp. nor Branching Tree has acquired assets with a carryover basis
from a C corporation under the Code. Each Seller that is a corporation and every
Corporation is an "S corporation" under the Code. The Homebuilding Entities have
no liability for any Taxes of any person or entity other than themselves under
Treasury Regulation Section 1.1502-6 (or any similar provision of state, local,
territorial, or foreign law), as transferee or successor, or by contract or
otherwise. Except as set forth in Schedule 2.6, none of the Homebuilding
Entities is a party to any agreement, contract, arrangement, or plan that has
resulted or would result, separately or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Section 280G of the Code.
2.7 MATERIAL CONTRACTS.
Schedule 2.7 lists each Contract to which any Homebuilding
Entity is a party or to which any Homebuilding Entity or any of their respective
properties or any of the Former Partnership Properties is subject or by which
any of the foregoing is bound that is deemed a Material Contract under this
Agreement. Each Contract that (a) after June 30, 1998, obligates any
Homebuilding Entity to pay an amount of $500,000 or more or obligates the owners
of Former Partnership Properties to pay such amount with respect to any Former
Partnership Property, (b) represents a Contract upon which the Homebuilding
Business is substantially dependent, (c) provides for an extension, assumption,
or guarantee of credit to or by a Homebuilding Entity or secured by a Former
Partnership Property in an amount of $500,000 or more, (d) limits or restricts
the ability of any Homebuilding Entity to compete or otherwise to conduct its
business in any manner or place, (e) provides for a guaranty or indemnity by any
Homebuilding Entity or encumbering any Former Partnership Property, (f) grants a
power of attorney, agency or similar authority to another person or entity, (g)
contains a right of first refusal, (h) contains a right or obligation of any
Affiliate, officer or director or any Associate of any Homebuilding Entity with
respect to any Homebuilding Entity or Former Partnership Property that cannot be
terminated by Buyer within 30 days after the Closing without penalty or payment,
(i) requires any Homebuilding Entity to buy or sell goods or services, or
requires the sale of any Former Partnership Property, with respect to which
there will be material losses or will be costs and expenses materially in excess
of expected receipts (other than as provided for or otherwise reserved against
on the most recent of the balance sheet referred to in Section 2.5), (j)
provides for the acquisition or disposition of real property in an amount of
$500,000 or more, (k) provides for a joint venture, partnership, or other profit
or loss sharing arrangement, or (l) is a development, entitlement, or similar
agreement with any Governmental Entity, shall be deemed to be a Material
Contract and has been identified on such Schedule 2.7. True copies of the
agreements appearing on Schedule 2.7, including all amendments and supplements,
have been made available to Buyer. Each Material Contract is valid and
enforceable; each Homebuilding Entity, as applicable, has duly performed all its
obligations thereunder to the extent that such obligations to perform have
accrued; and no breach or default, alleged breach or default, or event which
would (with the passage of time, notice or both) constitute a breach or default
thereunder by any Homebuilding Entity, or encumber the Former Partnership
Property, or, to the knowledge of Sellers, any other party or obligor with
respect thereto, has occurred or, except as set forth in
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Schedule 2.7, as a result of this Agreement or the consummation of the
transactions contemplated hereby will occur. Except as set forth in Schedule
2.7, consummation of the transactions contemplated by this Agreement will not
(and will not give any person a right to) terminate or modify any rights or
accelerate or augment any obligation of any Homebuilding Entity or with respect
to any Former Partnership Property. The parties agree that special assessment
districts need not be listed on Schedule 2.7.
2.8 REAL AND PERSONAL PROPERTY; TITLE TO PROPERTY; LEASES.
(a) The Homebuilding Entities have good and marketable title
to, a valid leasehold interest in, or other right to use, all properties and
assets material to the conduct of the Homebuilding Business as reflected in the
balance sheet as of June 30, 1998 referred to in Section 2.5(b) or acquired
since that date, except for the Former Partnership Properties, which have been
disposed of since that date, and except for other properties and assets in an
aggregate amount that would not constitute a material adverse change in the
Homebuilding Business that were disposed of since such date in the ordinary
course of business consistent with past practice. Except as set forth on
Schedule 2.8(a), the Homebuilding Entities hold all such title, interest, or
right free and clear of Encumbrances other than (i) liens securing taxes,
assessments, or payments not yet due, (ii) such imperfections or irregularities
in title, easements, or other liens as are not substantial in character, amount
or extent and do not interfere with the Homebuilding Entity's or Subsidiary's
current use of the property subject thereto or affected thereby or the
development of such property in accordance with current entitlement,
development, or similar agreements with Governmental Entities, and (iii) other
matters which, individually or in the aggregate, do not and would not have a
material adverse effect with respect to the Homebuilding Entities. The
Homebuilding Entities have obtained title insurance policies covering the Former
Partnership Properties and other real property owned by a Homebuilding Entity
with, in either case, an initial purchase price in excess of $1 million. All of
such tangible properties and assets are in good operating condition and repair
(ordinary wear and tear excepted and subject to normal scheduled maintenance).
Schedule 2.8(a) lists all of the real property owned or leased by any
Homebuilding Entity and with respect to leased property sets forth the lessor,
lease term (including any renewal rights), and lease payment amounts and
schedule. All leased real property held by any Homebuilding Entity, as lessee or
sublessee, as the case may be, under a lease providing for annual lease payments
exceeding $25,000 are held under valid, binding and enforceable leases or
subleases, and none of the Homebuilding Entities are in default thereunder. To
the knowledge of Sellers, there is no pending or threatened Action that would
materially interfere with the quiet enjoyment of any such leased real property
by any Homebuilding Entity.
(b) Except as set forth on Schedule 2.8(b), to the knowledge
of Sellers, (i) there are no endangered species or protected natural habitat,
flora or fauna located on any of the real property owned or leased by any
Homebuilding Entity constituting part of the Homebuilding Business or on the
Former Partnership Properties and no such real property is designated as
wetlands, (ii) none of such real property is located within a 100-year flood
plain as designated by any United States Governmental Entity or is subject to
seismic safety problems that prevent residential development thereon, (iii) none
of the Homebuilding Entities has received any notice of any condemnation or
eminent domain proceedings with respect to any of such real property, or
negotiations for the purchase of any such real property in lieu of condemnation,
and (iv) there are
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no moratoriums (including utility moratoriums) by Governmental Entities
responsible for issuing approvals or according other entitlements with respect
to any such real property.
(c) Schedule 2.8(c) sets forth: (i) a true and complete list
of all those matters for which a file was opened by Management Corp.'s Legal
Department (which employs all the in-house lawyers serving the Homebuilding
Entities) on behalf of a Homebuilding Entity on or after January 1, 1997,
relating to a claim or complaint by the purchaser (a "Lewis Homeowner") of a
residence (a "Lewis Home") developed or constructed by a Homebuilding Entity
with respect to his/her Lewis Home; (ii) the aggregate net customer service
expenditures (excluding any overhead allocation) of the Homebuilding Entities
for 1996, 1997, and January 1 through August 31, 1998 (whether or not such
customer service expenditures related to requests for customer service from
Lewis Homeowners during the Homebuilding Entities' formal one-year warranty
period) by tract; (iii) a true and complete list of all home repurchases by any
of the Homebuilding Entities which closed escrow between January 1, 1997 and
September 30, 1998; and (iv) the number of customer service requests by tract
with respect to any Lewis Home which were open and not resolved as of September
30, 1998. Except as set forth on Schedule 2.8(c), to the knowledge of Sellers,
there are no warranty claims exceeding $12,000 per individual house pending or
settled or which resulted in home purchases since January 1, 1997 against any
Homebuilding Entity.
2.9 INTANGIBLE PROPERTY.
Schedule 2.9 lists all Marks and other items of Intangible
Property in which any Homebuilding Entity has an interest, other than Marks or
Intangible Property the loss of which would not have a material adverse effect
on the Homebuilding Entities, and the nature of such interest. Schedule 2.9 also
lists all Permits or other rights with respect to any of the foregoing. The
Homebuilding Entities have the rights to and ownership of all Intangible
Property required for use in connection with the Homebuilding Business, the
absence of which would have a material adverse effect on the Homebuilding
Business. Without limiting the foregoing, Branching Tree owns the exclusive
right to the distinctive tree symbol used in the Homebuilding Business. Except
as set forth in Schedule 2.9, none of the Homebuilding Entities use any
Intangible Property by consent of any other person or are required to and do
make any payments to others with respect thereto. The Homebuilding Entities have
in all material respects performed all obligations required to be performed by
them, and none of such entities is in default in any material respect under any
Contract relating to any of the foregoing. Except as set forth in Schedule 2.9,
none of the Homebuilding Entities has received any notice to the effect that the
Intangible Property or any use by any Homebuilding Entity of any such property
conflicts with or allegedly conflicts with or infringes the rights of any
Person, and, to the knowledge of Sellers, no other person is infringing upon the
rights of any of the Homebuilding Entities with respect to any Marks or other
Intangible Property.
2.10 NO CONFLICTS.
Except as set forth on Schedule 2.10, the execution, delivery
and performance of this Agreement by Sellers and the Corporations and the
performance by Sellers and the Corporations of any of the transactions
contemplated hereby will not violate, or constitute a
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breach or default (whether upon lapse of time or notice or both) under, or give
rise to a right of termination, cancellation or acceleration of any obligation
under, the charter, partnership, or other operating documents of any
Homebuilding Entity or any Material Contract of any of such entities, result in
the imposition of any Encumbrance against any material asset or material
properties of any Homebuilding Entity or against the Former Partnership
Properties, or violate any Law (assuming that the appropriate governmental
approvals are received as contemplated by Section 7.1(b)), except for such
violations, breaches, defaults, terminations, cancellations, accelerations, or
impositions that would not have a material adverse effect on the Homebuilding
Business. Except as set forth in Schedule 2.10, the execution and delivery of
this Agreement by Sellers and the Corporations and the performance of this
Agreement by Sellers and the Corporations will not require a filing or
registration with, or the issuance of any Permit or Approval by, any other third
party or Governmental Entity.
2.11 LEGAL PROCEEDINGS AND CERTAIN LABOR MATTERS.
Except as set forth in Schedule 2.11, there is no Order or
Action pending, or, to the knowledge of Sellers, threatened, against or
affecting any Homebuilding Entity or any of their respective properties or
assets or the Former Partnership Properties that individually or when aggregated
with one or more other Orders or Actions has or is reasonably expected to have a
material adverse effect on the Homebuilding Entities or the Former Partnership
Properties or on Sellers' or the Corporations' ability to perform this
Agreement. Schedule 2.l1 sets forth all Orders or Actions pending or, to the
knowledge of Sellers, threatened against or affecting any Homebuilding Entity or
any of their respective properties or assets or the Former Partnership
Properties involving a claim for more than $100,000 or seeking or imposing
injunctive or other equitable relief against any Homebuilding Entity. Except as
set forth in Schedule 2.11, (i) each Homebuilding Entity and each Former
Partnership Property is in compliance in all material respects with the terms
and requirements of each Order listed on Schedule 2.11, which it, or any of the
assets owned or used by it, is or has been subject and (ii) to Sellers'
knowledge, no Homebuilding Entity has received any notice or other communication
(whether oral or written) from any Governmental Entity or any other person
regarding any actual, alleged, possible, or potential violation of, or failure
to comply with, any term or requirement of any Order listed on Schedule 2.11,
except for any such violation that, individually or in the aggregate, will not
or could not reasonably be expected to result in a material adverse change to
the Homebuilding Entities. Except as set forth in Schedule 2.11, there is no
organized labor strike, dispute, slowdown or stoppage, or collective bargaining
or unfair labor practice claim pending or, to the knowledge of Sellers,
threatened against or affecting any Homebuilding Entity, the Homebuilding
Business or the Former Partnership Properties. To Sellers' knowledge, none of
the Homebuilding Entities nor any of their respective officers, directors,
partners, employees or agents has given or made or agreed to give or make any
illegal commissions, payment, gratuity, gift, political contribution or similar
benefit to any governmental employee who is in a position to help or hinder the
business of the Homebuilding Entities.
2.12 MINUTE BOOKS.
The minute books and similar records of organizational
proceedings of each of the Homebuilding Entities, to the extent required,
accurately reflect all actions and proceedings taken
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to date by the shareholders, board of directors and committees, partners, or
members (to the extent that any consent of partners or members as a class has
been required) of the Homebuilding Entities, and such minute books and similar
records contain true and complete copies of the charter documents, partnership
agreements, or operating agreement, as applicable, of the Homebuilding Entities,
and all related amendments. The stock, partnership interest, or membership
interest record books of each of the Homebuilding Entities reflect accurately
all transactions in its capital stock, partnership interests, or membership
interests of all classes.
2.13 ACCOUNTING RECORDS.
The Homebuilding Entities have records that accurately and
validly reflect their respective transactions, and accounting controls
sufficient to insure that such transactions are (i) executed in accordance with
management's general or specific authorization and (ii) recorded in conformity
with GAAP so as to maintain accountability for assets.
2.14 INSURANCE.
Schedule 2.14 lists all insurance policies and bonds held by
the Homebuilding Entities as of September 30, 1998. None of the Homebuilding
Entities is in default under any policy or bond. None of the Homebuilding
Entities has received any notice from any insurer or agent of any intent to
cancel or not to renew any insurance policy.
2.15 PERMITS.
The Homebuilding Entities hold all Permits that are required
by any Governmental Entity to permit each of them to conduct their respective
Homebuilding Businesses as now conducted, and the Homebuilding Entities are in
compliance with such Permits, except (i) where the failure to hold or be in
compliance with such Permits would not, individually or in the aggregate, have a
material adverse effect on the Homebuilding Entities, and (ii) for Permits and
entitlements for the development of real property which is not yet developed or
Permits not yet required in the development process of real property, and all
such Permits are valid and in full force and effect. To the knowledge of
Sellers, no suspension, cancellation or termination of any of such Permits is
threatened or imminent and no event has occurred that has resulted or would
reasonably be expected to result (with the passage of time, or notice, or both)
in a suspension, cancellation or termination of any such Permit.
2.16 EMPLOYEE BENEFITS.
(a) Employee Benefit Plans, Collective Bargaining and Employee
Agreements, and Similar Arrangements.
(i) Schedule 2.16 lists all employee benefit plans
and collective bargaining, employment or severance agreements or other
similar arrangements to which any Homebuilding Entity is a party or by
which any of them is bound, including, without limitation, (a) any
profit-sharing, deferred compensation, bonus (including any
change-of-control, continuance or stay bonus), stock option, stock
purchase, phantom stock, restricted stock, pension, retainer,
consulting, retirement severance, termination, welfare
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or incentive plan, agreement or arrangement, (b) any plan, agreement or
arrangement providing for "fringe benefits" or perquisites to
employees, officers, directors or agents, including but not limited to
benefits relating to automobiles, clubs, vacation, child care,
parenting, sabbatical, sick leave, medical, dental, hospitalization,
life insurance and other types of insurance, (c) any employment
agreement, or (d) any other "employee benefit plan" (within the meaning
of Section 3(3) or ERISA).
(ii) Sellers have made available to Buyer true and
complete copies of all documents and summary plan descriptions with
respect to such plans, agreements and arrangements, or summary
descriptions of any such plans, agreements or arrangements not
otherwise in writing.
(iii) The Homebuilding Entities are in full
compliance with the applicable provisions of ERISA (as amended through
the date of this Agreement), the regulations and published authorities
thereunder, and all other Laws applicable with respect to all such
employee benefit plans, agreements and arrangements, except where the
failure to be in compliance would not have a material adverse effect on
the Homebuilding Entities. The Homebuilding Entities have performed all
of their obligations under all such plans, agreements and arrangements.
There are no Actions (other than routine claims for benefits) pending
or threatened against such plans or their assets, or arising out of
such plans, agreements or arrangements, and, to the knowledge of
Sellers, no facts exist which could give rise to any such Actions.
(iv) Except as set forth in Schedule 2.16, each of
the plans, agreements or arrangements can be terminated by the
Homebuilding Entities within a period of 30 days following the Closing
Date, without payment of any additional compensation or amount or the
additional vesting or acceleration of any such benefits.
(v) Sellers shall pay or reimburse Buyer, upon
request, for (A) any severance payments made by Buyer or any
Homebuilding Entity within the first 12 months after the Closing Date
to Leon C. Swails pursuant to that certain Employment Agreement dated
as of February 27, 1995, as amended February 27, 1998 and December __,
1998, and (B) any "Deferred Salary" and "Special Bonus" under Section 3
of that agreement if Mr. Swails' employment is terminated in the first
12 months of the Closing Date as if Mr. Swails' employment was
terminated as of the Closing Date.
(b) Qualified Plans. None of the Homebuilding Entities have a
stock bonus, pension or profit-sharing plan within the meaning of Section 401
(a) of the Code.
(c) Health Plans. All group health plans of the Homebuilding
Entities have been operated in substantial compliance with the group health plan
continuation coverage requirements of Section 162(k) and Section 4980B of the
Code to the extent such requirements are applicable.
(d) Fines and Penalties. There has been no act or omission by
any Homebuilding Entity or any ERISA Affiliate that has given rise to or may
give rise to fines,
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penalties, taxes, or related charges under Section 502(c) or (k) or Section 4071
of ERISA or Chapter 43 of the Code.
(e) Other Plans. None of the Homebuilding Entities have an
employee pension benefit plan, a multi-employer plan (as defined in Section
3(37) of ERISA) or a voluntary employees' beneficiary association as defined in
Section 501(c) of the Code.
2.17 CERTAIN INTERESTS.
Except as set forth in Schedule 2.17, no Affiliate of any
Seller, Corporation or Homebuilding Entity nor any officer, director, or partner
of any thereof, nor Associate of any such individual, has any material interest
in any property or other asset used in or pertaining to the Homebuilding
Business or the Former Partnership Properties. Except as set forth in Schedule
2.17, the consummation of the transactions contemplated by this Agreement will
not (either alone, or upon the occurrence of any act or event, or with the lapse
of time, or both) result in any benefit or payment (severance or other) arising
or becoming due from any Homebuilding Entity or the successor or assign of any
thereof to, or burdening the Former Partnership Properties for the benefit of,
any Person.
2.18 BANK ACCOUNTS, POWERS, ETC.
Schedule 2.18 lists each bank, trust company, savings
institution, brokerage firm, mutual fund or other financial institution with
which any Homebuilding Entity has an account or safe deposit box and the names
and identification of all Persons authorized to draw thereon or to have access
thereto, and lists the names of each Person holding powers of attorney or agency
authority from any Homebuilding Entity.
2.19 NO BROKERS OR FINDERS.
No agent, broker, finder, or investment or commercial banker,
or other Person or firm engaged by or acting on behalf of Sellers, the
Corporations or any Homebuilding Entity or any of their respective Affiliates in
connection with the negotiation, execution or performance of this Agreement or
the transactions contemplated by this Agreement, is or will be entitled to any
brokerage or finder's or similar fee or other commission as a result of this
Agreement or such transactions, except Salomon Smith Barney, Inc. as to which
Sellers and the Corporations shall have full responsibility and neither Buyer
nor any Homebuilding Entity shall have any liability.
2.20 ENVIRONMENTAL COMPLIANCE.
Except as set forth in Schedule 2.20, (i) none of the
Homebuilding Entities has generated, used, transported, treated, stored,
released or disposed of, nor has suffered or permitted anyone else to generate,
use, transport, treat, store, release or dispose of any Hazardous Substance in
violation of any Laws, nor is in violation of or liable under any Laws relating
to environmental protection and compliance; (ii) there has not been any
generation, use, transportation, treatment, storage, release or disposal of any
Hazardous Substance in connection with the conduct of the Homebuilding Business
or on or in connection with the use of any property or facility of any
Homebuilding Entity or the Former Partnership Properties or, to the
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knowledge of Sellers, any nearby or adjacent properties or facilities, which has
created or might reasonably be expected to create any liability under any Laws
or which would require reporting to or notification of any Governmental Entity;
(iii) no asbestos or polychlorinated biphenyl or underground storage tank is
contained in or located at any facility of any Homebuilding Entity or Former
Partnership Properties; and (iv) any Hazardous Substance handled or dealt with
in any way in connection with the Former Partnership Properties or the
businesses of any Homebuilding Entity has been and is being handled or dealt
with in all respects in compliance with applicable Laws, in each case of clauses
(i) through (iv) except where such action would not have a material adverse
effect on the Homebuilding Business. Sellers have made available to Buyer true
and complete copies of all reports, studies, analyses, tests, or monitoring
prepared or made by or on behalf of Sellers, the Corporations or the
Homebuilding Entities pertaining to Hazardous Materials in, on, or under
property (including the Former Partnership Properties) now or previously owned
or operated by any Homebuilding Entity, including without limitation any Phase I
or Phase II assessments referred to in Schedule 2.20 of Sellers' Disclosure
Schedule. With respect to properties that are the subject of any such Phase I or
Phase II assessments, Sellers have no knowledge of facts or circumstances
inconsistent with the assessments therein.
2.21 CERTAIN INDEBTEDNESS.
Sellers have provided to Buyer true and complete copies of
those certain loan agreements, each dated November 30, 1998 (the "Wells Fargo
Loans"), between Wells Fargo Bank N.A. and LHN, LHE, Lewis Development and Lewis
Properties, together with all related guarantees, security and pledge
agreements, subordinated loan agreements, and other agreements, documents, and
instruments delivered in connection with entering into such loan agreements and
borrowing thereunder. The Homebuilding Entities' aggregate principal
indebtedness under the Wells Fargo Loans is $240 million as of the date of this
Agreement, and, without limiting anything in Section 5.3 hereof, shall not
increase on or prior to the Closing Date other than through the ordinary accrual
of interest at the non-default rate in accordance with the terms of such loan
agreements. No assets of the Homebuilding Entities, nor Former Partnership
Properties, and no Included Assets have been pledged as collateral for the Wells
Fargo Loans or in any other way serve as security for or are subject to the
Wells Fargo Loans. The Wells Fargo Loans may be prepaid at any time, and may be
prepaid concurrently with the Closing, without penalty or fee of any kind under
such loan agreements. Without limiting Section 10.14, all fees and expenses
incurred or to be incurred by any Homebuilding Entity in connection with the
Wells Fargo Loans, including any and all facility fees, loan fees, underwriting
fees, and fees and expenses of counsel, will be paid by Sellers or the
Corporations or reimbursed by them to the Homebuilding Entities, except to the
extent that such fees arise from events after the Closing Date if Buyer elects
to assume the Wells Fargo Loans.
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ARTICLE III
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as otherwise indicated on the Sellers' Disclosure
Schedule as applying to a particular Section of this Article III, each Seller
individually represents, warrants and agrees as set forth in Sections 3.1 and
3.2 and each Corporation individually represents, warrants and agrees as set
forth in Section 3.3:
3.1 OWNERSHIP BY SELLERS; NO CONFLICTS.
(a) Seller owns the number of shares of Stock, the Member
Interests or the Partnership Interests, as the case may be, set forth opposite
his, her or its name on Exhibit B hereto.
(b) Seller has good and marketable title to, and sole record
and beneficial ownership of, the shares of the Stock, the Member Interests or
the Partnership Interests, as the case may be, which are to be transferred to
Buyer by Seller pursuant hereto, free and clear of any and all covenants,
conditions, marital property rights, or other Encumbrances.
(c) If Seller is a entity, it has been duly incorporated or
formed and is validly existing in good standing under the laws of its state of
incorporation or formation. Whether an individual or an entity, Seller has the
right, power and authority to enter into this Agreement and any ancillary
agreements hereto, to transfer, convey and sell to Buyer at the Closing the
Stock, the Member Interests or the Partnership Interests, as the case may be, to
be sold to Buyer by such Seller, and otherwise to perform its obligations under
this Agreement and any ancillary agreements. Upon consummation of the Closing,
Buyer will acquire from such Seller legal and beneficial ownership of, and all
right to vote and other rights (including the right to admission as a partner or
member of the pertinent partnership or limited liability company) inhering in
the Stock, the Member Interests or the Partnership Interests, as the case may
be, to be sold to Buyer by such Seller, free and clear of all covenants,
conditions, marital property rights, or other Encumbrances.
(d) Seller is not a party to, subject to or bound by any Law
or Order, and no Action is pending against Seller or any Homebuilding Entity or,
to such Seller's knowledge, threatened, that would prevent the execution,
delivery or performance of this Agreement by Seller or the transfer, conveyance
and sale of the Stock, Member Interests, or Partnership Interests, as the case
may be, to be sold by Seller to Buyer pursuant to the terms hereof.
(e) This Agreement has been duly authorized by all necessary
corporate, partnership, or limited liability company action on the part of
Seller, if Seller is a corporation, partnership or limited liability company,
has been executed and delivered by Seller and is a valid and binding obligation
of Seller, enforceable against Seller in accordance with its terms, except as
may be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws limiting creditors' rights generally and equitable principles.
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(f) Neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated hereby by Seller violates or
will violate or results or will result in a breach of any of the terms and
provisions of, or constitutes or will constitute a default under, or results or
will result in any augmentation or acceleration of rights, benefits or
obligations of any party under, any Contract to which Seller is a party or is
bound or which applies to the Stock, Member Interests, or Partnership Interests
being sold, or any Order applicable to Seller or to the Stock, Member Interests,
or Partnership Interests being sold.
(g) If and to the extent required, Seller hereby consents to
the execution, delivery, and performance of this Agreement by each other Seller
and consents to the admission of Buyer as a stockholder, partner, or member of
each Homebuilding Entity, as applicable.
3.2 SECURITIES ACT MATTERS.
(a) Seller will acquire the shares of Buyer Common Stock
comprising the stock portion of the Purchase Price for investment for Seller's
own accounts and not with a view to or for offer or sale in connection with any
distribution thereof. Seller understands that the shares of Buyer Common Stock
delivered pursuant to this Agreement will not have been registered under the
Securities Act of 1933, as amended (the "Securities Act") or any applicable
state securities laws by reason of a specific exemption or exception from the
registration requirements thereof which depend upon, among other things, the
accuracy of Seller's representations and warranties in this Section. Seller
understands that, until such time as a registration statement covering the
resale of such shares of Buyer Common Stock is effective under the Securities
Act, or such shares may otherwise be freely traded by Seller without
registration under the Securities Act, each stock certificate evidencing such
shares may bear a legend substantially to the effect that the shares represented
by such certificate have not been registered under the Securities Act or any
applicable state securities laws and may be offered and sold only if so
registered or upon delivery to Buyer of an opinion of counsel that an exemption
or exception from such registration is applicable.
(b) Seller acknowledges receipt, either directly or through
the Representative, of all information requested from Buyer and considered by
Seller to be necessary or appropriate for deciding whether to acquire the shares
of Buyer Common Stock to be delivered pursuant to this Agreement, including,
without limitation, the Buyer SEC Reports referred to in Section 4.9. Seller is
an "accredited investor" within the meaning of Rule 501(a) under the Securities
Act or has such knowledge and experience in financial and business matters that
Seller is capable of evaluating the merits and risks of, and Seller is able to
bear the economic risk of, acquiring such shares of Buyer Common Stock. Seller
has had the opportunity to ask questions and receive answers regarding the terms
and conditions of the acquisition of Buyer Common Stock pursuant to this
Agreement.
(c) Seller does not currently own, beneficially or of record,
any shares of Buyer Common Stock.
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3.3 AUTHORITY OF CORPORATIONS; NO CONFLICTS.
(a) The Corporation has been duly incorporated and is validly
existing in good standing under the laws of its state of incorporation. The
Corporation has the right, power and authority to enter into this Agreement and
any ancillary agreements hereto and perform its obligations under this Agreement
and any ancillary agreements hereto.
(b) The Corporation is not a party to, subject to or bound by
any Law or Order, and no Action is pending against the Corporation or, to such
Corporation's knowledge, threatened, that would prevent the execution, delivery
or performance of this Agreement by the Corporation.
(c) This Agreement has been duly authorized by all necessary
corporate action on the part of the Corporation, has been executed and delivered
by the Corporation and is a valid and binding obligation of the Corporation,
enforceable against the Corporation in accordance with its terms, except as may
be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws limiting creditors' rights generally and equitable principles.
(d) Neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, by the Corporation
violates or will violate or results or will result in a breach of any of the
terms and provisions of, or constitutes or will constitute a default under, or
results or will result in any augmentation or acceleration of rights, benefits
or obligations of any party under, any Contract to which the Corporation is a
party or is bound or which applies to the Stock, Member Interests, or
Partnership Interests being sold, or any Order applicable to the Corporation or
to the Stock, Member Interests, or Partnership Interests being sold.
(e) The Corporation does not currently own, beneficially or of
record, any shares of Buyer Common Stock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Except as otherwise indicated on the Buyer's Disclosure
Schedule as applying to a particular Section in this Article IV, Buyer
represents, warrants and agrees as follows:
4.1 ORGANIZATION AND RELATED MATTERS.
Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Buyer has all necessary
corporate power and authority to carry on its business as now being conducted.
Buyer has the necessary corporate power and authority to execute, deliver and
perform this Agreement.
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4.2 AUTHORIZATION.
The execution, delivery and performance of this Agreement by
Buyer have been duly and validly authorized by the Board of Directors of Buyer
and by all other necessary corporate action on the part of Buyer. This Agreement
has been duly executed and delivered by Buyer and constitutes the legal, valid
and binding obligation of Buyer, enforceable against Buyer in accordance with
its terms except as may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or limiting creditors' rights
generally and equitable principles.
4.3 NO CONFLICTS.
The execution, delivery and performance of this Agreement by
Buyer will not violate the provisions of, or constitute a breach or default
(whether upon lapse of time and/or the occurrence of any act or event or
otherwise) under (a) the certificate of incorporation or bylaws of Buyer, (b)
any Law or Order to which Buyer is subject or (c) any Contract to which Buyer is
a party that is material to the financial condition, results of operations or
conduct of the business of Buyer, provided (as to clauses (b) and (c)
respectively) that the appropriate regulatory approvals set forth on Schedule
4.3 are received as contemplated by Section 7. 1 (b). Except as set forth in
Schedule 4.3, the execution and delivery of this Agreement by Buyer and the
performance of this Agreement by Buyer will not require a filing or registration
with, or the issuance of any Permit or Approval by, any other third party or
Governmental Entity.
4.4 NO BROKERS OR FINDERS.
No agent, broker, finder or investment or commercial banker,
or other Person or firms engaged by or acting on behalf of Buyer or its
Affiliates in connection with the negotiation, execution or performance of this
Agreement or the transactions contemplated by this Agreement, is or will be
entitled to any broker's or finder's or similar fees or other commissions as a
result of this Agreement or such transactions, except Warburg Dillon Read LLC,
as to which Buyer shall have full responsibility and none of the Sellers or the
Homebuilding Entities shall have any liability.
4.5 LEGAL PROCEEDINGS.
Except as set forth in Schedule 4.5, there is no Order or
Action pending or to the knowledge of Buyer, threatened against or affecting
Buyer that individually or when aggregated with one or more other Actions has or
might reasonably be expected to have a material adverse effect on Buyer's
ability to perform this Agreement.
4.6 INVESTMENT REPRESENTATION.
Buyer is acquiring the Stock and Partnership Interests from
Sellers for Buyer's own accounts for investment purposes only and not with a
view to or for sale in connection with the public distribution thereof. Buyer is
knowledgeable and experienced in the purchase of businesses and securities of
the type contemplated by this Agreement and has the capacity to protect its own
interest in connection with the transactions contemplated hereby. Buyer
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acknowledges that neither the Shares nor the Partnership Interests have been
registered under the Securities Act of 1933, as amended, or qualified under any
state securities or blue sky laws.
4.7 FINANCING.
The Buyer has available sufficient funds to enable it to
consummate the transactions contemplated hereby.
4.8 CAPITAL STOCK.
The shares of Buyer Common Stock to be issued as the stock
portion of the Purchase Price have been duly authorized by all necessary
corporate action on the part of the Buyer and, when issued pursuant to this
Agreement, will be validly issued, fully paid and nonassessable, and such shares
will be issued without any violation of preemptive rights.
4.9 SEC FILINGS; FINANCIAL STATEMENTS.
Buyer has delivered to the Sellers, in the form filed with the
SEC, (i) its Annual Report to Shareholders and Annual Report on Form 10-K for
the fiscal year ended November 30, 1997, (ii) its Proxy Statement for Annual
Meeting of Shareholders on April 2, 1998, (iii) its Quarterly Reports on Form
10-Q for the quarters ended February 28, 1998, May 30, 1998, and August 30,
1998, (iv) its Current Reports on Form 8-K, dated June 23, 1998 and August 14,
1998, and (v) any amendments and supplements to any such reports filed by Buyer
with the SEC (collectively, the "Buyer SEC Reports"). The Buyer SEC Reports did
not at the time they were filed (or if amended or superseded by a filing prior
to the date hereof, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading. The consolidated financial statements of Buyer
included in the Buyer SEC Reports comply as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with GAAP
(except, in the case of unaudited consolidated quarterly statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of Buyer and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited quarterly statements, to normal year-end audit adjustments). Neither
Buyer nor any of its subsidiaries has any material liability of any nature,
whether accrued, absolute, contingent or otherwise, except liabilities that (i)
are reflected or disclosed in the most recent financial statements included in
the Buyer SEC Reports, (ii) were incurred after August 30, 1998 in the ordinary
course of business, or (iii) are set forth in Schedule 4.5 hereto. Since August
30, 1998, there has not been, occurred or arisen any change in or event
affecting Buyer or any of its subsidiaries that has or is reasonably expected to
have a material adverse effect on Buyer, except as set forth in Schedule 4.5.
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ARTICLE V
COVENANTS PRIOR TO CLOSING
5.1 ACCESS.
Sellers shall cause the Homebuilding Entities to authorize and
permit Buyer and its representatives (which term shall be deemed to include its
independent accountants and counsel) to have reasonable access during normal
business hours, upon reasonable notice and in such manner as will not
unreasonably interfere with the conduct of their respective businesses, to all
of their respective properties, books, records, operating instructions and
procedures, Tax Returns and all other information with respect to the
Homebuilding Business as Buyer may from time to time reasonably request, and to
make copies of such books, records and other documents and to discuss their
respective businesses with such other Persons, including, without limitation,
their respective directors, officers, employees, accountants, counsel,
suppliers, customers, and creditors, as Buyer considers necessary or appropriate
for the purposes of familiarizing itself with the Homebuilding Business,
obtaining any necessary Approvals of or Permits for the transactions
contemplated by this Agreement and conducting an evaluation of the organization
and Homebuilding Business. Without limiting the generality of the foregoing,
Buyer shall be entitled to conduct or cause to be conducted (at its expense) on
any real property of the Homebuilding Entities such soils and geological tests
and environmental inspections, audits and tests (including the taking of soils
and ground water samples) and such structural and other physical inspections as
Buyer shall deem necessary or useful in connection with the transactions
contemplated by this Agreement. Buyer shall cause any damages resulting from any
such testing, inspection or audit to be repaired at Buyer's sole cost, and Buyer
agrees to indemnify and hold the Sellers and the Homebuilding Entities harmless
from any loss, cost, expense or liability incurred by any Seller or Homebuilding
Entity relating to or arising out of the conduct of any such tests, inspections
or audits. Neither Buyer's making nor omitting to make any such test,
inspection, or audit shall affect the representations and warranties of Sellers
or the Corporations or the conditions to Buyer's obligations hereunder, or
Seller's or the Corporation's indemnification obligations.
5.2 MATERIAL ADVERSE CHANGES.
Sellers will promptly notify Buyer of any event of which such
Seller or a Corporation obtains knowledge which has had or is reasonably
expected to have a material adverse effect on the Homebuilding Business or which
if known as of the date hereof would have been required to be included on a
Schedule to this Agreement. No such notification shall affect the
representations or warranties of Sellers or the Corporations or the conditions
to Buyer's obligations hereunder, or Seller's or the Corporation's
indemnification obligations. Sellers will promptly notify Buyer of any Action
that commences or is threatened on or after the date hereof and before the
Closing Date that involves a claim for damages in excess of $50,000 or seeks
injunctive relief, specific performance, or other equitable remedies.
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5.3 CONDUCT OF BUSINESS.
Sellers shall cause the Homebuilding Entities not to take, and
with respect to the Former Partnership Properties the Partnership Sellers shall
not take, any of the following actions without the prior consent in writing of
Buyer (which consent shall not be unreasonably withheld, except that Buyer may
give or withhold its consent in its sole discretion with respect to the matters
specified in clauses (f), (h), (i), (k), (l), (m), (n), (s) and (u)):
(a) conduct the Homebuilding Business in any manner except in
the ordinary course substantially as now conducted; or
(b) amend, terminate, renew, fail to renew or renegotiate any
Material Contract or default (or take or omit to take any action that, with or
without the giving of notice or passage of time, would constitute a default) in
any of its obligations under any Material Contract or enter into any new
Material Contract; or
(c) terminate, amend or fail to renew any existing insurance
coverage; or
(d) terminate or fail to renew or preserve any Permits; or
(e) create, incur, assume or guarantee any long-term debt or
capitalized lease obligation of more than $250,000 in any specific case or
$1,000,000 in the aggregate; or
(f) create, incur, assume or guarantee any long-term debt or
capitalized lease obligation of more than $500,000 in any specific case or
$2,000,000 in the aggregate, or assume or guarantee any debt or obligation of
any person that is not one of the Homebuilding Entities; or
(g) make any loan, guaranty or other extension of credit, or
enter into any commitment to make any loan, guaranty or other extension of
credit, to or for the benefit of, or enter into any agreement for the
acquisition or disposition of property from or to, any director, officer,
employee, stockholder, partner, Corporation or any of their respective
Associates or Affiliates of less than or equal to $500,000 in any specific case
or $1,000,000 in the aggregate; or
(h) make any loan, guaranty or other extension of credit, or
enter into any commitment to make any loan, guaranty or other extension of
credit, to or for the benefit of, or enter into any agreement for the
acquisition or disposition of property from or to, any director, officer,
employee, stockholder, partner, Corporation or any of their respective
Associates or Affiliates of more than $500,000 in any specific case or
$1,000,000 in the aggregate.
(i) grant any general or uniform increase in the rates of pay
or benefits to officers, directors or employees (or a class thereof) or any
increase in salary or benefits of or pay any bonus to any officer, director,
employee or agent, or enter into any new, or amend, supplement, or renew any
existing, employment, collective bargaining, severance, change in control,
bonus, profit sharing, deferred compensation, fringe benefit, consultancy, or
other employee benefit agreement or plan, or increase or accelerate any benefits
payable under any of the foregoing; or
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(j) sell, transfer, mortgage, encumber or otherwise dispose of
any assets, except (i) for dispositions of property not greater than $250,000 in
any specific case or $1,500,000 in the aggregate, (ii) the disposition of
Excluded Assets (other than Former Partnership Properties) or (iii) in the
ordinary course of business consistent with past practice; or
(k) sell, transfer, mortgage, encumber or otherwise dispose of
any assets, except (i) for dispositions of property not greater than $500,000 in
any specific case or $3,000,000 in the aggregate, (ii) the disposition of
Excluded Assets (other than Former Partnership Properties) or (iii) in the
ordinary course of business consistent with past practice; or
(l) issue, sell, redeem or acquire for value, or agree to do
so, any debt obligations or Equity Securities of any Homebuilding Entity; or
(m) split, combine, dividend, distribute or reclassify any
shares of the Equity Securities of Management Corp., Branching Tree, the Holding
LLCs, Mather, Desert Inn or the Parent Partnerships; or declare, issue, make or
pay any dividend or other distribution of assets, whether consisting of money,
other personal property, real property or other thing of value, to the
shareholders of Management Corp. or Branching Tree, the members of the Holding
LLCs, Mather or Desert Inn or the partners of the Parent Partnerships, other (i)
than the distribution of the Excluded Assets, (ii) pursuant to those agreements
existing on the date of this Agreement and identified on Schedules 2.3 or 2.4
and (iii) cash on hand so long as the Net Worth of the Homebuilding Business of
the Homebuilding Entities as of the Closing Date is not less than $192,849,362;
or
(n) change or amend the charter documents or bylaws of
Management Corp. or Branching Tree or the governing agreements of the Holding
LLCs, Mather, Desert Inn or the Parent Partnerships or any of their Subsidiaries
or merge, consolidate, transfer substantially all the assets of (other than
Excluded Assets), liquidate, or dissolve any of the Homebuilding Entities; or
(o) make any investment, by purchase, contributions to
capital, property transfers, loan, or otherwise, in any other Person; or
(p) make any Tax election or make any change in any method or
period of accounting or in any accounting policy, practice or procedure; or
(q) introduce any new method of management or operation in
respect of the Homebuilding Business; or
(r) acquire or agree to acquire any assets the consideration
for which would exceed $250,000 individually or $1,000,000 in the aggregate; or
(s) acquire or agree to acquire any assets the consideration
for which would exceed $500,000 individually or $2,000,000 in the aggregate; or
(t) settle or compromise any Action; or
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(u) settle or consent to the entry in any Action of any Order
that would have or reasonably be expected to have a material adverse effect on
the Homebuilding Business or the Former Partnership Properties; or
(v) agree to or make any commitment to take any actions
prohibited by this Section 5.3.
5.4 NOTIFICATION OF CERTAIN MATTERS.
Each Seller or Corporation shall give prompt written notice to
Buyer, and Buyer shall give prompt written notice to Sellers and the
Corporations, of (i) the occurrence, or failure to occur, of any event that is
reasonably likely to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect (or with respect to
those representations and warranties that are qualified by reference to
materiality or a material adverse effect, to be untrue or inaccurate in any
respect taking into account such qualification) at any time from the date of
this Agreement to the Closing Date and (ii) any failure of Buyer or Sellers or
Corporations, as the case may be, to comply with or satisfy, in any material
respect, any covenant, condition or agreement to be complied with or satisfied
by it under this Agreement.
No such notification shall affect the representations or
warranties of the parties or the conditions to their respective obligations
hereunder, or their respective indemnification obligations.
5.5 PERMITS AND APPROVALS.
(a) Sellers and Buyer each agree to cooperate and use their
commercially reasonable efforts to obtain (and will promptly prepare all
registrations, filings and applications, requests and notices preliminary to
all) Approvals and Permits that may be necessary to consummate the transactions
contemplated by this Agreement.
(b) To the extent that the Approval of a third party with
respect to any Material Contract is required in connection with the transactions
contemplated by this Agreement, Sellers shall use its commercially reasonable
efforts to obtain such Approval prior to the Closing Date and in the event that
any such Approval is not obtained (but without limitation on Buyer's rights
under Section 7.2), Sellers shall cooperate with Buyer to ensure that Buyer
obtains the benefits of each such Contract.
5.6 PRESERVATION OF BUSINESS PRIOR TO CLOSING DATE.
During the period beginning on the date hereof and ending on
the Closing Date, (a) Sellers will use their commercially reasonable efforts to
preserve the Homebuilding Business and to preserve the goodwill of employees,
customers, suppliers and others having business relations with the Homebuilding
Entities and (b) Sellers and Buyer will consult with each other concerning, and
Sellers will cooperate to keep available to Buyer, the services of the officers
and employees of the Homebuilding Entities that Buyer may wish to have any
Homebuilding Entity retain.
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5.7 GOVERNMENT FILINGS.
Buyer will make and Sellers will make, and will cause the
Homebuilding Entities to make, any and all filings required under the
Hart-Scott-Rodino Act. Sellers and Buyer shall furnish each other such necessary
information and reasonable assistance as the other may reasonably request in
connection with its preparation of necessary filings or submissions under the
provisions of such law, and shall provide each other a reasonable opportunity to
review, prior to filing, any filing with a Governmental Entity related to this
Agreement. Sellers and Buyer will supply to each other copies of all
correspondence, filings or communications, including file memoranda evidencing
telephonic conferences, by such party or its affiliates with any Governmental
Entity or members of its staff, with respect to the transactions contemplated by
this Agreement and any related or contemplated transactions, except for
documents filed pursuant to Item 4(c) of the Hart-Scott Rodino Notification and
Report Form or communications regarding the same.
5.8 ELIMINATION OF INTERCOMPANY AND AFFILIATE LIABILITIES.
No later than the Closing Date, Sellers shall purchase, cause
to be repaid or (with respect to guarantees) assume liability for any and all
loans or other extensions of credit made or guaranteed by any Homebuilding
Entity, or to which a Former Partnership Property is subject, to or for the
benefit of a Seller or any of such Seller's Associates. At the Closing Date,
neither Buyer nor any Homebuilding Entity shall have, nor shall any Former
Partnership Property be subject to, any continuing commitment, obligation or
liability of any kind with respect to any Seller or any Associates of any
Seller, except as set forth in Schedule 5.8.
5.9 REPRESENTATIVE.
Each Seller and Corporation hereby appoints John M. Goodman as
representative (the "Representative") to represent such Seller or Corporation in
connection with the transactions contemplated by this Agreement, and to take any
and all action, and to receive any and all notices, on Seller's or Corporation's
behalf hereunder that may be taken or received by Seller or Corporation under
the terms hereof. Without giving notice to the Sellers or the Corporations, the
Representative shall have full and irrevocable authority on behalf of the
Sellers and the Corporations to (i) deal with Buyer, (ii) accept and give
notices and other communications relating to this Agreement, (iii) settle any
disputes relating to this Agreement, (iv) waive any condition to the obligations
of the Sellers or Corporations included in this Agreement, (v) execute any
document or instrument that the Representative may deem necessary or desirable
in the exercise of the authority granted under this Section, and (vi) act in
connection with all matters arising out of, based upon, or in connection with,
this Agreement and the transactions contemplated hereby. Each Seller and
Corporation understands and agrees that the Representative has been appointed as
the Representative by each of the other Sellers and Corporations. Buyer shall be
entitled to rely on the advice, information and decisions of the Representative
evidenced by a writing signed by him without any obligation independently to
verify, authenticate or seek the confirmation or approval of the
Representative's advice, information or decisions or any other facts from
Sellers or the Corporations or any other Person. Any certificate or other
document to be delivered by Sellers or the Corporations at the Closing
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may be executed and delivered by the Representative on behalf of all Sellers and
Corporations and shall constitute a reaffirmation of any representations herein
as of the Closing by such Seller or Corporation unless he, she or it otherwise
notifies Buyer in writing on or prior to the Closing of any exceptions thereto.
5.10 EXCHANGE LISTING; REGISTRATION RIGHTS.
Buyer will use its best efforts to cause the shares of Buyer
Common Stock comprising the stock portion of the Purchase Price to be authorized
for listing on the New York Stock Exchange, upon notice of issuance, prior to
the Closing Date. On the Closing Date, Buyer will enter into an agreement in
substantially the form of Exhibit E providing for registration rights upon the
terms and conditions set forth therein (the "Registration Rights Agreement").
5.11 SHAREHOLDERS AGREEMENT.
On the Closing Date, Buyer and Sellers shall enter into a
shareholders agreement in substantially the form of Exhibit F hereto (the
"Shareholder Agreement").
5.12 COST SHARING AGREEMENTS AND OPTION AGREEMENT.
On the Closing Date, Buyer and Sellers (or their designee(s))
shall enter into cost sharing agreements with respect to the Highland/Lytle
Creek and Terra Vista projects in substantially the forms of Exhibit G and H,
respectively, hereto (collectively, the "Cost Sharing Agreements"), and an
option agreement with respect to the Sierra Lakes project in substantially the
form of Exhibit I hereto (the "Option Agreement").
5.13 EMPLOYEES.
The parties agree to consult in good faith with each other
prior to the Closing and prior to soliciting Homebuilding Entities' employees to
determine which employees of the Homebuilding Entities will remain with the
Homebuilding Business of the Homebuilding Entities and which employees of the
Homebuilding Entities will become employees of the non-Homebuilding Business of
Sellers. Sellers shall provide to Buyer such information regarding the employees
of the Homebuilding Entities as Buyer may reasonably request. The parties agree
to consult in good faith with each other prior to the Closing to determine which
employees, if any, of the Homebuilding Entities need to be loaned on a
short-term basis between them and the reasonable expense charges for any loaned
employees.
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ARTICLE VI
ADDITIONAL CONTINUING COVENANTS
6.1 NONCOMPETITION.
(a) Restrictions on Competitive Activities. Subject to the
provisions of Section 6.10, each Seller and Corporation agrees that after the
Closing, Buyer and the Homebuilding Entities shall be entitled to the goodwill
and going concern value of the Homebuilding Business and to protect and preserve
the same to the maximum extent permitted by law. For these and other reasons and
as an inducement to Buyer to enter into this Agreement, each Seller and
Corporation, other than John M. Goodman, agrees that for a period of four years
after the Closing Date or one year after termination of that Seller's employment
or consulting agreement with Buyer or any of the Homebuilding Entities,
whichever is later, and in the case of John M. Goodman, for a period of two
years after the Closing Date, such Seller or Corporation will not, in the States
of California or Nevada, directly or indirectly, for its own benefit or as agent
for another carry on or participate in the ownership, management or control of,
or be employed by, or consult for, or serve as a director of, or otherwise
render services to, the business of constructing or selling single family homes
of any business entity.
(b) Exceptions. Nothing contained herein shall limit the right
of a Seller or Corporation as an investor to hold and make investments in
securities of any corporation or limited partnership that is registered on a
national securities exchange or admitted to trading privileges thereon or
actively traded in a generally recognized over-the-counter market, provided such
Seller's or Corporation's equity interest therein does not exceed 5% of the
outstanding shares or interests in such corporation or partnership.
(c) Nonsolicitation. During the period of one year after the
Closing Date, Sellers, Corporations and their respective affiliates (excluding
the Homebuilding Entities after the Closing Date) shall refrain from soliciting
for employment, directly or indirectly, any then employees of the Homebuilding
Entities. This prohibition shall not extend to employing any such person who
contacts Sellers, the Corporations or their respective affiliates on his or her
own initiative without any direct or indirect solicitation or encouragement from
any Seller, Corporation or its affiliates or employees (it being understood that
placing a general advertisement does not constitute solicitation).
(d) Special Remedies and Enforcement. Each Seller or
Corporation recognizes and agrees that a breach by such Seller or Corporation of
any of the covenants set forth in this Section 6.1 could cause irreparable harm
to Buyer, that Buyer's remedies at law in the event of such breach would be
inadequate, and that, accordingly, in the event of such breach a restraining
order or injunction or both may be issued against such Seller or Corporation, in
addition to any other rights and remedies which are available to Buyer. If this
Section 6.1 is more restrictive than permitted by the Laws of the jurisdiction
in which Buyer seeks enforcement hereof, this Section 6.1 shall be limited to
the extent required to permit enforcement under such Laws. Without limiting the
generality of the foregoing, the parties intend that the covenants
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contained in the preceding portions of this Section 6.1 shall be construed as a
series of separate covenants, one for each state. Except for geographic
coverage, each such separate covenant shall be deemed identical in terms. If, in
any judicial proceeding, a court shall refuse to enforce any of the separate
covenants deemed included in this Section 6.1, then such unenforceable covenant
shall be deemed eliminated from these provisions for the purpose of those
proceedings to the extent necessary to permit the remaining separate covenants
to be enforced.
6.2 NON-DISCLOSURE OF PROPRIETARY DATA.
Each Seller and Corporation agrees that such Seller or
Corporation will not, at any time, make use of, divulge or otherwise disclose,
directly or indirectly, any trade secret or other proprietary data concerning
the business or policies of any Homebuilding Entity as they relate to the
Homebuilding Business, other than form documents used by any Homebuilding
Entity, or of Buyer obtained in connection with the negotiation, execution, or
performance of this Agreement. In addition, each Seller and Corporation agrees
not to make use of, divulge or otherwise disclose, directly or indirectly, to
persons other than Buyer, any confidential information concerning the business
or policies of any Homebuilding Entity as they relate to the Homebuilding
Business which may have been learned in any such capacity or of Buyer which may
have been learned in connection with the negotiation, execution, or performance
of this Agreement. The Seller's and Corporation's obligations under this Section
with respect to any trade secret, other proprietary data, or confidential
information of Buyer shall survive the termination of this Agreement if this
Agreement is terminated prior to the Closing.
6.3 TAX RETURNS.
(a) The Sellers shall cause to be prepared and timely filed
(or provided to Buyer for execution and filing, if applicable) when due (taking
into account all extensions properly obtained) all income and franchise Tax
Returns of the Homebuilding Entities for taxable periods ending on or before the
Closing Date, and all other Tax Returns required to be filed by or on behalf of
such entities on or before the Closing Date. All Tax Returns described in this
Section 6.3(a) shall be prepared and filed in a manner consistent with past
practice and, on such Tax Returns, no position shall be taken, election made or
method adopted without Buyer's written consent (which shall not be unreasonably
withheld) that is inconsistent with positions taken, elections made or methods
used in preparing and filing similar Tax Returns in prior periods (including,
but not limited to, positions, elections or methods which would have the effect
of deferring income to periods after the Closing Date).
(b) Buyer shall cause to be prepared and timely filed all Tax
Returns of the Homebuilding Entities that are not described in Section 6.3(a)
above. If any such Tax Return covers a period beginning before the Closing Date,
Sellers shall have the right to review and approve (which approval shall not be
unreasonably withheld) such Tax Return before it is filed if it could affect the
Sellers' or Shareholders' liability for Taxes to any taxing authority or their
indemnification obligations to Buyer under this Agreement. Any Tax Return
described in the preceding sentence shall be provided to the Sellers not less
than 14 days prior to the proposed filing date together with any underlying
information or records requested by the Sellers to assist their review.
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6.4 TAX COOPERATION.
(a) After the Closing, the Sellers, the Corporations, the
Holding LLCs and the Buyer shall, and shall cause their respective Affiliates
to, cooperate fully with each other in the preparation and filing of all Tax
Returns and any Tax investigation, audit or other proceeding respecting the
Homebuilding Business (a "Tax Proceeding") and shall provide, or cause to be
provided, any records and other information in their possession or control or in
the control of their agents reasonably requested by such other party in
connection therewith as well as access to, and the cooperation of, their
respective auditors. Buyer shall notify Sellers in writing promptly upon receipt
by Buyer or any Affiliate of any notice of any pending or threatened audits or
assessments relating to Taxes with respect to any Homebuilding Entity other than
Taxes as to which Sellers or the Shareholders have no indemnification obligation
or other liability relating to Taxes. Sellers shall have the right to control
the handling and disposition of such audit and any administrative or court
proceeding relating thereto (and to employ counsel of their choice at their
expense) to the extent that such audit or proceeding might result in increased
Tax liabilities of the Sellers or the Shareholders for the period covered by the
Tax Proceeding or an increase in their indemnification obligations to Buyer
under this Agreement; provided, however, that Buyer may monitor the Tax
Proceeding. Sellers shall not agree to any settlement concerning Taxes of any
Homebuilding Entity for any taxable period which would result in an increase in
Taxes of Buyer or any Homebuilding Entity for any taxable period ending after
the Closing Date, without the prior written consent of the Buyer (which consent
shall not be unreasonably withheld). The Buyer and the Sellers shall bear their
respective costs and expenses in connection with any Tax Proceeding. Any
information obtained pursuant to this Section 6.4 or pursuant to any other
Section hereof providing for the sharing of information or the review of any Tax
Return or other information relating to Taxes shall be subject to Section 10.9.
(b) At Buyer's election, made not less than 60 days before any
such election must be made, (i) the Management Corp. Sellers and Branching Tree
Sellers, jointly with Buyer, shall make timely and irrevocable elections under
Section 338(h)(10) of the Code and similar elections under any applicable state
or local Tax laws for Management Corp. and Branching Tree (the "Section
338(h)(10) Elections"), and (ii) the Sellers, Corporations, Holding LLCs and
their Affiliates shall make, or cause to be made, timely and irrevocable
elections under Section 754 of the Code and similar elections under any
applicable state or local Tax laws for any or all of Mather, Desert Inn, or any
Subsidiaries of Parent Partnerships, Mather or Desert Inn that are partnerships
or limited liability companies (collectively, the "Section 754 Elections" and
collectively with the Section 338(h)(10) Elections, the "Tax Elections"). No
elections under Section 754 of the Code effective for a tax year beginning in
1998 shall be made on or after October 20, 1998 for any entities, other than the
Parent Partnerships or the Partnership Sellers, that are or were utilized to
remove Excluded Assets from the Homebuilding Entities. If the Tax Elections are
made, Buyer, Sellers, the Corporations, the Holding LLCs, the Homebuilding
Entities, and each of their Affiliates, shall report the transactions
contemplated herein consistently with the Tax Elections and shall take no
position contrary thereto unless and to the extent required to do so pursuant to
a final determination of liability in respect of a Tax that, under applicable
law, is not subject to further appeal, review, or modification through
proceedings or otherwise); provided, however, that the parties shall treat, for
federal and state
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income and franchise tax purposes, the purchase of the Holding LLC member
interest and Parent Partnership partnership interests as taxable purchases, from
the Partnership Sellers, of the assets owned by the Parent Partnerships. To the
extent possible, Buyer, Sellers, the Corporations, the Holding LLCs, the
Homebuilding Entities, and each of their Affiliates, as applicable, shall
execute at the Closing any and all documents, statements, and other forms that
are required to be submitted to any Taxing authority in connection with the Tax
Elections (the "Tax Election Forms"). If any Tax Election Forms are not executed
at the Closing, Buyer, Sellers, and the Homebuilding Entities, as applicable,
shall prepare and complete each such Tax Election Form no later than 30 days
before the date such Tax Election Form is required to be filed, shall cause such
Tax Election Forms to be duly executed by their respective authorized persons,
and shall timely file such Tax Election Forms in accordance with applicable Tax
laws.
(c) Buyer and Sellers agree to use their best efforts to agree
upon a schedule and supporting sub-allocation schedules, in substantially the
form of (but without regard to the specific numbers on) Schedule 6.4(c) hereto
(collectively the "Allocation Agreement"), and Sellers and Buyer agree to cause
each of the Homebuilding Entities to agree to the Allocation Agreement insofar
as the Allocation Agreement addresses them, (i) to allocate the Purchase Price
allocated to the Management Corp. Stock and the liabilities of Management Corp.
(and other relevant items) to the assets of Management Corp. and the Purchase
Price allocated to the Branching Tree Stock and liabilities of Branching Tree
(and other relevant items) to the assets of Branching Tree, in both cases for
all applicable Tax purposes, including the Section 338(h)(10) Elections, (ii) to
make and allocate the basis adjustments to the assets of Mather and the assets
of Desert Inn and its Subsidiary, and (iii) to allocate the Purchase Price
allocated to each of the other Homebuilding Entities and their Subsidiaries,
together with the liabilities (and other relevant items) of each other
Homebuilding Entity and its Subsidiaries, among the assets of each such
Homebuilding Entity and its Subsidiaries, in each case for all applicable Tax
purposes. Sellers shall initially prepare the schedules setting forth the
allocations described above and submit the proposed allocations to Buyer within
the later of (x) 30 days after the date of delivery to Buyer of the 1998 audited
financial statements referred to in Section 6.8 hereof, and (y) 30 days after
the final determination of the adjustment to the Purchase Price pursuant to
Section 1.6 hereof, but in no event later than 120 days after the Closing Date.
If, within 30 days after Sellers' submission, Buyer has not objected in writing
to such allocation, specifying in reasonable detail the nature and amount of the
disagreement, Sellers' proposed allocation shall become the Allocation
Agreement. If Buyer objects, then unless Buyer and Sellers resolve such
disagreement within 10 days after delivery of Buyer's notice of disagreement,
the disagreement shall be resolved by an accounting firm chosen as stated in
Section 1.6. Such accounting firm shall resolve such disagreement within 30 days
of submission of the disagreement to it. The determination of such accounting
firm shall be final and binding on Buyer and Sellers (absent manifest error in
calculations) and the fees and expenses of such accounting firm shall be borne
equally by Sellers, on the one hand, and Buyer, on the other hand.
Notwithstanding the foregoing, Buyer and Sellers hereby agree that the Purchase
Price shall be allocated on the Allocation Agreement among the Homebuilding
Entities, in a manner consistent with the schedule described in the last
sentence of Section 1.8, and the portion of the Purchase Price so allocated to a
Homebuilding Entity shall be further allocated among the assets of such
Homebuilding Entity, in a manner that allocates with respect to the total
Purchase Price
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(A) sixty-two million dollars ($62,000,000) of the Basis Increase (defined
below) to real property inventory, in such manner as the Sellers shall
reasonably determine, provided at least sixty-five percent (65%) of such
sixty-two million dollars ($62,000,000) shall be allocated to real property
inventory located in California, and (B) the remainder of the Basis Increase to
goodwill. "Basis Increase" means the aggregate net increase to the "baseline"
tax basis (as reflected on Schedule 6.4(c)) of the assets owned by the
Homebuilding Entities on the Closing Date resulting from the purchase
transactions described in this Agreement, the Tax Elections, and other
transactions involving the Homebuilding Entities and their Affiliates occurring
on or after October 20, 1998 and on or prior to the Closing Date.
6.5 OTHER COOPERATION.
After the Closing, the Buyer will afford the Sellers, and
their respective accountants, counsel and other representatives, reasonable
access during normal business hours to the books and records of the Homebuilding
Entities for the periods prior to the Closing. Sellers, or their respective
representatives may, at such Seller's own expense, make copies of such books and
records.
6.6 EMPLOYEES AND EMPLOYEE BENEFITS.
Buyer shall provide, or cause the Homebuilding Entities to
provide, employee benefits to the Homebuilding Entities employees who are
retained after the Closing Date that are at least as favorable to such employees
in the aggregate as the benefits provided by the Homebuilding Entities to their
employees as of the date of this Agreement.
6.7 LEWIS NAME AND MARK LICENSE.
Upon the Closing, Buyer, Branching Tree and Sellers will enter
into an agreement in substantially the form of Exhibit J hereto (the "License
Agreement"). Nothing in this Agreement shall prohibit Sellers or their
affiliates from using the name "Lewis" alone or in combination with any of the
following words: Investment, Industrial, Commercial, Retail, Apartment
Communities, Retirement, Asset Management, Family Asset Management, Operating,
Holding, Family Holdings and any name consisting of initials, and in each case
such names may include the words "Company," "Inc.," "LLC," or similar words.
6.8 FISCAL 1998 AUDITED FINANCIAL STATEMENTS.
As soon as practicable after the Closing, and in any event
within 60 days following the Closing Date, Sellers shall cause to be delivered
to Buyer a combined balance sheet for the Homebuilding Business of the
Homebuilding Entities as of December 31, 1998 and related combined statements of
operations, equity and cash flows of the Homebuilding Business of the
Homebuilding Entities for the year then ended, all examined by Ernst & Young LLP
(or another independent public accounting firm selected by mutual agreement of
the Sellers and Buyer) whose audit report thereon shall be included with such
statements, prepared in conformity with GAAP applied on a basis consistent with
the audited financial statements referred to in Section 7.2(g). Buyer shall
cooperate fully with Sellers and shall provide Sellers with access to
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the books and records of the Homebuilding Entities and such other assistance as
Sellers reasonably request (including, without limitation, assignment of Buyer's
or Homebuilding Entities' personnel to the project). Buyer will reimburse
Sellers upon request 50% of all reasonable out-of-pocket costs and expenses
actually incurred by Sellers in the preparation of such statements.
6.9 TENANT LISTS.
At the Closing, Sellers shall deliver to Buyer a list of the
then current tenants of apartment buildings owned by Sellers or their Affiliates
who are entitled to participate in Sellers or their Affiliates "Rent to Own"
program. For so long as both Buyer and Sellers, in their respective sole
discretion, determine to continue to participate in the "Rent to Own" program,
Sellers will provide to Buyer at least semiannually a list of tenants of
apartment buildings owned by Sellers or their Affiliates who are entitled to
participate in such program.
6.10 BUYER'S RIGHT OF FIRST OFFER.
(a) Right of First Offer. Restricted Party agrees that during
the period from the Closing Date to the fourth anniversary of the Closing Date
(the "Right of First Offer Period"), the Restricted Party shall not, and the
Restricted Party shall cause any Controlled Entity not to, offer to sell or
sell, or propose to enter into any joint venture with respect to, any Covered
Properties without first offering such Covered Properties for sale or joint
venture to Buyer pursuant to the procedures described below (the "Right of First
Offer"). Notwithstanding the foregoing, neither the Restricted Party nor the
Controlled Entity shall be required to offer any Covered Properties to Buyer
hereunder if such Covered Properties (i) are being transferred to another
Controlled Entity or to any other Seller, or (ii) if such Covered Properties
consists of 20 or fewer lots (provided that not more than 40 lots may be
excluded from the Right of First Offer pursuant to this clause (ii) during any
calendar year) or (iii) the project in which the Covered Lots is located
consists of 20 or fewer lots. For the purposes of this Section 6.10, (A)
"Restricted Party" means the Seller which is developing the Covered Property in
question; (B) "Covered Properties" means any for sale residential lots that are
developed by a Restricted Party or any Controlled Entity in California or
Nevada, whether for attached or detached housing, other than lots to be sold for
$300,000 or more or to a governmental entity; and (C) "Controlled Entity" means
any entity in which direct or indirect beneficial ownership (as described in
Rule 13d-3 under the Securities Exchange Act of 1934) of voting securities
represents at least 51% of the outstanding voting power of a Person is held by
one or more Restricted Parties. In the event that a Restricted Party or a
Controlled Entity is developing a mixed use project, only the lots included
therein that would constitute Covered Properties as defined above shall be
deemed Covered Properties.
(b) Offer. Prior to offering for sale or joint venture any
Covered Properties, the Restricted Party shall (or the Restricted Party shall
cause the Controlled Entity to) provide written notice to Buyer describing such
Covered Properties (the "Offered Properties") and stating the lot prices or
joint venture terms, whether such Offered Properties are being offered as
finished lots, mapped lots or in another entitlement state, and other material
terms at which the
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Restricted Party (or the Controlled Entity) offers to sell or joint venture the
Offered Properties to Buyer (the "Offer").
(c) Evaluation Notice. Within ten (10) days following receipt
of the Initial Offer, Buyer shall notify the Restricted Party in writing whether
or not Buyer intends to evaluate the Offered Properties (an "Evaluation
Notice"). If the Evaluation Notice indicates that Buyer does not wish to
evaluate the Offered Properties or if Buyer fails to deliver an Evaluation
Notice to the Restricted Party within such ten (10) day period, the Restricted
Party (or the Controlled Entity) shall be free to negotiate and conclude a sale
or joint venture, as specified in the Offer, of the Offered Properties with
other Persons for a period of one (1) year following receipt by the Buyer of the
Offer. If the Evaluation Notice is received by the Restricted Party within such
ten (10) day period and it indicates that Buyer wishes to evaluate the Offered
Properties, then for thirty (30) days following receipt by the Restricted Party
of the Evaluation Notice, Buyer shall have the right to evaluate the Offered
Properties (the "Evaluation Period") and the remainder of this Section 6.10
shall apply.
(d) Certain Information. During the first ten (10) days of the
Evaluation Period, the Restricted Party shall, or shall cause the Controlled
Entity to, promptly provide Buyer with such documents and information concerning
the Offered Properties as Buyer shall reasonably request to the extent such
documents and information are possessed by or reasonably available (without cost
or expense) to the Restricted Party and the Controlled Entity. The type of
information to be provided shall include the square footage minimums applicable
to such lots and other restrictions (including deed restrictions, if applicable)
relating to such lots. Neither the Restricted Party nor the Controlled Entity
makes or shall be deemed to make any representation or warranty as to the
accuracy or completeness of such documents and information. Buyer will maintain
the confidentiality of such documents and information, provided that this will
not prevent disclosure by Buyer to the extent that such disclosure is required
by law or court order.
(e) Acceptance; Rejection; Matching. Prior to the end of the
Evaluation Period, Buyer shall either accept or reject the Offer. If Buyer
accepts the Offer, the Restricted Party and Buyer shall use their, and the
Restricted Party shall cause the Controlled Entity to use its, good faith
efforts to conclude the sale or joint venture, as the case may be, of such
Offered Properties on the terms contained in the Offer as expeditiously as
practicable. If Buyer rejects the Offer, the Restricted Party (or the Controlled
Party) shall be free to negotiate with, and sell or joint venture, as specified
in the Offer, the Offered Properties to, other Persons provided that:
(i) the Restricted Party may not (or the Restricted
Party shall cause the Controlled Entity not to) accept any offer to
purchase or joint venture, as the case may be, the Offered Properties
from any other Person during the Right of First Offer Period without
first re-offering the Offered Properties on the same terms to Buyer if
(a) the other offer contains a closing sales price for the Offered
Properties that is less than the closing sales price contained in the
Offer or, if the Offer relates to a joint venture, contains terms in
the aggregate less favorable to the Restricted Party (or the Controlled
Entity), (b) the Restricted Party (or the Controlled Entity) changes
the entitlement state of the Offered Properties, or (c) the other offer
is for the purchase of the Offered Properties and the Offer was for a
joint venture of the Offered Properties, or vice versa. For this
purpose, if
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the price contained in either the Offer or in the other offer is
payable over time in whole or in part (the "financed portion"), then
the present value of the financed portion shall be calculated using an
8% discount rate, and such present value shall be deemed to be included
in the "price" for comparison purposes; and
(ii) the Restricted Party shall be required to give
(or the Restricted Party shall cause the Controlled Entity to give) to
Buyer ten (10) days to match any offer described in Section 6.10(e)(i)
above.
(f) Reoffer in Certain Circumstance. Subject to the terms of
Section 6.10(g), the Restricted Party shall be required to (and the Restricted
Party shall cause the Controlled Entity to) offer Buyer another Evaluation
Period in accordance with this Section 6.10 with respect to any Offered
Properties which the Restricted Party or a Controlled Entity, as the case may
be, is continuing to offer for sale or propose to joint venture if such Offered
Properties have not been sold or joint ventured by the later of one (1) year
after the expiration of (i) the previous Evaluation Period with respect to such
Offered Properties or (ii) if applicable, to such Offered Properties, the ten
(10) day match period described in Section 6.10(e)(ii).
(g) Termination of Right of First Offer. In the event of a
breach or default by Buyer under (i) an agreement for purchase and sale or joint
venture for any of the Offered Properties or (ii) any obligations or
restrictions imposed by the documents of conveyance of any Offered Properties to
Buyer (the Offered Properties described in (i) or (ii) being the "Subject
Offered Properties") and such breach or default is not cured within any
applicable cure period provided in the applicable agreement or document and
after any notice required by any such agreement or document has been given, the
provisions of this Section 6.10 shall automatically terminate and be of no
further force and effect with respect to all Subject Offered Properties and with
respect to all other Covered Properties located in the project(s) in which the
Subject Offered Properties are located.
(h) No Obligation to Sell. It is understood that neither the
Restricted Party nor any Controlled Entity has an obligation to market or sell
any Covered Properties (provided that the foregoing shall not relieve the
Restricted Party from complying with this Section 6.10 if it decides to offer
for sale any Covered Properties) or to accept any offer made by Buyer.
(i) Sierra Lakes Adjacent Property. Without Buyer's consent in
its sole discretion, Sellers will not enter into any joint venture, partnership,
or similar agreement with a third party with respect to the approximately
135-acre property adjacent to the Sierra Lakes property, if such agreement would
prevent Sellers from offering such property to Buyer in accordance with this
Section 6.10.
6.11 WELLS FARGO LOANS.
At the Closing, Buyer may elect to assume or pay in full the
Wells Fargo Loans. If the Wells Fargo Loans are repaid in full at the Closing,
Buyer shall assist Sellers in causing all guarantees and pledges by Sellers,
Corporations, Shareholders or their Affiliates related to the Wells Fargo Loans
to be released in full. If the Wells Fargo Loans are not repaid in full at the
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Closing, Buyer shall have assumed all guarantees of Sellers, Corporations and
Shareholders (and caused any pledges to be released in full) with respect to the
Wells Fargo Loans by instruments reasonably acceptable to Sellers, Corporations
and Shareholders that fully and completely release each Seller, Corporation or
Shareholder from any liability under such guarantees and pledges.
ARTICLE VII
CONDITIONS OF PURCHASE
7.1 GENERAL CONDITIONS.
The obligations of the parties to effect the Closing shall be
subject to the following conditions unless waived in writing by all parties:
(a) No Orders, Legal Proceedings. No Law or Order shall have
been enacted, entered, issued, promulgated or enforced by any Governmental
Entity, nor shall any Action by a Governmental Entity have been instituted and
remain pending at what would otherwise be the Closing Date, which prohibits or
restricts the transactions contemplated by this Agreement.
(b) Approvals. All Permits and Approvals required to be
obtained from any Governmental Entity shall have been received or obtained on or
prior to the Closing Date and any applicable waiting period under the
Hart-Scott-Rodino Act shall have expired or been terminated.
(c) Removal and Inclusion of Assets and Liabilities. The
Excluded Assets shall have been distributed and the Excluded Liabilities shall
have been assumed by Sellers, and the Included Assets and Included Liabilities
shall have been transferred to and assumed by the Homebuilding Entities, all in
form and substance reasonably satisfactory to Sellers and Buyer, without the
imposition of any tax or other adverse tax consequences to the Homebuilding
Entities; provided, however, that if Sellers are unable to distribute any of the
Excluded Assets or assume the Excluded Liabilities or transfer the Included
Assets and Included Liabilities prior to the Closing Date, Buyer will, and will
cause the Homebuilding Entities to, cooperate with Sellers after the Closing to
ensure that any such transfers and assumptions are effected as soon as
practicable.
(d) Execution and Delivery of Agreements. Each of the Cost
Sharing Agreements, License Agreement, Option Agreement, Registration Rights
Agreement, Shareholders Agreement, the Consulting and Noncompetition Agreement
between Buyer and John M. Goodman, in the form of Exhibit O and the
Representation, Warranty and Indemnity Agreement in the form of Exhibit P, shall
have been executed and delivered by the parties thereto and the employment
agreements, dated the date of this Agreement, and executed by Buyer or a
Homebuilding Entity and the persons named on Schedule 7.1(d) shall be in full
force and effect.
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7.2 CONDITIONS TO OBLIGATIONS OF BUYER.
The obligations of Buyer to effect the Closing shall be
subject to the following conditions except to the extent waived in writing by
Buyer:
(a) Representations and Warranties and Covenants of Sellers
and Corporations. The representations and warranties of Sellers and the
Corporations herein contained (as qualified by matters set forth as exceptions
thereto in the Disclosure Schedule of Sellers) shall be true in all material
respects (except for such representations and warranties as are qualified by
their terms by reference to materiality, a material adverse change or a material
adverse effect, which representations and warranties as so qualified shall be
true in all respects) at the Closing Date with the same effect as though made at
such time; Sellers and the Corporations shall have performed all obligations and
complied with all covenants and conditions required by this Agreement to be
performed or complied with by them at or prior to the Closing Date (except for
such failures to perform as have not had and are not reasonably expected to
have, individually or in the aggregate, a material adverse effect with respect
to the Homebuilding Entities and the Former Partnership Properties, considered
as a whole, or to adversely affect the ability of Sellers or the Corporations to
consummate the transactions contemplated by this Agreement); and Sellers and the
Corporations shall have delivered to Buyer a certificate of Sellers and the
Corporations in form and substance satisfactory to Buyer, dated the Closing
Date, and signed by the Representative, to such effect.
(b) Opinion of Counsel. Buyer shall receive at the Closing
from O'Melveny & Myers LLP and Kenneth P. Corhan, Esq., General Counsel to
Management Corp., opinions dated the Closing Date, in form and substance
substantially as set forth in Exhibits K and L, respectively.
(c) Consents. Sellers shall have obtained and provided to
Buyer the Approvals of third parties set forth on Schedule 2.10 in form and
substance reasonably acceptable to Buyer.
(d) Resignation of Directors and Certain Officers. The
directors and officers of Management Corp., Branching Tree, the Holding LLCs,
Mather and Desert Inn listed in a letter to be delivered by Buyer to Sellers not
less than 3 days prior to the Closing Date, shall have submitted their
resignations in writing to Management Corp., Branching Tree, the Holding LLCs,
Mather, and Desert Inn, as the case may be. Such resignations shall be effective
as of the Closing.
(e) Delivery of Stock, Member Interests and Partnership
Interests and Other Deliveries. All Sellers shall have delivered for sale to
Buyer on or before the Closing, stock certificates representing all shares of
Stock as contemplated hereby and Bills of Sale representing all Member Interests
and Partnership Interests as contemplated hereby, and such other customary
closing documents as Buyer may reasonably request for the consummation of the
transactions contemplated hereby.
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(f) Release from Obligations. Buyer and each of the
Homebuilding Entities shall have been released from any liability with respect
to the obligations identified in Schedule 7.2(f) by instruments reasonably
acceptable to Buyer.
(g) Audited Financial Statements. Sellers shall have delivered
to Buyer audited combined balance sheets for the Homebuilding Business of the
Homebuilding Entities as of December 31, 1996 and 1997, and related audited
combined statements of operations, equity, and cash flows of the Homebuilding
Business of the Homebuilding Entities for the years ended December 31, 1996 and
1997, along with the Auditor's audit report thereon (collectively, the "Audited
Homebuilding Financial Statements"), prepared in conformity with GAAP applied on
a consistent basis for the periods reflected therein, and such Audited
Homebuilding Financial Statements shall not reflect any material adverse change
in the financial position or results of operations of the Homebuilding Entities
as of or for the year ended December 31, 1997 from the financial position and
results of operations of the Homebuilding Entities reflected in the Homebuilding
Line of Business Financial Information as of and for the year ended December 31,
1997.
7.3 CONDITIONS TO OBLIGATIONS OF SELLERS.
The obligations of Sellers to effect the Closing shall be
subject to the following conditions, except to the extent waived in writing by
Sellers:
(a) Representations and Warranties and Covenants of Buyer. The
representations and warranties of Buyer herein contained (as qualified by
matters set forth as exceptions thereto in the Disclosure Schedule of Buyer)
shall be true in all material respects (except for such representations and
warranties as are qualified by their terms by reference to materiality, a
material adverse change, or a material adverse effect, which representations and
warranties as so qualified shall be true in all respects) at the Closing Date
with the same effect as though made at such time; Buyer shall have in performed
all obligations and complied with all covenants and conditions required by this
Agreement to be performed or complied with by it at or prior to the Closing Date
(except for such failures to perform as have not had and are not reasonably
expected to have, individually or in the aggregate, a material adverse effect
with respect to Buyer or to adversely affect the ability of Buyer to consummate
the transactions contemplated by this Agreement); and Buyer shall have delivered
to Sellers and the Corporations a certificate of Buyer in form and substance
satisfactory to Sellers and the Corporations, dated the Closing Date and signed
by its chief executive officer and chief financial officer, to such effect.
(b) Consents. Buyer shall have obtained all Approvals of third
parties set forth on Schedule 4.3 in form and substance reasonably acceptable to
Sellers.
(c) Opinion of Counsel. Sellers and the Corporations shall
receive at the Closing from Munger, Tolles & Olson LLP and Barton P. Pachino,
Senior Vice President, General Counsel of Buyer, opinions dated the Closing
Date, in form and substance substantially as set forth in Exhibits M and N,
respectively.
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(d) Assumption of Guarantees; Other Deliveries. Buyer shall
have assumed the guarantees identified in Schedule 7.3(d) by instruments
reasonably acceptable to Sellers that fully and completely release each Seller,
Corporation and Shareholder from any liability under said guarantees, and shall
have delivered to Sellers such other customary closing documents as Sellers may
reasonably request for the consummation of the transactions contemplated hereby.
ARTICLE VIII
TERMINATION OF OBLIGATIONS; SURVIVAL
8.1 TERMINATION OF AGREEMENT.
Anything herein to the contrary notwithstanding, this
Agreement and the transactions contemplated by this Agreement shall terminate
upon written notice by Buyer or Sellers if the Closing does not occur on or
before the close of business on February 15, 1999 and otherwise may be
terminated at any time before the Closing as follows and in no other manner:
(a) Mutual Consent. By mutual consent in writing of Buyer and
Sellers.
(b) Conditions to Buyer's Performance Not Met. By Buyer by
written notice to Sellers if any event occurs or condition exists which would
render impossible the satisfaction of one or more conditions to the obligations
of Buyer to consummate the transactions contemplated by this Agreement as set
forth in Section 7.1 or 7.2.
(c) Conditions to Sellers' Performance Not Met. By Sellers by
written notice to Buyer if any event occurs or condition exists which would
render impossible the satisfaction of one or more conditions to the obligation
of Seller to consummate the transactions contemplated by this Agreement as set
forth in Section 7.1 or 7.3.
(d) Material Breach. By Buyer or Sellers if there has been a
misrepresentation or other breach by the other party in its representations,
warranties, or covenants set forth in or pursuant to this Agreement sufficient
to result in a material adverse change; provided, however, that if such breach
is susceptible to cure, the breaching party shall have ten business days after
receipt of notice from the other party of its intention to terminate this
Agreement if such breach continues in which to cure such breach.
8.2 EFFECT OF TERMINATION.
In the event that this Agreement shall be terminated pursuant
to Section 8.1, all further obligations of the parties under this Agreement
shall terminate without further liability of any party to another; provided that
the obligations of the parties contained in Section 6.2, Section 10.9 and
Section 10.14 shall survive any such termination. A termination under Section
8.1 shall not relieve any party of any liability for a breach of, or for any
misrepresentation under, this Agreement, or be deemed to constitute a waiver of
any available remedy (including specific performance if available) for any such
breach or misrepresentation.
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8.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties contained in or made
pursuant to this Agreement shall survive the Closing and shall remain in full
force and effect until March 31, 2001, except that (i) the representations and
warranties in Sections 2.2, 2.3, 2.4, 2.5(d), and 2.20 shall remain in full
force and effect until March 31, 2002 and (ii) the representation and warranty
in the second sentence of Section 2.8(a) shall terminate upon the Closing. The
parties acknowledge and agree that the only representations and warranties
regarding product or construction warranties, construction defects and product
defects are the representations and warranties contained in Section 2.8(c) and
shall not be deemed to be covered by Section 2.5(d).
ARTICLE IX
INDEMNIFICATION
9.1 OBLIGATIONS OF SELLERS AND CORPORATION.
Each Seller and Corporation, jointly and severally, agrees to
indemnify and hold harmless Buyer (including with respect to claims for
indemnification by its officers, directors and agents) and, after the Closing,
the Homebuilding Entities, from and against any and all Losses of such an
Indemnified Party as a result of, or based upon or arising from, (i) any breach
of any of the representations or warranties made by Sellers and the Corporations
in or pursuant to this Agreement (other than the second sentence of Section
2.8(a) and Section 2.21) or any nonperformance of any of the covenants or
agreements of Sellers and the Corporations hereunder, (ii) the litigation
identified on Schedule 9.1, (iii) the severance payments referred to in Section
2.16(a) (v), (iv) any Excluded Assets or Excluded Liabilities (including without
limitation any non-Homebuilding Business conducted by the Homebuilding Entities
prior to the Closing Date and any non-Homebuilding Business conducted by
entities in the Lewis group of companies other than the Homebuilding Entities at
any time), or (v) any breach of the representations and warranties made by
Sellers and the Corporations in or pursuant to, or any nonperformance of any of
the covenants or agreements of Sellers and the Corporations under, Section 2.21.
9.2 OBLIGATIONS OF BUYER.
Buyer agrees to indemnify and hold harmless Sellers and the
Corporations (including with respect to claims for indemnification by its
officers, directors and agents) and Shareholders from and against any Losses of
such an Indemnified Party as a result of, or based upon or arising from, (i) any
breach of any of the representations or warranties made by Buyer in or pursuant
to this Agreement or any nonperformance of any of the covenants or agreement of
Buyer hereunder, or (ii) the Included Liabilities and the Homebuilding Business
of the Homebuilding Entities (including, without limitation, all litigation
existing on the Closing Date or instituted thereafter relating to the
Homebuilding Business of the Homebuilding Entities, except for litigation
referred to in Schedule 9.1).
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9.3 PROCEDURE.
Except as otherwise specifically provided in Section 6.4:
(a) Notice. Any party seeking indemnification with respect to
any Loss shall give notice to the Indemnifying Party on or before the applicable
date specified in Section 9.4.
(b) Defense. If any claim, demand or liability is asserted by
any third party against any Indemnified Party, the Indemnifying Party shall have
the right, if requested by the Indemnifying Party, and shall upon the written
request of the Indemnified Party, defend any actions or proceedings brought
against the Indemnified Party in respect of matters embraced by the indemnity.
In any such action or proceeding, the Indemnified Party shall have the right to
retain its own counsel, but the fees and expenses of such counsel shall be at
its own expense unless (i) the Indemnifying Party and the Indemnified Party
mutually agree to the retention of such counsel or (ii) the named parties to any
such suit, action or proceeding (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party, and in the reasonable judgment
of the Indemnified Party, representation of the Indemnifying Party and the
Indemnified Party by the same counsel would be inadvisable due to potential
conflicts of interests between them. The parties shall cooperate in the defense
of all third party claims which may give rise to Indemnifiable Claims hereunder.
In connection with the defense of any claim, each party shall make available to
the party controlling such defense, any books, records or other documents within
its control that are reasonably requested in the course of or necessary or
appropriate for such defense. Neither the Indemnifying Party nor the Indemnified
Party (a "Settling Party") will, without the written consent of the other, (i)
settle or compromise any third party claim or consent to the entry of any
judgment with respect to a third party claim that does not include as an
unconditional term thereof the delivery by the third party claimant to the other
of a written release from all liability in respect of such third party claim or
(ii) settle or compromise any third party claim in any manner or consent to the
entry of any judgment or order that may adversely affect the other, except for
or as a result of money damages or other money payments for which the
Indemnifying Party has acknowledged in writing its obligation and ability to
indemnify the Indemnified Party in full.
(c) Calculation of Loss. The amount of any Loss for which
indemnification is provided under Section 9.1 or 9.2 shall be net of any
insurance proceeds received by the Indemnified Party. If such insurance proceeds
are received after payment by the Indemnifying Party of any amount otherwise
required to be paid to an Indemnified Party pursuant to Section 9.1 or 9.2, the
Indemnified Party shall repay to the Indemnifying Party promptly after such
receipt any amount the Indemnifying Party would not have had to pay pursuant to
Section 9.1 or 9.2 had such receipt occurred at the time of such payment.
(d) Tax Treatment of Indemnification Payments; Reduction for
Tax Benefits. Any payment under this Article IX shall be treated by the parties
as an adjustment to the Purchase Price. Any payment under Section 9.1 otherwise
due and payable hereunder shall be decreased to the extent of any net reduction
in Taxes payable by the Buyer and/or any affiliate thereof resulting from the
Loss (whether such reduction is realized with respect to the year in
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which the Loss occurs or with respect to an earlier or later year), such net
reduction to be determined at an assumed marginal tax rate equal to 40%.
9.4 SURVIVAL.
This indemnification shall survive the Closing and shall
remain in effect until March 31, 2001, except that this indemnification shall
remain in effect until March 31, 2002 with respect to the representations and
warranties in Sections 2.2, 2.3, 2.4, 2.5(d), and 2.20 and until the expiration
according to its terms of any covenant herein contemplating performance for a
longer period. Any matter as to which a claim has been asserted by notice to the
other party that is pending or unresolved at March 31, 2001 or 2002, as
applicable, shall continue to be covered by this Article IX until such matter is
finally terminated or otherwise resolved by the parties under this Agreement and
any amounts payable hereunder are finally determined and paid.
9.5 LIMITATION OF REMEDIES.
The remedies provided in this Article IX shall constitute the
sole and exclusive remedy with respect to matters set forth in this Article IX.
The indemnification obligations of Sellers and Corporations set forth in clauses
(ii), (iii), (iv) and (v) of Section 9.1 and the indemnification obligations of
Buyer set forth in Section 9.2(ii) shall be unlimited as to time or amount. With
respect to the indemnification obligations of Sellers and Corporations set forth
in Section 9.1(i) and the indemnification obligations of Buyer set forth in
Section 9.2(i), neither Buyer or Sellers and the Corporations shall be obligated
to indemnify the Indemnified Parties until the aggregate amount of Losses for
which indemnity would otherwise be available is in excess of $750,000, in which
event the Indemnifying Party shall be obligated to indemnify for Losses in
excess of such amount; provided, however, that Sellers and Corporations, in the
aggregate, and Buyer shall be obligated to indemnify for Losses up to $25
million and, for Losses in excess of $25 million and less than or equal to $51.5
million, one-half of such Losses, it being understood that neither Sellers and
Corporations, in the aggregate, nor Buyer shall have any obligation to indemnify
with respect to Losses in excess of $51.5 million.
ARTICLE X
GENERAL
10.1 AMENDMENTS; WAIVERS.
This Agreement and any schedule or exhibit attached hereto may
be amended only by agreement in writing of all parties. No waiver of any
provision nor consent to any exception to the terms of this Agreement shall be
effective unless in writing and signed by the party to be bound and then only to
the specific purpose, extent and instance so provided.
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10.2 SCHEDULES, EXHIBITS, INTEGRATION.
Each schedule and exhibit delivered pursuant to the terms of
this Agreement shall be in writing and shall constitute a part of this
Agreement, although schedules need not be attached to each copy of this
Agreement. This Agreement, together with such schedules and exhibits,
constitutes the entire agreement among the parties pertaining to the subject
matter hereof. This Agreement amends and restates in its entirety that certain
Purchase Agreement, dated October 20, 1998, among Buyer and the sellers named
therein as contemplated by and for the parties' convenience as stated in Section
2 of that certain Amendment to Purchase Agreement dated the date of this
Agreement.
10.3 EFFORTS; FURTHER ASSURANCES.
Each party will use its commercially reasonable efforts to
cause all conditions to its obligations hereunder to be timely satisfied and to
perform and fulfill all obligations on its part to be performed and fulfilled
under this Agreement, to the end that the transactions contemplated by this
Agreement shall be effected substantially in accordance with its terms as soon
as reasonably practicable. The parties shall cooperate with each other in such
actions and in securing requisite Approvals. Each party shall execute and
deliver both before and after the Closing such further certificates, agreements
and other documents and take such other actions as the other party may
reasonably request to consummate or implement the transactions contemplated
hereby or to evidence such events or matters.
10.4 GOVERNING LAW.
This Agreement, the legal relations between the parties and
any Action, whether contractual or non-contractual, instituted by any party with
respect to matters arising under or growing out of or in connection with or in
respect of this Agreement, including but not limited to the negotiation,
execution, interpretation, coverage, scope, performance, breach, termination,
validity, or enforceability of this Agreement, shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and performed in such State and without regard to conflicts of
law doctrines.
10.5 NO ASSIGNMENT.
Neither this Agreement nor any rights or obligations under it
are assignable except that (i) Buyer may assign its rights hereunder (including
but not limited to its rights under Article IX) to any Affiliates of Buyer, in
which event Buyer shall remain liable to Sellers and the Corporations for the
payment of the Purchase Price and other obligations of Buyer hereunder
notwithstanding a permitted assignment, and (ii) Sellers may assign their rights
hereunder to any Affiliates of Sellers, in which event Sellers shall remain
liable to Buyer for the delivery of the Stock, Partnership Interests and Member
Interests and other obligations of Sellers hereunder notwithstanding a permitted
assignment.
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10.6 HEADINGS.
The descriptive headings of the Articles, Sections and
subsections of this Agreement are for convenience only and do not constitute a
part of this Agreement.
10.7 COUNTERPARTS.
This Agreement may be executed in any number of identical
counterparts, each of which when executed and delivered shall be an original,
but all such counterparts shall constitute but one and the same instrument. Any
signature page of this instrument may be detached from any counterpart without
impairing the legal effect of any signatures thereof, and may be attached to
another counterpart, identical in form thereto, but having attached to it one or
more additional signature pages. Delivery by any party or its respective
representatives of telecopied (counterpart) signature pages shall be as binding
an execution and delivery of this Agreement by such party as if the other party
had received the actual physical copy of the entire Agreement with an ink
signature from such party.
10.8 PUBLICITY AND REPORTS.
Sellers, Corporations and Buyer shall coordinate all publicity
relating to the transactions contemplated by this Agreement and no party shall
issue any press release, publicity statement or other public notice relating to
this Agreement, or the transactions contemplated by this Agreement, without
consulting with the other party except to the extent that a particular action is
required by applicable law or rule of or listing agreement with a securities
exchange on which such party's securities are listed for trading or quotation.
10.9 CONFIDENTIALITY.
All information disclosed by any party (or its
representatives) whether before or after the date hereof, in connection with the
transactions contemplated by, or the discussions and negotiations preceding,
this Agreement to any other party (or its representatives) shall be kept
confidential by such other party and its representatives and shall not be used
by any such Persons other than as contemplated by this Agreement, except to the
extent that such information (i) was known by the recipient when received, (ii)
it is or hereafter becomes lawfully obtainable from other sources, (iii) is
necessary or appropriate to disclose to a Governmental Entity having
jurisdiction over the parties, (iv) as may otherwise be required by law or (v)
to the extent such duty as to confidentiality is waived in writing by the other
party; provided, however, that following the Closing Date nothing in this
section shall apply to or restrict the use of information by Buyer or the
Homebuilding Entities in their businesses. If this Agreement is terminated in
accordance with its terms, each party shall use all reasonable efforts to return
upon written request from the other party all documents (and reproductions
thereof) received by it or its representatives from such other party (and, in
the case of reproductions, all such reproductions made by the receiving party)
that include information not within the exceptions contained in the first
sentence of this Section 10.9, unless the recipients provide assurances
reasonably satisfactory to the requesting party that such documents have been
destroyed.
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10.10 ALTERNATIVE DISPUTE RESOLUTION.
(a) Negotiation. In the event of any dispute or disagreement
among Sellers, the Corporations and Buyer as to the interpretation of any
provision of this Agreement or any other agreement or instrument delivered in
connection with this Agreement, or the performance of obligations hereunder or
thereunder, the matter, upon written request of either party, shall be referred
to representatives of the parties for decision, each party being represented by
a senior executive officer of the party or a controlling affiliate (a "Dispute
Representative"). The Dispute Representatives shall promptly meet in a good
faith effort to resolve the dispute. If the Dispute Representatives do not agree
upon a decision within thirty (30) calendar days after reference of the matter
to them, Sellers, the Corporations and Buyer shall be free to exercise the
remedies available to them under subsection (b).
(b) Arbitration. Any controversy, dispute or claim (a "Claim")
arising out of or relating in any way to this Agreement or any other agreement
or instrument delivered in connection with this Agreement, or the transactions
arising hereunder or thereunder that cannot be resolved by negotiation pursuant
to subsection (a) shall be settled exclusively by a binding arbitration
("Arbitration"), conducted by a single arbitrator (the "Arbitrator") chosen by
the parties as described below. Any party may initiate the Arbitration by
written notice to the other and to the Arbitration Tribunal (as defined below).
The date on which the notice is given is called the "Arbitration Initiation
Date." The fees and expenses of the Arbitration Tribunal and the Arbitrator
shall be shared equally by the parties and advanced by them from time to time as
required; provided, however, that at the conclusion of the Arbitration, the
Arbitrator may award costs and expenses (including the costs of the Arbitration
previously advanced and the fees and expenses of attorneys, accountants and
other experts) to the prevailing party. Except as expressly modified herein, the
Arbitration shall be conducted in accordance with the provisions of Section 1280
et seq. of the California Code of Civil Procedure or their successor sections
("CCP"), and shall constitute the exclusive remedy for the determination of any
Claim, including whether the Claim is subject to arbitration. The Arbitration
shall be conducted under the procedures of the Arbitration Tribunal, except as
modified herein. The Arbitration Tribunal shall be the Los Angeles Office of
JAMS/ENDISPUTE ("JAMS"), unless the parties to the dispute cannot agree on a
JAMS arbitrator, in which case the Arbitration Tribunal shall be the Los Angeles
Office of the American Arbitration Association ("AAA"). The Arbitrator shall be
a retired judge or other arbitrator employed by JAMS selected by mutual
agreement of the parties to the dispute, and if they cannot so agree within 30
days after the Arbitration Initiation Date, then the Arbitrator shall be
selected from the Large and Complex Case Project ("LCCP") panel of the AAA, by
mutual agreement of the parties to the dispute. If the parties to the dispute
cannot agree on an Arbitrator within 60 days after the Arbitration Initiation
Date, the Arbitrator shall be selected by the AAA, from its LCCP panel, through
such procedures as the AAA regularly follows. In all events, the Arbitrator must
have had not less than 15 years experience as a practitioner or arbitrator of
complex business transactions. If for any reason the AAA does not so act, any
party to the dispute may apply to the Superior Court in and for Los Angeles
County, California, for the appointment of a single arbitrator. No
pre-arbitration discovery shall be permitted, except that the Arbitrator shall
have the power in his or her sole discretion, on application by either party, to
order pre-arbitration examination solely of those witnesses and documents that
the other party
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intends to introduce in its case-in-chief at the arbitration hearing. Prior to
the commencement of arbitration hearings, the Arbitrator shall have the power,
in his or her discretion, upon either party's motion but not on his or her own
initiative, to order the parties to engage in pre-arbitration mediation for a
period not exceeding 30 days before a mediator mutually acceptable to the
parties. The Arbitrator shall try any and all issues of law or fact and be
prepared to make the award within 90 days after the close of evidence in the
Arbitration. When prepared to make the award, the Arbitrator shall first so
inform the parties, who shall have 10 days to attempt to resolve the matter by a
binding agreement between them. If the parties so resolve the matter, the
Arbitrator shall not make any award. If the parties do not so resolve the
matter, the Arbitrator shall make the award on the eleventh day following his
notice of being prepared to make the award. The Arbitrator's award shall dispose
of all of the claims that are the subject of the Arbitration and shall follow
California law and precedent, and shall include written statements of fact and
conclusions of law. The Arbitrator shall be empowered to (i) enter equitable as
well as legal relief, (ii) provide all temporary and/or provisional remedies,
and (iii) enter binding equitable orders. The award rendered by the Arbitrator
shall be final and not subject to judicial review, and judgment thereon may be
entered in any court of competent jurisdiction.
10.11 PARTIES IN INTEREST.
This Agreement shall be binding upon and inure to the benefit
of each party, and nothing in this Agreement, express or implied, is intended to
confer upon any other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement except for Sections 6.6, 9.1 and 10.5
(which are intended to be for the benefit of the persons provided for therein
and may be enforced by such persons).
10.12 KNOWLEDGE CONVENTION.
Whenever any statement herein or in any schedule, exhibit,
certificate or other documents delivered to any party pursuant to this Agreement
is made "to Sellers' knowledge" or words of similar intent or effect, such
statement shall be deemed to mean the actual conscious knowledge of (i) any
Seller who is an individual, (ii) the Shareholders, for any Seller or
Corporation that is a corporation or (iii) any Seller after inquiry of Kenneth
P. Corhan, Leon C. Swails and Leah S. Bryant as to the subject matter.
10.13 NOTICES.
Any notice or other communication hereunder must be given in
writing and delivered in person or sent by telecopy, by a nationally-recognized
overnight courier service or by certified or registered mail, postage prepaid,
receipt requested, addressed as follows:
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IF TO BUYER, ADDRESSED TO:
Kaufman and Broad Home Corporation
10990 Wilshire Boulevard
Los Angeles, California 90024
Attention: Michael F. Henn
Chief Financial Officer
Barton P. Pachino
General Counsel
Fax No.: 310-231-4280
with a copy to
Munger, Tolles & Olson LLP
355 South Grand Avenue
Los Angeles, California 90071
Attention: R. Gregory Morgan, Esq.
Fax No.: 213-687-3702
IF TO SELLERS OR CORPORATIONS, ADDRESSED TO:
John M. Goodman
Lewis Operating Corp.
11 56 N. Mountain Ave.
Upland, CA 91785
Fax No.: (909) 912-6770
WITH A COPY TO:
O'Melveny & Myers LLP
400 S. Hope Street
Los Angeles, California 90071
Attention: Richard A. Boehmer, Esq.
Fax: No.: (213) 430-6407
or to such other address or to such other person as any party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (i) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
Section 10.13 and an appropriate answer back is received, (ii) if given by
overnight courier, one business day following delivery by sender to such
overnight courier, (iii) if given by mail, three days after such communication
is deposited in the mails with first class postage prepaid, addressed as
aforesaid or (iv) if given by any other means, when actually received at such
address.
53
<PAGE> 59
10.14 EXPENSES.
Except as set forth in Sections 10.10 and 10.16, Sellers,
Corporations and Buyer shall each pay their own expenses incident to the
negotiation, preparation and performance of this Agreement and the transactions
contemplated hereby, including but not limited to the fees, expenses and
disbursements of their respective investment bankers, accountants and counsel.
Any such expenses of the Homebuilding Entities, or any expenses paid by the
Homebuilding Entities on behalf of Sellers or Corporations, shall be paid by
Sellers or Corporations prior to or concurrently with the Closing.
10.15 REMEDIES; WAIVER.
To the extent permitted by Law, all rights and remedies
existing under this Agreement are cumulative to and not exclusive of, any rights
or remedies otherwise available under applicable Law. No failure on the part of
any party to exercise or delay in exercising any right hereunder shall be deemed
a waiver thereof, nor shall any single or partial exercise preclude any further
or other exercise of such or any other right.
10.16 ATTORNEY'S FEES.
In the event of any Action by any party arising under or out
of, in connection with or in respect of, this Agreement or the transactions
contemplated hereby, the prevailing party shall be entitled to reasonable
attorney's fees, costs and expenses incurred in such Action. Attorney's fees
incurred in enforcing any judgement in respect of this Agreement are recoverable
as a separate item. The parties intend that the preceding sentence be severable
from the other provisions of this Agreement, survive any judgment and, to the
maximum extent permitted by law, not be deemed merged into such judgment.
10.17 REPRESENTATION BY COUNSEL; INTERPRETATION.
Sellers, Corporations and Buyer each acknowledge that each
party to this Agreement has been represented by counsel in connection with this
Agreement and the transactions contemplated by this Agreement. Accordingly, any
rule of Law, including but not limited to Section 1654 of the California Civil
Code, or any legal decision that would require interpretation of any claimed
ambiguities in this Agreement against the party that drafted it has no
application and is expressly waived. The provisions of this Agreement shall be
interpreted in a reasonable manner to effect the intent of Buyer, Sellers and
Corporations.
10.18 SEVERABILITY.
If any provision of this Agreement is determined to be
invalid, illegal or unenforceable by any Governmental Entity, the remaining
provisions of this Agreement shall remain in full force and effect provided that
the economic and legal substance of the transactions contemplated is not
affected in any manner materially adverse to any party. In event of any such
determination, the parties agree to negotiate in good faith to modify this
Agreement to fulfill as closely as possible the original intents and purposes
hereof. To the extent permitted by Law, the
54
<PAGE> 60
parties hereby to the same extent waive any provision of Law that renders any
provision hereof prohibited or unenforceable in any respect.
55
<PAGE> 61
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers.
Dated: January 7, 1999 BUYER
KAUFMAN AND BROAD HOME CORPORATION
By: /s/ MICHAEL F. HENN
-----------------------------------------
Its: Senior Vice President & Chief
Financial Officer
SELLERS
Ralph M. Lewis
By: /s/ ROBERT E. LEWIS
--------------------------------------------
Robert E. Lewis, his attorney-in-fact
/s/ ROBERT E. LEWIS ON BEHALF
OF GOLDY S. LEWIS
--------------------------------------------
Goldy S. Lewis
/s/ RICHARD A. LEWIS
--------------------------------------------
Richard A. Lewis
/s/ ROBERT E. LEWIS
--------------------------------------------
Robert E. Lewis
/s/ ROGER G. LEWIS
--------------------------------------------
Roger G. Lewis
/s/ RANDALL W. LEWIS
--------------------------------------------
Randall W. Lewis
/s/ JOHN M. GOODMAN
--------------------------------------------
John M. Goodman
S-1
<PAGE> 62
COLLINE ENTERPRISES, INC.
By: /s/ RICHARD A. LEWIS
----------------------------------------
Name: Richard A. Lewis
Title: President
TERRAIN ENTERPRISES, INC.
By: /s/ ROBERT E. LEWIS
----------------------------------------
Name: Robert E. Lewis
Title: President
MARMOT ENTERPRISES, INC.
By: /s/ ROGER G. LEWIS
----------------------------------------
Name: Roger G. Lewis
Title: President
GITAN ENTERPRISES, INC.
By: /s/ RANDALL W. LEWIS
----------------------------------------
Name: Randall W. Lewis
Title: President
TOPSPIN ENTERPRISES, INC.
By: /s/ JOHN M. GOODMAN
----------------------------------------
Name: John M. Goodman
Title: President
S-2
<PAGE> 63
LDC PLATTE, LLC
By: Lewis Holding Company, a Delaware
limited liability company, its member
By: Forehand Development Corp., a
California corporation,
its member
By /s/ JOHN M. GOODMAN
--------------------------
John M. Goodman,
its Authorized Agent
LHC PLATTE, LLC
By: Lewis Holding Company, a Delaware
limited liability company, its member
By: Forehand Development Corp., a
California corporation, its
member
By /s/ JOHN M. GOODMAN
---------------------------
John M. Goodman,
its Authorized Agent
LHE PLATTE, LLC
By: Lewis Holding Company, a Delaware
limited liability company, its member
By: Forehand Development Corp., a
California corporation, its
member
By /s/ JOHN M. GOODMAN
--------------------------
John M. Goodman,
its Authorized Agent
S-3
<PAGE> 64
LHN PLATTE, LLC
By: Lewis Holding Company, a Delaware
limited liability company, its member
By: Forehand Development Corp., a
California corporation, its
member
By /s/ JOHN M. GOODMAN
-------------------------
John M. Goodman,
its Authorized Agent
LP PLATTE, LLC
By: Lewis Holding Company, a Delaware
limited liability company, its member
By: Forehand Development Corp., a
California corporation, its
member
By /s/ JOHN M. GOODMAN
---------------------------
John M. Goodman,
its Authorized Agent
CORPORATIONS
ROSEBUD CONSTRUCTION, INC.
By /s/ RICHARD A. LEWIS
---------------------------------------
Name: Richard A. Lewis
Title: President
WESTERN SUPPLY CORP.
By /s/ RICHARD A. LEWIS
---------------------------------------
Name: Richard A. Lewis
Title: President
S-4
<PAGE> 65
KIMMEL ENTERPRISES, INC.
By /s/ ROBERT E. LEWIS
--------------------------------------
Name: Robert E. Lewis
Title: President
REPUBLIC SALES CO., INC.
By /s/ RANDALL W. LEWIS
--------------------------------------
Name: Randall W. Lewis
Title: President
PARKSIDE CONSTRUCTION CO., INC.
By /s/ ROBERT E. LEWIS
--------------------------------------
Name: Robert E. Lewis
Title: President
REGAL CONSTRUCTION CO., INC.
By /s/ RANDALL W. LEWIS
--------------------------------------
Name: Randall W. Lewis
Title: President
FOREHAND DEVELOPMENT CORP.
By /s/ JOHN M. GOODMAN
--------------------------------------
Name: John M. Goodman
Title: President
REVERS ENTERPRISES, INC.
By /s/ RANDALL W. LEWIS
--------------------------------------
Name: Randall W. Lewis
Title: President
S-5
<PAGE> 66
EMPIRE BUILDING CORP.
By /s/ ROBERT E. LEWIS
--------------------------------------
Name: Robert E. Lewis
Title: President
ROSEMONT OF NEVADA, INC.
By /s/ ROBERT E. LEWIS
--------------------------------------
Name: Robert E. Lewis
Title: President
LARKWOOD DEVELOPMENT OF
NEVADA, INC.
By /s/ RICHARD A. LEWIS
--------------------------------------
Name Richard A. Lewis
Title: President
FLAGSTONE DEVELOPMENT OF
NEVADA, INC.
By /s/ RICHARD A. LEWIS
---------------------------------------
Name: Richard A. Lewis
Title: President
S-6
<PAGE> 67
CRESTVIEW CONSTRUCTION OF
NEVADA, INC.
By /s/ ROBERT E. LEWIS
-------------------------------------
Name: Robert E. Lewis
Title: President
CORONET CONSTRUCTION OF
NEVADA, INC.
By /s/ RANDALL W. LEWIS
-------------------------------------
Name: Randall W. Lewis
Title: President
BACKHAND DEVELOPMENT CORP.
By /s/ JOHN M. GOODMAN
-------------------------------------
Name: John M. Goodman
Title: President
S-7
<PAGE> 1
EXHIBIT 2.4
REPRESENTATION, WARRANTY
AND INDEMNITY AGREEMENT
This Representation, Warranty and Indemnity Agreement is entered into as
of January 7, 1999 (this "Agreement"), among Kaufman and Broad Home Corporation,
a Delaware Corporation ("Buyer"), and the corporations identified on the
signature page of this Agreement (individually an "Entity" and collectively, the
"Entities").
WHEREAS, Buyer has entered into a Purchase Agreement, dated as of
January 7, 1999 (the "Purchase Agreement"), with the Sellers and Corporations
identified in the Purchase Agreement;
WHEREAS, the Entities are former partners of one or more of the Parent
Partnerships (as defined in the Purchase Agreement); and
WHEREAS, each of Buyer and the Entities desire to make certain
representations, warranties and agreements with respect to the Purchase
Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and intending to be legally bound, the parties agree as follows:
1. The Entities shall be deemed to be Corporations (as that term is used
in the Purchase Agreement) for all purposes under the Purchase Agreement,
including but not limited to, for purposes of Articles II, III, VI, and IX and
Section 10.10 and all ancillary agreements and closing documents delivered in
connection therewith, as if the Entities had executed and delivered the Purchase
Agreement as Corporations; provided, however, that references in Section 3.3 of
the Purchase Agreement to "this Agreement" shall be deemed to refer to this
Representation, Warranty and Indemnity Agreement and not the Purchase Agreement.
2. This Agreement may be amended only by agreement in writing of all
parties. No waiver of any provision nor consent to any exception to the terms of
this Agreement shall be effective unless in writing and signed by the party to
be bound and then only to the specific purpose, extent and instance so provided.
3. This Agreement constitutes the entire agreement among the parties
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings of the parties in connection therewith.
4. This Agreement, the legal relations between the parties and any
Action (as defined in the Purchase Agreement), whether contractual or
non-contractual, instituted by any party with respect to matters arising under
or growing out of or in connection with or in respect of this Agreement,
including but not limited to the negotiation, execution, interpretation,
coverage, scope, performance, breach, termination, validity, or enforceability
of this Agreement, shall be governed by and construed in accordance with the
laws of the State of California
<PAGE> 2
applicable to contracts made and performed in such State and without regard to
conflicts of law doctrines.
5. Neither this Agreement nor any rights or obligations under it are
assignable, except that Buyer may assign its rights hereunder to any Affiliates
(as defined in the Purchase Agreement) of Buyer, in which event Buyer shall
remain liable to the Corporations for all obligations of Buyer hereunder
notwithstanding a permitted assignment.
6. This Agreement may be executed in any number of identical
counterparts, each of which when executed and delivered shall be an original,
but all such counterparts shall constitute but one and the same instrument. Any
signature page of this instrument may be detached from any counterpart without
impairing the legal effect of any signatures thereof, and may be attached to
another counterpart, identical in form thereto, but having attached to it one or
more additional signature pages. Delivery by any party or its respective
representatives of telecopied (counterpart) signature pages shall be as binding
an execution and delivery of this Agreement by such party as if the other party
had received the actual physical copy of the entire Agreement with an ink
signature from such party.
7. All information disclosed by any party (or its representatives)
whether before or after the date hereof, in connection with the transactions
contemplated by, or the discussions and negotiations preceding, this Agreement
to any other party (or its representatives) shall be kept confidential by such
other party and its representatives and shall not be used by any such Persons
(as defined in the Purchase Agreement) other than as contemplated by this
Agreement, except to the extent that such information (i) was known by the
recipient when received, (ii) it is or hereafter becomes lawfully obtainable
from other sources, (iii) is necessary or appropriate to disclose to a
Governmental Entity (as defined in the Purchase Agreement) having jurisdiction
over the parties, (iv) as may otherwise be required by law or (v) to the extent
such duty as to confidentiality is waived in writing by the other party;
provided, however, that following the Closing Date (as defined in the Purchase
Agreement) nothing in this section shall apply to or restrict the use of
information by Buyer or the Homebuilding Entities (as defined in the Purchase
Agreement) in their businesses.
8. In the event of any dispute or disagreement between the Entities and
Buyer as to the interpretation of any provision of this Agreement or the
Purchase Agreement, or the performance of obligations hereunder, the matter
shall be determined in the manner provided in Section 10.10 of the Purchase
Agreement and, if an Arbitration (as defined in the Purchase Agreement) has been
requested or instituted, shall be determined as part of that Arbitration with
the Entities participating to the same extent as the Corporations could
participate.
9. Any notice or other communication hereunder must be given in writing
and delivered in person or sent by telecopy, by a nationally-recognized
overnight courier service or by certified or registered mail, postage prepaid,
receipt requested, addressed as follows:
2
<PAGE> 3
IF TO BUYER, ADDRESSED TO:
Kaufman and Broad Home Corporation
10990 Wilshire Boulevard
Los Angeles, California 90024
Attention: Michael F. Henn
Chief Financial Officer
Barton P. Pachino
General Counsel
Fax No.: (310) 231-4280
with a copy to
Munger, Tolles & Olson LLP
355 South Grand Avenue
Los Angeles, California 90071
Attention: R. Gregory Morgan, Esq.
Fax No.: (213) 687-3702
IF TO THE ENTITIES, ADDRESSED TO:
John M. Goodman
Lewis Operating Corp.
1156 N. Mountain Avenue
Upland, California 91785
Fax No.: (909) 912-6770
with a copy to:
O'Melveny & Myers LLP
400 S. Hope Street
Los Angeles, California 90071
Attention: Richard A. Boehmer, Esq.
Fax No.: (213) 430-6407
or to such other address or to such other person as any party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (i) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
Section 9 and an appropriate answer back is received, (ii) if given by overnight
courier, one business day following delivery by sender to such overnight
courier, (iii) if given by mail, three days after such communication is
deposited in the mails with first class postage prepaid, addressed as aforesaid
or (iv) if given by any other means, when actually received at such address.
10. The Entities and Buyer shall each pay their own expenses incident to
the negotiation, preparation and performance of this Agreement and the
transactions contemplated
3
<PAGE> 4
hereby, including but not limited to the fees, expenses and disbursements of
their respective investment bankers, accountants and counsel. Any such expenses
of the Homebuilding Entities (as defined in the Purchase Agreement), or any
expenses paid by the Homebuilding Entities on behalf of the Entities, shall be
paid by the Entities prior to or concurrently with the Closing (as defined in
the Purchase Agreement).
11. To the extent permitted by Law (as defined in the Purchase
Agreement), all rights and remedies existing under this Agreement are cumulative
to and not exclusive of, any rights or remedies otherwise available under
applicable Law. No failure on the part of any party to exercise or delay in
exercising any right hereunder shall be deemed a waiver thereof, nor shall any
single or partial exercise preclude any further or other exercise of such or any
other right.
12. In the event of any Action by any party arising under or out of, in
connection with or in respect of, this Agreement or the transactions
contemplated hereby, the prevailing party shall be entitled to reasonable
attorney's fees, costs and expenses incurred in such Action. Attorney's fees
incurred in enforcing any judgment in respect of this Agreement are recoverable
as a separate item. The parties intend that the preceding sentence be severable
from the other provisions of this Agreement, survive any judgment, and to the
maximum extent permitted by Law, not be deemed merged into such judgment.
13. The Entities and Buyer each acknowledge that each party to this
Agreement has been represented by counsel in connection with this agreement and
the transactions contemplated by this Agreement. Accordingly, any rule of Law,
including but not limited to Section 1654 of the California Civil Code, or any
legal decision that would require interpretation of any claimed ambiguities in
this Agreement against the party that drafted it has no application and is
expressly waived. The provisions of this Agreement shall be interpreted in a
reasonable manner to effect the intent of Buyer and the Entities.
14. If any provision of this Agreement or the Purchase Agreement as it
would apply to the Entities is determined to be invalid, illegal or
unenforceable by any Governmental Entity, the remaining provisions of this
Agreement or the Purchase Agreement, as applicable, shall remain in force and
effect provided that the economic and legal substance of the transactions
contemplated is not affected in any manner materially adverse to any party. In
the event of any such determination, the parties agree to negotiate in good
faith to modify this Agreement to fulfill as closely as possible the original
intents and purposes hereof. To the extent permitted by Law, the parties hereby
to the same extent waive any provision of Law that renders any provision hereof
prohibited or unenforceable in any respect.
4
<PAGE> 5
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by its duly authorized officers as of the day and year first
above written.
BUYER
KAUFMAN AND BROAD HOME CORPORATION
By: /s/ MICHAEL F. HENN
-------------------------------------
Its: Senior Vice President &
Chief Financial Officer
ENTITIES
COSMIC CONSTRUCTION OF NEVADA, INC.
By: /s/ ROGER G. LEWIS
-------------------------------------
Name: Roger G. Lewis
Title:President
SOUTH STAR DEVELOPMENT OF NEVADA, CORP.
By: /s/ ROBERT E. LEWIS
-------------------------------------
Name: Robert E. Lewis
Title: President
SOUTH STAR DEVELOPMENT CORP.
By: /s/ RICHARD A. LEWIS
-------------------------------------
Name: Richard A. Lewis
Title: President
5
<PAGE> 6
HILLSIDE CONSTRUCTION CO., INC.
By: /s/ RICHARD A. LEWIS
-------------------------------------
Name: Richard A. Lewis
Title: President
ORCHARD CONSTRUCTION CO., INC.
By: /s/ ROGER G. LEWIS
-------------------------------------
Name: Roger G. Lewis
Title: President
6
<PAGE> 1
EXHIBIT 10.1
-------------------------------------------
TERM LOAN AGREEMENT
Dated as of January 7, 1999
among
KAUFMAN AND BROAD HOME CORPORATION
THE BANKS PARTY HERETO
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent and Lead Arranger
CREDIT LYONNAIS LOS ANGELES BRANCH
as Syndication Agent
THE FIRST NATIONAL BANK OF CHICAGO
as Documentation Agent
and
UNION BANK OF CALIFORNIA
as Co-Agent
-------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article 1 DEFINITIONS AND ACCOUNTING TERMS........................................ 1
1.1 Defined Terms................................................... 1
1.2 Use of Defined Terms............................................ 25
1.3 Accounting Terms................................................ 25
1.4 Rounding........................................................ 26
1.5 Miscellaneous Terms............................................. 26
1.6 Exhibits and Schedules.......................................... 26
1.7 References to "Borrower and its Subsidiaries"................... 26
Article 2 LOANS................................................................... 26
2.1 Loans-General................................................... 26
2.2 Alternate Base Rate Loans....................................... 27
2.3 LIBOR Loans..................................................... 28
2.4 Automatic Reduction of Commitment............................... 28
2.5 Administrative Agent's Right to Assume Funds Available.......... 28
Article 3 PAYMENTS; FEES.......................................................... 29
3.1 Principal and Interest.......................................... 29
3.2 Upfront Fee..................................................... 33
3.3 Agency Fees..................................................... 33
3.4 Capital Adequacy................................................ 33
3.5 LIBOR Fees and Costs............................................ 34
3.6 Late Payments/Default Interest.................................. 37
3.7 Computation of Interest and Fees................................ 37
3.8 Holidays........................................................ 38
3.9 Payment Free of Taxes........................................... 38
3.10 Funding Sources................................................. 39
3.11 Failure to Charge or Making of Payment Not Subsequent Waiver.... 39
3.12 Time and Place of Payments; Evidence of Payments; Application
of Payments..................................................... 39
3.13 Administrative Agent's Right to Assume Payments Will be Made.... 39
3.14 Survivability................................................... 40
3.15 Bank Calculation Certificate.................................... 40
Article 4 REPRESENTATIONS AND WARRANTIES.......................................... 40
4.1 Existence and Qualification; Power; Compliance with Law ........ 40
4.2 Authority; Compliance with Other Instruments and Government
Regulations..................................................... 41
4.3 No Governmental Approvals Required.............................. 41
4.4 Subsidiaries.................................................... 42
4.5 Financial Statements............................................ 42
4.6 No Other Liabilities; No Material Adverse Effect................ 43
4.7 Title to Assets................................................. 43
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
4.8 Intangible Assets............................................... 43
4.9 Existing Indebtedness and Contingent Guaranty Obligations ...... 43
4.10 Governmental Regulation......................................... 44
4.11 Litigation...................................................... 44
4.12 Binding Obligations............................................. 44
4.13 No Default...................................................... 44
4.14 Pension Plans................................................... 44
4.15 Tax Liability................................................... 44
4.16 Regulation U.................................................... 44
4.17 Environmental Matters........................................... 45
4.18 Disclosure...................................................... 45
4.19 Projections..................................................... 45
4.20 Year 2000 Issues................................................ 45
Article 5 AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION AND
REPORTING REQUIREMENTS).................................................. 46
5.1 Payment of Taxes and Other Potential Liens...................... 46
5.2 Preservation of Existence....................................... 46
5.3 Maintenance of Properties....................................... 46
5.4 Maintenance of Insurance........................................ 46
5.5 Compliance with Laws............................................ 47
5.6 Inspection Rights............................................... 47
5.7 Keeping of Records and Books of Account......................... 47
5.8 Use of Proceeds................................................. 47
5.9 Subsidiary Guaranty............................................. 47
Article 6 NEGATIVE COVENANTS...................................................... 48
6.1 Payment or Prepayment of Subordinated Obligations............... 48
6.2 Dispositions.................................................... 48
6.3 Mergers and Sale of Assets...................................... 48
6.4 Investments and Acquisitions.................................... 48
6.5 ERISA Compliance................................................ 49
6.6 Change in Business.............................................. 49
6.7 Liens and Negative Pledges...................................... 49
6.8 Transactions with Affiliates.................................... 51
6.9 Consolidated Tangible Net Worth................................. 51
6.10 Consolidated Leverage Ratio..................................... 52
6.11 Consolidated Interest Coverage Ratio............................ 53
6.12 Distributions................................................... 53
6.13 Amendments...................................................... 53
6.14 Hostile Tender Offers........................................... 53
6.15 Inventory....................................................... 53
6.16 Certain Investments............................................. 53
6.17 Money Market Indebtedness....................................... 54
6.18 Domestic Standing Inventory..................................... 54
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
6.19 Future Subsidiaries............................................ 54
Article 7 INFORMATION AND REPORTING REQUIREMENTS................................. 54
7.1 Financial and Business Information of Borrower and Its
Subsidiaries................................................... 54
7.2 Compliance Certificate......................................... 57
Article 8 CONDITIONS............................................................. 57
8.1 Advances....................................................... 57
Article 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENTS OF DEFAULT.................. 59
9.1 Events of Default.............................................. 59
9.2 Remedies Upon Event of Default................................. 61
Article 10 THE ADMINISTRATIVE AGENT.............................................. 63
10.1 Appointment and Authorization.................................. 63
10.2 Administrative Agent and Affiliates............................ 63
10.3 Banks' Credit Decisions........................................ 63
10.4 Action by Administrative Agent................................. 63
10.5 Liability of Administrative Agent.............................. 64
10.6 Indemnification................................................ 65
10.7 Successor Administrative Agent................................. 66
10.8 No Obligations of Borrower..................................... 66
Article 11 MISCELLANEOUS......................................................... 67
11.1 Cumulative Remedies; No Waiver................................. 67
11.2 Amendments; Consents........................................... 67
11.3 Costs, Expenses and Taxes...................................... 67
11.4 Nature of Banks' Obligations................................... 68
11.5 Representations and Warranties................................. 69
11.6 Notices........................................................ 69
11.7 Execution in Counterparts...................................... 69
11.8 Binding Effect; Assignment..................................... 70
11.9 Sharing of Setoffs............................................. 72
11.10 Indemnity by Borrower.......................................... 72
11.11 Nonliability of Banks.......................................... 73
11.12 Confidentiality................................................ 74
11.13 No Third Parties Benefited..................................... 74
11.14 Other Dealings................................................. 74
11.15 Right of Setoff - Deposit Accounts............................. 74
11.16 Further Assurances............................................. 75
11.17 Integration.................................................... 75
11.18 Governing Law.................................................. 75
11.19 Severability of Provisions..................................... 75
11.20 Headings....................................................... 75
11.21 Conflict in Loan Documents..................................... 75
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
11.22 Waiver Of Jury Trial........................................... 75
11.23 Purported Oral Amendments...................................... 76
11.24 Hazardous Materials Indemnity.................................. 76
</TABLE>
Exhibits
A - Commitment Assignment and Acceptance
B - Compliance Certificate
C - Note
D-1 - Opinion of Counsel
D-2 - Opinion of Counsel
E - Subsidiary Guaranty
F - Quarterly Report - Sales
G - Quarterly Report - Inventory
Schedules
1.1 Pro Rata Shares
4.4 Subsidiaries
4.7 Existing Liens and Rights of Others
4.9 Existing Indebtedness and Contingent Obligations
6.4 Investments
-iv-
<PAGE> 6
TERM LOAN AGREEMENT
Dated as of January 7, 1999
This Term Loan Agreement ("Agreement") is entered into by and
among Kaufman and Broad Home Corporation, a Delaware corporation ("Borrower"),
each bank set forth on the signature pages of this Agreement or which from time
to time becomes party hereto (collectively, the "Banks" and individually, a
"Bank") and Bank of America National Trust and Savings Association, as
Administrative Agent and Lead Arranger, Credit Lyonnais Los Angeles Branch, as
Syndication Agent, The First National Bank of Chicago, as Documentation Agent,
and Union Bank of California, as Co-Agent.
WHEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto covenant and agree as follows:
Article 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 Defined Terms. As used in this Agreement, the following
terms shall have the meanings set forth below:
"Acquisition" means any transaction, or any series of related
transactions, consummated after the Closing Date, by which Borrower
and/or any of its Subsidiaries directly or indirectly (a) acquires any
ongoing business or all or substantially all of the assets of any firm,
corporation or division thereof, whether through purchase of assets,
merger or otherwise, (b) acquires control of securities of a
corporation representing 50% or more of the ordinary voting power for
the election of directors or (c) acquires control of a 50% or more
ownership interest in any partnership, joint venture or other business
entity.
"Administrative Agent" means Bank of America or any successor
administrative agent.
"Administrative Agent's Office" means Bank of America National
Trust and Savings Association, CRESG-LA National #1357, 555 South
Flower Street, 6th Floor, Los Angeles, California 90071, or such other
office as the Administrative Agent may designate in writing to Borrower
and the Banks.
"Advance" means an advance made or to be made to Borrower by a
Bank pursuant to Article 2.
"Affiliate" means, with respect to any Person, any other
Person which directly or indirectly controls, or is under common
control with, or is controlled by, such
- 1 -
<PAGE> 7
Person. As used in this definition, "control" (including its
correlative meanings, "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to direct or
cause the direction of management or policies (whether through
ownership of securities or partnership or other ownership interests, by
contract or otherwise); provided that, in any event, any Person which
owns directly or indirectly 10% or more of the securities having
ordinary voting power for the election of directors or other governing
body of a corporation that has more than 100 record holders of such
securities or 10% or more of the partnership or other ownership
interests of any other Person that has more than 100 record holders of
such interests will be deemed to control such corporation or other
Person.
"Agreement" means this Term Loan Agreement, either as
originally executed or as it may from time to time be supplemented,
modified, amended, renewed, extended or supplanted.
"Alternate Base Rate" means, as of any date of determination,
the rate per annum which is the greater of (a) the Reference Rate or
(b) the Federal Funds Rate plus one half percent (1/2%).
"Alternate Base Rate Advance" means an Advance made by a Bank
to fund its Pro Rata Share of an Alternate Base Rate Loan.
"Alternate Base Rate Loan" means a Loan made hereunder and
designated or redesignated as an Alternate Base Rate Loan in accordance
with Article 2, or converted to an Alternate Base Rate Loan in
accordance with Article 3.
"Amortization Amount" means $25,000,000.
"Amortization Date" means each of (a) January 31, 2000, (b)
April 30, 2000 and (c) July 31, 2000.
"Applicable Alternate Base Rate Spread" means, as of any date
of determination, the interest rate spread set forth below opposite the
Applicable Pricing Level as of such date:
<TABLE>
<CAPTION>
Applicable Alternate Base Rate
Pricing Level Spread
------------- -------------------
<S> <C>
I 0.00%
II 0.00%
III 0.00%
IV 0.00%
V 0.25%
</TABLE>
- 2 -
<PAGE> 8
"Applicable LIBOR Spread" means, as of any date of
determination, the interest rate spread set forth below opposite the
Applicable Pricing Level as of such date:
<TABLE>
<CAPTION>
Applicable
Pricing Level LIBOR Spread
------------- ------------
<S> <C>
I 0.95%
II 1.25%
III 1.45%
IV 1.65%
V 1.90%
</TABLE>
"Applicable Minimum Hold Requirement" means, in the case of
any Bank, the amount of the Pro Rata Share of the Commitment held by
that Bank as reduced by (a) the amount of any assignment of a portion
thereof made by that Bank to an Eligible Assignee that is not an
Affiliate of that Bank and (b) the amount of any participation therein
granted by that Bank to a participant that is not an Affiliate of that
Bank, which net amount, after giving effect to clauses (a) and (b),
shall not be less than, in the case of a Club Bank, $25,000,000 or, in
the case of any other Bank, $10,000,000.
"Applicable Pricing Level" means, Pricing Level "I" for any
day on which Borrower holds an Investment Grade Credit Rating and, for
any day during a Pricing Period on which Borrower does not hold an
Investment Grade Credit Rating, means the following:
<TABLE>
<CAPTION>
Consolidated Leverage Ratio
Applicable Pricing Level Applicable to Pricing Period
- ------------------------ ----------------------------
<S> <C>
II Consolidated Leverage Ratio of less
than or equal to 1.25 to 1.00
III Consolidated Leverage Ratio of
higher than 1.25 to 1.00, but less
than or equal to 1.80 to 1.00
IV Consolidated Leverage Ratio of
higher than 1.80 to 1.00, but less
than or equal to 2.25 to 1.00
V Consolidated Leverage Ratio of
higher than 2.25 to 1.00.
</TABLE>
- 3 -
<PAGE> 9
Borrower is responsible pursuant to Section 7.1(k) to provide the
Administrative Agent with notice of each change in the Applicable
Pricing Level that is due to the inception or cessation of an
Investment Grade Credit Rating.
"Authorizations" has the meaning set forth for that term in
Section 4.1.
"Bank" means any of the banks party to this Agreement and
"Banks" means all of such banks.
"Bank of America" means Bank of America National Trust and
Savings Association, a national banking association.
"Banking Day" means any Monday, Tuesday, Wednesday, Thursday
or Friday other than a day on which banks are authorized or required to
be closed in California or New York.
"Bond Facility" means any bond facility pursuant to which a
municipality, or a community facilities district formed by a
municipality, at the request of Borrower or one of its Subsidiaries,
will issue bonds to finance a portion of the costs of acquisition of
and improvements to real property located in such municipality (or
district) by Borrower or one of its Subsidiaries (or to pay development
or "impact" fees in lieu thereof), and with respect to which Borrower
or one of its Subsidiaries will provide a letter of credit or other
reimbursement support. The real property that is the subject of any
such bond facility will be subject to a Lien for special taxes to repay
the Indebtedness evidenced by such bonds.
"Borrower" means Kaufman and Broad Home Corporation, a
Delaware corporation, and its successors and permitted assigns.
"Capital Lease" means, with respect to any Person, a lease of
any Property by that Person as lessee that is, or should be in
accordance with Financial Accounting Standards Board Statement No. 13,
recorded as a "capital lease" on a balance sheet of that Person
prepared in accordance with Generally Accepted Accounting Principles.
"Cash" means all monetary items (including currency, coin and
bank demand deposits) that are treated as cash under Generally Accepted
Accounting Principles.
"Cash Equivalents" means, with respect to any Person, that
Person's Investments in:
(a) Government Securities due within one year of the
making of the Investment;
(b) certificates of deposit issued by, deposits in,
bankers' acceptances of, and repurchase agreements covering
Government Securities
- 4 -
<PAGE> 10
executed by, (i) any Bank or (ii) any bank and/or savings and
loan association doing business in and incorporated under the
Laws of the United States of America or any state thereof and
having on the date of such Investment combined capital,
surplus and undivided profits of at least $500,000,000 and
which carries on the date of such Investment a credit rating
of P-1 or higher by Moody's Investors Service, Inc. (or a
successor rating agency) or A-1 or higher by Standard & Poor's
Rating Group (a division of McGraw-Hill, Inc.) (or a successor
rating agency), in each case due within one year after the
date of the making of the Investment; and
(c) readily marketable commercial paper of (i) any
Bank that is a Bank as of the Closing Date or (ii)
corporations doing business in and incorp orated under the
Laws of the United States of America or any state thereof
given on the date of such Investment a credit rating of P-1 or
higher by Moody's Investors Service, Inc. (or a successor
rating agency), of A-1 or higher by Standard & Poor's Rating
Group (a division of McGraw-Hill, Inc.) (or a successor rating
agency), or F-1 or higher by Fitch Investor Services, Inc. (or
a successor rating agency), in each case due within one year
of the making of the Investment.
"Change in Control" has the meaning set forth for such term in
Section 3.1(f).
"Closing Date" means the time and Banking Day on which the
conditions set forth in Section 8.1 are satisfied or waived pursuant to
Section 11.2.
"Club Bank" means, collectively, (a) Bank of America National
Trust and Savings Association, (b) Credit Lyonnais Los Angeles Branch,
(c) The First National Bank of Chicago and (d) Union Bank of
California.
"Co-Agent" means Union Bank of California, so long as such
Bank is a Bank hereunder. The Co-Agent, in such capacity, shall have no
duties under the Loan Documents beyond those of a Bank.
"Code" means the Internal Revenue Code of 1986, as amended or
replaced and as in effect from time to time.
"Commission" means the Securities and Exchange Commission and
any successor commission.
"Commitment Assignment and Acceptance" means a commitment
assignment and acceptance substantially in the form of Exhibit A.
"Commitment" means, subject to Section 2.4, $200,000,000. The
Pro Rata Shares of the Banks with respect to the Commitment are set
forth in Schedule 1.1.
- 5 -
<PAGE> 11
"Common Stock" means the $1.00 par value common stock and
special common stock of Borrower.
"Compliance Certificate" means a compliance certificate in the
form of Exhibit B signed, on behalf of Borrower, by a Senior Officer of
Borrower.
"Consolidated Adjusted EBITDA" means, for any fiscal period,
Consolidated EBITDA for that fiscal period plus (a) the amount of
capitalized interest that was included in cost of sales in determining
Consolidated Net Income for that fiscal period plus (b) all non-Cash
Net Realizable Value Adjustments made during that fiscal period.
"Consolidated EBITDA" means, for any fiscal period, the sum of
(a) Consolidated Net Income for that period, plus (b) any extraordinary
loss reflected in such Consolidated Net Income, minus (c) any
extraordinary gain reflected in such Consolidated Net Income, plus (d)
Consolidated Interest Expense for that period plus (e) the aggregate
amount of federal and state taxes on or measured by income for that
period (whether or not payable during that period), plus (f)
depreciation, amortization and all other non-cash expenses for that
period, in each case as determined in accordance with Generally
Accepted Accounting Principles, in the case of items (d), (e) and (f),
only to the extent deducted in the determination of Consolidated Net
Income for that period.
"Consolidated Interest Coverage Ratio" means, with respect to
any Fiscal Quarter of Borrower and its Consolidated Subsidiaries, the
ratio of (a) Consolidated Adjusted EBITDA for the twelve month period
ending on the last day of such Fiscal Quarter to (b) the sum of (i)
Consolidated Interest Expense (excluding any non-cash items included in
Consolidated Interest Expense) plus (ii) to the extent not included in
Consolidated Interest Expense, any charge to Consolidated Net Income
which reflects the distribution paid or accrued to or for the holders
of the Trust Preferred Capital Securities (including any such charge
denominated "minority interest in net income of consolidated
subsidiaries") plus (iii) all dividends (other than dividends paid in
the same class of stock) paid on any preferred stock of Borrower, in
each case for the twelve month period ending on the last day of such
Fiscal Quarter.
"Consolidated Interest Expense" means, with respect to any
fiscal period of Borrower and its Consolidated Subsidiaries, the
aggregate amount of interest, fees, charges and related expenses paid
or payable to a lender in connection with borrowed money that is
treated as interest (including accretion of original issue discount on
long-term debt existing during such fiscal period) and the interest
portion of any capitalized lease payment of Borrower and its
Consolidated Subsidiaries (other than any such items properly
attributable to Financial Subsidiaries).
"Consolidated Leverage Ratio" means, as of any date of
determination, the ratio of (a) Consolidated Total Indebtedness on that
date to (b) [Consolidated Tangible
- 6 -
<PAGE> 12
Net Worth on that date minus the amount, if any, by which the portion
of Shareholder's Equity of Borrower and its Consolidated Subsidiaries
attributable to Borrower's equity interest in the Shareholder's Equity
of all Joint Ventures (other than KBMHG and any Subsidiary of KBMHG
engaged solely in development of multi-family housing and related
businesses) exceeds $30,000,000].
"Consolidated Net Income" means, with respect to any fiscal
period, the consolidated net income of Borrower and its Consolidated
Subsidiaries for that period, determined in accordance with Generally
Accepted Accounting Principles, consistently applied.
"Consolidated Subsidiary" means, with respect to Borrower, all
of the Subsidiaries of Borrower.
"Consolidated Tangible Net Worth" means, as of any date of
determination, the Shareholder's Equity of Borrower and its
Consolidated Subsidiaries on a consolidated basis on that date plus if
that date is on or prior to the Settlement Date with respect to the
Trust Preferred Capital Securities, an amount equal to 100% of the
aggregate book value of the Trust Preferred Capital Securities
outstanding on that date minus the aggregate book value on that date of
any Intangible Assets consisting of goodwill arising from Acquisitions
completed after November 30, 1996, provided that any cumulative
positive or negative adjustment to Consolidated Tangible Net Worth
attributable to foreign currency translations shall be ignored.
"Consolidated Total Indebtedness" means, as of any date of
determination, all Indebtedness and Contingent Guaranty Obligations of
Borrower and its Subsidiaries on that date (without duplication for any
guaranty by Borrower of a Subsidiary's Indebtedness or any guaranty by
a Subsidiary of either Borrower's or another Subsidiary's Indebtedness)
plus (a) if that date is after the Settlement Date with respect to the
Trust Preferred Capital Securities, an amount equal to 100% of the
aggregate book value of the Trust Preferred Capital Securities
outstanding on that date, minus (b) all Indebtedness and Contingent
Guaranty Obligations of the Financial Subsidiaries on that date and
minus (c) the amount, if any, by which the aggregate Cash and Cash
Equivalents of Borrower and its Subsidiaries (other than the Financial
Subsidiaries) on that date are greater than $15,000,000.
"Contingent Guaranty Obligation" means, as to any Person, any
(a) direct or indirect guarantee of Indebtedness of, or other
obligation performable by, any other Person (other than a performance
obligation undertaken in the ordinary and usual course of business),
including any endorsement (other than for collection or deposit in the
ordinary course of business), co-making or sale with recourse of the
obligations of any other Person or (b) assurance given to an obligee
with respect to the performance of an obligation (other than a
performance obligation undertaken in the ordinary and usual course of
business) by, or the financial condition of, any other Person, whether
direct, indirect or contingent, including any purchase or repurchase
agreement
- 7 -
<PAGE> 13
covering such obligation or any collateral security therefor, any
agreement to provide funds (by means of loans, capital contributions or
otherwise) to such other Person, any agreement to support the solvency
or level of any balance sheet item of such other Person, or any
"keep-well", "take-or-pay", "through put" or other arrangement of
whatever nature having the effect of assuring or holding harmless any
obligee against loss with respect to any obligation of such other
Person. The amount of any Contingent Guaranty Obligation shall be
deemed to be an amount equal to the stated or determinable amount of
the related primary obligation (unless the Contingent Guaranty
Obligation is limited by its terms to a lesser amount, in which case to
the extent of such amount) or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as
determined by the Person in good faith.
"Contractual Obligation" means, as to any Person, any
provision of any outstanding Securities issued by that Person or of any
material agreement, instrument or undertaking to which that Person is a
party or by which it or any of its Property is bound, other than, in
the case of Borrower and its Subsidiaries, any of the Loan Documents.
"Debtor Relief Laws" means the Bankruptcy Code of the United
States of America, as amended from time to time, and all other
applicable liquidation, conservatorship, insolvency, reorganization, or
similar debtor relief Laws from time to time in effect affecting the
rights of creditors generally.
"Default" means any event that, with the giving of notice or
passage of time or both, would be an Event of Default.
"Default Rate" means the interest rate described in Section
3.6.
"Designated Deposit Account" means a demand deposit account to
be maintained by Borrower with Bank of America, as from time to time
designated by Borrower by written notification to the Administrative
Agent.
"Disposition" means the sale, transfer or other disposition of
any of the capital stock of any Significant Subsidiary or of all or
substantially all of the assets of any Significant Subsidiary. A
Disposition may or may not constitute a Significant Asset Sale.
"Distribution" means, with respect to any shares of capital
stock or any warrant or right to acquire shares of capital stock or any
other equity security issued by a Person, (a) the retirement,
redemption, purchase, or other acquisition for value (other than for
capital stock of the same type of such Person) by such Person of any
such security, (b) the declaration or payment by such Person of any
dividend in Cash or in Property (other than in capital stock of the
same type of such Person) on or with respect to any such security, and
(c) any Investment by such Person in any holder of 5% or more of the
capital stock (or other equity securities) of such Person, if a purpose
- 8 -
<PAGE> 14
of such Investment is to avoid the characterization of the transaction
between such Person and such holder as a Distribution under clause (a)
or (b) above. In addition, to the extent any loan or advance by
Borrower to one of its Subsidiaries is deemed to be an "Investment" for
purposes of this Agreement, then any principal payment made by such
Subsidiary in respect of such loan or advance shall be considered a
Distribution for purposes of Section 6.16.
"Documentation Agent" means The First National Bank of
Chicago, so long as such bank is a Bank hereunder. The Documentation
Agent shall have no duties under the Loan Documents beyond those of a
Bank.
"Dollars" means the national currency of the United States of
America.
"Domestic Lending Office" means, with respect to each Bank,
its office, branch or affiliate identified on the signature pages
hereof as its Domestic Lending Office or such other office, branch or
affiliate as such Bank may hereafter designate as its Domestic Lending
Office by notice to the Borrower and the Administrative Agent.
"Domestic Standing Inventory" means, as of any date of
determination, all items of unsold housing inventory (other than Model
Homes) of Borrower and its Domestic Subsidiaries with respect to which
either (a) 90% of the direct construction costs have been incurred on
such date or (b) at least ten months have elapsed from the date its
construction was commenced through and including such date.
Construction for purposes of this definition shall be deemed to have
commenced upon the pouring of foundation concrete.
"Domestic Subsidiary" means, with respect to any Person and as
of any date of determination, a Subsidiary of such Person (a) that is
organized under the Laws of the United States of America or any state
thereof and (b) the majority of the assets of which (as reflected on a
balance sheet of such Subsidiary prepared in accordance with Generally
Accepted Accounting Principles) is located in the United States of
America; provided that KBMHG (and each Subsidiary thereof) shall in all
events be considered a Domestic Subsidiary of Borrower and Kaufman and
Broad International, a California corporation, shall in no event be
considered a Domestic Subsidiary of Borrower.
"Domestic Unimproved Land" means, as of any date of
determination, real Property located in the United States of America
(a) owned by Borrower or any of its Subsidiaries if on that date there
has been expended by Borrower and its Subsidiaries less than 50% of the
physical construction costs reasonably estimated by Borrower (in
accordance with its past practices as of the Closing Date) to bring
such real Property to "finished lot" status and (b) owned by other
Persons but which, if owned by Borrower or any of its Subsidiaries on
that date, would have satisfied the requirement set forth in clause
(a), if on that date Borrower or any of its Domestic Subsidiaries holds
an option to purchase such real Property for which it has paid an
amount equal
- 9 -
<PAGE> 15
to 20% or more of the purchase price provided for in such option to
purchase. The "book value" with respect to Domestic Unimproved Land
referred to in Section 6.15 shall be calculated as if the option to
purchase had been exercised as of the date of determination, and
otherwise in accordance with Generally Accepted Accounting Principles,
consistently applied.
"Eligible Assignee" means (a) another Bank, (b) any commercial
bank, savings bank, savings and loan association or similar financial
institution which, (i) has total assets of $5,000,000,000 or more, (ii)
is "well capitalized" within the meaning of such term under the Federal
Depository Institutions Control Act, (iii) is engaged in the business
of lending money and extending credit under credit facilities
substantially similar to those extended under this Agreement and (iv)
is operationally and procedurally able to meet the obligations of a
Bank hereunder to the same degree as a commercial bank, (c) any
insurance company engaged in the business of writing insurance which
(i) has total assets of $5,000,000,000 or more, (ii) is "best
capitalized" under applicable regulations of the National Association
of Insurance Commissioners, and (iii) meets the requirements set forth
in subclauses (iii) and (iv) of clause (b) above and (d) any other
financial institution having total assets of $5,000,000,000 or more
(including a mutual fund or other fund under management of an
investment manager having under its management total assets of
$5,000,000,000 or more) which meets the requirements set forth in
subclauses (iii) and (iv) of clause (b) above; provided that each
Eligible Assignee must (A) be organized under the Laws of the United
States of America, any State thereof or the District of Columbia or (B)
if a commercial bank, be organized under the Laws set forth in clause
(A) or under the Laws of the Cayman Islands or any country which is a
member of the Organization for Economic Cooperation and Development, or
a political subdivision of such a country, and (C) act under the Loan
Documents through a branch, agency or funding office located in the
United States of America and (D) be exempt from withholding of tax on
interest and deliver the documents related thereto pursuant to the
Code.
"ERISA" means, at any date, the Employee Retirement Income
Security Act of 1974 and the regulations thereunder, all as the same
shall be in effect at such date.
"ERISA Affiliate" means, with respect to any Person, any other
Person (or any trade or business, whether or not incorporated) that is
under common control with that Person within the meaning of Section 414
of the Code.
"Event of Default" has the meaning set forth for that term in
Section 9.1.
"Federal Funds Rate" means the rate per annum equal to the
weighted average (rounded upwards, if necessary, to the nearest 1/100th
of one percent) of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers as published for such day (or, if such day is not a Banking
Day, for the next preceding Banking Day) by the Federal Reserve Bank of
- 10 -
<PAGE> 16
New York, or, if such rate is not so published for any day which is a
Banking Day, the average, the average (rounded upwards, if necessary,
to the nearest 1/100th of one percent) of the quotations for such day
on transactions received by the Administrative
Agent from three Federal funds brokers of recognized standing selected
by the Administrative Agent.
"Financial Subsidiary" means (a) the Mortgage Company, so long
as it continues to engage in the mortgage banking business, and its
Subsidiaries, (b) a Trust Issuer, so long as it engages in no
activities other than those incident to the Trust Preferred Capital
Securities, (c) any Subsidiary of Borrower that is organized and
operates solely to issue collateralized mortgage obligations, and (d)
any other Subsidiary of Borrower that (i) is engaged primarily in the
business of origination, marketing, and servicing of residential
mortgage loans, the sale of servicing rights, or the financing of long
term residential mortgage loans, (ii) holds not less than 95% of its
total assets in the form of Cash, Cash Equivalents, notes and mortgages
receivable, Cash held by a trustee for the benefit of such Subsidiary
or other financial instruments and (iii) is the subject of an Officer's
Certificate of Borrower delivered to the Administrative Agent stating
that such Subsidiary is a Financial Subsidiary within the meaning
hereof.
"Fiscal Quarter" means each of the fiscal quarters of Borrower
ending on each February 28 (or 29, if a leap year), May 31, August 31
and November 30.
"Fiscal Year" means each of the fiscal years of Borrower
ending on each November 30 or as otherwise changed by the Borrower upon
advance written notice to the Administrative Agent, but subject to the
requirements of Section 1.3.
"Foreign Subsidiary" means, with respect to any Person, a
Subsidiary of that Person which is not a Domestic Subsidiary and with
respect to Borrower, includes Kaufman and Broad International, Inc., a
California corporation, but excludes KBMHG (and each Subsidiary
thereof).
"Generally Accepted Accounting Principles" means, as of any
date of determination, accounting principles set forth as "generally
accepted" in then currently effective Statements of the Auditing
Standards Board of the American Institute of Certified Public
Accountants, or, if such Statements are not then in effect, accounting
principles that are then approved by a significant segment of the
accounting profession in the United States of America. The term
"consistently applied," as used in connection therewith, means that the
accounting principles applied to financial statements of a Person as of
any date or for any period are consistent in all material respects
(subject to Section 1.3) to those applied to financial statements of
that Person as of prior dates and for prior periods.
"Government Securities" means (a) readily marketable direct
full faith and credit obligations of the United States of America or
obligations unconditionally
- 11 -
<PAGE> 17
guaranteed by the full faith and credit of the United States of America
and (b) obligations of an agency or instrumentality of, or corporation
owned, controlled or sponsored by, the United States of America that
are generally considered in the securities industry to be implicit
obligations of the United States of America.
"Governmental Agency" means (a) any federal, state, county or
municipal government, or political subdivision thereof, (b) any
governmental or quasi-governmental agency, authority, board, bureau,
commission, department, instrumentality, or public body, (c) any court
or administrative tribunal, or (d) any arbitration tribunal or other
non-governmental authority to whose jurisdiction a Person has
consented, in each case whether of the United States of America or any
other nation.
"Guarantor Subsidiary" means (a) as of the Closing Date, any
Domestic Subsidiary which is a Significant Subsidiary, other than any
Financial Subsidiary and the Suspended Significant Subsidiaries, (b) as
of the date that is forty-five (45) days after the Closing Date, any
Suspended Significant Subsidiary that has not then merged into or
conveyed all of its assets to Borrower or a Guarantor Subsidiary and
(c) any other Domestic Subsidiary, other than any Financial Subsidiary,
that is designated in writing by Borrower to become a Guarantor
Subsidiary.
"Hazardous Materials" means substances defined as "hazardous
substances" pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq.,
or as "hazardous", "toxic" or "pollutant" substances or as "solid
waste" pursuant to the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801, et seq., the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901, et seq., or as "friable asbestos" pursuant
to the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq. or
any other applicable Hazardous Materials Law, in each case as such Laws
are amended from time to time.
"Hazardous Materials Laws" means all Laws governing the
treatment, transportation or disposal of Hazardous Materials applicable
to any real Property of Borrower or its Subsidiaries.
"Indebtedness" means, with respect to any Person, (a) all
indebtedness of such Person for borrowed money, (b) that portion of the
obligations of such Person under Capital Leases which should properly
be recorded as a liability on a balance sheet of that Person prepared
in accordance with Generally Accepted Accounting Principles, (c) any
obligation of such Person that is evidenced by a promissory note or
other instrument representing an extension of credit to such Person,
whether or not for borrowed money, (d) any obligation of such Person
for the deferred purchase price of Property or services (other than
trade or other accounts payable in the ordinary course of business in
accordance with customary industry terms), (e) any obligation of the
types referred to in clauses (a) through (d) above that is secured by a
Lien (other than a Permitted Encumbrance) on assets of such Person,
whether or not that Person has
- 12 -
<PAGE> 18
assumed such obligation or whether or not such obligation is
non-recourse to the credit of such Person, but only to the extent of
the fair market value of the assets so subject to the Lien, (f)
obligations of such Person arising under acceptance facilities or under
facilities for the discount of accounts receivable of such Person and
(g) any obligation of such Person under letters of credit issued for
the account of such Person and that is not otherwise a Contingent
Guaranty Obligation.
"Intangible Assets" means assets that are considered
intangible assets under Generally Accepted Accounting Principles,
including (a) customer lists, goodwill, computer software, unamortized
deferred charges, unamortized debt discount, capitalized research and
development costs and other intangible assets and (b) any write-up in
book value of any asset subsequent to its acquisition, but excluding
any existing write-up in book value of any asset acquired by Borrower
or any of its Subsidiaries prior to the Closing Date, as such write-up
may decrease (but not increase) from time to time.
"Interest Period" means, as to each LIBOR Loan, a period of
one, two, three or six months, as designated by Borrower; provided that
(a) the first day of each Interest Period must be a LIBOR Market Day,
(b) any Interest Period that would otherwise end on a day that is not a
LIBOR Market Day shall be extended to the next succeeding LIBOR Market
Day, unless such LIBOR Market Day falls in the next calendar month, in
which case the LIBOR Period shall end on the next preceding LIBOR
Market Day, and (c) no Interest Period may extend beyond the Maturity
Date.
"Investment" means, with respect to any Person, any investment
by that Person, whether by means of purchase or other acquisition of
capital stock or other Securities of any other Person or by means of
loan, advance, capital contribution, or other debt or equity
participation or interest in any other Person, including any
partnership or joint venture interest in any other Person; provided
that an Investment of a Person shall not include any trade or account
receivable arising in the ordinary course of the business of such
Person. The amount of any Investment shall be the amount actually
invested, without adjustment for subsequent increases or decreases in
the market value of such Investment.
"Investment Grade Credit Rating" means, as of any date of
determination, that at least two (2) Rating Agencies have as of that
date issued credit ratings for Borrower's long-term senior unsecured
debt of (a) at least BBB- in the case of S&P, (b) at least Baa3 in the
case of Moody's and (c) at least BBB- in the case of Duff. For purposes
of the foregoing, "S&P" means Standard & Poor's Rating Group (a
division of McGraw-Hill, Inc.) and its successors, "Moody's" means
Moody's Investor's Service, Inc. and its successors, "Duff" means Duff
& Phelps, Inc. and its successors and "Rating Agencies" means S&P,
Moody's and Duff.
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<PAGE> 19
"Joint Venture" means any Person (a) in which Borrower or any
Subsidiary of Borrower holds an equity Investment and (b) which has at
least one holder of its equity interests that is not an Affiliate of
Borrower or any Subsidiary of Borrower.
"KBMHG" means Kaufman and Broad Multi-Housing Group, Inc., a
Subsidiary of Borrower.
"Laws" means, collectively, all foreign, federal, state and
local statutes, treaties, codes, ordinances, rules, regulations and
controlling precedents of any Governmental Agency.
"Lead Arranger" means Bank of America, in its capacity as lead
arranger of the credit facility under this Agreement.
"Lewis Homes Business" means the "Homebuilding Business" as
such term is defined in the Lewis Homes Acquisition Agreement.
"Lewis Homes Acquisition" means the acquisition by Borrower of
the Lewis Homes Business pursuant to the Lewis Homes Acquisition
Agreement.
"Lewis Homes Acquisition Agreement" means that certain
Purchase Agreement among Borrower and the sellers of the Lewis Homes
Business executed by the parties thereto as of January 7, 1999.
"Lewis Homes Entities" means the corporations, partnerships,
limited liability companies and other business entities that conducted
the Lewis Homes Business prior to the Closing Date.
"LIBOR" means, for each LIBOR Loan, that rate per annum,
determined solely by the Administrative Agent, pursuant to the
following formula (with each component expressed as a decimal and
rounded upward to the nearest 1/100 of 1%):
London Interbank Offered Rate for that LIBOR Loan
-------------------------------------------------
1.00 - Reserve Percentage
"LIBOR Advance" means an Advance made by a Bank to fund its
Pro Rata Share of a LIBOR Loan.
"LIBOR Lending Office" means, with respect to each Bank, its
office, branch or affiliate identified on the signature page hereof as
its LIBOR Lending Office or such other office, branch or affiliate as
such Bank may hereafter designate as its LIBOR Lending Office by notice
to Borrower and the Administrative Agent.
"LIBOR Loan" means a Loan made hereunder and designated or
redesignated as a LIBOR Loan in accordance with Article 2.
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<PAGE> 20
"LIBOR Market" means the London, England market established by
and among banks for the solicitation, offer and acceptance of Dollar
deposits in such banks.
"LIBOR Market Day" means any Banking Day on which commercial
banks are open for international business (including dealing in Dollar
deposits) in London, England.
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment for security, security interest, encumbrance,
lien or charge of any kind, whether volun tarily incurred or arising by
operation of Law or otherwise, affecting any Property, including any
agreement to grant any of the foregoing (other than an agreement which
gives to a Person the right to become equally and ratably secured with
any other Person to whom a Lien is granted on any item of Property) any
conditional sale or other title retention agreement, any lease in the
nature of a security interest, and/or the filing of or agreement to
give any financing statement (other than a precautionary financing
statement with respect to a lease that is not in the nature of a
security interest) under the Uniform Commercial Code or comparable Law
of any jurisdiction with respect to any Property.
"Loan" means any of the groups of Advances made at any one
time by the Banks.
"Loan Documents" means, collectively, this Agreement, the
Notes, the Subsidiary Guaranty and any other agreement or instrument
that may hereafter be executed and delivered by Borrower or a
Subsidiary of Borrower in favor of the Banks relating to or in
furtherance of this Agreement.
"London Interbank Offered Rate" means, for each LIBOR Loan,
the per annum rate (rounded upward to the nearest 1/100 of 1%),
determined solely by the Administrative Agent, at which Bank of
America's branch in London, England would offer deposits of Dollars in
the LIBOR Market at or about 11:00 a.m., London time, on the day two
LIBOR Market Days preceding the first day of the applicable Interest
Period for approximately the same time period as the applicable
Interest Period and in an amount approximately equal to Bank of
America's Pro Rata Share of that LIBOR Loan.
"Majority Banks" means, as of any date of determination, Banks
holding in the aggregate in excess of 50% of the aggregate Indebtedness
then evidenced by the Notes.
"Material Adverse Effect" means any circumstance or event, or
any set of circumstances or events which, individually or when
aggregated with any other circum stances or events, (a) has or is
reasonably likely to have any material adverse effect upon the validity
or enforceability of any Loan Document, (b) is or is reasonably
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<PAGE> 21
likely to be material and adverse to the condition (financial or
otherwise) or operations of Borrower and its Subsidiaries, taken as a
whole, (c) materially impairs or is reasonably likely to materially
impair the ability of Borrower and its Subsidiaries, taken as a whole,
to perform the Obligations or (d) were initiated or approved by
Borrower or any of its Subsidiaries and which materially impair or are
reasonably likely to materially impair the ability of the Banks to
enforce any material legal remedy pursuant to the Loan Documents.
"Maturity Date" means April 30, 2001.
"Model Homes" means housing units which have been completed,
furnished and landscaped and are used in the marketing efforts with
respect to a residential home project, provided that the total number
of units considered as Model Homes at any time shall not exceed an
amount equal to (a) the number of domestic residential home projects
open for sale at such time, times (b) four (4).
"Money Market Facility" means any unsecured credit facility
the advances under which have a maturity of not in excess of 180 days
and which have been extended to Borrower from time to time other than
under the Revolving Loan Agreement, either by a Bank or by any other
financial institution.
"Money Market Facility Lender" means, with respect to a Money
Market Facility, the financial institution that extended such Money
Market Facility to Borrower.
"Money Market Outstandings" means, as of any date of
determination, the aggregate principal amount outstanding under all
Money Market Facilities.
"Mortgage Company" means Kaufman and Broad Mortgage Company,
an Illinois corporation and a wholly owned Financial Subsidiary of
Borrower.
"Mortgage Warehousing Agreement" means that certain Mortgage
Loan Warehousing Agreement dated as of February 24, 1997 among Mortgage
Company, the banks party thereto and NationsBank of Texas, N.A., as
agent for the banks, and as the same may from time to time be amended,
modified, refinanced or replaced.
"Multiemployer Plan" means any employee benefit plan of a type
described in Section 4001(a)(3) of ERISA.
"Net Cash Issuance Proceeds" means, with respect to the
issuance of any debt security by Borrower or any of its Subsidiaries,
the Cash proceeds received by or for the account of Borrower or such
Subsidiary in consideration of such issuance net of (a) underwriting
discounts and commissions actually paid to any Person not an Affiliate
of Borrower and (b) professional fees and disbursements actually paid
in connection therewith.
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<PAGE> 22
"Net Cash Sales Proceeds" means, with respect to any
Significant Asset Sale, the sum of (a) the Cash proceeds received by or
for the account of Borrower and its Subsidiaries from such Significant
Asset Sale plus (b) the amount of Cash received by or for the account
of Borrower and its Subsidiaries upon the sale, collection or other
liquidation in one transaction or a series of related transactions of
any proceeds that are not Cash from such Significant Asset Sale, in
each case net of (i) any amount required to be paid to any Person
owning an interest in the assets disposed of, (ii) any amount applied
to the repayment of Indebtedness secured by a Lien permitted under
Section 6.7 on the asset disposed of as part of the Significant Asset
Sale, (iii) any transfer, income or other taxes payable as a result of
such Significant Asset Sale, (iv) professional fees and expenses, fees
due to any Governmental Agency, broker's commissions and other
out-of-pocket costs of sale actually paid to any Person that is not an
Affiliate of Borrower attributable to such Significant Asset Sale and
(v) any reserves established in accordance with Generally Accepted
Accounting Principles in connection with such Significant Asset Sale;
provided, however, that the first $5,000,000 of Net Cash Sales Proceeds
(as defined above) received by Borrower and its Subsidiaries with
respect to a Significant Asset Sale shall not constitute Net Cash Sales
Proceeds for purposes of Section 3.1(e).
"Net Orders" means, as of any date of determination, the
number of items of housing inventory that are in the process of being
sold and with respect to which a purchase contract has been signed, as
reported in Borrower's filings with the Securities Exchange Commission.
"Net Realizable Value Adjustment" means the adjustment
required pursuant to Generally Accepted Accounting Principles
(including FAS 121 issued by the Financial Accounting Standards Board)
to reflect a decrease in the book value of assets below their
historical costs.
"Non-Recourse Indebtedness" means Indebtedness incurred in
connection with the purchase or improvement of Property (a) that is
secured solely by the Property purchased or improved, (b) with respect
to which the holder of such Indebtedness has recourse only to such
Property, and (c) that is otherwise non-recourse (whether by contract
or under applicable Law) to any Person.
"Note" means each promissory note made by Borrower to a Bank
evidencing the Advances under that Bank's Pro Rata Share of the
Commitment, substantially in the form of Exhibit C, either as
originally executed or as the same may from time to time be
supplemented, modified, amended, renewed, extended or supplanted.
"Obligations" means all present and future obligations of
every kind or nature of Borrower or any Party at any time and from time
to time owed to the Administrative Agent or the Banks or any one or
more of them under any one or more of the Loan Documents, whether due
or to become due, matured or unmatured, liquidated or unliquidated, or
contingent or noncontingent, including obligations of
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<PAGE> 23
performance as well as obligations of payment, and including interest
that accrues to the extent permitted by applicable Law after the
commencement of any proceeding under any Debtor Relief Law by or
against Borrower.
"Officer's Certificate" means, when used with reference to any
Person, a certificate signed by a Senior Officer of such Person.
"Operating Loss" means, for any Fiscal Quarter, that the sum
of (a) Consolidated Net Income for that Fiscal Quarter plus (b) all
taxes on or measured by income payable by Borrower with respect to such
Consolidated Net Income plus (c) all non-Cash Net Realizable Value
Adjustments made during that Fiscal Quarter is less than zero; provided
that each amount described in clauses (a), (b) and (c) shall be
adjusted to eliminate any portion thereof, or effect thereon,
attributable to a Financial Subsidiary.
"Opinions of Counsel" means the favorable written legal
opinions of (a) Munger, Tolles & Olson, LLP, special counsel to
Borrower, and (b) Barton P. Pachino, General Counsel of Borrower
substantially in the form of Exhibits D-1 and D-2, respectively,
together with copies of all factual certificates and legal opinions
upon which such counsel has relied.
"Party" means any Person other than the Banks, the Managing
Agents or the Co-Agent which now or hereafter is a party to any of the
Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereto established under ERISA.
"Pension Plan" means any "employee pension benefit plan" (as
such term is defined in ERISA) which is subject to Title IV of ERISA
and which is maintained for employees of Borrower or any of its ERISA
Affiliates.
"Permitted Encumbrances" means:
(a) inchoate Liens incident to construction or maintenance of
real property; or Liens incident to construction or maintenance of real
property now or hereafter filed of record for which adequate reserves
have been set aside and which are being contested in good faith by
appropriate proceedings and have not proceeded to judgment, provided
that, by reason of nonpayment of the obligations secured by such Liens,
no material property is subject to a material risk of loss or
forfeiture;
(b) Liens for taxes and assessments on real property which are
not yet past due; or Liens for taxes and assessments on real property
for which adequate reserves have been set aside and are being contested
in good faith by appropriate proceedings and have not proceeded to
judgment, provided that, by reason of nonpayment of the
- 18 -
<PAGE> 24
obligations secured by such Liens, no material property is subject to a
material risk of loss or forfeiture;
(c) minor defects and irregularities in title to any real
property which in the aggregate do not materially impair the fair
market value or use of the real property for the purposes for which it
is or may reasonably be expected to be held;
(d) easements, exceptions, reservations, or other agreements
for the purpose of pipelines, conduits, cables, wire communication
lines, power lines and substations, streets, trails, walkways,
drainage, irrigation, water, utilities, and sewerage purposes, dikes,
canals, ditches, the removal of oil, gas, coal, or other minerals, and
other like purposes affecting real property, facilities, or equipment
which in the aggregate do not materially burden or impair the fair
market value or use of such property for the purposes for which it is
or may reasonably be expected to be held;
(e) easements, exceptions, reservations, or other agreements
for the purpose of facilitating the joint or common use of property in
a shopping center or similar real property project affecting real
property which in the aggregate do not materially burden or impair the
fair market value or use of such property for the purposes for which it
is or may reasonably be expected to be held;
(f) rights reserved to or vested in any Governmental Agency to
control or regulate the use of any real property;
(g) any obligations or duties affecting any real property to
any Governmental Agency with respect to any right, power, franchise,
grant, license, or permit;
(h) present or future zoning laws and ordinances or other laws
and ordinances restricting the occupancy, use, or enjoyment of real
property;
(i) statutory Liens, including warehouseman's liens, other
than those described in clauses (a) or (b) above, arising in the
ordinary course of business with respect to obligations which are not
delinquent or are being contested in good faith, provided that, if
delinquent, adequate reserves have been set aside with respect thereto
and, by reason of nonpayment, no material property is subject to a
material risk of loss or forfeiture;
(j) covenants, conditions, and restrictions affecting the use
of real property which in the aggregate do not materially impair the
fair market value or use of the real property for the purposes for
which it is or may reasonably be expected to be held;
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<PAGE> 25
(k) rights of tenants under leases and rental agreements
covering real property entered into in the ordinary course of business
of the Person owning such real property;
(l) Liens consisting of pledges or deposits to secure
obligations under workers' compensation laws or similar legislation,
including Liens of judgments thereunder which are not currently
dischargeable;
(m) Liens consisting of pledges or deposits of property to
secure performance in connection with operating leases made in the
ordinary course of business to which the Borrower or a Subsidiary is a
party as lessee, provided the aggregate value of all such pledges and
deposits in connection with any such lease does not at any time exceed
25% of the annual fixed rentals payable under such lease;
(n) Liens consisting of deposits of property to secure
statutory obligations of the Borrower or a Subsidiary of Borrower in
the ordinary course of its business; and
(o) Liens consisting of deposits of property to secure (or in
lieu of) surety, appeal or customs bonds in proceedings to which
Borrower or a Subsidiary of Borrower is a party in the ordinary course
of its business.
"Permitted Right of Others" means a Right of Others consisting
of (a) an interest (other than a legal or equitable co-ownership
interest, an option or right to acquire a legal or equitable
co-ownership interest and any interest of a ground lessor under a
ground lease), that does not materially impair the value or use of
property for the purposes for which it is or may reasonably be expected
to be held, (b) an option or right to acquire a Lien that would be a
Permitted Encumbrance or (c) the reversionary interest of a landlord
under a lease of Property.
"Person" means an individual, trustee, corporation, general
partnership, limited partnership, joint stock company, trust, estate,
unincorporated organization, union, tribe, business association or
firm, joint venture, Governmental Agency, or other entity.
"Pricing Period" means (a) the period commencing on the
Closing Date and ending on April 30, 1999 and (b) the three calendar
month periods of (i) May 1 through July 31, (ii) August 1 through
October 31, (iii) November 1 through January 31 and (iv) February 1
through April 30. The Consolidated Leverage Ratio applicable to the
initial Pricing Period shall be the Consolidated Leverage Ratio as of
the Closing Date set forth in the Officer's Certificate delivered
pursuant to Section 8.1(a)(vii) and the Consolidated Leverage Ratio
applicable to any subsequent Pricing Period shall be the one that is
calculated as of the Fiscal Quarter end that falls approximately 60
days prior to the beginning of such Pricing Period.
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<PAGE> 26
"Projections" means the financial projections of Borrower
delivered to the Banks and dated as of December 3, 1998.
"Property" means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"Pro Rata Share" of a Bank, as pertains to the Commitment,
means the applicable percentage set forth opposite the name of that
Bank on Schedule 1.1 to this Agreement.
"Reference Rate" means the per annum rate of interest publicly
announced from time to time by Bank of America at San Francisco,
California, as its Reference Rate. The Reference Rate is set by Bank of
America based on various factors, including Bank of America's costs and
desired return, general economic conditions and other factors, and is
used as a reference point for pricing loans. Bank of America may price
loans at, above or below the Reference Rate. Any change in the
Reference Rate shall take effect on the day specified in the public
announcement of such change.
"Regulation D" means Regulation D, as at any time amended, of
the Board of Governors of the Federal Reserve System or any other
regulation in substance substituted therefor.
"Regulatory Development" means (a) any change in the Laws, (b)
change in the application of any existing Laws or the interpretation
thereof by any Governmental Agency or central bank or comparable
authority (whether or not having the force of Law), or (c) compliance
by any Bank with any request or directive (whether or not having the
force of Law) of any Governmental Agency or central bank or comparable
authority.
"Request for Loan" means a request for Loan signed by a
Responsible Official of Borrower, in a form reasonably designated from
time to time by the Administrative Agent.
"Request for Redesignation of Loans" means a written request
for redesignation of Loans signed by a Responsible Official of
Borrower, in a form reasonably designated from time to time by the
Administrative Agent.
"Requirement of Law" means, as to any Person, the articles or
certificate of incorporation and by-laws or other organizational or
governing documents of such Person, any Law or any judgment, award,
decree, writ or determination of, or any consent or similar agreement
with, a Governmental Agency, in each case applicable to or binding upon
such Person or any of its Property or to which such Person or any of
its Property is subject.
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<PAGE> 27
"Reserve Percentage" means, for each LIBOR Loan, the total of
the maximum reserve percentages for determining the reserves to be
maintained by member banks of the Federal Reserve System for
Eurocurrency Liabilities, as defined in Regulation D. The Reserve
Percentage shall be expressed in decimal form and rounded upward, if
necessary, to the nearest 1/100th of one percent, and shall include
marginal, emergency, supplemental, special and other reserve
percentages. The Reserve Percentage shall be determined solely by the
Administrative Agent, which determination shall be conclusive absent
manifest error.
"Responsible Official" means (a) when used with reference to a
Person other than an individual, any corporate officer of such Person,
general partner of such Person, corporate officer of a corporate
general partner of such Person, or corporate officer of a corporate
general partner of a partnership that is a general partner of such
Person, or any other responsible official thereof duly acting on behalf
thereof, and (b) when used with reference to a Person who is an
individual, such Person. Any document or certificate hereunder that is
signed or executed by a Responsible Official of a Person shall be
conclusively presumed to have been authorized by all necessary
corporate, partnership and/or other action on the part of that Person.
"Revolving Loan Agreement" means the 1997 Revolving Loan
Agreement dated as of April 21, 1997 among Borrower, Bank of America,
as administrative agent, and the banks party thereto, and as the same
may from time to time be amended, modified, refinanced or replaced.
"Right of Others" means, with respect to any Property in which
a Person has an interest, (a) any legal or equitable claim or other
interest (other than a Lien) in or with respect to that Property held
by any other Person, and (b) any option or right held by any other
Person to acquire any such claim or other interest (including a Lien).
"Securities" means any capital stock, share, voting trust
certificate, bonds, debentures, notes or other evidences of
indebtedness, limited partnership interests, or any warrant, option or
other right to purchase or acquire any of the foregoing.
"Senior Officer" means the (a) chief executive officer, (b)
chief operating officer, (c) chief financial officer, (d) vice
president and controller, or (e) treasurer, in each case whatever the
title nomenclature may be, of the Person designated.
"Settlement Date" means the settlement date specified in the
forward contract for the sale and purchase of Common Stock which is a
component of the Trust Preferred Capital Security.
"Shareholders' Equity" means, as of any date of determination,
shareholders' equity as of that date determined in accordance with
Generally Accepted Accounting Principles; provided that there shall be
excluded from Shareholders' Equity any amount attributable to capital
stock that is, directly or indirectly, required to be
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<PAGE> 28
redeemed or repurchased by the issuer thereof prior to the date which
is one year after the Maturity Date or upon the occurrence of specified
events or at the election of the holder thereof.
"Significant Asset Sale" means the sale or other disposition
of any asset or group of assets to a Person not an Affiliate of
Borrower, in one transaction or a series of related transactions, with
a book value or fair market value (whichever is greater) of
more than $25,000,000 other than sales or other dispositions of
mortgages, collateralized mortgage obligations or other interests in
mortgages, or pools thereof, by Mortgage Company or any of its
Subsidiaries that is a Financial Subsidiary. A Significant Asset Sale
may or may not constitute a Disposition.
"Significant Subsidiary" means, as of the Closing Date, those
Subsidiaries of Borrower identified as such in Schedule 4.4 and, as of
any other date of determination, any Subsidiary of Borrower (other than
a Joint Venture) with respect to which any of the following conditions
is met:
(a) the aggregate book value of all Investments of Borrower
and its Subsidiaries in such Subsidiary exceeds 5% of the consolidated
total assets (other than assets of Financial Subsidiaries) of Borrower
and its Subsidiaries as of such date; or
(b) the proportionate share of Borrower and its Subsidiaries
in the total assets of such Subsidiary (after intercompany
eliminations) exceeds 5% of the consolidated total assets (other than
assets of Financial Subsidiaries) of Borrower and its Subsidiaries as
of such date; or
(c) the equity of Borrower and its Subsidiaries in the net
income of such Subsidiary (before income taxes, extraordinary items and
cumulative effect of a change in accounting principles) as of the end
of the most recently ended fiscal year or years of such Subsidiary
exceeds the greater of (i) an amount equal to 5% of the consolidated
net income of Borrower and its Subsidiaries (computed as aforesaid) as
of the end of the most recent Fiscal Year ended prior to such date or
(ii) $3,000,000.
"Subordinated Obligations" means, collectively, all
obligations of Borrower or any of its Subsidiaries that (a) do not
provide for any payment of principal, any sinking fund payment or any
scheduled redemption prior to the Maturity Date, (b) are expressly
subordinated to the Obligations by a written instrument containing
subordination and related provisions (including interest payment
blockage, standstill and related provisions) not materially less
favorable to the Banks in any respect whatsoever from those applicable
to Borrower's 9-5/8% Senior Subordinated Notes due 2006 (the
"Subordinated Notes") (or such other subordination and related
provisions as may be approved in writing by the Majority Banks), (c)
are subject to financial covenants not materially more burdensome to
Borrower in any respect than those applicable to the Subordinated
Notes, except such covenants as may be approved in writing by the
Majority Banks and (d) are subject to other covenants
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<PAGE> 29
(other than the covenant to pay interest) and events of default which
in the aggregate are not materially more burdensome to Borrower than
those applicable to the Subordinated Notes, except such covenants or
events of default as may be approved in writing by the Majority Banks.
"Subsidiary" means, with respect to any Person, any
corporation, limited liability company, partnership or joint venture
whether now existing or hereafter organized or acquired: (a) in the
case of a corporation or limited liability company, of which securities
having a majority of the ordinary voting power for the election of the
board of directors (other than securities having such power only by
reason of the happening of a contingency) are at the time owned by such
Person and/or one or more Subsidiaries of such Person or (b) in the
case of a partnership, joint venture or other business entity, in which
such Person or a Subsidiary of such Person is a general partner.
"Subsidiary Guaranty" means the guaranty of the Indebtedness
of Borrower under this Agreement executed by each Guarantor Subsidiary
of Borrower substantially in the form of Exhibit E, either as
originally executed or as the same may from time to time be
supplemented, modified, amended, renewed, extended or supplanted.
"Suspended Significant Subsidiaries" means all Significant
Subsidiaries of Borrower acquired by Borrower pursuant to the Lewis
Homes Acquisition except KB Holdings One, Inc.
"Syndication Agent" means Credit Lyonnais Los Angeles Branch,
so long as such bank is a Bank hereunder. The Syndication Agent shall
have no duties under the Loan Documents beyond those of a Bank.
"Termination Event" means (a) a "reportable event" as defined
in Section 4043 of ERISA (other than a "reportable event" that is not
subject to the provision for 30 day notice to the PBGC), (b) the
withdrawal of Borrower or any of its ERISA Affiliates from a Pension
Plan during any plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA, (c) the filing of a notice of
intent to terminate a Pension Plan or the treatment of an amendment to
a Pension Plan as a termination thereof pursuant to Section 4041 of
ERISA, other than pursuant to Section 4041(b) of ERISA, (d) the
institution of proceedings to terminate a Pension Plan by the PBGC or
(e) any other event or condition which might reasonably be expected to
constitute grounds under ERISA for the termination of, or the
apportionment of a trustee to administer, any Pension Plan.
"to the best knowledge of" means, when modifying a
representation, warranty or other statement of any Person, that such
representation, warranty or statement is a representation, warranty or
statement that (a) the Person making it has no actual knowledge of the
inaccuracy of the matters therein stated and (b) assuming the
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<PAGE> 30
exercise by the Person making it of reasonable due diligence under the
circumstances (in accordance with the standard of what a reasonable
Person would have done under similar circumstances), the Person making
it would have no actual knowledge of the inaccuracy of the matters
therein stated. Where the Person making the representation, warranty or
statement is not a natural Person, the aforesaid actual or constructive
knowledge shall be that of any Senior Officer of that Person.
"Trust Issuer" means a business trust formed by Borrower as a
special purpose grantor trust for the purpose of facilitating the
issuance of Trust Preferred Capital Securities, and which engages in no
activities other than those incident to the Trust Preferred Capital
Securities.
"Trust Preferred Capital Security" means the securities issued
by Borrower and the Trust Issuer covered by Borrower's Prospectus dated
June 30, 1998 filed with the Securities and Exchange Commission.
1.2 Use of Defined Terms. Any defined term used in the plural
preceded by the definite article shall be taken to encompass all members of the
relevant class. Any defined term used in the singular preceded by "any" shall be
taken to indicate any number of the members of the relevant class.
1.3 Accounting Terms. All accounting terms not specifically
defined in this Agreement shall be construed in conformity with, and all
financial data required to be sub mitted by this Agreement shall be prepared in
conformity with, Generally Accepted Accounting Principles, consistently applied,
except as otherwise specifically prescribed herein. In the event that Generally
Accepted Accounting Principles change during the term of this Agreement such
that the financial covenants contained in Sections 6.9, 6.10 or 6.11 would then
be calculated in a different manner or with different components or would render
the same not meaningful criteria for evaluating Borrower's financial condition,
(a) Borrower and the Banks agree to amend this Agreement in such respects as are
necessary to conform those covenants as criteria for evaluating Borrower's
financial condition to substantially the same criteria as were effective prior
to such change in Generally Accepted Accounting Principles and (b) Borrower
shall be deemed to be in compliance with the financial covenants contained in
such Sections during the 90 day period following such change in Generally
Accepted Accounting Principles if and to the extent that Borrower would have
been in compliance therewith under Generally Accepted Accounting Principles as
in effect immediately prior to such change. In the event that the Borrower
changes its Fiscal Year during the term of this Agreement, Borrower and the
Banks agree to amend this Agreement and the other Loan Documents in such
respects as are necessary to conform the definitions, the financial covenants,
the reporting requirements and the other provisions thereof to fairly reflect
such change in the Borrower's Fiscal Year.
1.4 Rounding. Any financial ratios required to be maintained
by Borrower pursuant to this Agreement shall be calculated by dividing the
appropriate component by the other component, carrying the result to one place
more than the number of places by which
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such ratio is expressed in this Agreement and rounding the result up or down to
the nearest number (with a round-up if there is no nearest number) to the number
of places by which such ratio is expressed in this Agreement.
1.5 Miscellaneous Terms. The term "or" is disjunctive; the
term "and" is conjunctive. The term "shall" is mandatory; the term "may" is
permissive. Masculine terms also apply to females; feminine terms also apply to
males. The term "including" is by way of example and not limitation.
1.6 Exhibits and Schedules. All Exhibits and Schedules to this
Agreement, either as originally existing or as the same may from time to time be
supplemented, modified, or amended, are incorporated herein by reference. A
matter disclosed on any Schedule shall be deemed disclosed on all Schedules.
1.7 References to "Borrower and its Subsidiaries". Any
reference herein to "Borrower and its Subsidiaries" or the like shall refer
solely to Borrower during such times, if any, as Borrower shall have no
Subsidiaries.
Article 2
LOANS
2.1 Loans-General.
(a) Subject to the terms and conditions set forth in this
Agreement, on the Closing Date, each Bank shall, pro rata according to
that Bank's Pro Rata Share of the Commitment, make an Advance to
Borrower under the Commitment in such amount as Borrower may request;
provided that after giving effect to such Advance, the aggregate
outstanding principal evidenced by the Notes shall not exceed the
Commitment. Borrower may not borrow under this Section 2.1(a)
subsequent to the Closing Date, or repay and reborrow under this
Section 2.1(a).
(b) Subject to the next sentence, the Loan shall be made
pursuant to a Request for Loan which shall be in a form and shall
contain information specified from time to time by the Administrative
Agent and which shall specify the requested (i) date of such Loan, (ii)
type of Loan, (iii) amount of such Loan and (iv) in the case of a LIBOR
Loan, Interest Period for such Loan. Unless the Administrative Agent,
in its sole and absolute discretion, has notified Borrower to the
contrary, the Loan may be requested by telephone (promptly confirmed in
writing) or telecopier by a Responsible Official of Borrower, and
Borrower shall confirm such request by promptly mailing a Request for
Loan conforming to the preceding sentence to the Administrative Agent.
(c) Promptly following receipt of a Request for Loan, the
Administrative Agent shall notify each Bank by telephone, telecopier or
telex of the date and type of the Loan, the applicable Interest Period
in the case of an LIBOR Loan and that Bank's
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Pro Rata Share of the Loan. Not later than 11:00 a.m., California time,
on the date specified for any Loan, each Bank shall make its Pro Rata
Share of the Loan in immediately available funds available to the
Administrative Agent at the Administrative Agent's Office. Upon
fulfillment of the applicable conditions set forth in Article 8, all
Advances shall be credited in immediately available funds to the
Designated Deposit Account.
(d) The principal amount of each Loan shall be an integral
multiple of $1,000,000 and shall be in an amount not less than (i)
$1,000,000 if such Loan is an Alternate Base Rate Loan and (ii)
$5,000,000 if such Loan is a LIBOR Loan.
(e) A Request for Loan shall be irrevocable upon the
Administrative Agent's first notification thereof. The obligation of
each Bank to make any Advance is several, and not joint or joint and
several, and is not conditioned upon the performance by any other Bank
of its obligation to make Advances. The failure by any Bank to perform
its obligation to make any Advance will not increase the obligation of
any other Bank to make Advances.
(f) Borrower may redesignate an Alternate Base Rate Loan as a
LIBOR Loan, or a LIBOR Loan as an Alternate Base Rate Loan or a LIBOR
Loan with a new Interest Period, by delivering a Request for
Redesignation to the Administrative Agent, within the time periods and
pursuant to the conditions set forth in Section 2.1(c), 2.2 or 2.3, as
applicable, and elsewhere in this Agreement. If no Request for
Redesignation (or telephonic or other request referred to in the second
sentence of Section 2.1(c), if applicable) has been made prior to the
last day of the Interest Period for an outstanding LIBOR Loan within
the requisite notice periods set forth in Section 2.3, then Borrower
shall be deemed to have requested that such LIBOR Loan be redesignated
as an Alternate Base Rate Loan.
(g) The Advance made by each Bank on the Closing Date under
this Section 2.1 shall be evidenced by that Bank's Note.
2.2 Alternate Base Rate Loans. Each request by Borrower for an
Alternate Base Rate Loan shall be made pursuant to a Request for Loan (or
telephonic or other request for loan referred to in the second sentence of
Section 2.1(b), if applicable) received by the Administrative Agent, at the
Administrative Agent's Office, not later than 9:00 a.m., California time, on the
Banking Day on which the requested Alternate Base Rate Loan is to be made. The
Administrative Agent shall notify each Bank of a request for an Alternate Base
Rate Loan as soon as practicable after receipt of the same. All Loans shall
constitute Alternate Base Rate Loans unless properly designated as LIBOR Loans
pursuant to Section 2.3.
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<PAGE> 33
2.3 LIBOR Loans.
(a) Each request by Borrower for a LIBOR Loan shall be made
pursuant to a Request for Loan (or telephonic or other request for loan
referred to in the second sentence of Section 2.1(b), if applicable)
received by the Administrative Agent, at the Administrative Agent's
Office, not later than 9:00 a.m., California time, at least three (3)
LIBOR Market Days before the first day of the applicable Interest
Period. The Administrative Agent shall notify each Bank of a request
for a LIBOR Loan as soon as practicable after receipt of the same.
(b) At or about 10:00 a.m., California time, two (2) LIBOR
Market Days before the first day of the applicable Interest Period, the
Administrative Agent shall determine the applicable LIBOR (which
determination shall be conclusive in the absence of manifest error) and
promptly shall give notice of the same to Borrower and the Banks by
telephone, telecopier or telex.
(c) No more than ten (10) LIBOR Loans may be outstanding at
any particular time.
(d) Unless the Majority Banks otherwise consent, no LIBOR Loan
may be requested during the continuance of an Event of Default.
2.4 Automatic Reduction of Commitment. In the event that
Borrower does not submit a Request for Loan on the Closing Date for the full
amount of the Commitment, the Commitment shall automatically reduce on the
Closing Date to an amount equal to the amount so set forth in such Request for
Loan.
2.5 Administrative Agent's Right to Assume Funds Available.
Unless the Administrative Agent shall have been notified by any Bank at least
two hours prior to the funding by the Administrative Agent of the Loan that such
Bank does not intend to make available to the Administrative Agent such Bank's
Pro Rata Share of such Loan, the Administrative Agent may, in its discretion
(but shall not be so obligated), assume that such Bank has made such amount
available to the Administrative Agent on the date of the Loan and the
Administrative Agent may, in reliance upon such assumption, make available to
Borrower a corresponding amount. If such corresponding amount is not in fact
made available to the Administrative Agent by such Bank, the Administrative
Agent shall be entitled to recover such corresponding amount on demand from such
Bank, which demand shall be made in a reasonably prompt manner. If such Bank
does not pay such corresponding amount forthwith upon the Administrative Agent's
demand therefor, the Administrative Agent promptly shall notify Borrower and
Borrower shall pay such corresponding amount to the Administrative Agent. The
Administrative Agent shall also be entitled to recover from such Bank interest
on such corresponding amount in respect of each day from the date such
corresponding amount was made available by the Administrative Agent to Borrower
to the date such corresponding amount is recovered by the Administrative Agent,
at a rate per annum equal to the Federal Funds Rate as notified by the
Administrative Agent to such Bank
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<PAGE> 34
or the Borrower, as the case may be. Nothing herein shall be deemed to relieve
any Bank from its obligation to fulfill its Pro Rata Share of the Commitment
hereunder or to prejudice any rights which the Administrative Agent or Borrower
may have against any Bank as a result of any default by such Bank hereunder.
Article 3
PAYMENTS; FEES
3.1 Principal and Interest
(a) Interest shall be payable on the outstanding daily unpaid
principal amount of each Loan from the date thereof until payment in
full and shall accrue and be payable at the rates set forth herein, to
the extent permitted by applicable Laws, before and after default,
before and after maturity, before and after any judgment, and before
and after the commencement of any proceeding under any Debtor Relief
Law, with interest on overdue interest to bear interest at the Default
Rate.
(b) Interest accrued on each Alternate Base Rate Loan shall be
due and payable on the last day of each calendar month. Except as
otherwise provided in Section 3.6, the unpaid principal amount of any
Alternate Base Rate Loan shall bear interest at a fluctuating rate per
annum equal to the sum of the Alternate Base Rate plus the Applicable
Alternate Base Rate Spread. Each change in the interest rate hereunder
shall take effect simultaneously with the corresponding change in the
Alternate Base Rate. Each change in the Alternate Base Rate shall be
effective as of the Banking Day on which the change in the Alternate
Base Rate is announced, unless otherwise specified in such
announcement, in which case the change shall be effective as so
specified.
(c) Interest accrued on each LIBOR Loan which has an Interest
Period of one month shall be due and payable on the last day of the
related Interest Period. Interest accrued on each other LIBOR Loan
shall be due and payable on the date which is one calendar month after
the date such LIBOR Loan was made, every month thereafter and on last
day of the related Interest Period. Except as otherwise provided in
Section 3.6, the unpaid principal amount of any LIBOR Loan shall bear
interest at a rate per annum equal to the sum of LIBOR for that LIBOR
Loan plus the Applicable LIBOR Spread.
(d) If not sooner paid, the principal Indebtedness evidenced
by the Notes shall be payable as follows:
(i) each Amortization Amount shall be payable in Cash
on the related Amortization Date; and
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<PAGE> 35
(ii) the principal Indebtedness evidenced by the
Notes shall in any event be immediately payable in Cash on the
Maturity Date.
(e) The principal Indebtedness evidenced by the Notes shall be
prepaid (i) within five (5) Banking Days following the receipt by
Borrower or any of its Subsidiaries of Net Cash Sales Proceeds from any
Significant Asset Sale by an amount equal to the amount of such Net
Cash Sales Proceeds and (ii) within five (5) Banking Days following the
receipt by Borrower or any of its Subsidiaries of Net Cash Issuance
Proceeds from the issuance of debt securities of Borrower or any of its
Subsidiaries (except an issuance of debt securities to Borrower or to
any of its Subsidiaries), by an amount equal to such Net Cash Issuance
Proceeds. Any prepayment under this Section 3.1(e) shall be applied to
the next installment or installments of principal then due under the
Notes.
(f) The Notes may, at any time and from time to time,
voluntarily be prepaid at the election of Borrower in whole or in part
without premium or penalty; provided that: (i) any partial prepayment
shall be in integral multiples of $1,000,000, (ii) any partial
prepayment shall be in an amount not less than $1,000,000 on an
Alternate Base Rate Loan, and not less than $5,000,000 on a LIBOR Loan,
(iii) the Administrative Agent must have received written notice (or
telecopied notice confirmed promptly in writing) of any prepayment at
least three Banking Days before the date of prepayment in the case of a
LIBOR Loan and by 10:00 a.m., California time, on the date of
prepayment in the case of an Alternate Base Rate Loan, (iv) each
prepayment of principal, except for partial prepayments on Alternate
Base Rate Loans, shall be accompanied by prepayment of interest accrued
to the date of payment on the amount of principal paid, (v) in the case
of any prepayment of any LIBOR Loan, Borrower shall promptly upon
demand reimburse each Bank for any loss or cost directly or indirectly
resulting from the prepayment, determined as set forth in Section 3.5,
and (vi) in the case of a prepayment prior to January 31, 2000, the
prepayment shall be accomplished by a certificate of a Senior Officer
stating that such prepayment has not been funded, in whole or in part,
directly or indirectly, by a borrowing under the Revolving Loan
Agreement. Any prepayment under this Section 3.1(f) shall be applied to
the next installment or installments of principal then due under the
Notes.
(g) Change in Control.
(i) If a Change in Control (as defined below) shall
have occurred, at the option of the Majority Banks, Borrower
shall repay in Cash the entire principal Indebtedness
evidenced by the Notes, together with interest thereon and all
other amounts due in connection with the Notes and this
Agreement (the "Change in Control Repayment"), on the date
that is 27 Banking Days after the occurrence of the Change of
Control (the "Change of Control Payment Date"), subject to
receipt by Borrower of a Change in Control Payment Notice as
set forth in Section 3.1(g)(iii).
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<PAGE> 36
A "Change in Control" shall be deemed to have
occurred at such time as any of the following events shall
occur:
(A) There shall be consummated any consolidation
or merger of Borrower in which Borrower is
not the continuing or surviving corporation
or pursuant to which the Voting Stock (as
defined below) would be converted into Cash,
securities or other property, other than a
merger of Borrower in which the holders of
Voting Stock immediately prior to the merger
have the same or greater proportionate
ownership, directly or indirectly, of the
Voting Stock of the surviving corporation
immediately after such merger as they had of
the Voting Stock immediately prior to such
merger; or
(B) There is a report filed by any person,
including its Affiliates and Associates, on
Schedule 13D or 14D-1 (or any successor
schedule, form or report) pursuant to the
Securities Exchange Act of 1934 (the
"Exchange Act"), disclosing that such person
(for the purposes of this Section 3.1(g)
only, the term "person" is used as defined
in Section 13(d)(3) or Section 14(d)(2) of
the Exchange Act or any successor provision
to either of the foregoing) has become the
beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated
under the Exchange Act) of 50% or more of
the voting power of Borrower's Voting Stock
then outstanding; provided, however, that a
person shall not be deemed beneficial owner
of, or to own beneficially (1) any
Securities tendered pursuant to a tender or
exchange offer made by or on behalf of such
person or any of such person's Affiliates or
Associates (as defined below) until such
tendered Securities are accepted for
purchase or exchange thereunder, or (2) any
Securities if such beneficial ownership (a)
arises solely as a result of a revocable
proxy delivered in response to a proxy or
consent solicitation made pursuant to, and
in accordance with, the applicable rules and
regulations under the Exchange Act, and (b)
is not also then reportable on Schedule 13D
(or any successor schedule) under the
Exchange Act; or
(C) A "Change in Control" (or analogous term) as
defined in an indenture or agreement
governing any Subordinated Obligation
occurs.
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<PAGE> 37
Notwithstanding the foregoing provisions of this
Section 3.1(g), a Change in Control shall not be deemed to
have occurred if at any time Borrower, any Subsidiary of
Borrower, any employee stock ownership plan or any other
employee benefit plan, including any Pension Plan of Borrower
or any Subsidiary of Borrower, or any person holding Voting
Stock for or pursuant to the terms of such employee benefit
plan, files or becomes obligated to file a report under or in
response to Schedule 13D or Schedule 14D-1 (or any successor
schedule, form or report) under the Exchange Act disclosing
beneficial ownership by it of shares of Voting Stock, whether
in excess of 50% or otherwise.
"Voting Stock" means, with respect to any Person, the
capital stock of such Person having general voting power under
ordinary circumstances to elect at least a majority of the
board of directors, managers or trustees of such Person
(irrespective of whether or not at the time capital stock of
any other class or classes shall have or might have voting
power by reason of the happening of any contingency).
"Associate" shall have the meaning ascribed to such
term in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act, as in effect on the date hereof.
(ii) Within 15 Banking Days after the occurrence of a
Change in Control, Borrower shall provide written notice of
the Change in Control to the Administrative Agent and each
Bank. The notice shall state:
(A) the events causing a Change in Control and
the date of such Change in Control;
(B) the date by which the Change in Control
Payment Notice (as defined in Section
3.1(g)(iii)) must be given; and
(C) the Change in Control Payment Date.
(iii) At the direction of the Majority Banks, the
Administrative Agent shall, on behalf of the Banks, exercise
the rights specified in Section 3.1(g)(i) by delivery of a
written notice (a "Change in Control Payment Notice") to
Borrower at any time prior to or on the Change in Control
Payment Date, stating that the Notes shall be prepaid on the
Change in Control Payment Date. On the Change in Control
Payment Date, Borrower shall make the Change in Control
Repayment to the Administrative Agent for the benefit of the
Banks.
3.2 Upfront Fee. In addition to fees specified in the agency
letter referred in Section 3.3, on the Closing Date, Borrower shall pay to the
Administrative Agent, for the
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<PAGE> 38
account of each Bank, the upfront fee payable to that Bank pursuant to a fee
letter agreement dated as of December 7, 1998 between Borrower and that Bank.
3.3 Agency Fees. Borrower shall pay to the Administrative
Agent, for the account solely of the Administrative Agent, such agency fees as
are set forth in a fee letter agreement dated as of December 7, 1998 between
Borrower and the Administrative Agent.
3.4 Capital Adequacy.
(a) If any Bank (an "Affected Bank") determines that
compliance with any Law or regulation or with any guideline or request
from any central bank or other Governmental Agency (whether or not
having the force of Law) enacted or issued after the Closing Date
relating to the capital adequacy of banks or corporations in control of
banks has or would have the effect of reducing the rate of return on
the capital of such Affected Bank or any corporation controlling such
Affected Bank as a consequence of, or with reference to, such Affected
Bank's Pro Rata Share of the Commitment below the rate which the Bank
or such other corporation could have achieved but for such compliance
(taking into account the policies of such Bank or corporation with
regard to capital adequacy), then Borrower shall from time to time,
upon demand by such Affected Bank in accordance with this Section 3.4
(with a copy of such demand to the Administrative Agent), within 15
days after demand pay to such Affected Bank additional amounts
sufficient to compensate such Affected Bank or other corporation for
such reduction.
(b) An Affected Bank may not seek compensation under Section
3.4(a) unless the demand for such compensation is delivered to Borrower
within six months following the date of enactment or issuance of the
Law, regulation, guideline or request giving rise to such demand for
compensation.
(c) A certificate as to any amounts for which an Affected Bank
is seeking compensation under Section 3.4(a), submitted to Borrower and
the Administrative Agent by such Affected Bank, shall be conclusive and
binding for all purposes, absent manifest error. Each Affected Bank
shall calculate such amounts in a manner which is consistent with the
manner in which it makes calculations for comparable claims with
respect to similarly situated borrowers from such Affected Bank, will
not allocate to Borrower a proportionately greater amount of such
compensation than it allocates to each of its other Commitment to lend
or other loans with respect to which it is entitled to demand
comparable compensation, and will not include amounts already factored
into the rates of interest or fees already provided for herein. Each
Bank agrees promptly to notify Borrower and the Administrative Agent of
any circumstances that would cause Borrower to pay additional amounts
pursuant to this Section, provided that the failure to give such notice
shall not affect Borrower's obligation to pay such additional amounts
hereunder.
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<PAGE> 39
(d) Without limiting its obligation to reimburse an Affected
Bank for compensation theretofore claimed by an Affected Bank pursuant
to Section 3.4(a), Borrower may, within 60 days following any demand by
an Affected Bank, request that one or more Persons that are Eligible
Assignees and that are acceptable to Borrower and approved by the
Administrative Agent (which approval shall not be unreasonably
withheld) purchase all (but not part) of the Affected Bank's then
outstanding Advances, its Notes, and assume its Pro Rata Share of its
obligations hereunder. If one or more such Banks or banks so agree in
writing (each, an "Assuming Bank" and collectively, the "Assuming
Banks"), the Affected Bank shall assign its Pro Rata Share of the
Commitment, together with the Indebtedness then evidenced by its Note,
to the Assuming Bank or Assuming Banks in accordance with Section 11.8.
On the date of any such assignment, the Affected Bank which is being so
replaced shall cease to be a "Bank" for all purposes of this Agreement
and shall receive (x) from the Assuming Bank or Assuming Banks the
principal amount of its Advances then outstanding and (y) from Borrower
all interest and fees accrued and then unpaid with respect to such
Advances, together with any other amounts then payable to such Bank by
Borrower.
3.5 LIBOR Fees and Costs.
(a) If the occurrence of any Regulatory Development after the
Closing Date:
(i) shall subject any Bank or its LIBOR Lending
Office to any tax, duty or other charge or cost with respect
to any LIBOR Advance or its obligation to make LIBOR Advances,
or shall change the basis of taxation of payments to any Bank
of the principal of or interest on any LIBOR Advance or any
other amounts due under this Agreement in respect of any LIBOR
Advance or its obligation to make LIBOR Advances (except for
changes in any tax on the overall net income, gross income or
gross receipts of such Bank or its LIBOR Lending Office);
(ii) shall impose, modify or deem applicable any
reserve (including, without limitation, any reserve imposed by
the Board of Governors of the Federal Reserve System), special
deposit or similar requirements (excluding any such
requirement included in any applicable Reserve Percentage)
against assets of, deposits with or for the account of, or
credit extended by, any Bank or its LIBOR Lending Office; or
(iii) shall impose on any Bank or its LIBOR Lending
Office or the LIBOR Market any other condition affecting any
LIBOR Advance or its obligation to make LIBOR Advances, or
shall otherwise affect any of the same;
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<PAGE> 40
and the result of any of the foregoing, as determined by such Bank,
increases the cost to such Bank or its LIBOR Lending Office of making
or maintaining any LIBOR Advance or in respect of any LIBOR Advance or
its obligation to make LIBOR Advances or reduces the amount of any sum
received or receivable by such Bank or its LIBOR Lending Office with
respect to any LIBOR Advance or its obligation to make LIBOR Advances
(assuming such Bank's LIBOR Lending Office had funded 100% of its LIBOR
Advance in the LIBOR Market), then, within 15 days after demand by such
Bank (with a copy to the Administrative Agent), Borrower shall pay to
such Bank such additional amount or amounts as will compensate such
Bank for such increased cost or reduction (determined as though such
Bank's LIBOR Lending Office had funded 100% of its LIBOR Advance in the
LIBOR Market); provided that Borrower shall not be liable to any Bank
for any such increased cost or reduction pursuant to this Section in
respect of any period which is more than six months prior to such
Bank's demand for such compensation. A statement of any Bank claiming
compensation under this sub section and setting forth the additional
amount or amounts to be paid to it hereunder shall be conclusive in the
absence of manifest error. Each Bank agrees to endeavor promptly to
notify Borrower of any event of which it has actual knowledge which
will entitle such Bank to compensation pursuant to this Section, and
agrees to designate a different LIBOR Lending Office if such
designation will avoid the need for or reduce the amount of such
compensation and will not, in the judgment of such Bank, otherwise be
disadvantageous to such Bank. If any Bank claims compensation under
this Section, Borrower may at any time, upon at least four (4) LIBOR
Market Days' prior notice to the Administrative Agent and such Bank and
upon payment in full of the amounts provided for in this Section
through the date of such payment plus any prepay ment fee required by
Section 3.5(d), pay in full the affected LIBOR Advances of such Bank or
request that such LIBOR Advances be converted to Alternate Base Rate
Advances.
(b) If after the Closing Date the occurrence of any Regulatory
Development shall, in the opinion of any Bank, make it unlawful or
impossible for such Bank or its LIBOR Lending Office to make, maintain
or fund its portion of any LIBOR Loan, or to take deposits of, dollars
in the LIBOR Market, or to determine or charge interest rates based
upon the LIBOR, and such Bank shall so notify the Administrative Agent,
then such Bank's obligation to make LIBOR Advances shall be suspended
for the duration of such illegality or impossibility and the
Administrative Agent forthwith shall give notice thereof to the other
Banks and Borrower. Before giving any notice to the Administrative
Agent pursuant to this Section, such Bank shall designate a different
Lending Office if such designation will avoid the need for giving such
notice and will not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank. Upon receipt of such notice, the
outstanding principal amount of such Bank's LIBOR Advances, together
with accrued interest thereon, automatically shall be converted to
Alternate Base Rate Advances with Interest Periods corresponding to the
LIBOR Loans of which such LIBOR Advances were a part on either (1) the
last day of the Interest Period(s) applicable to such LIBOR Advances if
such Bank may lawfully continue to maintain and fund such LIBOR
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<PAGE> 41
Advances to such day(s) or (2) immediately if such Bank may not
lawfully continue to fund and maintain such LIBOR Advances to such
day(s), provided that in such event the conversion shall not be subject
to payment of a prepayment fee under Section 3.5(d). In the event that
any Bank is unable, for the reasons set forth above, to make, maintain
or fund its portion of any LIBOR Loan, such Bank shall fund such amount
as an Alternate Base Rate Advance for the same period of time, and such
amount shall be treated in all respects as an Alternate Base Rate
Advance.
(c) If, with respect to any proposed LIBOR Loan:
(i) the Administrative Agent reasonably determines
that, by reason of circumstances affecting the LIBOR Market
generally that are beyond the reasonable control of the Banks,
deposits in dollars (in the applicable amounts) are not being
offered to each of the Banks in the LIBOR Market for the
applicable Interest Period; or
(ii) the Majority Banks advise the Administrative
Agent that the LIBOR as determined by the Administrative Agent
will not adequately and fairly reflect the cost to such Banks
of making the applicable LIBOR Advances;
then the Administrative Agent forthwith shall give notice thereof to
Borrower and the Banks, whereupon until the Administrative Agent
notifies Borrower that the circumstances giving rise to such
suspension no longer exist, the obligation of the Banks to make any
future LIBOR Advances shall be suspended. If at the time of such notice
there is then pending a Request for Loan that specifies a LIBOR Loan,
such Request for Loan shall be deemed to specify an Alternate Base Rate
Loan.
(d) Upon payment or prepayment of any LIBOR Advance (other
than as the result of a conversion required under Section 3.5(b)) on a
day other than the last day in the applicable Interest Period (whether
voluntarily, involuntarily, by reason of acceler ation, or otherwise),
or upon the failure of Borrower to borrow on the date or in the amount
specified for a LIBOR Loan in any Request for Loan, Borrower shall pay
to each Bank an amount equal to the sum of
(i) $250; plus
(ii) the amount, if any, by which (x) the additional
interest that would have accrued (without any Applicable LIBOR
Spread) on the principal amount prepaid on account of the
LIBOR Advance had it remained outstanding until the last day
of the applicable Interest Period, exceeds (y) the interest
that Bank could recover by placing funds in the amount of the
prepayment on deposit in the LIBOR Market selected by that
Bank for a period beginning on the date of the prepayment and
ending on the last day of the
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applicable Interest Period, or for a comparable period for
which an appropriate rate quote may be obtained; plus
(iii) an amount equal to all costs and expenses which
that Bank incurred or reasonably expects to incur in
liquidating and reinvesting the prepayment.
Each Bank's determination of the amount of any prepayment fee or
failure to borrow fee payable under this Section 3.5(d) shall be
conclusive in the absence of manifest error.
(e) Any statement or certificate given by a Bank under this
Section 3.5 shall satisfy the requirements set forth in Section 3.5(c)
with respect to requests for reimbursement under Section 3.5(a)
(f) Should any Bank demand payment under the provisions of
Section 3.5(a) or should any Bank's LIBOR Advances be suspended under
the provisions of Section 3.5(b), then without limiting its obligation
to reimburse any Bank for compensation claimed by such Bank pursuant to
this Section 3.5, Borrower may, within 60 days following such
occurrence, treat that Bank as an "Affected Bank" under Section 3.4(d),
and exercise the remedies set forth in such Section 3.4(d).
3.6 Late Payments/Default Interest. If any installment of
principal or interest under the Notes or any other amount payable to the Banks
under any Loan Document is not paid when due, it shall thereafter bear interest
at a fluctuating interest rate per annum at all times equal to the sum of the
Alternate Base Rate plus the Applicable Alternate Base Rate Spread plus 2%, to
the extent permitted by applicable Law, until paid in full (whether before or
after judgment). Upon and during the continuance of any Event of Default, the
Indebtedness evidenced by the Notes shall, at the election of the Majority Banks
and upon notice to Borrower (and in lieu of interest provided for in the
preceding sentence), bear interest at a fluctuating interest rate per annum at
all times equal to the sum of the Alternate Base Rate plus the Applicable
Alternate Base Rate Spread plus 2%, to the extent permitted by applicable Law,
until no Event of Default exists (whether before or after judgment).
Notwithstanding the preceding sentence, after the occurrence of any Event of
Default under Sections 6.7, 6.10 or 6.16, the Indebtedness evidenced by the
Notes may not bear interest at the increased rate provided for in the preceding
sentence until such Event of Default has continued for at least 15 days, in the
case of Section 6.7, or 30 days, in the case of Sections 6.10 or 6.16.
3.7 Computation of Interest and Fees. All computations of
interest and fees hereunder shall be calculated on the basis of a year of 360
days and paid for the actual number of days elapsed (including the first day and
excluding the last day), which results in greater interest than if a year of 365
days were used. Any Loan that is repaid on the same day on which it is made
shall bear interest for one day.
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<PAGE> 43
3.8 Holidays. If any principal payment to be made by Borrower
on an Alternate Base Rate Loan shall come due on a day other than a Banking Day,
payment shall be made on the next succeeding Banking Day and the extension of
time shall be reflected in computing interest. If any principal payment to be
made by Borrower on a LIBOR Loan shall come due on a day other than a LIBOR
Market Day, payment shall be made on the next preceding or succeeding LIBOR
Market Day as determined by the Administrative Agent in accordance with the then
current banking practice in the LIBOR Market and the adjustment shall be
reflected in computing interest.
3.9 Payment Free of Taxes.
(a) Any payments made by any Party under the Loan Documents
shall be made free and clear of, and without reduction by reason of,
any tax, assessment or other charge imposed by any Governmental Agency,
central bank or comparable authority (other than taxes on income or
gross receipts generally applicable to banks). To the extent that
Borrower is obligated by applicable Laws to make any deduction or
withholding on account of taxes, assessments or other charges imposed
by any Governmental Agency from any amount payable to any Bank under
this Agreement, Borrower shall (a) make such deduction or withholding
and pay the same to the relevant Governmental Agency and (b) pay such
additional amount to that Bank as is necessary to result in that Bank's
receiving a net after-tax (or after-assessment or after-charge) amount
equal to the amount to which that Bank would have been entitled under
this Agreement absent such deduction or withholding. If and when
receipt of such payment results in an excess payment or credit to that
Bank on account of such taxes, assessments or other charges, that Bank
shall refund such excess to Borrower. Each Bank that is incorporated
under the Laws of a jurisdiction other than the United States of
America or any state thereof shall deliver to Borrower, with a copy to
the Administrative Agent, within twenty days after the Closing Date (or
such later date on which such Bank becomes a "Bank" hereunder), a
certificate signed by a Responsible Official of that Bank to the effect
that such Bank is entitled to receive payments of interest and other
amounts payable under this Agreement without deduction or withholding
on account of United States of America federal income taxes, which
certificate shall be accompanied by two copies of Internal Revenue
Service Form 1001 or Form 4224, as applicable, also executed by a
Responsible Official of that Bank. Each such Bank agrees (i) promptly
to notify the Administrative Agent and Borrower if any fact set forth
in such certificate ceases to be true and correct and (ii) to take such
steps as may be reasonably necessary to avoid any requirement of
applicable Laws that Borrower make any deduction or withholding for
taxes from amounts payable to that Bank under this Agreement.
(b) Without limiting its obligation to pay any additional
amount to a Bank pursuant to Section 3.9(a), Borrower may, within 60
days following any such payment by that Bank, treat that Bank as an
"Affected Bank" under Section 3.4(d), and exercise the remedies set
forth in such Section 3.4(d).
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<PAGE> 44
3.10 Funding Sources. Nothing in this Agreement shall be
deemed to obligate any Bank to obtain the funds for its share of any Loan in any
particular place or manner or to constitute a representation by any Bank that it
has obtained or will obtain the funds for its share of any Loan in any
particular place or manner.
3.11 Failure to Charge or Making of Payment Not Subsequent
Waiver. Any decision by any Bank not to require payment of any fee or costs, or
to reduce the amount of the payment required for any fee or costs, or to
calculate any fee or any cost in any particular manner, shall not limit or be
deemed a waiver of any Bank's right to require full payment of any fee or costs,
or to calculate any fee or any costs in any other manner. Any decision by
Borrower to pay any fee or costs shall not limit or be deemed a waiver of any
right of Borrower to protest or dispute the payment amount of such fee or costs.
3.12 Time and Place of Payments; Evidence of Payments;
Application of Payments. The amount of each payment hereunder, under the Notes
or under any Loan Document shall be made to the Administrative Agent at the
Administrative Agent's Office, for the account of each of the Banks or the
Administrative Agent, as the case may be, in lawful money of the United States
of America, without deduction, offset or counterclaim and in immediately
available funds on the day of payment (which must be a Banking Day). All
payments of principal received after 10:00 a.m., California time, on any Banking
Day, shall be deemed received on the next succeeding Banking Day for purposes of
calculating interest thereon. The amount of all payments received by the
Administrative Agent for the account of a Bank shall be promptly paid by the
Administrative Agent to that Bank in immediately available funds. Each Bank
shall keep a record of Advances made by it and payments of principal with
respect to each Note, and such record shall be presumptive evidence of the
principal amount owing under such Note; provided that failure to keep such
record shall in no way affect the Obligations of Borrower hereunder. Prior to
the Maturity Date or an acceleration of the maturity of the Loans, payments
under the Loan Documents shall be applied first to amounts owing thereunder
other than the outstanding principal balance under the Notes and second to the
outstanding principal balance under the Notes in a manner designated by Borrower
or, if no such designation is made prior to payment or, if a Default or Event of
Default shall have occurred and be continuing, as may be designated by the
Majority Banks. Following the Maturity Date or an acceleration of the maturity
of the Loans, payments and recoveries under the Loan Documents shall be applied
in a manner designated in Section 9.2(e).
3.13 Administrative Agent's Right to Assume Payments Will be
Made. Unless the Administrative Agent shall have been notified by Borrower prior
to the date on which any payment to be made by Borrower hereunder is due that
Borrower does not intend to remit such payment, the Administrative Agent may, in
its discretion (but shall not be so obligated), assume that Borrower has
remitted such payment when so due and the Administrative Agent may, in its
discretion and in reliance upon such assumption, make available to each Bank on
such payment date an amount equal to such Bank's Pro Rata Share of such assumed
payment. If Borrower has not in fact remitted such payment to the Administrative
Agent, each Bank shall forthwith on demand repay to the Administrative
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<PAGE> 45
Agent the amount of such assumed payment made available to such Bank, together
with interest thereon in respect of each day from and including the date such
amount was made available by the Administrative Agent to such Bank to but
excluding the date such amount is repaid to the Administrative Agent at a rate
per annum equal to the actual cost to the Administrative Agent of funding such
amount as notified by the Administrative Agent to such Bank. In furtherance of
the foregoing, Borrower hereby authorizes the Administrative Agent, through Bank
of America, to automatically debit the Designated Deposit Account (or, upon
notice to Borrower, any other deposit account maintained by Borrower with Bank
of America) for payments as and when due hereunder.
3.14 Survivability. All of Borrower's obligations under this
Article 3 shall survive for six months following the date on which all Loans
hereunder were fully paid.
3.15 Bank Calculation Certificate. Any request for
compensation pursuant to Section 3.4 or 3.5 shall be accompanied by a statement
of an officer of the Bank requesting such compensation and describing the
methodology used by such Bank in calculating the amount of such compensation,
which methodology (i) may consist of any reasonable averaging and attribution
methods and (ii) in the case of Section 3.5 hereof shall be consistent with the
methodology used by such Bank in making similar calculations in respect of loans
or commitments to other borrowers.
Article 4
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to the Banks that:
4.1 Existence and Qualification; Power; Compliance with Law.
Borrower is a corporation duly organized, validly existing and in good standing
under the Laws of Delaware, and its certificate of incorporation does not
provide for the termination of its existence. Borrower is duly qualified or
registered to transact business as a foreign corporation in the State of
California, and in each other jurisdiction in which the conduct of its business
or the ownership of its properties makes such qualification or registration
necessary, except where the failure so to qualify or register would not
constitute a Material Adverse Effect. Borrower has all requisite corporate power
and authority to conduct its business, to own and lease its Properties and to
execute, deliver and perform all of its obligations under the Loan Documents.
All outstanding shares of capital stock of Borrower are duly authorized, validly
issued, fully paid, non-assessable, and were issued in compliance with all
applicable state and federal securities Laws, except where the failure to so
comply would not constitute a Material Adverse Effect. Borrower is in
substantial compliance with all Laws and other legal requirements applicable to
its business, has obtained all authorizations, consents, approvals, orders,
licenses and permits (collectively, "Authorizations") from, and has accomplished
all filings, registrations and qualifications with, or obtained exemptions from
any of the foregoing from, any Governmental Agency that are necessary for the
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<PAGE> 46
transaction of its business, except where the failure so to obtain
Authorizations, comply, file, register, qualify or obtain exemptions does not
constitute a Material Adverse Effect.
4.2 Authority; Compliance with Other Instruments and
Government Regulations. The execution, delivery, and performance by Borrower,
and by each Guarantor Subsidiary of Borrower, of the Loan Documents to which it
is a Party, have been duly authorized by all necessary corporate action, and do
not:
(a) require any consent or approval not heretofore obtained of
any stockholder, partner, security holder, or creditor of such Party;
(b) violate or conflict with any provision of such Party's
charter, certificate or articles of incorporation or bylaws;
(c) result in or require the creation or imposition of any
Lien or Right of Others upon or with respect to any Property now owned
or leased or hereafter acquired by such Party;
(d) constitute a "transfer of an interest" or an "obligation
incurred" that is avoidable by a trustee under Section 548 of the
Bankruptcy Code of 1978, as amended, or constitute a "fraudulent
transfer" or "fraudulent obligation" within the meaning of the Uniform
Fraudulent Transfer Act as enacted in any jurisdiction or any analogous
Law;
(e) violate any Requirement of Law applicable to such Party;
or
(f) result in a breach of or constitute a default under, or
cause or permit the acceleration of any obligation owed under, any
indenture or loan or credit agreement or any other Contractual
Obligation to which such Party or any of its Property is bound or
affected;
and neither Borrower nor any Subsidiary of Borrower is in violation of, or
default under, any Requirement of Law or Contractual Obligation, or any
indenture, loan or credit agreement described in Section 4.2(f) in any respect
that would constitute a Material Adverse Effect.
4.3 No Governmental Approvals Required. Except such as have
heretofore been obtained, no authorization, consent, approval, order, license or
permit from, or filing, registration, or qualification with, or exemption from
any of the foregoing from, any Governmental Agency is or will be required to
authorize or permit the execution, delivery and performance by Borrower or any
Significant Subsidiary of Borrower of the Loan Documents to which it is a Party.
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<PAGE> 47
4.4 Subsidiaries.
(a) Schedule 4.4 correctly sets forth the names, the form of
legal entity and jurisdictions of organization of all Subsidiaries of
Borrower as of the Closing Date (giving effect to the Lewis Homes
Acquisition) and identifies each such Subsidiary that is a Consolidated
Subsidiary, a Significant Subsidiary, a Suspended Significant
Subsidiary, a Guarantor Subsidiary, a Foreign Subsidiary and a
Financial Subsidiary. As of the Closing Date, unless otherwise
indicated in Schedule 4.4, all of the outstanding shares of capital
stock, or all of the units of equity interest, as the case may be, of
each Subsidiary indicated thereon are owned of record and beneficially
by Borrower or one of such Subsidiaries, and all such shares or equity
interests so owned were issued in compliance with all state and federal
securities Laws and are duly authorized, validly issued, fully paid and
non-assessable (other than with respect to required capital
contributions to any joint venture in accordance with customary terms
and provisions of the related joint venture agreement), except where
the failure to so comply would not constitute a Material Adverse
Effect, and are free and clear of all Liens and Rights of Others,
except for Permitted Encumbrances and Permitted Rights of Others.
(b) Each Significant Subsidiary is as of the date of this
Agreement, and will be as of the Closing Date, a legal entity of the
form described for that Subsidiary in Schedule 4.4, and is duly
organized, validly existing and in good standing under the Laws of its
jurisdiction of organization, is duly qualified to do business as a
foreign organization and is in good standing as such in each
jurisdiction in which the conduct of its business or the ownership or
leasing of its Properties makes such qualification necessary (except
where the failure to be so duly qualified and in good standing does not
constitute a Material Adverse Effect) and has all requisite power and
authority to conduct its business, to own and lease its Properties and
to execute, deliver and perform the Loan Documents to which it is a
Party.
(c) Each Significant Subsidiary is in substantial compliance
with all Laws and other requirements applicable to its business and has
obtained all Authorizations from, and each such Significant Subsidiary
has accomplished all filings, registrations, and qualifications with,
or obtained exemptions from any of the foregoing from, any Governmental
Agency that are necessary for the transaction of its business, except
where the failure so to obtain Authorizations, comply, file, register,
qualify or obtain exemptions does not constitute a Material Adverse
Effect.
4.5 Financial Statements. Borrower has furnished to each Bank
the following financial statements:
(a) the audited consolidated financial statements of Borrower
and its Consolidated Subsidiaries as at November 30, 1997 and for the
Fiscal Year then ended;
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<PAGE> 48
(b) the unaudited consolidated and consolidating (in
accordance with past practices of Borrower) financial statements of
Borrower and its Consolidated Subsidiaries as at August 31, 1998 for
the Fiscal Quarter then ended and for the portion of the Fiscal Year
ended with such Fiscal Quarter.
The audited financial statements described in clause (a) are in accordance with
the books and records of Borrower and its Consolidated Subsidiaries, were
prepared in accordance with Generally Accepted Accounting Principles and fairly
present in accordance with Generally Accepted Accounting Principles consistently
applied the consolidated financial condition and results of operations of
Borrower and its Consolidated Subsidiaries as at the date and for the period
covered thereby. The unaudited financial statements described in clause (b) are
in accordance with the books and records of Borrower and its Consolidated
Subsidiaries, were prepared in accordance with Generally Accepted Accounting
Principles and fairly present in accordance with Generally Accepted Accounting
Principles consistently applied the consolidated and consolidating financial
condition and results of operation of Borrower and its Consolidated Subsidiaries
as at the date and for the period covered thereby.
4.6 No Other Liabilities; No Material Adverse Effect. Borrower
and its Consolidated Subsidiaries do not have any material liability or material
contingent liability not reflected or disclosed in the financial statements or
in the notes to the financial statements described in Section 4.5, other than
liabilities and contingent liabilities arising pursuant to the Lewis Homes
Acquisition or in the ordinary course of business subsequent to August 31, 1998.
Since August 31, 1998, no event or circumstance has occurred that constitutes a
Material Adverse Effect with respect to Borrower and its Subsidiaries.
4.7 Title to Assets. As of the Closing Date, Borrower and its
Consolidated Subsidiaries have good and valid title to all of the assets
reflected in the financial statements described in Section 4.5 owned by them or
any of them (other than assets disposed of in the ordinary course of business)
and all other assets owned on the date of this Agreement, free and clear of all
Liens and Rights of Others other than (a) those reflected or disclosed in the
notes to the financial statements described in Section 4.5, (b) immaterial Liens
or Rights of Others not required under Generally Accepted Accounting Principles
to be so reflected or disclosed, (c) Liens permitted pursuant to Section 6.7,
(d) Permitted Rights of Others, and (e) such existing Liens or Rights of Others
as are described on Schedule 4.7 hereto.
4.8 Intangible Assets. Borrower and its Subsidiaries own, or
possess the unrestricted right to use, all trademarks, trade names, copyrights,
patents, patent rights, licenses and other intangible assets that are necessary
in the conduct of their businesses as now operated, and no such intangible
asset, to the best knowledge of Borrower, conflicts with the valid trademark,
trade name, copyright, patent, patent right or intangible asset of any other
Person to the extent that such conflict would constitute a Material Adverse
Effect.
4.9 Existing Indebtedness and Contingent Guaranty Obligations.
As of the Closing Date, except as set forth in Schedule 4.9, neither Borrower
nor any of its Subsidiaries
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<PAGE> 49
has (a) any Indebtedness owed to any Person or (b) outstanding any Contingent
Guaranty Obligation with respect to obligations of another Person that is not a
Subsidiary of Borrower.
4.10 Governmental Regulation. Neither Borrower nor any of its
Subsidiaries is subject to regulation under the Public Utility Holding Company
Act of 1935, the Federal Power Act, the Interstate Commerce Act or the
Investment Company Act of 1940.
4.11 Litigation. There are no actions, suits, or proceedings
pending or, to the best knowledge of Borrower, threatened against or affecting
Borrower or any of its Subsidiaries or any Property of any of them before any
Governmental Agency which would constitute a Material Adverse Effect.
4.12 Binding Obligations. Each of the Loan Documents to which
Borrower or any Guarantor Subsidiary of Borrower is a Party will, when executed
and delivered by Borrower or the Guarantor Subsidiary, as the case may be,
constitute the legal, valid and binding obligation of Borrower or the Guarantor
Subsidiary, as the case may be, enforceable against Borrower or the Guarantor
Subsidiary, as the case may be, in accordance with its terms, except as
enforcement may be limited by Debtor Relief Laws or by equitable principles
relating to the granting of specific performance and other equitable remedies as
a matter of judicial discretion.
4.13 No Default. No event has occurred and is continuing that
is a Default or an Event of Default.
4.14 Pension Plans. As of the Closing Date, all contributions
required to be made under any Pension Plan maintained by Borrower or any of its
ERISA Affiliates (or to which Borrower or any ERISA Affiliate contributes or is
required to contribute) have been made or accrued in the balance sheet of
Borrower and its Consolidated Subsidiaries as at November 30, 1995. There is no
"accumulated funding deficiency" within the meaning of Section 302 of ERISA or
any liability to the PBGC (other than for premiums) with respect to any such
Pension Plan other than a Multiemployer Plan.
4.15 Tax Liability. Borrower and its Subsidiaries have filed
all tax returns which are required to be filed, and have paid, or made provision
for the payment of, all taxes which have become due pursuant to said returns or
pursuant to any assessment received by Borrower or any Subsidiary, except (a)
such taxes, if any, as are being contested in good faith by appropriate
proceedings (and with respect to which Borrower or its Subsidiary has
established adequate reserves for the payment of the same), and (b) such taxes
the failure of which to pay will not constitute a Material Adverse Effect.
4.16 Regulation U. Neither Borrower nor any of its
Subsidiaries is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of "purchasing" or "carrying"
any "margin stock" within the meanings of Regulation U of the Board of Governors
of the Federal Reserve System, and no Loan
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<PAGE> 50
hereunder will be used to purchase or carry any such margin stock in violation
of Regulation U.
4.17 Environmental Matters. To the best knowledge of Borrower,
Borrower and its Subsidiaries are in substantial compliance with all applicable
Laws relating to environmental protection where the failure to comply would
constitute a Material Adverse Effect. To Borrower's best knowledge, neither
Borrower nor any of its Subsidiaries has received any notice from any
Governmental Agency respecting the alleged violation by Borrower or any
Subsidiary of such Laws which would constitute a Material Adverse Effect and
which has not been or is not being corrected.
4.18 Disclosure. The information provided by Borrower to the
Banks in connection with this Agreement or any Loan, taken as a whole, has not
contained any untrue statement of a material fact and has not omitted a material
fact necessary to make the statements contained therein not misleading under the
totality of the circumstances existing at the date such information was provided
and in the context in which it was provided.
4.19 Projections. As of the Closing Date, the assumptions upon
which the Projections are based are reasonable and consistent with each other
assumption and with all facts known to Borrower and the Projections are
reasonably based on those assumptions. Nothing in this Section 4.19 shall be
construed as a representation or warranty as of any date other than the Closing
Date or that the Projections will in fact be achieved by Borrower.
4.20 Year 2000 Issues. Borrower has adopted a plan (the "Year
2000 Plan") which, in the judgment of senior management of Borrower, adequately
addresses the operational and financial issues (the "Year 2000 Issues") arising
from data in Borrower's computer-based data processing and information systems
respecting dates subsequent to December 31, 1999 (and, to the extent relevant,
arising from such data in the data processing systems of its material customers
and vendors). The Year 2000 Plan is in the process of implementation, Borrower
believes that it will be implemented in all material respects by December 31,
1999 and, as a result thereof, Year 2000 Issues do not present a reasonable
likelihood of resulting in a Material Adverse Effect.
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<PAGE> 51
Article 5
AFFIRMATIVE COVENANTS
(OTHER THAN INFORMATION AND
REPORTING REQUIREMENTS)
As long as any Loan remains unpaid, or any other Obligation remains
unpaid, or any portion of the Commitment remains outstanding, Borrower shall,
and shall cause each of its Subsidiaries to, unless the Administrative Agent
(with the approval of the Majority Banks) otherwise consents in writing:
5.1 Payment of Taxes and Other Potential Liens. Pay and
discharge promptly, all taxes, assessments, and governmental charges or levies
imposed upon Borrower or any of its Subsidiaries, upon their respective Property
or any part thereof, upon their respective income or profits or any part
thereof, except any tax, assessment, charge, or levy that is not yet past due,
or is being contested in good faith by appropriate proceedings, as long as
Borrower or its Subsidiary has established and maintains adequate reserves for
the payment of the same and by reason of such nonpayment no material Property of
Borrower or its Subsidiaries is subject to a risk of loss or forfeiture.
5.2 Preservation of Existence. Preserve and maintain their
respective existence, licenses, rights, franchises, and privileges in the
jurisdiction of their formation and all authorizations, consents, approvals,
orders, licenses, permits, or exemptions from, or registrations with, any
Governmental Agency that are necessary for the transaction of their respective
business, and qualify and remain qualified to transact business in each
jurisdiction in which such qualification is necessary in view of their
respective business or the ownership or leasing of their respective Properties;
provided that (a) the failure to preserve and maintain any particular right,
franchise, privilege, authorization, consent, approval, order, license, permit,
exemption, or registration, or to qualify or remain qualified in any
jurisdiction, that does not constitute a Material Adverse Effect will not
constitute a violation of this covenant, and (b) nothing in this Section 5.2
shall prevent any consolidation or merger or disposition of assets permitted by
Sections 6.2 or 6.3 or shall prevent the termination of the business or
existence (corporate or otherwise) of any Subsidiary of Borrower which in the
reasonable judgment of the management of Borrower is no longer necessary or
desirable.
5.3 Maintenance of Properties. Maintain, preserve and protect
all of their respective real Properties in good order and condition, subject to
wear and tear in the ordinary course of business and damage caused by the
natural elements, and not permit any waste of their respective real Properties,
except that the failure to so maintain, preserve or protect any particular real
Property, or the permitting of waste on any particular real Property, where such
failure or waste with respect to all real Properties of Borrower and its
Subsidiaries, in the aggregate, would not constitute a Material Adverse Effect
will not constitute a violation of this covenant.
5.4 Maintenance of Insurance. Maintain insurance with
responsible insurance companies in such amounts (subject to deductibles and
retentions that are
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<PAGE> 52
reasonable and, if reasonably available, at least as protective as recent
historical practices of Borrower) and against such risks as is usually carried
by responsible companies of similar size engaged in similar businesses and
owning similar assets in the general areas in which Borrower and its
Subsidiaries operate.
5.5 Compliance with Laws. Comply with all Requirements of Laws
noncompliance with which would constitute a Material Adverse Effect, except that
Borrower and its Subsidiaries need not comply with a Requirement of Law then
being contested by any of them in good faith by appropriate procedures, so long
as such contest (or a bond or surety posted in connection therewith) operates as
a stay of enforcement of any penalty that would otherwise apply as a result of
such failure to comply.
5.6 Inspection Rights. At any time during regular business
hours and as often as reasonably requested (and, in any event, upon 24 hours'
prior notice), permit any Bank or any appropriately designated employee, agent
or representative thereof at the expense of such Bank to examine, audit and make
copies and abstracts from the records and books of account of, and to visit and
inspect the Properties of Borrower and its Subsidiaries, and to discuss the
affairs, finances and accounts of Borrower and its Subsidiaries with any of
their officers or employees; provided that none of the foregoing unreasonably
interferes with the normal business operations of Borrower or any of its
Subsidiaries and that the Banks shall engage in any such inspections on a
cooperative basis, if reasonably possible.
5.7 Keeping of Records and Books of Account. Keep adequate
records and books of account fairly reflecting all financial transactions in
conformity with Generally Accepted Accounting Principles applied on a consistent
basis (except for changes concurred with by Borrower's independent certified
public accountants) and all applicable requirements of any Governmental Agency
having jurisdiction over Borrower or any of its Subsidiaries.
5.8 Use of Proceeds. Use the proceeds of the Loan solely to
(a) provide a portion of the Cash deliveries by Borrower with respect to the
Lewis Homes Acquisition pursuant to the Lewis Homes Acquisition Agreement, (b)
pay or prepay Indebtedness secured by Liens on assets acquired by Borrower or
any of its Subsidiaries pursuant to the Lewis Homes Acquisition and/or (c) repay
Indebtedness incurred by Borrower under the Revolving Loan Agreement or one or
more Money Market Facilities the proceeds of which were used for either or both
of the foregoing purposes.
5.9 Subsidiary Guaranty. Cause each of its Guarantor
Subsidiaries hereafter formed, acquired or qualifying as a Guarantor Subsidiary,
to execute and deliver a joinder of the Subsidiary Guaranty promptly following
such formation, acquisition or qualification.
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Article 6
NEGATIVE COVENANTS
As long as any Loan remains unpaid, or any other Obligation remains
unpaid, or any portion of the Commitment remains outstanding, Borrower shall
not, and shall not permit any of its Subsidiaries to, unless the Administrative
Agent (with the approval of the Majority Banks) otherwise consents in writing:
6.1 Payment or Prepayment of Subordinated Obligations. Make an
optional or unscheduled payment or prepayment of any principal (including an
optional or unscheduled sinking fund payment), interest or any other amount with
respect to any Subordinated Obligation, or make a purchase or redemption of any
Subordinated Obligation, or make any payment with respect to any Subordinated
Obligation in violation of the subordination provisions in the instruments
governing such Subordinated Obligation if a Default or Event of Default then
exists or would result therefrom.
6.2 Dispositions. Make any Disposition, except (a) a
Disposition to Borrower or to a wholly-owned Subsidiary of Borrower and (b) a
Disposition of a Foreign Subsidiary that does not hold a majority of its assets
in the Republic of France.
6.3 Mergers and Sale of Assets. Merge or consolidate with or
into any Person, or sell all or substantially all of its assets to any Person,
except, subject to Section 6.6:
(a) a merger of Borrower into a wholly-owned Subsidiary of
Borrower that has nominal assets and liabilities, the primary purpose
of which is to effect the reincorporation of Borrower in another state;
(b) mergers or consolidations of a Subsidiary of Borrower into
Borrower (with Borrower as the surviving corporation) or into any other
wholly-owned Subsidiary of Borrower;
(c) liquidations of any Subsidiary of Borrower into Borrower
or into a wholly-owned Subsidiary of Borrower;
(d) a merger of Borrower or one of its Subsidiaries with
another Person if (i) Borrower or such Subsidiary is the corporation
surviving such merger and (ii) immediately after giving effect to such
merger, no Default or Event of Default shall have occurred and be
continuing; or
(e) Dispositions permitted under Section 6.2.
6.4 Investments and Acquisitions. Make any Acquisition, or
enter into an agreement to make any Acquisition, or make or suffer to exist any
Investment, other than:
(a) Investments consisting of Cash or Cash Equivalents;
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(b) advances to employees of Borrower or its Subsidiaries for
travel, housing expenses, stock option plans, or otherwise in
connection with their employment or the business of Borrower or any of
its Subsidiaries;
(c) Investments of Borrower in any of its wholly-owned
Subsidiaries and Investments of any Subsidiary of Borrower in Borrower
or any of Borrower's wholly-owned Subsidiaries;
(d) Acquisitions of or Investments in Persons engaged in the
same businesses as Borrower and its Subsidiaries, or in a business
reasonably related to such businesses;
(e) Acquisitions and Investments by the Mortgage Company
permitted under the Mortgage Warehousing Agreement;
(f) Acquisitions of or Investments in Persons engaged
primarily in businesses in addition to those permitted by Sections
6.4(d), provided that the aggregate cost of all such Acquisitions and
Investments made after November 30, 1996 does not exceed $5,000,000 in
the aggregate;
(g) Investments in a Trust Issuer and Investments by a Trust
Issuer in Borrower; and
(h) Investments in existence on the Closing Date disclosed on
Schedule 6.4;
but in all events, subject to the restrictions of Section 6.16.
6.5 ERISA Compliance. Permit any Pension Plan maintained by
Borrower or any of its ERISA Affiliates (or to which Borrower or any ERISA
Affiliate contributes or is required to contribute), other than a Multiemployer
Plan, to incur any material "accumulated funding deficiency," as such term is
defined in Section 302 of ERISA, unless waived, or permit any Pension Plan
maintained by any of them to suffer a Termination Event or incur withdrawal
liability under any Multiemployer Plan if any of such events would result in a
liability of Borrower or any ERISA affiliate exceeding in the aggregate
$5,000,000.
6.6 Change in Business. Engage in any business other than the
businesses as now conducted by Borrower or its Subsidiaries, and any business
reasonably related to such businesses.
6.7 Liens and Negative Pledges. Create, incur, assume, or
suffer to exist, any Lien of any nature upon or with respect to any of their
respective Properties, whether now owned or hereafter acquired, or enter or
suffer to exist any Contractual Obligation wherein
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Borrower or any of its Subsidiaries agrees not to grant any Lien on any of their
Properties, except:
(a) Liens and Contractual Obligations existing on the date
hereof and described in Schedule 4.7, provided that the obligations
secured by such Liens are not increased and that no such Lien extends
to any Property of Borrower or any Subsidiary other than the Property
subject to such Lien on the Closing Date;
(b) Liens on Property of any Financial Subsidiary or Foreign
Subsidiary securing Indebtedness of that Financial Subsidiary or
Foreign Subsidiary;
(c) Liens on Property securing Indebtedness of Borrower or any
of its Subsidiaries provided that (i) aggregate Indebtedness secured by
all such Liens shall at no time exceed $100,000,000 and (ii) the
aggregate book value of the Property so encumbered shall at no time
exceed 300% of the aggregate Indebtedness so secured.
(d) Liens consisting of a Capital Lease covering personal
Property;
(e) Permitted Encumbrances;
(f) attachment, judgment and other similar Liens arising in
connection with court proceedings; provided that the execution or
enforcement of such Lien is effectively stayed and the claims secured
thereby do not in the aggregate exceed $10,000,000 and are being
contested in good faith by appropriate proceedings timely commenced and
diligently prosecuted;
(g) Liens existing on any asset of any Person at the time such
Person becomes a Subsidiary and not created in contemplation of such
event;
(h) Liens on any asset of any Person existing at the time such
Person is merged or consolidated with or into Borrower or any of its
Subsidiaries and not created in contemplation of such event;
(i) Liens existing on any asset prior to the acquisition
thereof by Borrower or any of its Subsidiaries and not created in
contemplation of such acquisition;
(j) Liens arising out of the refinancing, extension, renewal
or refunding of any Indebtedness secured by any Lien permitted by any
of the foregoing clauses of this Section, provided that such
Indebtedness is not increased and is not secured by additional assets;
(k) Liens arising in the ordinary course of business which (i)
do not secure Indebtedness, (ii) do not secure any obligation in an
amount exceeding $200,000 individually, or $500,000 in the aggregate,
and (iii) do not in the aggregate materially
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detract from the value of the assets covered by such Liens or
materially impair the use thereof in the operation of Borrower's
business;
(l) Liens not otherwise permitted by the foregoing clauses of
this Section which secure Indebtedness not exceeding $500,000 in the
aggregate;
(m) Liens referred to in the last sentence of the definition
of "Bond Facility" encumbering (i) real property owned by Borrower or
one of its Subsidiaries on November 30, 1996 or (ii) other real
property of Borrower or one of its Subsidiaries provided that the
aggregate obligations secured by such Liens does not at any time exceed
$10,000,000 plus the amount by which aggregate Indebtedness then
secured by Liens described in Section 6.7(c) is less than $100,000,000;
(n) a Contractual Obligation wherein Borrower or any of its
Subsidiaries agrees not to a grant any Lien on any of their Properties,
if such Contractual Obligation does not, by its terms, prohibit the
grant of a Lien in favor of the Administrative Agent and the Banks with
respect to the Obligations (and Borrower shall, as soon as reasonably
possible, provide to the Banks a copy of such Contractual Obligation);
and
(o) Liens on Property of a Joint Venture.
6.8 Transactions with Affiliates. Enter into any transaction
of any kind with any Affiliate of Borrower other than (a) a transaction that
results in Subordinated Obligations, or (b) a transaction between or among
Borrower and its wholly-owned Subsidiaries, or (c) a transaction that has been
approved by a resolution adopted by the board of directors of Borrower with the
favorable vote of a majority of the directors who have no financial or other
interest in the transaction or by the vote of a majority of the outstanding
shares of capital stock of Borrower, or (d) an arm's length transaction entered
into on terms and under conditions not less favorable to Borrower or any of its
Subsidiaries than could be obtained from a Person that is not an Affiliate of
Borrower.
6.9 Consolidated Tangible Net Worth. Permit Consolidated
Tangible Net Worth to be, at the end of any Fiscal Quarter, less than an amount
equal to (a) $300,000,000, plus (b) an amount equal to 50% of aggregate of
Consolidated Net Income for each Fiscal Quarter contained in the fiscal period
commencing on December 1, 1996 and ending as of the last day of such Fiscal
Quarter (provided that there shall be no reduction hereunder in the event of a
consolidated net loss in any such Fiscal Quarter), plus (c) an amount equal to
50% of the cumulative net proceeds received by Borrower from the issuance of its
capital stock subsequent to November 30, 1996, plus (d) an amount equal to 50%
of the cumulative net proceeds received by Borrower from the issuance of the
Trust Preferred Capital Securities subsequent to November 30, 1996 and minus (e)
the cumulative cost to Borrower for the repurchase, if any, of its capital stock
subsequent to November 30, 1996 (provided that such deduction shall have an
aggregate cap of $40,000,000 for the measurement at the end of any Fiscal
Quarter in the Fiscal Year ending November 30, 1997, $30,000,000 for the
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measurement at the end of any Fiscal Quarter in the Fiscal Year ending November
30, 1998 and $20,000,000 for the measurement at the end of any Fiscal Quarter in
any Fiscal Year thereafter).
6.10 Consolidated Leverage Ratio. Permit the Consolidated
Leverage Ratio to be, at the end of any Fiscal Quarter, greater than 2.25 to
1.00; provided that:
(a) in the event that a portion of the Commitments (as such
term is defined in the Revolving Loan Agreement) of $30,000,000 or more
is used to finance Acquisitions during any three consecutive Fiscal
Quarters by Borrower or its Subsidiaries, the foregoing maximum
permitted ratio may, upon the request of Borrower to the Administrative
Agent, be increased to 2.65 to 1.00 for the three (3) consecutive
Fiscal Quarters next ending after such Acquisition, provided that (i)
an increase under this clause (a) has not been in effect with respect
to any of the four (4) Fiscal Quarters prior to the first Fiscal
Quarter for which an adjustment is to be made, (ii) Borrower's request
is accompanied by 12-month cash flow, balance sheet and income
statement projections, reasonably acceptable to the Administrative
Agent and for delivery to the Banks, demonstrating that, giving effect
to the Acquisition and to Borrower's election under this Section,
Borrower will be in compliance with Sections 6.9, 6.10 and 6.11 for at
least the next ending four (4) Fiscal Quarters and (iii) Borrower must
remain in compliance with Section 6.11 (without giving effect to any
adjustment permitted thereunder) during each Fiscal Quarter for which
an adjustment is applicable under this Section 6.10(a);
(b) if an election under Section 6.10(a) is not then in
effect, the foregoing ratio shall, if needed, be increased to 2.50 to
1.00 for a period of up to two (2) consecutive Fiscal Quarters,
provided that (i) this clause (b) has not been in effect with respect
to any of the four (4) Fiscal Quarters prior to the first Fiscal
Quarter for which an adjustment is needed, (ii) no other Default or
Event of Default then exists, (iii) Borrower furnishes to the
Administrative Agent no later than 60 days after the end of the first
Fiscal Quarter for which such adjustment is needed, 12-month cash flow,
balance sheet and income statement projections, reasonably acceptable
to the Administrative Agent and for delivery to the Banks,
demonstrating that Borrower will be in compliance with Sections 6.9,
6.10 and 6.11 for at least the next ending two (2) Fiscal Quarters,
(iv) as of the end of each Fiscal Quarter for which such adjustment is
applicable, the Consolidated Interest Coverage Ratio is not less than
2.50 to 1.00 and (v) Borrower has not incurred Operating Losses for the
first Fiscal Quarter for which such adjustment is needed and the
immediately preceding Fiscal Quarter; and
(c) notwithstanding Section 6.10(a) or 6.10(b), the foregoing
ratio shall automatically be reduced to 1.75 to 1.00 as of the end of
any Fiscal Quarter if Borrower has incurred an Operating Loss for that
Fiscal Quarter and the immediately preceding Fiscal Quarter and shall
remain at 1.75 to 1.00 until the first Fiscal Quarter thereafter for
which there is no Operating Loss.
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6.11 Consolidated Interest Coverage Ratio. Permit the
Consolidated Interest Coverage Ratio to be, at the end of any Fiscal Quarter,
less than 2.25 to 1.00; provided that the foregoing ratio shall, upon the
request of Borrower to the Administrative Agent, be decreased for a period of
two (2) Fiscal Quarters provided that (a) an adjustment under this Section 6.11
has not been in effect with respect to any of the four (4) Fiscal Quarters prior
to the first Fiscal Quarter for which an adjustment is to be made, (b) no
Default or Event of Default then exists and (c) Borrower furnishes to the
Administrative Agent 12-month cash flow, balance sheet and income statement
projections, reasonably acceptable to the Administrative Agent, demonstrating
that Borrower will be in compliance with Sections 6.9, 6.10 and 6.11 for at
least the next ending four (4) Fiscal Quarters. Subject to satisfaction of the
foregoing conditions, the decrease in the ratio for the first Fiscal Quarter
shall be to 1.75 to 1.00 and the decrease for the second Fiscal Quarter shall be
to a level (in no event higher than 2.25:1.00) that is 0.25 higher than the
actual Consolidated Interest Coverage Ratio for such first Fiscal Quarter (e.g.,
from 1.80 to 1.00 improving to at least 2.05 to 1.00).
6.12 Distributions. Make any Distribution (other than a
Distribution made to Borrower or to a Guarantor Subsidiary) if an Event of
Default then exists or if an Event of Default or Default would result therefrom.
6.13 Amendments. Amend, waive or terminate any provision in
any instrument or agreement governing Subordinated Obligations unless such
amendment, waiver or termination would not be materially adverse to the
interests of the Banks under this Agreement.
6.14 Hostile Tender Offers. Make any offer to the shareholders
of a publicly held corporation or business entity to purchase or acquire, or
consummate such a purchase or acquisition of, more than 5% of the shares of
capital stock or analogous ownership interests in such a corporation or business
entity if the board of directors or analogous body of such corporation or
business entity has notified Borrower that it opposes such offer or purchase,
except for consideration which consists solely of shares of capital stock or
other equity securities of Borrower or any of its Subsidiaries.
6.15 Inventory. Permit, as of the end of any Fiscal Quarter,
the book value of Domestic Unimproved Land to exceed an amount equal to 100% of
Consolidated Tangible Net Worth.
6.16 Certain Investments. Make any Investment (a) in any
Foreign Subsidiary, (b) in any Financial Subsidiary other than a Trust Issuer,
or (c) in any Person that is not a wholly owned Subsidiary of Borrower
(collectively, "Specified Entities") if, giving effect thereto, the aggregate
amount of all such Investments made after November 30, 1996 exceeds the sum of
(i) $30,000,000 plus (ii) the aggregate amount of Cash Distributions declared
and paid by all Specified Entities to Borrower after November 30, 1996, plus
(iii) the aggregate amount of capital of Specified Entities returned to Borrower
after November 30, 1996.
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6.17 Money Market Indebtedness. Permit, for any consecutive
period of more than one (1) Banking Day, at any time the sum of the aggregate
outstanding principal amount of the Loans (as such term is defined in the
Revolving Loan Agreement) plus the Letter of Credit Usage (as such term is
defined in the Revolving Loan Agreement) plus the Money Market Outstandings (as
such term is defined in the Revolving Loan Agreement) plus the Swing Line
Outstandings (as such term is defined in the Revolving Loan Agreement) to exceed
the Commitments (as such term is defined in the Revolving Loan Agreement).
6.18 Domestic Standing Inventory. Permit, as of the last day
of any Fiscal Quarter that immediately follows a Fiscal Quarter on the last day
of which the Consolidated Leverage Ratio was in excess of 2.25:1.00, Domestic
Standing Inventory to exceed an amount equal to 15% of Net Orders received
during the four most recently ended Fiscal Quarters.
6.19 Future Subsidiaries. Permit, as of the last day of any
Fiscal Quarter, the total assets of all Subsidiaries of Borrower (other than
Guarantor Subsidiaries, Financial Subsidiaries, Foreign Subsidiaries and any
Trust Issuer) that are formed after the Closing Date to exceed 10% of the
consolidated total assets (other than assets of Financial Subsidiaries or
Foreign Subsidiaries) of Borrower and its Subsidiaries as of such date.
Article 7
INFORMATION AND REPORTING REQUIREMENTS
7.1 Financial and Business Information of Borrower and Its
Subsidiaries. As long as any Loan remains unpaid or any other Obligation remains
unpaid, or any portion of the Commitment remains outstanding, Borrower shall,
unless the Administrative Agent (with the approval of the Majority Banks)
otherwise consents in writing, deliver to the Administrative Agent and each of
the Banks (except as otherwise provided below) at its own expense:
(a) As soon as reasonably possible, and in any event within 60
days after the close of each Fiscal Quarter of Borrower (other than the
fourth Fiscal Quarter), (i) the consolidated and consolidating balance
sheet of Borrower and its Consolidated Subsidiaries as of the end of
such Fiscal Quarter, setting forth in comparative form the
corresponding figures for the corresponding Fiscal Quarter of the
preceding Fiscal Year, if available, and (ii) the consolidated and
consolidating statements of profit and loss and the consolidated
statements of cash flows of Borrower and its Consolidated Subsidiaries
for such Fiscal Quarter and for the portion of the Fiscal Year ended
with such Fiscal Quarter, setting forth in comparative form the
corresponding periods of the preceding Fiscal Year. Such consolidated
and consolidating balance sheets and statements shall be prepared in
reasonable detail in accordance with Generally Accepted Accounting
Principles (other than those which require footnote disclosure of
certain matters) consistently applied, and shall be certified by the
principal financial officer of Borrower, subject to normal year-end
accruals and audit adjustments;
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(b) As soon as reasonably possible, and in any event within 90
days after the close of each Fiscal Year of Borrower, (i) the
consolidated and consolidating (in accordance with past practices of
Borrower) balance sheets of Borrower and its Consolidated Subsidiaries
as at the end of such Fiscal Year, setting forth in comparative form
the corresponding figures at the end of the preceding Fiscal Year and
(ii) the consolidated and consolidating (in accordance with past
practices of Borrower) statements of profit and loss and the
consolidated statements of cash flows of Borrower and its Consolidated
Subsidiaries for such Fiscal Year, setting forth in comparative form
the corresponding figures for the previous Fiscal Year. Such
consolidated and consolidating balance sheet and statements shall be
prepared in reasonable detail in accordance with Generally Accepted
Accounting Principles consistently applied. Such consolidated balance
sheet and statements shall be accompanied by a report and opinion of
Ernst & Young or other independent certified public accountants of
recognized standing selected by Borrower (to which the Majority Banks
have not reasonably objected), which report and opinion shall state
that the examination of such consolidated financial statements by such
accountants was made in accordance with generally accepted auditing
standards and that such consolidated financial statements fairly
present the financial condition, results of operations and of cash
flows of Borrower and its Subsidiaries subject to no exceptions as to
scope of audit and subject to no other exceptions or qualifications
(other than changes in accounting principles in which the auditors
concur) not approved by the Majority Banks in their reasonable
discretion. Such accountants' report and opinion shall be accompanied
by a certificate stating that, in conducting the audit examination of
books and records necessary for the certification of such financial
statements, such accountants have obtained no knowledge of any Default
or Event of Default hereunder or, if in the opinion of such
accountants, any such Default or Event of Default shall exist, stating
the nature and status of such event, and setting forth the applicable
calculations under Sections 6.9, 6.10, 6.11, 6.15 (without requiring
any physical count of inventory) and 6.16, as of the date of the
balance sheet. Such consolidating balance sheet and statements shall be
certified by the principal financial officer of Borrower;
(c) Promptly after the receipt thereof by Borrower, copies of
any audit or management reports submitted to it by independent
accountants in connection with any audit or interim audit submitted to
the board of directors of Borrower or any of its Subsidiaries;
(d) Promptly after the same are available, copies of each
annual report, proxy or financial statement or other report or
communication sent to its stockholders, and copies of all annual,
regular, periodic and special reports and registration statements which
Borrower may file or be required to file with the Commission or any
similar or corresponding Governmental Agency or with any securities
exchange;
(e) Promptly upon a Senior Officer of Borrower becoming aware,
and in any event within ten Banking Days after becoming aware, of the
occurrence of any (i) "reportable event" (as such term is defined in
Section 4043 of ERISA) other than
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any such event as to which the PBGC has by regulation waived the
requirement of 30 days' notice or (ii) "prohibited transaction" (as
such term is defined in Section 406 of ERISA or Section 4975 of the
Code) in connection with any Pension Plan, other than a Multiemployer
Plan, or any trust created thereunder, a written notice specifying the
nature thereof, what action Borrower and any of its Subsidiaries is
taking or proposes to take with respect thereto, and, when known, any
action taken by the Internal Revenue Service with respect thereto;
(f) Promptly upon a Senior Officer of Borrower becoming aware,
and in any event within five Banking Days after becoming aware, of the
existence of a Default or an Event of Default, a written notice
specifying the nature and period of existence thereof and what action
Borrower is taking or proposes to take with respect thereto;
(g) Promptly upon a Senior Officer of Borrower becoming aware,
and in any event within five Banking Days after becoming aware, that
the holder of any evidence of Indebtedness (in a principal amount in
excess of $5,000,000) of Borrower or any of its Subsidiaries has given
notice or taken any other action with respect to a default or event of
default, a written notice specifying the notice given or action taken
by such holder and the nature of such default or event of default and
what action Borrower or its Subsidiary is taking or proposes to take
with respect thereto;
(h) Promptly upon a Senior Officer of Borrower becoming aware,
and in any event within five Banking Days after becoming aware, of the
existence of any pending or threatened litigation or any investigation
by any Governmental Agency that would constitute a Material Adverse
Effect (provided, that no failure of a Senior Officer to provide notice
of any such event shall be the sole basis for any Default or Event of
Default hereunder);
(i) As soon as possible, and in any event within 60 days after
the close of each Fiscal Quarter of Borrower (except 90 days after the
close of the Fiscal Year of Borrower), (i) a sales report by
geographical region, in the form of Exhibit F hereto, certified by a
Senior Officer of Borrower, setting forth the number of homes or other
units sold and delivered during such period and in backlog at the end
of such period, (ii) an inventory report for such Fiscal Quarter
summarizing such inventory by type and geographical region, in the form
of Exhibit G hereto and (iii) a report of any change, as of the last
day of such Fiscal Quarter, in the listing of Subsidiaries set forth in
Schedule 4.4 (as the same may have been revised by previous reports
under this clause (i)(iii));
(j) As soon as reasonably possible, and in any event prior to
the date that is sixty (60) days after the commencement of each Fiscal
Year, deliver to the Administrative Agent the business plan of
Borrower and its Subsidiaries for that Fiscal Year, together with
projections (in substantially the same format as the Projections)
covering the next two (2) Fiscal Years;
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(k) Promptly following obtaining knowledge thereof by a Senior
Officer of Borrower, written notice of the inception or cessation of
the Investment Grade Credit Rating; and
(l) Such other data and information as from time to time may
be reasonably requested by any of the Banks.
7.2 Compliance Certificate. Not later than 60 days after the
close of each Fiscal Quarter and 90 days after the close of each Fiscal Year, a
Compliance Certificate dated as of the last day of the Fiscal Quarter or Fiscal
Year, as the case may be, (a) setting forth computations showing, in detail
reasonably satisfactory to the Administrative Agent, whether Borrower and its
Subsidiaries were in compliance with their obligations to the Banks pursuant to
Sections 6.9, 6.10, 6.11, 6.15, 6.16, and 6.18 (b) either (i) stating that to
the best knowledge of the certifying officer as of the date of such certificate
there is no Default or Event of Default, or (ii) if there is a Default or Event
of Default as of the date of such certifi cate, specifying all such Defaults or
Events of Default and their nature and status and (c) stating, to the best
knowledge of the certifying officer, whether any event or circumstance
constituting a Material Adverse Effect (other than a Material Adverse Effect
which is not particular to the Borrower and which is generally known) has
occurred since the date of the most recent Compliance Certificate delivered
under this Section and, if so, describing such Material Adverse Effect in
reasonable detail. No failure of the certifying officer to describe the
existence of an event or circumstance constituting a Material Adverse Effect
shall be the sole basis for any Default or Event of Default hereunder.
Article 8
CONDITIONS
8.1 Advances. The effectiveness of this Agreement, and
obligations of the Banks to make the Advances are subject to the following
conditions, each of which shall be satisfied prior to or concurrently with the
making of the initial Advances:
(a) The Administrative Agent shall have received all of the
following, each dated as of the Closing Date (unless otherwise
specified or unless the Administrative Agent otherwise agrees) and all
in form and substance satisfactory to the Administrative Agent and
legal counsel for the Administrative Agent:
(i) executed counterparts of this Agreement,
sufficient in number for distribution to the Banks and
Borrower;
(ii) a Note executed by Borrower in favor of each
Bank, each in a principal amount equal to that Bank's Pro Rata
Share of the Commitment;
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(iii) the Subsidiary Guaranty executed by each
Subsidiary which is a Guarantor Subsidiary as of the Closing
Date;
(iv) with respect to Borrower and each Subsidiary
which is a Guarantor Subsidiary as of the Closing Date, such
documentation as the Administrative Agent may reasonably
require to establish the due organization, valid existence and
good standing of Borrower and each such Subsidiary, its
qualification to engage in business in each jurisdiction in
which it is required to be so qualified, its authority to
execute, deliver and perform any Loan Documents to which it is
a Party, and the identity, authority and capacity of each
Responsible Official thereof authorized to act on its behalf,
including, without limitation, certified copies of articles of
incorporation and amendments thereto, bylaws and amendments
thereto, certificates of good standing and/or qualification to
engage in business, tax clearance certificates, certificates
of corporate resolutions, incumbency certificates, and the
like;
(v) the Opinions of Counsel;
(vi) a copy of the Lewis Homes Acquisition Agreement
certified to be a true copy by a Senior Officer of Borrower;
(vii) an Officer's Certificate of Borrower setting
forth the Consolidated Leverage Ratio on a pro forma basis as
of the Closing Date, giving effect to the Lewis Homes
Acquisition, this Agreement and all other transactions related
thereto;
(viii) an Officer's Certificate of Borrower
affirming, to the best knowledge of the certifying Senior
Officer, that (i) no Default or Event of Default then exists
under the Revolving Loan Agreement and (ii) no event or
circumstance then exists that would constitute a Material
Adverse Effect on the financial or business condition of
Borrower or the Lewis Homes Entities, in either case from that
previously described to the Banks;
(ix) an Officer's Certificate of Borrower affirming,
to the best knowledge of the certifying Senior Officer, that
the conditions set forth in Sections 8.1(c) and 8.1(d) have
been satisfied;
(x) a Request for Loan; and
(xi) such other assurances, certificates, documents,
consents or opinions relevant hereto as the Administrative
Agent may reasonably require.
(b) The upfront fee payable pursuant to Section 3.2 shall have
been paid and any agency fees then payable under the letter agreement
referred to in Section 3.3 shall have been paid.
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(c) The Lewis Homes Acquisition shall have previously or shall
concurrently be consummated pursuant to the Lewis Homes Acquisition
Agreement, with any waiver or departure from any provision thereof
approved by the Banks.
(d) The representations and warranties of Borrower contained
in Article 4 shall be true and correct in all material respects on and
as of the Closing Date.
(e) Borrower and its Subsidiaries and any other Parties shall
be in compliance with all the terms and provisions of the Loan
Documents.
(f) The Banks shall have received the written legal opinion of
Sheppard, Mullin, Richter & Hampton LLP, legal counsel to the
Administrative Agent, to the effect that the Opinions of Counsel are
acceptable and such other matters relating to the Loan Documents as the
Administrative Agent may request.
Article 9
EVENTS OF DEFAULT AND REMEDIES UPON EVENTS OF DEFAULT
9.1 Events of Default. There will be a default hereunder if
any one or more of the following events ("Events of Default") occurs and is
continuing, whatever the reason therefor:
(a) failure to pay any installment of principal on any of the
Notes when due; or
(b) failure to pay any installment of interest on any of the
Notes, or to pay any fee or other amounts due the Administrative Agent
or any Bank hereunder, within five Banking Days after the date when
due; or
(c) any failure to comply with Sections 5.8, 5.9, 6.1, 6.2,
6.3, 6.4, 6.7, 6.9, 6.10, 6.11, 6.15, 6.16, 6.17, 6.18 or 7.1(f); or
(d) any failure to comply with Section 6.8 which shall remain
unremedied for a period of three Banking Days after notice by the
Administrative Agent of such Default; or
(e) Borrower or any other Party fails to perform or observe
any other term, covenant, or agreement contained in any Loan Document
on its part to be performed or observed within thirty (30) calendar
days after notice by the Administrative Agent of such Default; or
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(f) any representation or warranty in any Loan Document or in
any certificate, agreement, instrument, or other document made or
delivered, on or after the Closing Date, pursuant to or in connection
with any Loan Document proves to have been incorrect when made in any
respect material to the ability of Borrower to duly and punctually
perform all of the Obligations; or
(g) Any failure to pay any interest or principal when due
(following any applicable cure period) under the Mortgage Warehousing
Agreement or under any Money Market Facility; or
(h) Borrower or any of its Significant Subsidiaries (i) fails
to pay the principal, or any principal installment, of any present or
future Indebtedness (other than Non-Recourse Indebtedness, and in the
case of the Mortgage Company, arising under the Mortgage Warehousing
Agreement), or any guaranty of present or future Indebtedness (other
than Non-Recourse Indebtedness) on its part to be paid, when due (or
within any stated grace period), whether at the stated maturity, upon
acceleration, by reason of required prepayment or otherwise in excess
of $10,000,000 individually or $25,000,000 in the aggregate or (ii)
fails to perform or observe any other material term, covenant, or
agreement on its part to be performed or observed, or suffers to exist
any condition, in connection with any present or future Indebtedness
(other than Non-Recourse Indebtedness, and in the case of the Mortgage
Company, arising under the Mortgage Warehousing Agreement) or any
guaranty of present or future Indebtedness (other than Non-Recourse
Indebtedness), in excess of $10,000,000 individually or $25,000,000 in
the aggregate, if as a result of such failure or such condition any
holder or holders thereof (or an agent or trustee on its or their
behalf) has the right to declare it due before the date on which it
otherwise would become due; or
(i) any Loan Document, at any time after its execution and
delivery and for any reason other than the agreement of all the Banks
or satisfaction in full of all the Obligations, ceases to be in full
force and effect or is declared by a court of competent jurisdiction to
be null and void, invalid, or unenforceable in any respect which is, in
the reasonable opinion of the Majority Banks, materially adverse to the
interest of the Banks;
(j) a final judgment (or judgments) against Borrower or any of
its Significant Subsidiaries is entered for the payment of money in
excess of $10,000,000 individually or $25,000,000 in the aggregate, and
remains unsatisfied without procurement of a stay of execution within
thirty (30) calendar days after the issuance of any writ of execution
or similar legal process or the date of entry of judgment, whichever is
earlier, or in any event at least five (5) calendar days prior to the
sale of any assets pursuant to such legal process; or
(k) Borrower or any Significant Subsidiary of Borrower
institutes or consents to any proceeding under a Debtor Relief Law
relating to it or to all or any
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part of its Property, or fails generally to pay its debts as they
mature, or makes a general assignment for the benefit of creditors; or
applies for or consents to the appointment of any receiver, trustee,
custodian, conservator, liquidator, rehabilitator, or similar officer
for it or for all or any part of its property; or any receiver,
trustee, custodian, conser vator, liquidator, rehabilitator, or similar
officer is appointed without the application or consent of that Person
and the appointment continues undischarged or unstayed for sixty (60)
calendar days; or any proceeding under any Debtor Relief Law relating
to any such Person or to all or any part of its Property is instituted
without the consent of that Person, and continues undismissed or
unstayed for sixty (60) calendar days; or
(l) the occurrence of a Termination Event with respect to any
Pension Plan if the aggregate liability of Borrower and its ERISA
Affiliates under ERISA as a result thereof exceeds $10,000,000; or the
complete or partial withdrawal by Borrower or any of its ERISA
Affiliates from any Multiemployer Plan if the aggregate liability of
Borrower and its ERISA Affiliates as a result thereof exceeds
$10,000,000; or
(m) any determination is made by a court of competent
jurisdiction that payment of principal or interest or both is due to
the holder of any Subordinated Obligations which would not be permitted
by Section 6.1 or that any Subordinated Obligation is not subordinated
in accordance with its terms to the Obligations; or
(n) the occurrence of an Event of Default (as such term is
defined in the Revolving Loan Agreement) under the Revolving Loan
Agreement.
9.2 Remedies Upon Event of Default. Without limiting any other
rights or remedies of the Administrative Agent or the Banks provided for
elsewhere in this Agreement or the Loan Documents, or by applicable Law or in
equity, or otherwise:
(a) Upon the occurrence of any Event of Default, and so long
as any such Event of Default shall be continuing (other than an Event
of Default described in Section 9.1(k) with respect to Borrower or a
Guarantor Subsidiary): the Majority Banks may request the
Administrative Agent to, and the Administrative Agent thereupon shall,
declare the unpaid principal of all Obligations due to the Banks
hereunder and under the Notes, all interest accrued and unpaid thereon,
and all other amounts payable to the Banks under the Loan Documents to
be forthwith due and payable, whereupon the same shall become and be
forthwith due and payable, without protest, presentment, notice of
dishonor, demand, or further notice of any kind, all of which are
expressly waived by Borrower; provided that the Administrative Agent
shall notify Borrower (by telecopy and, if practicable, by telephone)
substantially concurrently with any such acceleration (but the failure
of Borrower to receive such notice shall not affect such acceleration).
(b) Upon the occurrence of any Event of Default described in
Section 9.1(k) with respect to Borrower or a Guarantor Subsidiary: the
unpaid
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principal of all Obligations due to the Banks hereunder and under the
Notes, and all interest accrued and unpaid on such Obligations, and all
other amounts payable under the Loan Documents shall be forthwith due
and payable, without protest, presentment, notice of dishonor, demand,
or further notice of any kind, all of which are expressly waived by
Borrower.
(c) Upon the occurrence of an Event of Default, the Banks and
the Administrative Agent, or any of them, may proceed to protect,
exercise, and enforce their rights and remedies under the Loan
Documents against Borrower or any other Party and such other rights and
remedies as are provided by Law or equity, without notice to or demand
upon Borrower (which are expressly waived by Borrower) except to the
extent required by applicable Laws. The order and manner in which the
rights and remedies of the Banks under the Loan Documents and otherwise
are exercised shall be determined by the Majority Banks.
(d) All payments received by the Administrative Agent and the
Banks, or any of them, after the acceleration of the maturity of the
Loans shall be applied first to the costs and expenses (including
attorneys' fees and disbursements) of the Administrative Agent, acting
as Administrative Agent, and of the Banks and thereafter paid pro rata
to the Banks in the same proportion that the aggregate of the unpaid
principal amount owing on the Obligations of Borrower to each Bank,
plus accrued and unpaid interest thereon, bears to the aggregate of the
unpaid principal amount owing on all the Obligations, plus accrued and
unpaid interest thereon. Regardless of how each Bank may treat the
payments for the purpose of its own accounting, for the purpose of
computing Borrower's Obligations, the payments shall be applied first,
to the costs and expenses of the Administrative Agent, acting as
Administrative Agent, and the Banks as set forth above, second, to the
payment of accrued and unpaid fees hereunder and interest on all
Obligations to the Banks, to and including the date of such application
(ratably according to the accrued and unpaid interest on the Loans),
third, to the ratable payment of the unpaid principal of all
Obligations to the Banks, and fourth, to the payment of all other
amounts then owing to the Administrative Agent or the Banks under the
Loan Documents. Subject to Section 9.2(a), no application of the
payments will cure any Event of Default or prevent acceleration, or
continued acceleration, of amounts payable under the Loan Documents or
prevent the exercise, or continued exercise, of rights or remedies of
the Banks hereunder or under applicable Law unless all amounts then due
(whether by acceleration or otherwise) have been paid in full.
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Article 10
THE ADMINISTRATIVE AGENT
10.1 Appointment and Authorization. Subject to Section 10.7,
each Bank hereby irrevocably appoints and authorizes the Administrative Agent to
take such action as agent on its behalf and to exercise such powers under the
Loan Documents as are delegated to the Administrative Agent by the terms thereof
or are reasonably incidental, as determined by the Administrative Agent,
thereto. This appointment and authorization does not constitute appointment of
the Administrative Agent as trustee for any Bank and, except as specifically set
forth herein to the contrary, the Administrative Agent shall take such action
and exercise such powers only in an administrative and ministerial capacity.
10.2 Administrative Agent and Affiliates. Bank of America (and
each successor Administrative Agent) has the same rights and powers under the
Loan Documents as any other Bank and may exercise the same as though it were not
the Administrative Agent; and the term "Bank" or "Banks" includes Bank of
America in its individual capacity. Bank of America (and each successor
Administrative Agent) and its respective Affiliates may accept deposits from,
lend money to, and generally engage in any kind of banking, trust or other
business with Borrower and any Affiliate of Borrower, as if it were not the
Administrative Agent and without any duty to account therefor to the Banks. Bank
of America (and each successor Administrative Agent) need not account to any
other Bank for any monies received by it for reimbursement of its costs and
expenses as Administrative Agent hereunder, or for any monies received by it in
its capacity as a Bank hereunder, except as otherwise provided herein.
10.3 Banks' Credit Decisions. Each Bank agrees that it has,
independently and without reliance upon the Administrative Agent, any other
Bank, or the directors, officers, agents, or employees of the Administrative
Agent or of any other Bank, and instead in reliance upon information supplied to
it by or on behalf of Borrower and its Subsidiaries and upon such other
information as it has deemed appropriate, made its own independent credit
analysis and decision to enter into this Agreement. Each Bank also agrees that
it shall, independently and without reliance upon the Administrative Agent, any
other Bank, or the directors, officers, agents, or employees of the
Administrative Agent or of any other Bank, continue to make its own independent
credit analyses and decisions in acting or not acting under the Loan Documents.
10.4 Action by Administrative Agent.
(a) The Administrative Agent may assume that no Default or
Event of Default has occurred and is continuing, unless the
Administrative Agent has actual knowledge of the Default or Event of
Default, has received notice from Borrower stating the nature of the
Default or Event of Default, or has received notice from a Bank stating
the nature of the Default or Event of Default and that Bank considers
the Default or Event of Default to have occurred and to be continuing.
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(b) The Administrative Agent has only those obligations under
the Loan Documents that are expressly set forth therein. Without
limitation on the foregoing, the Administrative Agent shall have no
duty to inspect any property of Borrower or any of its Subsidiaries,
although the Administrative Agent may in its discretion periodically
inspect any property from time to time.
(c) Except for any obligation expressly set forth in the Loan
Documents and as long as the Administrative Agent may assume that no
Event of Default has occurred and is continuing, the Administrative
Agent may, but shall not be required to, exercise its discretion to act
or not act, except that the Administrative Agent shall be required to
act or not act upon the instructions of the Majority Banks (or of all
the Banks, to the extent required by Section 11.2) and those
instructions shall be binding upon the Administrative Agent and all the
Banks, provided that the Administrative Agent shall not be required to
act or not act if to do so would, in the reasonable judgment of the
Administrative Agent, expose the Administrative Agent to significant
liability or would be contrary to any Loan Document or to applicable
law.
(d) If the Administrative Agent has received a notice
specified in clause (a), the Administrative Agent shall give notice
thereof to the Banks and shall act or not act upon the instructions of
the Majority Banks (or of all the Banks, to the extent required by
Section 11.2). If the Majority Banks fail for three (3) Banking Days
after the receipt of notice from the Administrative Agent, to instruct
the Administrative Agent, then the Administrative Agent, in its sole
discretion, may act or not act as it deems advisable for the protection
of the interests of the Banks.
(e) The Administrative Agent shall have no liability to any
Bank for acting, or not acting, as instructed by the Majority Banks (or
all the Banks, if required under Section 11.2), notwithstanding any
other provision hereof.
10.5 Liability of Administrative Agent. Neither the
Administrative Agent nor any of its respective directors, officers, agents, or
employees shall be liable for any action taken or not taken by them under or in
connection with the Loan Documents, except for their own gross negligence or
willful misconduct. Without limitation on the foregoing, the Administrative
Agent and its respective directors, officers, agents, and employees:
(a) may treat the payee of any Note as the holder thereof
until the Administrative Agent receives notice of the assignment or
transfer thereof in form satisfactory to the Administrative Agent,
signed by the payee and may treat each Bank as the owner of that Bank's
interest in the obligations due to Banks for all purposes of this
Agreement until the Administrative Agent receives notice of the
assignment or transfer thereof, in form satisfactory to the
Administrative Agent, signed by that Bank;
(b) may consult with legal counsel, in-house legal counsel,
independent public accountants, in-house accountants and other
professionals, or other experts selected by it, or with legal counsel,
independent public accountants, or other experts
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for Borrower, and shall not be liable for any action taken or not taken
by it or them in good faith in accordance with the advice of such legal
counsel, independent public accountants, or experts;
(c) will not be responsible to any Bank for any statement,
warranty, or representation made in any of the Loan Documents or in any
notice, certificate, report, request, or other statement (written or
oral) in connection with any of the Loan Documents;
(d) except to the extent expressly set forth in the Loan
Documents, will have no duty to ascertain or inquire as to the
performance or observance by Borrower or any other Person of any of the
terms, conditions, or covenants of any of the Loan Documents or to
inspect the property, books, or records of Borrower or any of its
Subsidiaries or other Person;
(e) will not be responsible to any Bank for the due execution,
legality, validity, enforceability, genuineness, effectiveness,
sufficiency, or value of any Loan Document, any other instrument or
writing furnished pursuant thereto or in connection therewith;
(f) will not incur any liability by acting or not acting in
reliance upon any Loan Document, notice, consent, certificate,
statement, or other instrument or writing believed by it or them to be
genuine and signed or sent by the proper party or parties; and
(g) will not incur any liability for any arithmetical error in
computing any amount payable to or receivable from any Bank hereunder,
including without limitation payment of principal and interest on the
Notes, payment of commitment fees, Loans, and other amounts; provided
that promptly upon discovery of such an error in computation, the
Administrative Agent, the Banks, and (to the extent applicable)
Borrower shall make such adjustments as are necessary to correct such
error and to restore the parties to the position that they would have
occupied had the error not occurred.
10.6 Indemnification. Each Bank shall, ratably in accordance
with its respective Pro Rata Share of the Commitment, indemnify and hold the
Administrative Agent and its directors, officers, agents, and employees harmless
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, or disbursements of any kind or
nature whatsoever (including, without limitation, attorney's fees and
disbursements) that may be imposed on, incurred by, or asserted against it or
them in any way relating to or arising out of this Agreement (other than losses
incurred by reason of the failure by Borrower to pay the obligations due to the
Administrative Agent under a Note) or any action taken or not taken by it as
Administrative Agent thereunder, except for the Administrative Agent's gross
negligence or willful misconduct. Without limitation on the foregoing, each Bank
shall reimburse the Administrative Agent upon demand for that Bank's
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ratable share of any cost or expense incurred by the Administrative Agent in
connection with the negotiation, preparation, execution, delivery,
administration, amendment, waiver, refinancing, restructuring, reorganization
(including a bankruptcy reorganization), or enforcement of the Loan Documents,
to the extent that Borrower is required by Section 11.3 to pay that cost or
expense but fails to do so upon demand. Any such reimbursement shall not relieve
Borrower of its obligations under Section 11.3.
10.7 Successor Administrative Agent. The Administrative Agent
may resign as such at any time by written notice to Borrower and the Banks, to
be effective upon a successor's acceptance of appointment as Administrative
Agent. The Majority Banks may at any time remove the Administrative Agent by
written notice to that effect to be effective on such date as the Majority Banks
designate. In either event, the Majority Banks shall appoint a successor
Administrative Agent or Agents, who must be from among the Banks and who shall
be subject to the prior approval of Borrower, which approval shall not be
unreasonably withheld or delayed, provided, that the Administrative Agent shall
be entitled to appoint a successor Administrative Agent from among the Banks,
subject to acceptance of appointment by that successor Administrative Agent, if
the Majority Banks have not appointed a successor Administrative Agent within
thirty (30) days after the date the Administrative Agent gave notice of
resignation or was removed. Upon a successor's acceptance of appointment as
Administrative Agent, the successor will thereupon succeed to and become vested
with all the rights, powers, privileges, and duties of the Administrative Agent
under the Loan Documents, and the resigning or removed Administrative Agent will
thereupon be discharged from its duties and obligations thereafter arising under
the Loan Documents. After any retiring Administrative Agent's resignation or
removal hereunder as Administrative Agent, the provisions of this Article 10 and
Sections 11.3 and 11.10 shall inure to its benefit as to any action taken or
omitted to be taken by it while it was Administrative Agent under this
Agreement.
10.8 No Obligations of Borrower. Nothing contained in this
Article 10 shall be deemed to impose upon Borrower any obligation in respect of
the due and punctual performance by the Administrative Agent of its obligations
to the Banks under any provision of this Agreement, and Borrower shall have no
liability to the Administrative Agent or any of the Banks in respect of any
failure by the Administrative Agent or any Bank to perform any of its
obligations to the Administrative Agent or the Banks under this Agreement.
Without limiting the generality of the foregoing, where any provision of this
Agreement relating to the payment of any amounts due and owing under the Loan
Documents provides that such payments shall be made by Borrower to the
Administrative Agent for the account of the Banks, Borrower's obligations to the
Banks in respect of such payments shall be deemed to be satisfied upon the
making of such payments to the Administrative Agent in the manner provided by
this Agreement.
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Article 11
MISCELLANEOUS
11.1 Cumulative Remedies; No Waiver. The rights, powers, and
remedies of the Administrative Agent or any Bank provided herein or in any Note
or other Loan Document are cumulative and not exclusive of any right, power, or
remedy provided by law or equity. No failure or delay on the part of the
Administrative Agent or any Bank in exercising any right, power, or remedy may
be, or may be deemed to be, a waiver thereof; nor may any single or partial
exercise of any right, power, or remedy preclude any other or further exercise
of any other right, power, or remedy. The terms and conditions of Section 8.1
hereof are inserted for the sole benefit of the Banks and the Administrative
Agent may (with the approval of the Majority Banks) waive them in whole or in
part with or without terms or conditions in respect of any Loan, without
prejudicing the Banks' rights to assert them in whole or in part in respect of
any other Loans.
11.2 Amendments; Consents. No amendment, modification,
supplement, termination, or waiver of any provision of this Agreement or any
other Loan Document, and no consent to any departure by Borrower or any other
Party therefrom, may in any event be effective unless in writing signed by the
Administrative Agent with the approval of the Majority Banks and Borrower, and
then only in the specific instance and for the specific purpose given; and
without the approval in writing of all the Banks, no amendment, modification,
supplement, termination, waiver, or consent may be effective:
(a) to amend or modify the principal of, or the amount of
principal or principal prepayments payable on, any Obligation or the
amount of the Commitment or to decrease the rate of any interest or fee
payable to any Bank;
(b) to postpone any date fixed for any payment of principal
of, prepayment of principal of, or any installment of interest on, any
Obligation or any installment of any fee or to extend the term of the
Commitment;
(c) to amend or modify the provisions of the definitions in
Section 1.1 of "Majority Banks" or of Sections 11.2, 11.9, 11.10, or
11.11;
(d) release any Guarantor Subsidiary from liability under the
Subsidiary Guaranty; or
(e) to amend or modify any provision of this Agreement or the
Loan Documents that expressly requires the consent or approval of all
the Banks.
Any amendment, modification, supplement, termination, waiver, or consent
pursuant to this Section 11.2 shall apply equally to, and shall be binding upon,
all the Banks and the Agents.
11.3 Costs, Expenses and Taxes. Borrower shall pay within 30
days after demand (which demand shall be accompanied by an invoice in reasonable
detail) the
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reasonable actual out-of-pocket costs and expenses of the Administrative Agent
in connection with (a) the negotiation, preparation, execution, delivery,
arrangement, syndication and closing of the Loan Documents, provided that such
costs and expenses do not exceed the amounts referred to in a letter agreement
between Borrower and the Administrative Agent, (b) administration of the Loan
Documents, provided that such costs and expenses do not exceed the amounts set
forth in a letter agreement between Borrower and the Administrative Agent and
(c) any amendment, waiver or modification of the Loan Documents. Borrower shall
pay within 30 days after demand the reasonable actual out-of-pocket costs and
expenses of the Administrative Agent and each of the Banks in connection with
the enforcement of any Loan Documents following the occurrence of a Default or
an Event of Default, including in connection with any refinancing,
restructuring, reorganization (including a bankruptcy reorganization, if such
payment is approved by the bankruptcy court or any similar proceeding). The
costs and expenses referred to in the first sentence above (for which Borrower
shall be liable solely with respect to costs and expenses of the Administrative
Agent) and the second sentence above (which shall apply to costs and expenses of
the Administrative Agent and the Banks) shall include filing fees, recording
fees, title insurance fees, appraisal fees, search fees, and other out-of-pocket
expenses and the reasonable actual fees and out-of-pocket expenses of any legal
counsel retained by the Administrative Agent or any of the Banks (including the
allocated costs of in-house counsel), as the case may be, or independent public
accountants and other outside experts retained by the Administrative Agent
(provided that (i) Borrower shall not be liable under this Section 11.3 for fees
and expenses of more than one firm of independent public accountants, or more
than one expert with respect to a specific subject matter, at any one time and
(ii) with respect to the costs and expenses referred to in the second sentence
above (pertaining to enforcement matters), Borrower shall not be liable for the
fees and expenses of more than one firm of outside legal counsel retained to
represent the Administrative Agent nor for more than one additional firm of
outside legal counsel retained to otherwise represent one or more of the Banks).
Nothing herein shall obligate Borrower to pay any costs and expenses in
connection with an assignment of or participation in a Bank's Pro-Rata Share of
the Commitment. Borrower shall pay any and all documentary and transfer taxes,
assessments or charges made by any Governmental Agency and all reasonable actual
costs, expenses, fees, and charges of Persons (other than the Administrative
Agent or the Banks) payable or determined to be payable in connection with the
execution, delivery, filing or recording of this Agreement, any other Loan
Document, or any other instrument or writing to be delivered hereunder or
thereunder, and shall reimburse, hold harmless, and indemnify the Administrative
Agent and each Bank from and against any and all loss, liability, or legal or
other expense with respect to or resulting from any delay in paying or failure
to pay any such tax, cost, expense, fee, or charge or that any of them may
suffer or incur by reason of the failure of Borrower to perform any of its
Obligations. Any amount payable to the Administrative Agent or any Bank under
this Section shall bear interest from the date which is 30 days after Borrower's
receipt of demand (together with reasonable supporting documentation) for
payment at the rate then in effect for Alternate Base Rate Loans.
11.4 Nature of Banks' Obligations. Nothing contained in this
Agreement or any other Loan Document and no action taken by the Administrative
Agent or the Banks or
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any of them pursuant hereto or thereto may, or may be deemed to, make the Banks
a partnership, an association, a joint venture, or other entity, either among
themselves or with Borrower. Each Bank's obligation to make any Advance pursuant
hereto is several and not joint or joint and several, and is not conditioned
upon the performance by any other Bank of its obligation to make Advances. A
default by any Bank will not increase the Commitment of any other Bank. Any Bank
not in default may, if it desires, assume in such proportion as the
nondefaulting Banks agree the obligations of any Bank in default, but is not
obligated to do so.
11.5 Representations and Warranties. All representations and
warranties of Borrower and any other Party contained herein or in any other Loan
Document (including, for this purpose, all representations and warranties
contained in any certificate or other writing required to be delivered by or on
behalf of Borrower or such Party pursuant to any Loan Document) will survive the
making of the loans hereunder and the execution and delivery of the Notes, and,
in the absence of actual knowledge by the Administrative Agent or a Bank of the
untruth of any representation or warranty, have been or will be relied upon by
the Administrative Agent and that Bank, notwithstanding any investigation made
by the Administrative Agent or that Bank or on their behalf.
11.6 Notices. Except as otherwise provided in any Loan
Document, all notices, requests, demands, directions, and other communications
provided for hereunder and under any other Loan Document must be in writing and
must be mailed (provided that communications related to any Default or Event of
Default or proposed action under Section 11.2 shall not be sent solely by mail),
telegraphed, delivered, or sent by telex, telecopier or cable to the appropriate
party at the address set forth on the signature pages of this Agreement or, as
to any Party, at any other address as may be designated by it in the applicable
Loan Document or in a written notice sent to the Administrative Agent and
Borrower in accordance with this Section. Except as otherwise provided in any
Loan Document if any notice, request, demand, direction, or other communication
is given by mail it will be effective on the earlier of actual receipt or the
third Banking Day after deposited in the United States mails with first class or
airmail postage prepaid; if given by telegraph or cable, when delivered to the
telegraph company with charges prepaid; if given by telecopier, when sent; if
given by telex, when confirmed by answerback; or if given by personal delivery,
when delivered.
11.7 Execution in Counterparts. This Agreement and any other
Loan Document to which Borrower is a Party may be executed in any number of
counterparts and any party hereto or thereto may execute any counterpart, each
of which when executed and delivered will be deemed to be an original and all of
which counterparts of this Agreement or any other Loan Document, as the case may
be, taken together will be deemed to be but one and the same instrument. Such
counterparts may be sent by telecopy, with the original counterparts to follow
by mail or courier. The execution of this Agreement or any other Loan Document
by any party hereto or thereto will not become effective until executed
counterparts hereof or thereof (or other evidence of execution satisfactory to
the
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Administrative Agent and Borrower) have been delivered to the Administrative
Agent and Borrower.
11.8 Binding Effect; Assignment.
(a) This Agreement and the other Loan Documents to which
Borrower is a Party will be binding upon and inure to the benefit of
Borrower, the Agents, each of the Banks, and their respective
successors and assigns, except that except as permitted in Section 6.3,
Borrower may not assign its rights hereunder or thereunder or any
interest herein or therein without the prior written consent of all the
Banks. Any Bank may at any time pledge its Notes or any other
instrument evidencing its rights as a Bank hereunder to a Federal
Reserve Bank, but no such pledge shall release that Bank from its
obligations hereunder or grant to such Federal Reserve Bank the rights
of a Bank hereunder absent foreclosure of such pledge.
(b) From time to time following the Effective Date, each Bank
may assign to one or more Eligible Assignees all or any portion of its
Pro Rata Share of the Commitment; provided that (i) such Eligible
Assignee, if not then a Bank, shall be approved by each of the
Administrative Agent (which approval shall not be unreasonably
withheld) and by Borrower (which approval shall not be unreasonably
withheld), (ii) such assignment shall be evidenced by a Commitment
Assignment and Acceptance, a copy of which shall be furnished to the
Administrative Agent as hereinbelow provided; (iii) except in the case
of an assignment to an Affiliate of the assigning Bank, to another Bank
or of the entire remaining Commitment of the assigning Bank, the
assignment shall not assign a Pro Rata Share of the Commitment
equivalent to less than $10,000,000 and that is not an integral
multiple of $1,000,000, (iv) except in the case of an assignment of the
entire remaining Commitment of the assigning Bank, giving effect to the
assignment, the assigning Bank will not be in violation of its
Applicable Minimum Hold Requirement and (v) the effective date of any
such assignment shall be as specified in the Commitment Assignment and
Acceptance, but not earlier than the date which is five (5) Banking
Days after the date the Administrative Agent has received the
Commitment Assignment and Acceptance. Upon the effective date of such
Commitment Assignment and Acceptance, the Eligible Assignee named
therein shall be a Bank for all purposes of this Agreement with the Pro
Rata Shares of the Commitment therein set forth and, to the extent of
such Pro Rata Shares, the assigning Bank shall be released from its
further obligations under this Agreement. Borrower agrees that it shall
execute and deliver (against delivery by the assigning Bank to Borrower
of its Notes under this Agreement) to such assignee Bank, Notes
evidencing that assignee Bank's Pro Rata Share, and to the assigning
Bank, Notes evidencing the remaining balance Pro Rata Share retained by
the assigning Bank.
(c) By executing and delivering a Commitment Assignment and
Acceptance, the Eligible Assignee thereunder acknowledges and agrees
that: (i) other than the representation and warranty that it is the
legal and beneficial owner of the Pro
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Rata Shares of the Commitment being assigned thereby free and clear of
any adverse claim, the assigning Bank has made no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability,
genuineness or sufficiency of this Agreement or any other Loan
Document; (ii) the assigning Bank has made no representation or
warranty and assumes no responsibility with respect to the financial
condition of Borrower or the performance by Borrower of its obligations
under this Agreement; (iii) it has received a copy of this Agreement,
together with copies of the most recent financial statements delivered
pursuant to this Agreement and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision
to enter into such Commitment Assignment and Acceptance; (iv) it will,
independently and without reliance upon the Administrative Agent, or
any Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (v) it appoints and
authorizes the Administrative Agent to take such action and to exercise
such powers as are delegated to the Administrative Agent by this
Agreement; and (vi) it will perform in accordance with their terms all
of the obligations which by the terms of this Agreement are required to
be performed by it as a Bank.
(d) After receipt of a completed Commitment Assignment and
Acceptance executed by any Bank and an Eligible Assignee, and receipt
of an assignment fee of $4,000 from such Eligible Assignee, the
Administrative Agent shall, at least one Banking Day prior to the
effective date thereof, provide to Borrower and the Banks a revised
Schedule 1.1 giving effect thereto.
(e) Each Bank may from time to time grant participations to
one or more banks or other financial institutions (including another
Bank) in its Pro Rata Share of the Commitment; provided, however, that
(i) such participant, if not an Affiliate of the granting Bank, shall
be approved by Borrower (which approval shall not be unreasonably
withheld), (ii) such Bank's obligations under this Agreement shall
remain unchanged, (iii) such Bank shall remain solely responsible to
the other parties hereto and thereto for the performance of such
obligations, (iv) the participating bank or other financial institution
shall not be a Bank hereunder for any purpose except, if the
participation agreement so provides, for the purposes of recovery of
eurodollar costs or capital adequacy expenses or indemnifications
provided to the Banks under this Agreement but only to the extent that
the cost of such benefits to Borrower does not exceed the cost which
Borrower would have incurred in respect of such Bank absent the
participation, (v) the participating bank or other financial
institution shall be prohibited from transferring, encumbering or
granting any sub-participation interest in the participation interest,
(vi) Borrower, the Administrative Agent, and the other Banks shall
continue to deal solely and directly with such Bank in connection with
such Bank's rights and obligations under this Agreement, (vii) the
participation interest granted shall not be with respect to a Pro Rata
Share of the Commitment equivalent to less than $10,000,000, (viii)
giving effect to the participation, the
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granting Bank will not be in violation of its Applicable Minimum Hold
Requirement, (ix) the consent of the holder of such participation
interest shall not be required for amendments or waivers of provisions
of the Loan Documents other than those which (A) extend the maturity
dates or any other date upon which any payment of money is due to the
Banks, (B) reduce the rate of interest, any fee or any other monetary
amount payable to the Banks, (C) reduce the amount of any installment
of principal due to the Banks thereunder, (D) release any Guarantor
Subsidiary from its obligations under the Subsidiary Guaranty, or (E)
release any material portion of any collateral securing any of the
obligations of Borrower to the Banks and (x) to the extent that the
holder of the participation interest is granted consent rights with
respect to the matters described in clause (ix), such rights must be
subject to a voting procedure whereby the holders of the entire Pro
Rata Share of the Commitment held by the participating Bank shall act
in such matters in accordance with the vote of a majority-in-interest
of such Pro Rata Share of the Commitment.
11.9 Sharing of Setoffs. Each Bank severally agrees that if
it, through the exercise of the right of setoff, banker's lien, or counterclaim
against Borrower or otherwise, receives payment of the Obligations due it
hereunder and under the Notes that is ratably more than that to which it is
entitled hereunder pursuant to Section 3.12 or 9.2(e), then: (a) the Bank
exercising the right of setoff, banker's lien, or counterclaim or otherwise
receiving such payment shall purchase, and shall be deemed to have
simultaneously purchased, from the other Bank a participation in the Obligations
held by the other Bank and shall pay to the other Bank a purchase price in an
amount so that the share of the Obligations held by each Bank after the exercise
of the right of setoff, banker's lien, or counterclaim or receipt of payment
shall be in the same proportion that existed prior to the exercise of the right
of setoff, banker's lien, or counterclaim or receipt of payment, and (b) such
other adjustments and purchases of participations shall be made from time to
time as shall be equitable to ensure that all of the Banks share any payment
obtained in respect of the Obligations ratably in accordance with the provisions
of Section 3.12 and 9.2(e), provided that, if all or any portion of a
disproportionate payment obtained as a result of the exercise of the right of
setoff, banker's lien, counterclaim or otherwise is thereafter recovered from
the purchasing Bank by Borrower or any Person claiming through or succeeding to
the rights of Borrower, the purchase of a participation shall be rescinded and
the purchase price thereof shall be restored to the extent of the recovery, but
without interest. Each Bank that purchases a participation in the Obligations
pursuant to this Section shall from and after the purchase have the right to
give all notices, requests, demands, directions and other communications under
this Agreement with respect to the portion of the Obligations purchased to the
same extent as though the purchasing Bank were the original owner of the
Obligations purchased. Borrower expressly consents to the foregoing arrange
ments and agrees that, to the extent permitted by Law, any Bank holding a
participation in an Obligation so purchased may exercise any and all rights of
setoff, banker's lien or counterclaim with respect to the participation as fully
as if the Bank were the original owner of the Obligation purchased.
11.10 Indemnity by Borrower. Borrower agrees to indemnify,
save, and hold harmless the Administrative Agent and each Bank and their
directors, officers, agents,
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attorneys, and employees (collectively, the "indemnitees") from and against: (i)
any and all claims, demands, actions or causes of action that are asserted
against any indemnitee (other than by Borrower or by any other indemnitee) if
the claim, demand, action or cause of action arises out of or relates to a
Commitment, the use of proceeds of any Loans, any transaction contemplated
pursuant to this Agreement, or any relationship or alleged relationship of any
indemnitee to Borrower related to this Agreement; (ii) any administrative or
investigative proceeding by any Governmental Agency arising out of or related
to a claim, demand, action or cause of action described in clause (i) above; and
(iii) any and all liabilities, losses, costs, or expenses (including reasonable
attorneys' fees and disbursements (including the allocated cost of in-house
counsel)) that any indemnitee suffers or incurs as a result of any of the
foregoing; provided, that Borrower shall have no obligation under this Section
to any indemnitee with respect to any of the foregoing arising out of the gross
negligence or willful misconduct of that indemnitee or the breach by the
indemnitee of this Agreement or from the transfer or disposition of any Note by
any Bank. If any claim, demand, action or cause of action is asserted against
any indemnitee, such indemnitee shall promptly notify Borrower, but the failure
to so promptly notify Borrower shall not affect Borrower's obligations under
this Section unless such failure materially prejudices Borrower's right to
participate in the contest of such claim, demand, action or cause of action, as
hereinafter provided. If requested by Borrower in writing and so long as no
Default or Event of Default shall have occurred and be continuing, such
indemnitee shall in good faith contest the validity, applicability and amount of
such claim, demand, action or cause of action, shall permit Borrower to
participate in such contest and shall cooperate with Borrower to the extent
their interests are aligned. Any indemnitee that proposes to settle or
compromise any claim or proceeding for which Borrower may be liable for payment
of indemnity hereunder shall give Borrower written notice of the terms of such
proposed settlement or compromise reasonably in advance of settling or
compromising such claim or proceeding and shall not so settle or compromise
without Borrower's written approval thereof, which approval may be withheld in
Borrower's sole discretion. Any voluntary settlement by an indemnitee of such a
claim or proceeding without Borrower's written approval shall relieve Borrower
of its obligation to indemnify that indemnitee with respect to such claim or
proceeding. In any legal action involving more than one indemnitee, all
indemnitees shall be represented by a single legal counsel unless such legal
counsel determines that a defense or counterclaim is available to an indemnitee
that is not available to all indemnitees and that to assert such a defense or
counterclaim would create a conflict of interest, or a potential conflict of
interest, in which case such indemnitee shall be entitled to separate legal
counsel. Any obligation or liability of Borrower to any indemnitee under this
Section shall survive the expiration or termination of this Agreement and the
repayment of all Loans and all other Obligations owed to the Banks.
11.11 Nonliability of Banks. The relationship between Borrower
and the Banks is, and shall at all times remain, solely that of borrower and
lenders, and the Banks and the Administrative Agent neither undertake nor assume
any responsibility or duty to Borrower to review, inspect, supervise, pass
judgment upon, or inform Borrower of any matter in connection with any phase of
Borrower's business, operations, or condition, financial or otherwise. Borrower
shall rely entirely upon its own judgment with respect to such matters, and any
review, inspection, supervision, exercise of judgment, or information
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<PAGE> 79
supplied to Borrower by any Bank or the Agents in connection with any such
matter is for the protection of the Banks and the Agents, and neither Borrower
nor any third party is entitled to rely thereon.
11.12 Confidentiality. Each Bank agrees to use any
confidential information that it may receive, directly or indirectly, from
Borrower pursuant to this Agreement only for the purposes of this Agreement and
to hold such confidential information in confidence, except for disclosure: To
Affiliates of the Bank; To other Banks; To legal counsel, accountants and other
professional advisors to that Bank; To regulatory officials having jurisdiction
over that Bank; As required by Law or legal process (provided that the Bank
shall, to the extent possible give sufficient notice to Borrower of such legal
process to enable Borrower to oppose such legal process, and in any event, give
written notice to Borrower of such legal process as soon as practicable) or in
connection with any legal proceeding to which that Bank and Borrower are adverse
parties; and to another financial institution in connection with a disposition
or proposed disposition to that financial institution of all or part of that
Bank's interests hereunder or a participation interest in its Notes, provided
that such disclosure is made subject to an appropriate confidentiality agreement
by such institution on terms sub stantially similar to this Section. For
purposes of the foregoing, "confidential information" shall mean any information
respecting Borrower or its Subsidiaries reasonably considered by Borrower to be
confidential, other than (a) information previously filed with any Governmental
Agency and available to the public, (b) information previously published in any
public medium from a source other than, directly or indirectly, the Agents or
any Bank, and (c) information previously disclosed by Borrower to any Person not
associated with Borrower without any reasonable expectation of confidentiality.
Nothing in this Section shall be construed to create or give rise to any
fiduciary duty on the part of the Agents or the Banks to Borrower.
11.13 No Third Parties Benefited. This Agreement is made for
the purpose of defining and setting forth certain obligations, rights and duties
of Borrower, the Agents and the Banks in connection with the Commitment, and is
made for the sole benefit of Borrower, the Administrative Agent and the Banks,
and the Administrative Agent's and the Banks' successors and assigns. Except as
provided in Sections 11.8 and 11.10, no other Person shall have any rights of
any nature hereunder or by reason hereof.
11.14 Other Dealings. Any Bank may, without liability to
account to the other Banks, accept deposits from, lend money or provide credit
facilities to and generally engage in any kind of banking or other business with
Borrower and its Subsidiaries.
11.15 Right of Setoff - Deposit Accounts. Upon the occurrence
of an Event of Default and the acceleration of maturity of the principal
indebtedness under any of the Notes pursuant to Section 9.2, Borrower hereby
specifically authorizes each Bank in which Borrower maintains a deposit account
(whether a general or special deposit account, other than trust accounts) or a
certificate of deposit to setoff any Obligations owed to the Banks against such
deposit account or certificate of deposit without prior notice to Borrower
(which notice is hereby waived) whether or not such deposit account or
certificate of deposit has then
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matured. Nothing in this Section shall limit or restrict the exercise by a Bank
of any right to setoff or banker's lien under applicable Law, subject to the
approval of the Majority Banks.
11.16 Further Assurances. Borrower shall, at its expense and
without expense to the Banks or the Administrative Agent, do, execute, and
deliver such further acts and documents as any Bank or the Administrative Agent
from time to time reasonably requires for the assuring and confirming unto the
Banks or the Administrative Agent the rights hereby created or intended now or
hereafter so to be, or for carrying out the intention or facilitating the
performance of the terms of any Loan Document; provided that this Section 11.16
is not intended to create any affirmative obligation on the part of Borrower to
provide collateral security, additional guarantors or other credit enhancement
with respect to the Obligations.
11.17 Integration. This Agreement, together with the other
Loan Documents, comprises the complete and integrated agreement of the parties
on the subject matter hereof and supersedes all prior agreements, written or
oral, on the subject matter hereof except as expressly provided herein to the
contrary; provided that the foregoing is subject to Section 4.18 hereof. The
Loan Documents were drafted with the joint participation of Borrower and the
Banks and shall be construed neither against nor in favor of either, but rather
in accordance with the fair meaning thereof.
11.18 Governing Law. The Loan Documents shall be governed by,
and construed and enforced in accordance with, the Laws of California.
11.19 Severability of Provisions. Any provision in any Loan
Document that is held to be inoperative, unenforceable, or invalid in any
jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or
invalid without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are declared
to be severable.
11.20 Headings. Article and section headings in this Agreement
and the other Loan Documents are included for convenience of reference only and
are not part of this Agreement or the other Loan Documents for any other
purpose.
11.21 Conflict in Loan Documents. To the extent there is any
actual irreconcilable conflict between the provisions of this Agreement and any
other Loan Document, the provisions of this Agreement shall prevail.
11.22 Waiver Of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, THE NOTES, ANY OTHER LOAN
DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR WHICH MAY
IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING OR
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<PAGE> 81
OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR ANY
OTHER LOAN DOCUMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED
BEFORE A COURT AND NOT BEFORE A JURY. ANY PARTY TO THIS AGREEMENT MAY FILE AN
ORIGINAL COUNTERPART OR COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE
OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL
BY JURY.
11.23 Purported Oral Amendments. BORROWER EXPRESSLY
ACKNOWLEDGES THAT THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY ONLY BE
AMENDED OR MODIFIED, OR THE PROVISIONS HEREOF OR THEREOF WAIVED OR SUPPLEMENTED,
BY AN INSTRUMENT IN WRITING THAT COMPLIES WITH SECTION 11.2. BORROWER AGREES
THAT IT WILL NOT RELY ON ANY COURSE OF DEALING, COURSE OF PERFORMANCE, OR ORAL
OR WRITTEN STATEMENTS BY ANY REPRESENTATIVE OF ANY AGENT OR ANY BANK THAT DOES
NOT COMPLY WITH SECTION 11.2 TO EFFECT AN AMENDMENT, MODIFICATION, WAIVER OR
SUPPLEMENT TO THE AGREEMENT OR THE OTHER LOAN DOCUMENTS.
11.24 Hazardous Materials Indemnity. Without limiting any
other indemnity provided for in the Loan Documents, Borrower agrees to indemnify
the Administrative Agent, each other Managing Agent and each Bank and their
directors, officers, agents, attorneys, and employees (collectively, the
"indemnities") from any claim, liability, loss, cost or expense (including
reasonable attorneys' fees (including the allocated cost of in-house counsel))
directly or indirectly arising out of the use, generation, manufacture,
production, storage, release, threatened release, discharge, disposal or
presence of any Hazardous Materials if such Hazardous Materials are on, under,
about or relate to Borrower's Property or operations, so long as such claim,
liability, loss, cost or expense arises out of or relates to a Commitment, the
use of proceeds of any Loans, any transaction contemplated pursuant to this
Agreement,
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<PAGE> 82
or any relationship or alleged relationship of any indemnitee to Borrower
related to this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
KAUFMAN AND BROAD HOME CORPORATION
By /s/ MICHAEL F. HENN
--------------------------------------
Michael F. Henn
Senior Vice President
and Chief Financial Officer
By /s/ WILLIAM R. HOLLINGER
--------------------------------------
William R. Hollinger
Vice President and Controller
10990 Wilshire Boulevard
Los Angeles, California 90024
Attn: Michael F. Henn
Senior Vice President and
Chief Financial Officer
Phone: (310) 231-4000
Fax: (310) 231-4295
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<PAGE> 83
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Administrative
Agent, Lead Arranger and a Bank
By: /s/ KELLY ALLRED
-------------------------------------
Kelly Allred
Vice President
Domestic Lending Office
Bank of America NT&SA
CRESG - National Accounts #1357
555 South Flower Street, 6th Floor
Los Angeles, California 90071
Attention: Kelly Allred
Vice President
Telephone: (213) 228-4027
Telecopier: (213) 228-3802
LIBOR Lending Office
Bank of America NT&SA
CRESG National Accounts #1357
555 South Flower Street, 6th Floor
Los Angeles, California 90071
Attention: Luz Solper
Telephone: (213) 228-6102
Telecopier: (213) 228-5389
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<PAGE> 84
CREDIT LYONNAIS LOS ANGELES BRANCH,
as Syndication Agent and a Bank
By: /s/ DIANNE M. SCOTT
------------------------------------
Dianne M. Scott,
First Vice President and Manager
Domestic and LIBOR Lending Office
Credit Lyonnais Los Angeles Branch
515 South Flower Street, 22nd Floor
Los Angeles, California 90071
Attention: Michael Jackson
Vice President
Telephone: (213) 362-5952
Telecopier: (213) 623-3437
THE FIRST NATIONAL BANK OF CHICAGO,
as Documentation Agent and a Bank
By: /s/ LYNN BRAUN
--------------------------------------
Lynn Braun
Corporate Banking Officer
Domestic and LIBOR Lending Office
The First National Bank of Chicago
One First National Plaza, Suite 0151
Chicago, Illinois 60670
Attention: Lynn Braun
Corporate Banking Officer
Telephone: (312) 732-3827
Telecopier: (312) 732-1117
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<PAGE> 85
UNION BANK OF CALIFORNIA, N.A., as a
Co-Agent and a Bank
By: /s/ GARY L. ROBERTS
-------------------------------------
Gary L. Roberts
Vice President
Domestic and LIBOR Lending Office
Union Bank of California, N.A.
350 California Street, 7th Floor
San Francisco, California 94104
Attention: Gary L. Roberts
Vice President
Telephone: (415) 705-7442
Telecopier: (415) 705-7367
BANK UNITED, FSB, as a Bank
By /s/ THOMAS S. GRIFFIN
--------------------------------------
Thomas S. Griffin
Vice President/Manager
Domestic and LIBOR Lending Office
Bank United, FSB
5950 La Place Court, Suite 205
Carlsbad, California 92008
Attention: Thomas S. Griffin
Vice President/Manager
Residential Construction
Lending - San Diego
Telephone: (760) 804-8595
Telecopier: (760) 804-8590
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<PAGE> 86
COMERICA BANK, as a Bank
By /s/ SAM MEEHAN
-------------------------------------
Sam Meehan
Account Officer
Domestic and LIBOR Lending Office
Comerica Bank
500 Woodward Avenue, 7th Floor
Detroit, Michigan 48275-3256
Attention: Sam Meehan
Account Officer
Telephone: (313) 222-5461
Facsimile: (313) 222-9295
SUNTRUST BANK, ATLANTA, as a Bank
By /s/ DAVID EDGE
--------------------------------------
David Edge
Vice President
Domestic and LIBOR Lending Office
SunTrust Bank, Atlanta
25 Park Place, 24th Floor
Atlanta, Georgia 30303
Attention: David Edge
Vice President
Telephone: (404) 827-6735
Telecopier: (404) 827-6770
By /s/ CAROLYN S. MCMEELIN
--------------------------------------
Carolyn McMeelin
Bank Officer
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<PAGE> 87
PARIBAS, as a Bank
By /s/ MARC A. PREISER
--------------------------------------
Marc A. Preiser
Assistant Vice President
By /s/ JOHN KOPCHA
--------------------------------------
John Kopcha
Vice President
Domestic and LIBOR Lending Offices
Paribas
2029 Century Park East
Suite 3900
Los Angeles, California 90067
Attention: Marc A. Preiser
Assistant Vice President
Telephone: (310) 551-7313
Telecopier: (310) 556-3157
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<PAGE> 88
EXHIBIT A
COMMITMENT ASSIGNMENT AND ACCEPTANCE AGREEMENT
THIS COMMITMENT ASSIGNMENT AND ACCEPTANCE AGREEMENT
("Agreement") dated as of ____________ is made with reference to that certain
Term Loan Agreement, dated as of January 7, 1999 (the "Loan Agreement") among
KBHC, the Banks party thereto, Credit Lyonnais Los Angeles Branch, as
Syndication Agent, The First National Bank of Chicago, as Documentation Agent,
Union Bank of California, as Co-Agent, and Bank of America National Trust and
Savings Association, as Administrative Agent and Lead Arranger, and is entered
into between the "Assignor" described below, in its capacity as a Bank under the
Loan Agreement, and the "Assignee" described below. Assignor and Assignee hereby
represent, warrant and agree as follows:
1. Definitions. Capitalized terms defined in the Loan Agreement are
used herein with the meanings set forth for such terms in the Loan Agreement. As
used in this Agreement, the following capitalized terms shall have the meanings
set forth below:
"Agents" means, collectively, the Syndication Agent, the
Documentation Agent, the Co-Agent and the Administrative Agent.
"Assignee" means __________________________________.
"Assigned Pro Rata Share" means _____% of the Commitment of
the Banks under the Loan Agreement, being equal to the following dollar amount:
$____________.
"Assignor" means __________________________________.
"Effective Date" means ______________, the effective date of
this Agreement determined in accordance with Section 11.8 of the Loan Agreement.
"KBHC" means Kaufman and Broad Home Corporation, a Delaware
corporation, and its successors.
2. Representations and Warranties of the Assignor. The Assignor
represents and warrants, as of the date hereof, as follows:
(a) The Pro Rata Share of the Assignor is _____% of the
Commitment (without giving effect to assignments thereof which have not yet
become effective). The Assignor is the legal and beneficial owner of the
Assigned Pro Rata Share and the Assigned Pro Rata Share is free and clear of any
adverse claim.
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<PAGE> 89
(b) The outstanding principal balance of Advances made by
Assignor under the Commitment is $__________.
(c) The Assignor has full power and authority, and has taken
all action necessary to execute and deliver this Agreement and any and all other
documents required or permitted to be executed or delivered by it in connection
with this Agreement and to fulfill its obligations under, and to consummate the
transactions contemplated by, this Agreement, and no governmental authorizations
or other authorizations are required in connection therewith.
(d) This Agreement constitutes the legal, valid and binding
obligation of the Assignor.
Assignor makes no representation or warranty and assumes no responsibility with
respect to the financial condition of KBHC or the performance by KBHC of its
obligations under the Loan Agreement, and assumes no responsibility with respect
to any statements, warranties or representations made or in connection with the
Loan Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Loan Agreement or any Loan Document
other than as expressly set forth above.
3. Representations and Warranties of the Assignee. The Assignee hereby
represents and warrants to the Assignor as follows:
(a) The Assignee is an Eligible Assignee;
(b) The Assignee has full power and authority, and has taken
all action necessary to execute and deliver this Agreement, and any and all
other documents required or permitted to be executed or delivered by it in
connection with this Agreement and to fulfill its obligations under, and to
consummate the transactions contemplated by, this Agreement, and no governmental
authorizations or other authorizations are required in connection therewith;
(c) This Agreement constitutes the legal, valid and binding
obligation of the Assignee;
(d) The Assignee has independently and without reliance upon
the Assignor and based on such information as the Assignee has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Assignee will, independently and without reliance upon the Agents,
Lead Arranger or any Bank, and based upon such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Loan Agreement;
(e) The Assignee has received copies of the Loan Agreement and
such of the Loan Documents as it has requested, together with copies of the most
recent financial statements delivered pursuant to the Loan Agreement; and
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<PAGE> 90
(f) If Assignee is organized under the Laws of a jurisdiction
outside the United States of America, attached hereto are the forms prescribed
by the Code and the Loan Agreement certifying Assignee's exemption from United
States withholding taxes with respect to all payments to be made to Assignee
under the Loan Agreement.
4. Assignment. On the terms set forth herein, Assignor, as of Effective
Date, hereby irrevocably sells, assigns and transfers to the Assignee all of the
rights and obligations of the Assignor under the Loan Agreement and the other
Loan Documents, in each case to the extent of the Assigned Pro Rata Share, and
the Assignee irrevocably accepts such assignment of rights and assumes such
obligations from the Assignor on such terms and as of the Effective Date. As of
the Effective Date, Assignee shall have the rights and obligations of a "Bank"
(as defined in the Loan Agreement) under the Loan Documents, except to the
extent of any arrangements with respect to payments referred to in Section 5
hereof. Assignee hereby appoints and authorizes the Administrative Agent to take
such action and to exercise such powers as are delegated to the Administrative
Agent by the Loan Agreement.
5. Payment. On the Effective Date, Assignee shall pay to the Assignor,
in immediately available funds, an amount equal to the purchase price, as agreed
between the Assignor and the Assignee, of the Assigned Pro Rata Share. The
Assignor and the Assignee have entered into a letter agreement, of even date
herewith, which sets forth their agreement with respect to the amount of
interest, fees, and other payments with respect to the Assigned Pro Rata Share
which are to be retained by the Assignor.
The Assignor and the Assignee hereby agree that if either
receives any payment of interest, principal, fees or any other amount under the
Loan Agreement, their respective Notes and other Loan Documents which is for the
account of the other, it shall hold the same in trust for such party to the
extent of such party's interest therein and shall promptly pay the same to such
party.
6. Principal, Interest, Fees, etc. Any principal that would be payable
and any interest, fees and other amounts that would accrue from and after the
Effective Date to or for the account of the Assignor pursuant to the Loan
Agreement and the Notes shall be payable to or for the account of the Assignor
and the Assignee, in accordance with their respective interests as adjusted
pursuant to this Agreement.
7. Notes. The Assignor and Assignee shall make appropriate arrangements
with KBHC concurrently with the execution and delivery hereof so that a
replacement Note is issued to the Assignor, if necessary, and a new Note is
issued to the Assignee in principal amounts reflecting their Pro Rata Shares of
the Commitment or their outstanding Advances (as adjusted pursuant to this
Agreement). As of the Effective Date, the Pro Rata Shares of Assignor and
Assignee to be reflected on Schedule 1.1 to the Loan Agreement shall be:
-3-
<PAGE> 91
Pro Rata Share of
Commitment
Assignor __% ($_________)
Assignee __% ($_________)
8. Further Assurances. Concurrently with the execution of this
Agreement, Assignor shall execute four counterpart original Requests for
Registration, in the form of Exhibit A to this Agreement, to be forwarded to the
Administrative Agent. The Assignor and the Assignee further agree to execute and
deliver such other instruments, and take such other action, as either party may
reasonably request in connection with the transactions con templated by this
Agreement, and Assignor specifically agrees to cause the delivery of (i) four
original counterparts of this Agreement and (ii) the Requests for Registration,
to the Administrative Agent for the purpose of registration of Assignee as a
"Bank" pursuant to the Loan Agreement.
9. GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACTUAL
OBLIGATION UNDER, AND SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA.
10. Notices. All communications among the parties or notices in
connection herewith shall be in writing, hand delivered or sent by registered
airmail, postage prepaid, or by telex, telegram or cable, addressed to the
appropriate party at its address set forth on the signature pages hereof. All
such communications and notices shall be effective upon receipt.
11. Binding Effect. This Agreement shall become effective upon the
execution of the Request for Registration in the form of Exhibit A to this
Agreement by KBHC and the execution of the Consent in the form of Exhibit B to
this Agreement by the Administrative Agent, and shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns;
provided, however, that Assignee shall not assign its rights or obligations
without the prior written consent of the Assignor and any purported assignment,
absent such consent, shall be void.
12. Interpretation. The headings of the various sections hereof are for
convenience of reference only and shall not affect the meaning or construction
of any provision hereof.
-4-
<PAGE> 92
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered by their respective officials, officers or agents
thereunto duly authorized as of the date first above written.
"Assignor"
By:_____________________________________
_____________________________________
Printed Name and Title
Address: ________________________________
________________________________
________________________________
Attn: _________________________
"Assignee"
_________________________________________
By:______________________________________
______________________________________
Printed Name and Title
Address: ________________________________
________________________________
________________________________
Attn: _________________________
-5-
<PAGE> 93
Exhibit A to Commitment Assignment and Acceptance Agreement
REQUEST FOR REGISTRATION
TO: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as Administrative Agent
THIS REQUEST FOR REGISTRATION OF ASSIGNEE is made as of the date
of the enclosed Commitment Assignment and Acceptance Agreement with reference to
that certain Term Loan Agreement dated as of January 7, 1999 among KBHC and the
Agents, Lead Arranger and the Banks who are parties thereto.
Assignor and Assignee hereby request that the Administrative
Agent approve of Assignee as a Bank, and that the Administrative Agent register
Assignee as a Bank pursuant to the Loan Agreement effective as of the Effective
Date described in the enclosed Commitment Assignment and Acceptance Agreement
and, in connection with this request certify to the Administrative Agent that
the enclosed Commitment Assignment and Acceptance Agreement sets forth the
correct Commitment and the Assigned Pro Rata Share of the Assignee.
Enclosed with this Request are four counterpart originals of the
Commitment Assignment and Acceptance Agreement as well as the original Note
issued to Assignor.
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Request for Registration by their duly authorized officers as of ______________.
"Assignor"
_________________________________________
By:______________________________________
______________________________________
Printed Name and Title
Exhibit A
Page 1 of 2
<PAGE> 94
"Assignee"
_________________________________________
By:______________________________________
______________________________________
Printed Name and Title
THE UNDERSIGNED HEREBY CONSENT
TO THE ABOVE ASSIGNMENT:
KAUFMAN AND BROAD HOME CORPORATION,
a Delaware corporation
By:__________________________________
_____________________________________
Printed Name and Title
Exhibit A
Page 2 of 2
<PAGE> 95
Exhibit B to Commitment Assignment and Acceptance Agreement
CONSENT
TO: THE ASSIGNOR AND ASSIGNEE REFERRED TO IN THE ABOVE REQUEST
FOR REGISTRATION
When countersigned by the Administrative Agent below, this document shall
certify that:
1. The Administrative Agent has consented, pursuant to the terms of
the Loan Documents, to the assignment by Assignor to Assignee of the Assigned
Pro Rata Share.
2. The Administrative Agent has registered Assignee as a Bank under
the Loan Agreement, effective as of the Effective Date described above, with a
Pro Rata Share of the Commitment corresponding to the Assigned Pro Rata Share
and has adjusted the registered Pro Rata Share of the Commitment of Assignor to
reflect the assignment of the Assigned Pro Rata Share.
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Administrative
Agent
By:______________________________________
______________________________________
Printed Name and Title
Exhibit B
Page 1 of 1
<PAGE> 96
EXHIBIT B
COMPLIANCE CERTIFICATE AS REQUIRED BY ARTICLE 7, SECTION 2
TERM LOAN AGREEMENT
PROJECTED AUGUST 31, 1998
ARTICLE 6.9 - CONSOLIDATED TANGIBLE NET WORTH
<TABLE>
<CAPTION>
11/30/97A 2/28/98A 5/31/98A 8/31/98A 11/30/98 11/30/99
--------- -------- -------- -------- -------- --------
$000 $000 $000 $000 $000 $000
<S> <C> <C> <C> <C> <C> <C>
Measured from 12/1/96:
Consolidated Net Income 27,922 8,098 17,222 28,098
50% cumulative Consolidated Net Income 29,115 33,164 41,775 55,824
proceeds from issuance capital stock 860 1,857 7,345 798
50% cumulative proceeds issuance capital stock 1,227 2,156 5,828 6,227
6.9 MINIMUM CONSOLIDATED TANGIBLE NET WORTH
(a) Base Amount 300,000 300,000 300,000 300,000
(b) Plus - 50% of cumulative Consolidated
Net Income 29,115 33,164 41,775 55,824
(c) Plus - 50% cumulative proceeds from
issuance capital stock after 11/30/96 1,227 2,156 5,828 6,227
(d) Plus - 50% of proceeds Feline Prides 0 0 0 94,875
(e) (Less) Stock Repurchase Stepdown 0 0 0 0
-------- -------- -------- -------- -------- --------
MINIMUM CONSOLIDATED TANGIBLE NET WORTH 330,342 335,320 347,603 456,926 0 0
======== ======== ======== ======== ======== ========
1.1 "CONSOLIDATED TANGIBLE NET WORTH"
Consolidated Shareholder's Equity 383,056 388,341 410,237 427,425
Plus - Feline Prides 189,750
(Less) book value goodwill from
Acquisitions after 11/30/96 0 0 (23,058) (22,472)
(Less)/Plus any cumulative foreign
currency translation adjustment 1,987 3,716 3,441 3,892
-------- -------- -------- -------- -------- --------
CONSOLIDATED TANGIBLE NET WORTH 385,043 392,057 390,620 598,595 0 0
======== ======== ======== ======== ======== ========
CTNW (LESS) MIN CTNW 54,701 56,738 43,017 141,669 0 0
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE> 97
EXHIBIT B
COMPLIANCE CERTIFICATE AS REQUIRED BY ARTICLE 7, SECTION 2
TERM LOAN AGREEMENT
PROJECTED 8/31/98
ARTICLE 6.10 - CONSOLIDATED LEVERAGE RATIO
<TABLE>
<CAPTION>
11/30/97A 2/28/98A 5/31/98A 8/31/98A
--------- -------- -------- --------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
1.1 "CONSOLIDATED TOTAL INDEBTEDNESS"
- -------------------------------------------
revolving credit facility 0 0 181,000 15,000
secured debt 14,294 11,312 23,472 20,724
senior notes - 10-3/8% 0 0 0 0
senior sub notes - 9-3/8% 174,085 174,118 174,151 174,186
senior sub notes - 9-5/8% 124,445 124,455 124,465 124,475
senior notes - 7-3/4% 175,000 175,000 175,000 175,000
other unsecured 9,045 28,428 10,195 29,276
financial letters of credit 14,474 13,182 13,137 17,802
Contingent Guaranty Obligations 22,991 18,524 21,826 26,829
<Less> Cash & Cash Equivalents > $15m (51,343) (18,968) 0 0
--------- -------- -------- --------
TOTAL CONSOLIDATED INDEBTEDNESS 482,991 526,051 723,246 583,292
========= ======== ======== ========
total equity interest in unconsol JVs 6,338 5,629 5,706 5,974
<Less> KBMHG equity interest in unconsol JVs 0 0 0 0
--------- -------- -------- --------
net equity interest in unconsol JVs 6,338 5,629 5,706 5,974
CONSOLIDATED TANGIBLE NET WORTH 385,043 392,057 390,620 598,595
<Less> net equity interest in unconsol
JVs > $30m 0 0 0 0
--------- -------- -------- --------
CONSOLIDATED TANGIBLE NET WORTH FOR
CONSOLIDATED LEVERAGE RATIO 385,043 392,057 390,620 598,595
========= ======== ======== ========
DEBT TO CAPITAL RATIO 53.8% 56.0% 62.7% 46.6%
ACTUAL CONSOLIDATED LEVERAGE RATIO 1.25 1.34 1.85 0.97
========= ======== ======== ========
</TABLE>
<PAGE> 98
EXHIBIT B
COMPLIANCE CERTIFICATE AS REQUIRED BY ARTICLE 7, SECTION 2
TERM LOAN AGREEMENT
PROJECTED AUGUST 31, 1998
Article 6.11 - Consolidated Interest Coverage Ratio
<TABLE>
<CAPTION>
1996 1997 1998
Actual Actual 2/28/98A 5/31/98A 8/31/98A 11/30/98 Actual 11/30/99
-------- -------- -------- -------- -------- -------- ------ --------
$000 $000 $000 $000 $000 $000 $000 $000
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1.1 "Consolidated Interest Coverage Ratio"
- -------------------------------------------
1.1 "CONSOLIDATED EBITDA"
(a) Consolidated Net Income (61,245) 58,230 8,098 17,222 28,098
(b) Plus - any extraordinary loss 0 0 0 0 0
(c) (Less) any extraordinary gain 0 0 0 0 0
(d) Plus - Consolidated Interest Expense 36,691 29,829 7,137 7,662 4,532
(e) Plus - federal and state taxes (34,500) 32,800 4,600 9,000 15,200
(f) Plus - depreciation and amortization 12,329 14,200 3,700 4,508 4,553
(f) Plus - all other non cash expenses 0 0 0 0
------- ------- ------- ------- -------
CONSOLIDATED EBITDA (46,725) 135,059 23,535 38,392 52,383
------- ------- ------- ------- -------
1.1 "CONSOLIDATED ADJUSTED EBITDA"
- -------------------------------------------
Consolidated EBITDA (46,725) 135,059 23,535 38,392 52,383
(a) Plus - capitalized interest amortized
in COGS 24,893 21,972 6,812 4,860 8,448
(b) Plus - non-Cash NRV Adjustments 170,757 0 0 0 0
------- ------- ------- ------- -------
CONSOLIDATED ADJUSTED EBITDA 148,925 157,031 30,347 43,252 60,831
------- ------- ------- ------- -------
12 mo trailing Consolidated
Adjusted EBITDA 148,925 157,031 163,391 173,720 195,160
======= ======= ======= ======= =======
1.1 "CONSOLIDATED INTEREST EXPENSE"
- -------------------------------------------
Consolidated Interest Expense 36,691 29,829 7,137 7,662 4,532
Plus - interested capitalized
to COGS 26,937 22,639 5,103 7,196 9,303
Plus - dividends paid on
preferred stock 0 0 0 0 0
------- ------- ------- ------- -------
CONSOLIDATED INTEREST EXPENSE 63,628 52,468 12,240 14,858 13,835
======= ======= ======= ======= =======
12 MO TRAILING CONSOLIDATED INTEREST
EXPENSE 63,628 52,468 51,535 53,043 53,638
======= ======= ======= ======= =======
CONSOLIDATED INTEREST COVERAGE RATIO 2.34 2.99 3.17 3.28 3.64
======= ======= ======= ======= =======
6.11 MIN CONSOLIDATED INTEREST
COVERAGE RATIO 2.00 2.00 2.25 2.25 2.25 2.25 2.25 2.25
======= ======= ======= ======= ======= ==== ==== ====
(a) MIN CURE PERIOD COVERAGE RATIO 1.50 1.50 1.75 1.75 1.75 1.75 1.75 1.75
</TABLE>
<PAGE> 99
EXHIBIT B
COMPLIANCE CERTIFICATE AS REQUIRED BY ARTICLE 7, SECTION 2
TERM LOAN AGREEMENT
PROJECTED AUGUST 31, 1998
ARTICLE 6.15 INVENTORY
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
11/30/96A 11/30/97A 2/28/98A 5/31/98A 8/31/98A 11/30/98 11/30/99
__________________________________________________________________________________
$000 $000 $000 $000 $000 $000 $000
DOMESTIC UNIMPROVED LAND __________________________________________________________________________________
BOOK VALUE 90,734 114,100 162,025 249,314 209,533
__________________________________________________________________________________
__________________________________________________________________________________
CONSOLIDATED TANGIBLE 336,025 385,043 392,057 390,620 598,595
NET WORTH __________________________________________________________________________________
DOMESTIC UNIMPROVED LAND BOOK
VALUE AS PERCENT OF
CONSOLIDATED TANGIBLE
NET WORTH 27.0% 29.6% 41.3% 63.8% 35.0%
===================================================================================
CUSHION (VIOLATION) 245,291 270,943 230,032 141,306 389,062
===================================================================================
</TABLE>
<PAGE> 100
EXHIBIT B
COMPLIANCE CERTIFICATE AS REQUIRED BY ARTICLE 7, SECTION 2
TERM LOAN AGREEMENT
PROJECTED AUGUST 31, 1998
Article 6.16 - Certain Investments
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
11/30/96A 11/30/97A 2/28/98A 5/31/98A 8/31/98A 11/30/98 11/30/99
__________________________________________________________________________________
$ 000 $ 000 $ 000 $ 000 $ 000 $000 $000
(a) equity in Foreign Subsidiaries 39,420 30,994 29,174 30,205 30,047
Plus any interco receivables - foreign subs 23,405 25,425 26,111 26,368 26,720
(Less) any interco payables - foreign subs (3,449) 0 0 0 0
__________________________________________________________________________________
INVESTMENT IN FOREIGN SUBSIDIARIES 59,376 56,419 55,285 56,573 56,767 0 0
__________________________________________________________________________________
AGGREGATE INVESTMENT IN FOREIGN
SUBSIDIARIES AFTER 11/30/96 n/a (2,957) (4,091) (2,803) (2,609)
==================================================================================
(b) equity in Financial Subsidiaries 35,208 17,559 17,611 17,811 16,764
Plus any interco receivables - financial subs 0 0 3,173 576 0
(Less) any interco payables - financial subs (2,690) (615) 0 0 (6,337)
__________________________________________________________________________________
INVESTMENT IN FINANCIAL SUBSIDIARIES 32,518 16,944 20,784 18,387 10,427
__________________________________________________________________________________
AGGREGATE INVESTMENT IN FINANCIAL
SUBSIDIARIES AFTER 11/30/96 n/a (15,574) (11,734) (14,131) (22,091)
========= ======================================================================
__________________________________________________________________________________
(c) INVESTMENT IN SPECIFIED ENTITIES 8,312 6,338 5,629 5,706 5,974
__________________________________________________________________________________
AGGREGATE INVESTMENT IN SPECIFIED
ENTITIES AFTER 11/30/96 n/a (1,974) (2,683) (2,606) (2,338)
==================================================================================
AGGREGATE INVESTMENTS IN FOREIGN AND
FINANCIAL SUBSIDIARIES AND SPECIFIED
ENTITIES AFTER 11/30/96 n/a (25,505) (18,508) (19,540) (27,038)
==================================================================================
MAX INVESTMENTS IN FOREIGN AND
FINANCIAL SUBSIDIARIES AND SPECIFIED
ENTITIES AFTER 11/30/96 30,000 30,000 30,000 30,000 30,000
__________________________________________________________________________________
CUSHION (VIOLATION) n/a 50,505 48,508 49,540 57,038
==================================================================================
</TABLE>
<PAGE> 101
EXHIBIT C
NOTE
$_______________ January 7, 1999
Los Angeles, California
FOR VALUE RECEIVED, the undersigned promises to pay to the
order of ______________________________ ("the Bank") the principal amount of
__________________________________ DOLLARS ($___________), or such lesser
aggregate amount of the Advance as may be made pursuant to the Bank's Pro Rata
Share of the Commitment under the Term Loan Agreement hereinafter described,
payable as hereinafter set forth. The undersigned promises to pay interest on
the principal amount of the Advance made hereunder and remaining unpaid from
time to time from the date of such Advance until the date of payment in full,
payable as hereinafter set forth.
Reference is made to the Term Loan Agreement dated as of
January 7, 1999, among the undersigned, as Borrower, the Banks that are parties
thereto, Bank of America National Trust and Savings Association, as
Administrative Agent and Lead Arranger, Credit Lyonnais Los Angeles Branch, as
Syndication Agent, The First National Bank of Chicago, as Documentation Agent,
and Union Bank of California, as Co-Agent (as amended from time to time, the
"Loan Agreement"). Terms defined in the Loan Agreement and not otherwise defined
herein are used herein with the meanings defined for those terms in the Loan
Agreement. This is one of the Notes referred to in the Loan Agreement, and any
holder hereof is entitled to all of the rights, remedies, benefits and
privileges provided for in the Loan Agreement as originally executed or as it
may from time to time be supplemented, modified, amended, renewed, extended or
supplanted. The Loan Agreement, among other things, contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
upon the terms and conditions therein specified.
The principal indebtedness evidenced by this Note shall be
payable as provided in the Loan Agreement and in any event on the Maturity Date.
Interest shall be payable on the outstanding daily unpaid
principal amount of the Advance hereunder from the date thereof until payment in
full and shall accrue and be payable at the rates and on the dates set forth in
the Loan Agreement to the fullest extent permitted by applicable Law, both
before and after default and before and after maturity and judgment, with
interest on overdue interest to bear interest at the rate set forth in Section
3.6 of the Loan Agreement.
-1-
<PAGE> 102
The amount of each payment hereunder shall be made to the
Administrative Agent at the Administrative Agent's Office, for the account of
the Bank, in lawful money of the United States of America, without deduction,
offset or counterclaim and in immediately available funds on the day of payment
(which must be a Banking Day). All payments of principal received after 10:00
a.m., Los Angeles time, on any Banking Day, shall be deemed received on the next
succeeding Banking Day for purposes of calculating interest thereon. The Bank
shall use its best efforts to keep a record of the Advance made by it and
payments of principal with respect to this Note, and such record shall be
presumptive evidence of the principal amount owing under this Note.
The undersigned hereby promises to pay, within thirty (30)
days after demand, the reasonable costs and expenses of any holder hereof
incurred in collecting the undersigned's obligations hereunder or in enforcing
or attempting to enforce any of any holder's rights hereunder, including
attorneys' fees and disbursements, whether or not an action is filed in
connection therewith, in accordance with Section 11.3 of the Loan Agreement.
The undersigned hereby waives presentment, demand for payment,
dishonor, notice of dishonor, protest, notice of protest and any other notice or
formality, to the fullest extent permitted by applicable Laws.
This Note shall be delivered to and accepted by the Bank in
the State of California, and shall be governed by, and construed and enforced in
accordance with, the local Laws thereof.
KAUFMAN AND BROAD HOME CORPORATION,
a Delaware corporation
By ___________________________________
Michael F. Henn
Senior Vice President
and Chief Financial Officer
By ___________________________________
William R. Hollinger
Vice President and Controller
-2-
<PAGE> 103
ADVANCES AND PAYMENTS OF PRINCIPAL
(Alternate Base Rate Loans)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount of
Amount of Loan or Principal Paid or
of Redesignation Redesignated Into Unpaid
From Another Another Type Principal Notation
Date Type of Loan of Loan Balance Made By
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
-3-
<PAGE> 104
ADVANCES AND PAYMENTS OF PRINCIPAL
(LIBOR Loans)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount of
Amount of Loan or Principal Paid or
of Redesignation Redesignated Into Unpaid
From Another Another Type Principal Notation
Date Type of Loan of Loan Balance Made By
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
-4-
<PAGE> 105
EXHIBIT D-1
(MUNGER, TOLLES & OLSON LLP LETTERHEAD)
January 7, 1999
To: Bank of America National Trust and
Savings Association, as Administrative Agent
and Lead Arranger;
Credit Lyonnais Los Angeles Branch, as
Syndication Agent;
The First National Bank of Chicago, as
Documentation Agent; and
Union Bank of California, as Co-Agent
c/o Bank of America National Trust and
Savings Association
CRESG National Accounts, #1357
555 South Flower Street
6th Floor
Los Angeles, CA 90071
Re: Kaufman and Broad Home Corporation
Ladies and Gentlemen:
We have acted as counsel to Kaufman and Broad Home Corporation, a
Delaware corporation ("Borrower") in connection with the Term Loan Agreement
(the "Loan Agreement")
<PAGE> 106
Bank of America National Trust and Savings Association et. al.
January 7, 1999
Page 2
dated as of January 7, 1999, by and among Borrower; the Banks which are parties
thereto; Bank of America National Trust and Savings Association, as
Administrative Agent and Lead Arranger; Credit Lyonnais Los Angeles Branch, as
Syndication Agent; The First National Bank of Chicago, as Documentation Agent;
and Union Bank of California, as Co-Agent (all such parties other than the
Borrower are collectively referred to herein as "Bank Parties").
This opinion is furnished to you pursuant to Section 8.1(a)(v) of the Loan
Agreement. Terms not otherwise defined herein shall have the meanings defined
for such terms in the Loan Agreement.
For the purposes of this opinion, we have examined originals, or copies
identified to our satisfaction as being true copies, of the following documents:
(a) The Loan Agreement;
(b) The Notes of even date herewith; and
(c) The Subsidiary Guaranty
The documents described in (a) through (c) above are sometimes referred to
herein as the "Loan Documents".
We have also examined such other corporate documents and records, and other
certificates, opinions and instruments and have conducted such investigations as
we have deemed necessary as a basis for the opinions expressed below. As to
factual matters relevant to our opinions expressed below, we have, without
independent investigation, relied upon certificates of public officials, upon
public records, and have further assumed and relied upon without independent
investigation the truth and accuracy of all factual representations and
warranties of all parties to the Loan Documents.
We have assumed (i) all natural persons have legal capacity, (ii) the
genuineness of all parties other than Borrower, (iii) the conformity to
authentic original documents of all documents submitted to us as copies and the
authenticity of all documents submitted to us as originals, (iv) that each of
the Guarantor Subsidiaries listed in Schedule 4.4 to the Loan Agreement (the
"Guarantor Subsidiaries") is duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization and
in each other jurisdiction where the conduct of its business or the ownership of
its Properties makes qualification or registration to transact business
necessary, (v) as to all parties other than the Borrower and the Guarantor
Subsidiaries, the due authorization, execution and delivery of the Loan
Documents, (vi) the validity and enforceability of the Loan Documents against
all parties
<PAGE> 107
Bank of America National Trust and Savings Association et. al.
January 7, 1999
Page 3
thereto other than Borrower and the Guarantor Subsidiaries, (vii) that each of
the Bank Parties has the requisite power and authority, has obtained all
necessary consents, licenses and permits, has taken all necessary action and
has complied with any and all applicable laws with which such Bank Party is
required to comply, in each case relating to or affecting the matters and
actions contemplated by the Loan Documents, (viii) that each of the Bank
Parties is a national bank, state bank or similar financial institution and is
an exempt lender under Article XV of the California Constitution or statutes
enacted pursuant thereto and (ix) that the Loan Documents have not been
modified, amended, terminated or revoked in any respect, and remain in full
force and effect as of the date hereof.
On the basis of the foregoing, and relying thereon, and with the
qualifications herein set forth, we are of the opinion that:
1. Borrower is a corporation duly incorporated, validly existing and in
good standing under the General Corporation Law of the State of Delaware, and
its certificate of incorporation does not limit the term of its existence.
2. Borrower has all requisite corporate power and authority to conduct
its business, to own and lease its Properties and to execute, deliver and
perform all of its obligations under the Loan Documents to which it is a Party.
3. The execution, delivery, and performance by Borrower of the Loan
Documents to which it is a Party have been duly authorized by all necessary
corporate action.
4. The execution, delivery, and performance of the Loan Documents by
Borrower do not violate any provision of Borrower's certificate of incorporation
or bylaws, and the execution, delivery, and performance by Borrower and each
Guarantor Subsidiary of the Loan Documents to which it is a Party do not violate
any Requirement of Law applicable to Borrower or such Guarantor Subsidiary
imposed by the laws of the United States of America or the State of California
that, in our experience, is normally applicable to general business entities in
relation to transactions of the type contemplated by the Loan Documents.
5. Except as have heretofore been obtained, no authorization, consent,
approval, order, license or permit from, or filing, registration, or
qualification with, or exemption from any of the foregoing from, any
Governmental Agency under any Requirement of Law imposed on Borrower or any
Guarantor Subsidiary by the laws of the United States of America or the State of
California, in each case as such Requirements of Law exist on the date hereof,
is or will be required to authorize or permit the execution, delivery and
performance by Borrower or any Guarantor Subsidiary of the Loan Documents to
which it is a Party.
<PAGE> 108
MUNGER, TOLLES & OLSON LLP
Bank of America National Trust and Savings Association et. al.
January 7, 1999
Page 4
6. Each of the Loan Documents to which Borrower or any Guarantor
Subsidiary is a party will, when executed and delivered by Borrower or such
Guarantor Subsidiary, as the case may be, constitute the legal, valid and
binding obligation of Borrower or such Guarantor Subsidiary, as the case may be,
enforceable against Borrower or such Guarantor Subsidiary, as the case may be,
in accordance with its terms.
In addition to any assumptions, qualifications and other matters set
forth elsewhere herein, the opinions set forth above are subject to the
following:
(a) Our opinion with respect to the legality, validity, binding
effect and enforceability of any Loan Document, agreement or provision is
subject to the effect of any applicable bankruptcy, insolvency, fraudulent
conveyance, fraudulent transfer and equitable subordination, reorganization,
moratorium or similar law affecting creditors' rights generally and to the
effect of general principles of equity, including (without limitation) concepts
of materiality, reasonableness, estoppel, good faith and fair dealing
(regardless of whether considered in a proceeding in equity or at law). We
express no opinion as to the availability of equitable remedies. In applying
such equitable principles, a court, among other things, might not allow a
creditor to accelerate the maturity of a debt or enforce a guaranty thereof upon
the occurrence of a default deemed immaterial or for non-credit reasons or might
decline to order a debtor to perform covenants. Such principles applied by a
court might also include a requirement that a creditor act with reasonableness
and in good faith.
(b) Certain rights, remedies and waivers of the Loan Documents
may be unenforceable in whole or in part, but the inclusion of such provisions
does not affect the validity of the Loan Documents taken as a whole and, except
as set forth in subparagraph (a) above, the Loan Documents taken as a whole
contain adequate provisions for enforcing payment of the Obligations; however,
the unenforceability of such provisions may result in delays in or limitations
on the enforcement of the parties' rights and remedies under the Loan Documents
(and we express no opinion as to the economic consequences, if any, of such
delays or limitations).
(c) We call your attention to the following matters as to which
we express no opinion:
(i) the Borrower's agreements in the Loan Documents to
indemnify you against costs or expenses or liability notwithstanding your acts
of negligence or willful misconduct;
(ii) the Borrower's agreements in the Loan Documents for
payment or reimbursement of costs, fees and expenses or indemnification for
claims, losses or liabilities to
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January 7, 1999
Page 5
the extent any such provision may be determined by a court or other tribunal to
be in an unreasonable amount, to constitute a penalty or to be contrary to
public policy;
(iii) the Borrower's agreements in the Loan Documents to the
jurisdiction or venue of a particular court, to the waiver of the right to jury
trial or to be served with process by service upon a designated third party;
(iv) any of the waivers or remedies contained in the Loan Documents,
whether or not any Loan Document deems any such waiver or remedy commercially
reasonable, if such waivers or remedies are determined (1) not to be
commercially reasonable under applicable law, (2) to conflict with mandatory
provisions of applicable law, (3) to be taken in a manner determined to be
unreasonable or not performed in good faith or with fair dealing or with
honesty in fact or (4) to be broadly or vaguely stated or not to describe the
right or duty purportedly waived with reasonable specificity;
(v) provisions in the Loan Documents which may be construed as
imposing penalties or forfeitures, late payment charges or an increase in
interest rate, upon delinquency in payment or the occurrence of a default;
(vi) any power of attorney granted under the Loan Documents;
(vii) provisions in the Loan Documents to the effect that rights or
remedies are not exclusive, that every right or remedy is cumulative and may be
exercised in addition to any other right or remedy, that the election of some
particular remedy does not preclude recourse to one or more others or that
failure to exercise or delay in exercising rights or remedies will not operate
as a waiver of any such right or remedy;
(viii) provisions in the Loan Documents which expressly or by
implication waive or limit the benefits of statutory, regulatory or
constitutional rights, unless and to the extent the statute, regulation or
constitution explicitly allow such waiver or other limitation; and
(ix) the effect of Section 1698 of the California Civil Code which,
among other matters, provides that written contract may be modified by an oral
agreement to the extent such agreement is performed by the parties.
Our opinions expressed herein are limited to the laws of the State of
California, the General Corporation Law of the State of Delaware and the
federal laws of the United States, and we do not express any opinion herein
concerning any other law, including, but not limited to, ordinances,
regulations or practices of any county, city or other government agency or body
within the State of California.
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Page 6
This opinion is being provided for you benefit at the specific request
of our clients, is rendered to you in connection with the transaction referred
to above and may not be relied upon by any person (other than the Bank Parties,
an Eligible Assignee or any successor in interest of any Bank Party) or by you
or the other Bank Parties in any other context. Copies hereof may be furnished
(a) to your independent auditors and attorneys, (b) to any governmental agency
or authority having regulatory jurisdiction over you, (c) pursuant to an order
of legal process of any court or of any governmental agency or authority, or (d)
in connection with any legal action to which you are a party arising out of the
transaction referred to above. This opinion is rendered as of the date hereof
and we hereby disclaim any obligation to advise any person entitled to rely
hereon of any change in the matters stated herein.
Very truly yours,
/s/ MUNGER TOLLES & OLSON LLP
<PAGE> 111
EXHIBIT D-2
KAUFMAN [LOGO] BROAD
January 7, 1999
To: Bank of America National Trust and
Savings Association, as Administrative Agent
and Lead Arranger;
Credit Lyonnais Los Angeles Branch, as
Syndication Agent;
The First National Bank of Chicago, as
Documentation Agent; and
Union Bank of California, as Co-Agent
c/o Bank of America National Trust and
Savings Association
CRESG National Accounts, #1357
555 South Flower Street
6th Floor
Los Angeles, CA 90071
Ladies and Gentlemen:
I am the Senior Vice President and General Counsel of Kaufman and
Broad Home Corporation, a Delaware corporation ("KBHC"). KBHC shall also be
referred to herein as the "Borrower". I have acted as such in connection with
the Term Loan Agreement dated as of January 7, 1999 (the "Agreement"), by and
among the Borrower and the Banks which are the parties hereto. The term "Banks"
shall, for the purposes of this letter, have the meaning ascribed to such term
in the Agreement.
This opinion is furnished to you pursuant to Section 8.1(a)(v) of the
Agreement. Terms not otherwise defined herein shall have the meanings defined
for such terms in the Agreement. The term "Loan Documents", as used herein,
means those Loan Documents (as defined in the Agreement) in existence as of the
Closing Date, including without limitation those referenced in paragraphs (a)
through (c) below.
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Bank of America National Trust
and Savings Association et.al.
January 7, 1999
Page 2
This opinion is rendered to you as a supplement to the legal opinion of
Munger, Tolles & Olson LLP of even date herewith in connection with the
Agreement but expressly does not incorporate the terms of said Munger, Tolles &
Olson LLP opinion.
For purposes of this opinion, I have examined originals, or copies
identified to my satisfaction as being true copies, of the following documents:
a. The Agreement;
b. The Notes under the Agreement; and
c. The Subsidiary Guaranty.
I have also made such investigations of fact and law, obtained such
certificates of Responsible Officials of Borrower and certain of its
Subsidiaries and of public officials, reviewed incorporation documentation,
resolutions, secretary certificates, good standing certificates and other
documents as appropriate of and for the Borrower and the Guarantor
Subsidiaries, as applicable, and done such other things as I have deemed
necessary for the purpose of this opinion.
I have assumed (i) all natural persons have legal capacity, (ii) the
genuineness of all signatures of all parties other than Borrower and the
Guarantor Subsidiaries listed in Schedule 4.4 to the Agreement, (iii) the
conformity to authentic original documents of all documents submitted to me as
copies and the authenticity of all documents submitted to me as originals, (iv)
as to all parties other than Borrower and the Guarantor Subsidiaries, the due
authorization, execution and delivery of all documents and the validity and
enforceability thereof against all parties thereto other than Borrower and the
Guarantor Subsidiaries, (v) that each Person (other than Borrower and Guarantor
Subsidiaries) which is a party to the Loan Documents has full power, authority
and legal right, under its charter and other governing documents and laws
applicable to it to perform its respective obligations thereunder, (vi) all
parties to any Loan Documents have filed all required franchise tax returns, if
any, and paid all required taxes, if any, under the California Revenue &
Taxation Code and under the laws of the State of Delaware and the respective
states of incorporation of the Guarantor Subsidiaries, (vii) that each of the
Banks has the requisite power and authority, has obtained all necessary
consents, licenses and permits, has taken all necessary action and
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Bank of America National Trust
and Savings Association et.al.
January 7, 1999
Page 3
has complied with any and all applicable laws with which such Bank is required
to comply, in each case relating to or affecting the matters and actions
contemplated by the Loan Documents, (viii) that each of the Banks is a national
bank, state bank or similar financial institution and is an exempt lender under
Article XV of the California Constitution or statutes enacted pursuant thereto
and (ix) that the Loan Documents have not been modified, amended, terminated or
revoked in any respect, and remain in full force and effect as of the date
hereof.
With respect to those opinions expressed below to be to "knowledge" or
"to the knowledge of the undersigned," or similar such wording, I am referring
solely to my individual, actual knowledge. Except as expressly set forth herein,
I did not undertake a review or examination of the activities or business
records of Borrower or any Subsidiaries specifically for the purpose of
rendering this opinion or to determine the existence or absence of such facts.
As Senior Vice President and General Counsel of KBHC, however, material
information respecting the matters covered by such opinions is brought to my
attention on a regular basis as a matter of internal policy and I intend the
phrase "to the knowledge of the undersigned" to mean that, in reviewing such
information, nothing has come to my attention which caused or should have caused
me not to render such opinions.
Based upon the foregoing and in reliance thereon, I am of the opinion
that:
1. KBHC is a corporation duly organized, validly existing and in
good standing under the Laws of the State of Delaware, and its certificate
of incorporation does not provide for the termination of its existence.
KBHC is duly qualified or registered to transact business and is in good
standing as a foreign corporation in the State of California and each other
jurisdiction in which the conduct of its business or the ownership of its
Properties makes such qualifications or registration necessary, except
where the failure so to qualify or register and to be in good standing
would not constitute a Material Adverse Effect.
2. Borrower has all requisite corporate power and authority to
conduct its business, to own and lease its Properties and to execute,
deliver and perform all of its Obligations under the Loan Documents to
which it is a Party.
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and Savings Association et. al.
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Page 4
3. To the knowledge of the undersigned, Borrower is in substantial
compliance with all Laws and other legal requirements applicable to its
business, has obtained all authorizations, consents, approvals, orders,
licenses and permits from, and has accomplished all filings, registrations
and qualifications with, or obtained exemptions from any of the foregoing
from, any Government Agency that are necessary for the transaction of its
business, except where the failure so to comply, file, register, qualify
or obtain exemptions would not constitute a Material Adverse Effect.
4. The execution, delivery and performance by Borrower and by each
Guarantor Subsidiary of each of the Loan Documents to which it is a Party
have been duly authorized by all necessary corporate action, and do not:
a. require under the charter documents of Borrower or the
Guarantor Subsidiary any consent or approval not heretofore obtained
of any partner, director, stockholder, security holder or creditor of
such Party;
b. violate or conflict with the Party's charter, certificate
or articles of incorporation or bylaws;
c. to the knowledge of the undersigned, result in or require
the creation or imposition of any Lien or Right of Others (other than
as provided under the Loan Documents) upon or with respect to any
Property now owned or leased by such Party;
d. violate any Requirement of Law known to the undersigned to
be applicable to such Party; or
e. result in a breach of or constitute a default under, or
cause or permit the acceleration of any obligation owed under, any
indenture or loan or credit agreement known to the undersigned or any
other Contractual Obligation known to the undersigned to which such
Party is a party or by which such Party or any of its Property is
bound or affected;
and, to the knowledge of the undersigned, neither Borrower nor any Subsidiary
or Borrower is in violation of, or default under, any Requirement of Law, or
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contractual obligation, or any indenture, loan or credit agreement described in
subparagraph (e) above in any respect that would constitute a Material Adverse
Effect.
5. Each of the Loan Documents to which either Borrower or any
Guarantor Subsidiary is a Party will, when executed and delivered by Borrower or
such Guarantor Subsidiary, as the case may be, constitute the legal, valid and
binding obligation of Borrower or such Guarantor Subsidiary, as the case may be,
enforceable against such Borrower or such Guarantor Subsidiary, as the case may
be, in accordance with its terms.
6. Except as have heretofore been obtained, no authorization,
consent, approval, order, license or permit from, or filing, registration or
qualification with, or exemption from any of the foregoing from, any
Governmental Agency under any Requirement of Law imposed on Borrower or any
Guarantor Subsidiary by the laws of the United States of America or the State of
California, in each case as the same exists on the date hereof, is or will be
required to authorize or permit the execution, delivery and performance by
Borrower or by any Significant Subsidiary of the Loan Documents to which it is a
Party.
7. Each Significant Subsidiary which is a Domestic Subsidiary is
a legal entity of the form described for that Subsidiary in Schedule 4.4 to the
Agreement, duly organized, validly existing and in good standing under the Laws
of its jurisdiction of formation, is duly qualified or registered to do business
as a foreign organization (if applicable) and is in good standing as such in
each jurisdiction in which the conduction of its business or the ownership or
leasing of its Properties makes such qualifications or registration necessary
(except where the failure to be so qualified or registered and in good standing
does not constitute a Material Adverse Effect) and has all requisite power and
authority to conduct its business and to own and lease its Properties and to
execute, deliver and perform the obligations under the Loan Documents to which
it is a Party.
8. To the knowledge of the undersigned, each Significant
Subsidiary is in substantial compliance with all Laws and other requirements
applicable to its business, has obtained all authorizations, consents,
approvals, orders, licenses and permits from, and has accomplished all filings,
registrations and qualifications with, or obtained exemptions from any of the
foregoing from, any Governmental Agency that are necessary for the transaction
of its business, except where the failure so to comply, file, register, qualify
or obtain exemptions
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Bank of America National Trust
and Savings Association et. al.
January 7, 1999
Page 6
does not constitute a Material Adverse Effect.
9. Neither Borrower nor any of its Subsidiaries is subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act or the Investment Company Act of 1940.
10. To the knowledge of the undersigned, there are no actions, suits or
proceedings pending or threatened against or affecting Borrower or any of its
Subsidiaries or any Property of any of them in any court of Law or before any
Governmental Agency in which there is a reasonable probability of a decision
which would constitute a Material Adverse Effect.
11. Neither Borrower nor any of its Subsidiaries is engaged principally,
or as one of its important activities, in the business of extending credit for
the purpose of "purchasing" or "carrying" and "margin stock" or "margin
security" within the meanings of Regulation U of the Board of Governors of the
Federal Reserve System and no Loan under the Agreement will be used to purchase
or carry any such margin stock in violation of Regulation U.
12. To the knowledge of the undersigned, Borrower and its Subsidiaries are
in substantial compliance with all applicable Laws relating to environmental
protection where the failure to comply would constitute a Material Adverse
Effect, and have not received any notice from any Governmental Agency respecting
the alleged violation by Borrower or any Subsidiary of such Laws which would
constitute a Material Adverse Effect which has not been or is not being
corrected.
In addition to any assumptions, qualifications and other matters set forth
elsewhere herein, the opinions set forth above are subject to the following:
a. My opinion with respect to the legality, validity, binding effect
and enforceability of any Loan Document, agreement or provision is subject
to the effect of any applicable bankruptcy, insolvency, fraudulent
conveyance, fraudulent transfer and equitable subordination,
reorganization, moratorium or similar law affecting creditors' rights
generally and to the effect of general principles of equity, including
(without limitation) concepts of materiality, reasonableness, estoppel,
good faith and fair dealing (regardless of whether considered in a
proceeding in equity or at law). I express no opinion as to the
availability of equitable remedies. In
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Bank of America National Trust
and Savings Association et.al.
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Page 7
applying such equitable principles, a court, among other things, might not
allow a creditor to accelerate the maturity of a debt or enforce a
guaranty thereof upon the occurrence of a default deemed immaterial or for
non-credit reasons or might decline to order a debtor to perform
covenants. Such principles applied by a court might also include a
requirement that a creditor act with reasonableness and in good faith.
b. Certain rights, remedies and waivers of the Loan Documents may
be unenforceable in whole or in part, but the inclusion of such provisions
does not affect the validity of the Loan Documents taken as a whole and,
except as set forth in subparagraph (a) above, the Loan Documents taken as
a whole contain adequate provisions for enforcing payment of the
"Obligations" (as defined in the Agreement); however, the unenforceability
of such provisions may result in delays in or limitations on the
enforcement of the parties' rights and remedies under the Loan Documents
and I express no opinion as to the economic consequences, if any, of such
delays or limitations.
c. I call your attention to the following matters as to which I
express no opinion:
(i) the Borrower's agreements in the Loan Documents to
indemnify you against cost or expenses or liability notwithstanding your
acts of negligence or willful misconduct;
(ii) the Borrower's agreements in the Loan Documents for
payment or reimbursement of costs, fees and expenses or indemnification
for claims, losses or liabilities to the extent any such provision may be
determined by a court or other tribunal to be in an unreasonable amount,
to constitute a penalty or to be contrary to public policy;
(iii) the Borrower's agreements in the Loan Documents to the
jurisdiction or venue of a particular court, to the waiver of the right to
jury trial or to be served with process by service upon a designated third
party;
(iv) any of the waivers or remedies contained in the Loan
Documents, whether or not any Loan Document deems any such
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Bank of America National Trust
and Savings Association et.al.
January 7, 1999
Page 8
waiver or remedy commercially reasonable, if such waivers or remedies are
determined (1) not to be commercially reasonable under applicable law, (2)
to conflict with mandatory provisions of applicable law, (3) to be taken
in a manner determined to be unreasonable or not performed in good faith
or with fair dealing or with honesty in fact or (4) to be broadly or
vaguely stated or not to describe the right or duty purportedly waived
with reasonable specificity;
(v) provisions in the Loan Documents which may be construed as
imposing penalties or forfeitures, late payment charges or an increase in
interest rate, upon delinquency in payment or the occurrence of a default;
(vi) any power of attorney granted under the Loan Documents;
(vii) provisions in the Loan Documents to the effect that rights or
remedies are not exclusive, that every right or remedy is cumulative and
may be exercised in addition to any other right or remedy, that the
election of some particular remedy does not preclude recourse to one or
more others or that failure to exercise or delay in exercising rights or
remedies will not operate as a waiver of any such right or remedy;
(viii) provisions in the Loan Documents which expressly or by
implication waive or limit the benefits of statutory, regulatory or
constitutional rights, unless and to the extent the statute, regulation or
constitution explicitly allow such waiver or other limitation; and
(ix) the effect of Section 1698 of the California Civil Code which,
among other matters, provides that a written contract may be modified by
an oral agreement to the extent such agreement is performed by the parties.
My opinion expressed herein is limited to the laws of the State of
California, the General Corporation Law of the State of Delaware and the
federal laws of the United States, and I do not express any opinion herein
concerning any other law, including, but not limited to, ordinances,
regulations, or practices of any county, city or other government agency or
body within the State of California.
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Bank of America National Trust
and Savings Association et.al.
January 7, 1999
Page 9
This opinion is being rendered to you in connection with the transaction
referred to above and may not be relied upon by any person (other than the
Banks, an Eligible Assignee or any successor in interest of any Bank) or by you
or the other Banks in any other context. Copies hereof may be furnished (a) to
your independent auditors and attorneys, (b) to any governmental agency or
authority having regulatory jurisdiction over you, (c) pursuant to order of
legal process of any court or of any governmental agency or authority, or (d)
in connection with any legal action to which you are a party arising out of the
transaction referred to above. This opinion is rendered as of the date hereof
and I hereby disclaim any obligation to advise any person entitled to rely
hereon of any change in the matters stated herein.
Very truly yours,
/s/ BARTON P. PACHINO
---------------------------
Barton P. Pachino
Senior Vice President and
General Counsel
<PAGE> 120
EXHIBIT E
BORROWER: KAUFMAN AND BROAD
HOME CORPORATION, a
Delaware corporation
GUARANTORS: See Schedule 1 hereto
TO: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
for itself and as Administrative Agent
GUARANTY
THIS GUARANTY ("Guaranty") dated as of January 7, 1999, is
made by each of the parties listed on Schedule 1 hereto, together with each
other person who may become a party hereto pursuant to Section 10 of this
Guaranty (each, a "Guarantor" and collectively, "Guarantors"), jointly and
severally, in favor of Bank of America National Trust and Savings Association,
as Administrative Agent and Lead Arranger, the Syndication Agent, the
Documentation Agent, the Co-Agent and the Banks (as those terms are defined in
the below- referenced Loan Agreement), with reference to the following facts:
RECITALS
A. Pursuant to the Term Loan Agreement of even date herewith
entered into by and among Kaufman and Broad Home Corporation, a Delaware
corporation ("Borrower"), the Banks signatory thereto, Bank of America National
Trust and Savings Association, as Administrative Agent and Lead Arranger, Credit
Lyonnais Los Angeles Branch, as Syndication Agent, The First National Bank of
Chicago, as Documentation Agent and Union Bank of California, as Co-Agent (as
the same may be amended from time to time, the "Loan Agreement"), the Banks are
making a credit facility available to Borrower.
B. As a condition of the availability of such credit facility,
Guarantors are required to enter into this Guaranty.
C. Guarantors expect to realize direct and indirect benefits
as the result of the availability of the aforementioned credit facility, and as
the result of the execution of this Guaranty.
-1-
<PAGE> 121
AGREEMENT
NOW, THEREFORE, in order to induce the Banks to extend the
aforementioned credit facility, and for other good and valuable consideration,
the receipt and adequacy of which is hereby acknowledged, each Guarantor hereby
represents, warrants, covenants, agrees and guaranties as follows:
(1) Terms used in this Guaranty but not defined herein shall
have the meanings defined for them in the Loan Agreement.
(2) Guarantors unconditionally guarantee and promise to pay to
Bank of America National Trust and Savings Association, as the Administrative
Agent for the Banks, on demand, in lawful money of the United States, any and
all Indebtedness of Borrower then due to the Banks. The word "Indebtedness"
means any and all advances, debts, obligations and liabilities of Borrower
heretofore, now, or hereafter made, incurred or created under the Loan Agreement
and under the Loan Documents, and whether Borrower may be liable individually or
jointly with others, or whether such Indebtedness may be or hereafter becomes
otherwise unenforceable.
(3) This Guaranty is irrevocable in nature, is a guaranty of
prompt and punctual payment and performance of all Indebtedness of Borrower, and
is not merely a guaranty of collection. The Indebtedness guaranteed hereunder
includes that arising under successive transactions which shall either continue
the Indebtedness from time to time or renew it after it has been satisfied.
Anything in this Guaranty to the contrary notwithstanding, the maximum liability
of any Guarantor hereunder shall be limited to the extent required for the
obligation of such Guarantor to be valid, binding and enforceable and not
otherwise voidable or avoidable.
(4) The obligations hereunder are joint and several, and
independent of the obligations of Borrower and any of its other Subsidiaries.
Separate action or actions may be brought and prosecuted against any Guarantor
whether action is brought against the Borrower or any of its other Subsidiaries,
including any other Guarantor, or whether Borrower or any of its other
Subsidiaries, including any other Guarantor, may be joined in any such action or
actions.
(5) Each Guarantor authorizes the Banks, without notice or
demand and without affecting its liability hereunder, from time to time to (a)
renew, compromise, extend, accelerate or otherwise change the time for payment
of, or otherwise change the terms of the Indebtedness or any part thereof,
including increase or decrease of the rate of interest thereon; (b) take and
hold security for the payment of this Guaranty or the Indebtedness guaranteed,
and exchange, enforce, waive and release any such security; (c) apply such
security and direct the order or manner of sale thereof as the Administrative
Agent or any Bank in its discretion may determine; and (d) release or substitute
any one or more of the endorsers or guarantors.
-2-
<PAGE> 122
(6) Each Guarantor waives, to the fullest extent permitted by
applicable law, any right to require any Bank to (a) proceed against Borrower or
any of its other Subsidiaries, including any other Guarantor; (b) proceed
against or exhaust any security held from Borrower or any of its Subsidiaries;
or (c) pursue any other remedy in the Banks' power whatsoever. Each Guarantor
waives any defense arising by reason of any disability or other defense of
Borrower or by reason of the cessation from any cause whatsoever of the
liability of Borrower, other than payment in full of the Indebtedness. Until all
Indebtedness of Borrower to the Banks shall have been paid in full, each
Guarantor waives any right to enforce any remedy which the Banks now have or may
hereafter have against Borrower or any of its other Subsidiaries, and waives any
benefit of, and any right to participate in, any security now or hereafter held
by the Banks. Guarantors waive all rights and defenses arising out of an
election of remedies by the creditor, even though that election of remedies,
such as a nonjudicial foreclosure with respect to security for a guaranteed
obligation, has destroyed the guarantor's rights of subrogation and
reimbursement against the principal by the operation of Section 580d of the Code
of Civil Procedure or otherwise. Guarantors expressly waive to the fullest
extent permitted by applicable Law all other suretyship defenses they otherwise
might or would have under any Law. Each Guarantor waives any right of
subrogation that it may have in respect to the obligations of Borrower to the
Banks. Each Guarantor waives all presentments, demands for performance, notices
of nonperformance, protests, notices of protest, notices of dishonor, and
notices of acceptance of this Guaranty and of the existence, creation, or
incurring of new or additional Indebtedness.
(7) After demand upon the Guarantors for payment under this
Guaranty, each Guarantor hereby specifically authorizes each Bank (subject to
the approval of the Majority Banks) in which such Guarantor maintains a deposit
account (whether a general or special deposit account, other than trust
accounts) or a certificate of deposit to setoff any Obligations owed to the
Banks against such deposit account or certificate of deposit without prior
notice to any Guarantor (which notice is hereby waived) whether or not such
deposit account or certificate of deposit has then matured. Nothing in this
paragraph shall limit or restrict the exercise by a Bank of any right to setoff
or banker's lien under applicable Law, subject to the approval of the Majority
Banks.
(8) Each Guarantor represents and warrants to the Banks that
it has established adequate means of obtaining from Borrower and its
Subsidiaries, on a continuing basis, financial and other information pertaining
to the businesses, operations and condition (financial and otherwise) of
Borrower and its Subsidiaries, and that Guarantor now is and hereafter will be
completely familiar with the businesses, operations and condition (financial and
otherwise) of Borrower and its Subsidiaries. Each Guarantor hereby expressly
waives and relinquishes any duty on the part of the Banks (should any such duty
exist) to disclose to any Guarantor any matter, fact or thing related to the
businesses, operations or condition (financial or otherwise) of Borrower or its
Subsidiaries, whether now known or hereafter known by the Banks during the life
of this Guaranty.
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<PAGE> 123
(9) Guarantors agree to pay, within thirty (30) days after
demand, the reasonable out-of-pocket costs and expenses of the Administrative
Agent and each of the Banks in connection with the enforcement of this Guaranty,
including without limitation the reasonable fees and out-of-pocket expenses of
any legal counsel retained by the Administrative Agent or any of the Banks.
(10) Any other Person may become a Guarantor under, and become
bound by the terms and conditions of, this Guaranty by executing and delivering
to the Administrative Agent an Instrument of Joinder substantially in the form
attached hereto as Exhibit A.
(11) This Guaranty shall be governed by and construed
according to the laws of the State of California, to the jurisdiction of which
the parties hereto submit.
"GUARANTORS"
KAUFMAN AND BROAD OF NORTHERN
CALIFORNIA, INC., a California corporation
KAUFMAN AND BROAD OF SAN DIEGO,
INC., a California corporation
KAUFMAN AND BROAD - SOUTH BAY,
INC., a California corporation
KAUFMAN AND BROAD - CENTRAL
VALLEY, INC., a California corporation
KAUFMAN AND BROAD COASTAL, INC., a
California corporation
KAUFMAN AND BROAD OF NEVADA, INC., a
Nevada corporation
KAUFMAN AND BROAD OF ARIZONA, INC.,
an Arizona corporation
KAUFMAN AND BROAD OF COLORADO,
INC., a Colorado corporation
KAUFMAN AND BROAD MULTI-HOUSING
GROUP, INC., a California corporation
-4-
<PAGE> 124
KAUFMAN AND BROAD OF NEW MEXICO,
INC., a New Mexico corporation
KAUFMAN AND BROAD - MONTEREY BAY,
INC., a California corporation
KAUFMAN AND BROAD OF SACRAMENTO,
INC., a California corporation
KAUFMAN AND BROAD OF RENO, INC., a
Nevada corporation
GENERAL HOMES CORPORATION, a Delaware
corporation
By:_______________________________________
William R. Hollinger,
Assistant Secretary
KB HOLDINGS ONE, INC., a California
corporation
By:_______________________________________
William R. Hollinger,
Assistant Secretary and Vice President
KAUFMAN AND BROAD OF SOUTHERN
CALIFORNIA, INC., a California corporation
By:_______________________________________
William R. Hollinger,
Assistant Treasurer
KAUFMAN AND BROAD OF UTAH, INC., a
California corporation
By:_______________________________________
William R. Hollinger, Vice President
-5-
<PAGE> 125
KAUFMAN AND BROAD OF TEXAS, LTD., a
Texas limited partnership
By: KBSA, Inc., a Texas corporation,
Its general partner
By:_________________________________
William R. Hollinger,
Assistant Secretary
KAUFMAN AND BROAD LONE STAR, L.P., a
Texas limited partnership
By: KBSA, Inc., a Texas corporation,
Its general partner
By:_________________________________
William R. Hollinger,
Assistant Secretary
KAUFMAN AND BROAD DEVELOPMENT OF
TEXAS, L.P., a Texas limited partnership
By: KBSA, Inc., a Texas corporation,
Its general partner
By:_________________________________
William R. Hollinger,
Assistant Secretary
-6-
<PAGE> 126
SCHEDULE 1
TO GUARANTY
List of Guarantors
Kaufman and Broad of Northern California, Inc.
Kaufman and Broad of San Diego, Inc.
Kaufman and Broad - South Bay, Inc.
Kaufman and Broad of Southern California, Inc.
Kaufman and Broad - Central Valley, Inc.
Kaufman and Broad Coastal, Inc.
Kaufman and Broad of Nevada, Inc.
Kaufman and Broad of Arizona, Inc.
Kaufman and Broad of Colorado, Inc.
Kaufman and Broad of Utah, Inc.
Kaufman and Broad Multi-Housing Group, Inc.
Kaufman and Broad of New Mexico, Inc.
Kaufman and Broad of Texas, Ltd.
Kaufman and Broad - Monterey Bay, Inc.
Kaufman and Broad of Sacramento, Inc.
Kaufman and Broad of Reno, Inc.
General Homes Corporation
Kaufman and Broad Lone Star, L.P.
Kaufman and Broad Development of Texas, L.P.
KB Holdings One, Inc.
-7-
<PAGE> 127
INSTRUMENT OF JOINDER
THIS INSTRUMENT OF JOINDER ("Joinder") is executed as of
________________, by ________________________________
_______________________________________, a ____________________ ("Joining
Party"), and delivered to the Administrative Agent pursuant to the Guaranty
dated as of January 7, 1999 (the "Guaranty"). Terms used but not defined in this
Joinder shall have the meanings defined for those terms in the Guaranty.
RECITALS
A. The Guaranty was made by the Guarantors in favor of the Banks that
are parties to that certain Term Loan Agreement, dated as of January 7, 1999
(the "Loan Agreement") among Kaufman and Broad Home Corporation, as Borrower,
the Banks signatory thereto, Bank of America National Trust and Savings
Association, as Administrative Agent and Lead Arranger, Credit Lyonnais Los
Angeles Branch as Syndication Agent, The First National Bank of Chicago, as
Documentation Agent and Union Bank of California, as Co-Agent.
B. Joining Party is required pursuant to Section 5.9 of the Loan
Agreement to become a Guarantor.
C. Joining Party expects to realize direct and indirect benefits as a
result of the availability to Borrower of a credit facility pursuant to the Loan
Agreement, and as a result of becoming a party to the Guaranty.
NOW THEREFORE, Joining Party agrees as follows:
AGREEMENT
1. By this Joinder, Joining Party becomes a "Guarantor" under and
pursuant to Section 10 of the Guaranty. Joining Party agrees that, upon its
execution hereof, it will become a Guarantor under the Guaranty with respect to
all Indebtedness of Borrower heretofore or hereafter incurred under the Loan
Agreement, and will be bound by all terms, conditions, and duties applicable to
a Guarantor under the Guaranty.
-1-
<PAGE> 128
2. The effective date of this Joinder is _______________.
"Joining Party"
_____________________________________
a ___________________________________
By:___________________________________
___________________________________
Printed Name and Title
ACKNOWLEDGED:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Administrative Agent
By:___________________________________
___________________________________
Printed Name and Title
KAUFMAN AND BROAD HOME CORPORATION
By:___________________________________
___________________________________
Printed Name and Title
-2-
<PAGE> 129
EXHIBIT F
KAUFMAN AND BROAD HOME CORPORATION
SUMMARY SALES AND BACKLOG REPORT
QUARTER ENDING AUGUST 31, 1998
<TABLE>
<CAPTION>
31-Aug-98 31-Aug-97
- -------------------- ----------------------------------------------------- -----------------------------------------------------
Deliveries Sales Backlog Avg Price Backlog Deliveries Sales Backlog Avg Price Backlog
Division Quarter Quarter Units (000's) Value Quarter Quarter Units (000's) Value
- -------------------- ----------------------------------------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Greater LA 308 275 371 $172 $ 63,812 321 360 301 $157 $ 47,257
Coastal II 285 309 388 253 98,164 241 458 421 216 90,936
Northbay 270 248 424 208 88,192 272 265 385 229 88,165
Central Valley 154 131 199 154 30,646 191 188 177 130 23,010
Southbay 112 54 224 368 82,432 72 145 246 364 89,544
Monterey Bay 96 100 116 222 25,752 107 90 170 226 38,420
----------------------------------------------------- -----------------------------------------------------
Total California 1,225 1,117 1,722 226 388,998 1,204 1,506 1,700 222 377,332
----------------------------------------------------- -----------------------------------------------------
Nevada 278 404 486 129 62,694 161 166 206 121 24,926
Phoenix 340 308 558 122 68,076 171 262 350 127 44,450
Tucson 117 127 173 112 19,376 0 0 0 0 0
New Mexico 96 53 250 151 37,750 123 110 208 164 34,112
Dallas 185 178 421 119 50,099 42 137 152 137 20,824
Houston 190 196 309 101 31,209 0 0 0 0 0
General Homes 31 8 310 123 38,130 0 0 0 0 0
San Antonio 749 667 1,240 97 120,280 690 568 1,213 94 114,022
Austin 176 132 365 118 43,070 66 83 206 102 21,012
Colorado 324 268 741 143 105,963 209 207 302 151 45,602
Utah 81 46 108 166 17,928 51 66 101 159 16,059
----------------------------------------------------- -----------------------------------------------------
Total Other US 2,567 2,387 4,961 120 594,575 1,513 1,599 2,738 117 321,007
----------------------------------------------------- -----------------------------------------------------
Total United States 3,792 3,504 6,683 147 983,573 2,717 3,105 4,438 157 698,339
Maisons Individuelles 180 132 314 173 54,322 188 130 203 146 29,638
KBD 183 238 595 142 84,490 107 61 373 111 41,403
----------------------------------------------------- -----------------------------------------------------
Total France 363 370 909 153 138,812 295 191 576 123 71,041
----------------------------------------------------- -----------------------------------------------------
Mexico 12 9 38 254 9,652 4 14 26 320 8,320
----------------------------------------------------- -----------------------------------------------------
Total 4,167 3,883 7,630 $148 $1,132,037 3,016 3,310 5,040 $154 $777,700
===================================================== =====================================================
</TABLE>
<TABLE>
<CAPTION>
Difference
- -------------------- -----------------------------------------------------
Deliveries Sales Backlog Avg Price Backlog
Division Quarter Quarter Units (000's) Value
- -------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Greater LA (13) (85) 70 $ 15 $ 16,555
Coastal II 44 (149) (33) 37 7,228
Northbay (2) (17) 39 (21) 27
Central Valley (37) (57) 22 24 7,636
Southbay 40 (91) (22) 4 (7,112)
Monterey Bay (11) 10 (54) (4) (12,668)
-----------------------------------------------------
Total California 21 (389) 22 4 11,666
-----------------------------------------------------
Nevada 117 238 280 8 37,768
Phoenix 169 46 208 (5) 23,626
Tucson 117 127 173 112 19,376
New Mexico (27) (57) 42 (13) 3,638
Dallas 143 41 269 (18) 29,275
Houston 190 196 309 101 31,209
General Homes 31 8 310 123 38,130
San Antonio 59 99 27 3 6,258
Austin 110 49 159 16 22,058
Colorado 115 61 439 (8) 60,361
Utah 30 (20) 7 7 1,869
-----------------------------------------------------
Total Other US 1,054 788 2,223 3 273,568
-----------------------------------------------------
Total United States 1,075 399 2,245 (10) 285,234
Maisons Individuelles (8) 2 111 27 24,684
KBD 76 177 222 31 43,087
-----------------------------------------------------
Total France 68 179 333 29 67,771
-----------------------------------------------------
Mexico 8 (5) 12 (66) 1,332
-----------------------------------------------------
Total 1,151 573 2,590 $ (6) $354,337
=====================================================
</TABLE>
<PAGE> 130
EXHIBIT G
KAUFMAN AND BROAD HOME CORPORATION
SUMMARY OF INVENTORY
AS OF AUGUST 31, 1998
<TABLE>
<CAPTION>
Inventory Book Value (Thousands) Size of Project (Lots/Acres)
--------------------------------------------------- ----------------------------------------------------
Land in Productions Land Under Development
Home/Lots Land Under Secured Total Total ------------------- ----------------------
Total in Prod Development Debt Lots Acres W/Homes WO/Homes Lots Acres
---------- -------- ----------- ------- ------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
California
Greater LA $ 121,784 $ 53,000 $ 68,714 $ 842 $12,462 300 406 765 11,291 300
Coastal 151,534 128,181 23,353 -- 3,337 169 608 818 1,911 169
Northbay 96,428 72,185 24,243 6,527 2,320 -- 380 501 1,439 --
Central Valley 28,502 16,967 11,535 858 2,015 -- 186 183 1,646 --
Southbay 85,565 79,388 6,177 -- 1,570 -- 292 328 950 --
Monterey Bay 55,426 33,249 22,177 2,986 2,016 1,416 157 280 1,579 1,416
---------- -------- --------- ------- ------- ----- ------ ------- ------- -------
Total California 539,169 382,970 156,199 11,213 23,720 1,855 2,029 2,875 18,816 1,885
---------- -------- --------- ------- ------- ----- ------ ------- ------- -------
Nevada 64,007 52,146 11,861 3,844 2,507 43 463 799 1,245 43
Phoenix 82,047 47,193 34,854 17 7,277 -- 406 874 5,997 --
Tucson 16,365 14,187 2,178 714 1,573 -- 183 365 1,025 --
New Mexico 34,056 32,856 1,200 -- 1,383 -- 204 873 306 --
Dallas 29,634 29,634 -- -- 2,061 -- 308 1,753 -- --
Houston 26,990 26,460 530 -- 3,895 -- 295 251 3,349 --
General Homes 27,705 17,784 9,921 2,295 1,031 -- 84 452 495 --
San Antonio 64,995 51,621 13,374 497 4,650 -- 789 2,443 1,418 --
Austin 44,740 36,449 8,291 -- 2,022 -- 1,290 335 397 --
Colorado 93,335 73,136 20,199 931 8,284 -- 497 4,728 3,059 --
Utah 15,437 14,330 1,107 818 1,006 -- 39 354 613
---------- -------- --------- ------- ------- ----- ------ ------- ------- -------
Total Other US 499,311 395,796 103,515 9,116 35,689 43 4,558 13,227 17,904 43
---------- -------- --------- ------- ------- ----- ------ ------- ------- -------
Total United States 1,038,480 778,766 259,714 20,329 59,409 1,928 6,587 16,102 36,720 1,928
France
Maisonia Individuelles 44,949 41,149 3,600 -- 995 -- 457 135 403 --
KBD 33,883 22,612 11,271 -- 1,594 -- 523 -- 1,071 --
---------- -------- --------- ------- ------- ----- ------ ------- ------- -------
Total France 78,832 63,961 14,871 -- 2,589 -- 980 135 1,474 --
---------- -------- --------- ------- ------- ----- ------ ------- ------- -------
Mexico 7,173 3,574 3,599 -- 92 -- 36 12 44 --
---------- -------- --------- ------- ------- ----- ------ ------- ------- -------
Other Properties
Pacific Island 929 929 -- -- 7 -- 7 -- -- --
General Homes 7,853 7,853 -- -- -- -- -- -- -- --
Illinois 588 -- 588 -- -- 96 -- -- -- 96
Canada 1,473 -- 1,473 -- -- 140 -- -- -- 140
---------- -------- --------- ------- ------- ----- ------ ------- ------- -------
Total Other Properties 10,843 8,782 2,061 -- 7 236 7 -- -- 236
---------- -------- --------- ------- ------- ----- ------ ------- ------- -------
Total Inventory $1,135,328 $855,083 $280,245 $20,329 62,097 2,164 7,610 16,249 38,238 2,164
========== ======== -======== ======= ======= ===== ====== ======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 99.1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as
of January 7, 1999, is entered into by and among KAUFMAN AND BROAD HOME
CORPORATION, a Delaware corporation (the "Company") and the other signatories
hereto listed on the signature pages to this Agreement (each a "Shareholder" and
collectively the "Shareholders").
WHEREAS, the Company and the Shareholders are parties to that
certain Purchase Agreement (the "Purchase Agreement") whereby, among other
things, the Company will issue an aggregate of 7,886,686 shares of its common
stock, par value $1.00 per share ("Common Stock"), to the Shareholders as
partial consideration for the Company's purchase from the Shareholders of the
Homebuilding Business of the Homebuilding Entities of the Lewis Group of
Companies; and
WHEREAS, in connection with the Purchase Agreement, the parties
hereto desire to enter into this Agreement, which sets forth the terms of
certain registration rights applicable to the Registrable Securities (as defined
below);
NOW, THEREFORE, upon the premises and the mutual promises herein
contained, and for good and valuable consideration, the receipt and adequacy of
which are acknowledged, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings:
(a) "Affiliate" means, with respect to any person, any
other person who, directly or indirectly, is in control of, is controlled by or
is under common control with the former person.
(b) "Holders" means the Shareholders or any Affiliate of
the Shareholders and any "transferee" (as such term is defined in Section 11
hereof) which is the record holder of Registrable Securities.
(c) "Registrable Securities" means the shares of Common
Stock held by the Shareholders as of the date hereof, any stock or other
securities into which or for which such shares of Common Stock may hereafter be
changed, converted or exchanged, and any other securities issued to the Holders
of such shares of Common Stock (or such shares into which or for which such
shares are so changed, converted or exchanged) upon any reclassification, share
combination, share subdivision, share dividend, merger, consolidation or similar
transaction, provided that any such securities shall cease to be Registrable
Securities if (i) a registration
1
<PAGE> 2
statement with respect to the sale of such securities shall have become
effective under the Securities Act (as defined below) and such securities shall
have been disposed of in accordance with the plan of distribution set forth in
such registration statement, (ii) such securities shall have been transferred
pursuant to Rule 144, or (iii) such securities are held by a Holder other than a
Shareholder and the Company has furnished to such Holder an opinion of counsel,
which opinion shall be reasonably satisfactory to such Holder, to the effect
that all of such securities are permitted to be distributed by such Holder in
one transaction pursuant to Rule 144(k).
(d) "Registration Expenses" means all reasonable expenses
in connection with any registration of securities pursuant to this Agreement
including, without limitation, the following: (i) SEC filing fees; (ii) the
fees, disbursements and expenses of the Company's counsel(s) and accountants in
connection with the registration of the Registrable Securities to be disposed of
under the Securities Act; (iii) all expenses in connection with the preparation,
printing and filing of the registration statement, any preliminary prospectus or
final prospectus and amendments and supplements thereto and the mailing and
delivering of copies thereof to any Holders, underwriters and dealers and all
expenses incidental to delivery of the Registrable Securities; (iv) the cost of
producing blue sky or legal investment memoranda or surveys; (v) all expenses in
connection with the qualification of the Registrable Securities to be disposed
of for offering and sale under state securities laws, including the fees and
disbursements of counsel for the underwriters or Holders in connection with such
qualification; (vi) the filing fees incident to securing any required review by
the National Association of Securities Dealers, Inc. of the terms of the sale of
the Registrable Securities to be disposed of; (vii) transfer agents',
depositories' and registrars' fees and the fees of any other agent appointed in
connection with such offering; (viii) all security engraving and security
printing expenses; and (ix) all fees and expenses payable in connection with the
listing of the Registrable Securities on each securities exchange or
inter-dealer quotation system on which a class of common equity securities of
the Company is then listed.
(e) "Rule 144" means Rule 144 promulgated under the
Securities Act, or any successor rule to similar effect.
(f) "SEC" means the United States Securities and Exchange
Commission.
(g) "Securities Act" means the Securities Act of 1933, as
amended, or any successor statute.
2. DEMAND REGISTRATION.
(a) At any time, upon written notice from a Holder
requesting that the Company effect the registration under the Securities Act of
any or all of the Registrable Securities held by such Holder, which notice shall
specify the number of Registrable Securities for which registration is requested
and the intended method or methods of disposition of such Registrable
2
<PAGE> 3
Securities, the Company shall have the right, exercisable within 10 days by
written notice to such Holder, to purchase all of the Registrable Securities
requested to be registered by such Holder at a cash price per share equal to the
arithmetic mean of each of the closing sales prices per share of Common Stock on
the New York Stock Exchange for each of the 15 consecutive trading days ending
on the fifth trading day immediately preceding the date of the written notice
from the Holder under this Section 2(a). The closing of such purchase shall take
place no later than 15 days after the date of the written notice from the
Company under this Section 2(a). If the Company gives written notice under this
Section 2(a), the written notice from the Holder under this Section 2(a) shall
not be deemed a request for registration for purposes of Section 2(b).
(b) If the Company does not exercise its right to purchase
under Section 2(a) above, the Company shall, within 15 days after receipt of the
Holder's request, serve written notice (the "Request Notice") of such
registration request to all other Holders of Registrable Securities. The Request
Notice will state that the Company will include in such registration all
Registrable Securities, subject to the limitations of this Section 2(b) and to
compliance with the other provisions of this Agreement, as to which the Company
receives written requests for inclusion within 15 days after the date of the
Request Notice. As promptly as practicable after such 15 day period, the Company
shall use its best efforts to effect, in the manner set forth in Section 5, the
registration under the Securities Act of the Registrable Securities to be
included for disposition in accordance with the intended method or methods of
disposition stated in the Holder's request, provided that:
(i) if prior to receipt of a registration request
pursuant to this Section 2(b), the Company had commenced a financing
plan through a formal "all hands" meeting with outside advisors,
including an underwriter if such financing plan is an underwritten
offering, and, in the good-faith judgment of the Company's underwriter,
confirmed to the Company in writing (with a copy to the Holders
requesting registration), a registration by the requesting Holders at
the time and on the terms requested would materially and adversely
affect such financing plan of the Company (a "Transaction Blackout"),
the Company shall not be obligated to serve the Request Notice, but
shall give written notice of such events to the Holders requesting
registration and shall not be required to serve the Request Notice and
effect a registration pursuant to this Section 2(b) until the earliest
of (A) the Company's abandonment of such offering, (B) 90 days after the
termination of such offering, (C) the termination of any "hold back"
period obtained by the underwriter(s) of such offering from any person,
including the Company, in connection therewith or (D) 110 days after
receipt by the Holder requesting registration of the written notice of
Transaction Blackout from the Company;
(ii) if, while a registration request is pending
pursuant to this Section 2(b), the Company has determined in good faith
that (A) the filing of a registration statement would jeopardize or
delay a contemplated material transaction other than a financing plan
involving the Company or would require the disclosure of material
information that the Company has a bona fide business purpose for
preserving as
3
<PAGE> 4
confidential, or (B) the Company then is unable to comply
with SEC requirements applicable to the requested registration
(notwithstanding all reasonable efforts to so comply), the Company shall
not be required to effect a registration pursuant to this Section 2(b)
until the earlier of (1) the date upon which such contemplated
transaction is completed or abandoned or such material information is
otherwise disclosed to the public or ceases to be material or the
Company is able to so comply with applicable SEC requirements, as the
case may be, and (2) 45 days after the Company makes such good-faith
determination, provided that the Company shall not be permitted to delay
a requested registration in reliance on this clause (ii) more than once
in any Demand Period (as defined below); and
(iii) the Company shall not be obligated to file a
registration statement relating to a registration request pursuant to
this Section 2(b): (A) sooner than July 1, 2000 (except that, after July
1, 1999, the foregoing restriction shall not apply to a request for
registration of Registrable Securities held by or on behalf of the
estate of a deceased Shareholder, but in such case the Company shall
have no obligation to serve the Request Notice or to include in the
registration any Registrable Securities other than those held by or on
behalf of such estate); (B) for an aggregate of more than 2,000,000
shares of Common Stock during each of (I) the six (6) month period
commencing July 1, 2000, (II) the twelve (12) month period commencing
January 1, 2001, and (III) the six-month period commencing January 1,
2002 (each of the periods described in clauses (I) - (III) being a
"Demand Period"); (C) more than once in any one of Demand Period; (D)
within a period of two months after the effective date of any other
registration statement of the Company demanded pursuant to this Section
2(b); or (E) if such registration request (including Registrable
Securities requested to be included in response to a Request Notice) is
for a number of Registrable Securities which have an aggregate market
value less than $10 million.
(c) Notwithstanding any other provision of this Agreement
to the contrary:
(i) a registration requested pursuant to this Section
2 shall not be deemed to have been effected (and, therefore, not
requested for purposes of Section 2(b)), (A) until the registration
statement with respect thereto has become effective under the Securities
Act (unless the registration statement fails to become effective because
the Holders request that the registration be withdrawn for a reason
other than contemplated in clause (B)); (B) if it is withdrawn based
upon material adverse information relating to the Company that is
different from the information known to the Holder requesting
registration at the time of the Holder's request for registration; (C)
if after it has become effective such registration is interfered with by
any stop order, injunction or other order or requirement of the SEC or
other governmental agency or court for any reason other than a
misrepresentation or an omission by a Holder whose Registrable
Securities are included in such registration; or (D) if the conditions
to closing specified in the purchase agreement or
4
<PAGE> 5
underwriting agreement entered into in connection with such registration
are not satisfied (other than solely by reason of some act or omission
by a Holder) or waived by the underwriters;
(ii) at the request of the Holders of 50% or more of
the Registrable Securities included in a registration, the Company will
withdraw a registration requested pursuant to this Section 2, but a
registration withdrawn upon such request (other than for any reason set
forth in Section 2(c)(i)) shall be deemed to have been effected (and,
therefore, requested for purposes of Section 2(b)), whether withdrawn
prior to or after the effectiveness of such requested registration.
(d) In the event that any registration pursuant to this
Section 2 shall involve, in whole or in part, an underwritten offering, the
Company, on the one hand, and the Holders whose Registrable Securities are
included in the registration, on the other hand, shall each have the right to
designate an underwriter as the sole lead managing underwriters of such
underwritten offering. The Company and such Holders shall consult with each
other as to which of the co-lead managing underwriters shall serve as "books-
running" underwriter; provided that such Holders shall have the right to select
the "books-running underwriter, subject to the Company's consent which shall not
be unreasonably withheld, and the "books-running" underwriter shall determine
the allocation of underwriting spreads and discounts and management fees as
among the underwriters.
(e) In connection with those registrations in which
multiple Holders participate, in the event such registration involves an
underwritten offering and the books-running lead managing underwriter advises
that marketing factors require a limitation on the number of shares to be
underwritten, the number of shares to be included in the underwriting and
registration shall be allocated pro rata among the Holders on the basis of the
shares of Registrable Securities held by each such Holder.
(f) The Company shall have the right to cause the
registration of additional securities for sale for the account of any person
(including the Company) in any registration of Registrable Securities requested
pursuant to Section 2(b); provided that the Company shall not have the right to
cause the registration of such additional securities if the Holders whose
Registrable Securities are included in the registration are advised in writing
(with a copy to the Company) by the books-running lead managing underwriter
that, in such firm's good-faith opinion, registration of such additional
securities would materially and adversely affect the offering and sale of the
Registrable Securities then contemplated by such Holders.
3. PIGGYBACK REGISTRATION. If at any time prior to July 1, 2002,
the Company proposes to register any of its Common Stock ("Other Securities")
under the Securities Act (other than a registration on Form S-4 or S-8 or any
successor form thereto), whether or not for sale for its own account, in a
manner which would permit registration of Registrable Securities for sale for
cash to the public under the Securities Act, it will each such time give prompt
written
5
<PAGE> 6
notice to each Holder of its intention to do so at least 15 business days prior
to the anticipated filing date of the registration statement relating to such
registration. Such notice shall offer each such Holder the opportunity to
include in such registration statement such number of Registrable Securities as
each such Holder may request. Upon the written request of any such Holder made
within 10 business days after the receipt of the Company's notice (which request
shall specify the number of Registrable Securities intended to be disposed of
and the intended method of disposition thereof), the Company shall effect, in
the manner set forth in Section 5, in connection with the registration of the
Other Securities, the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register, to the extent
required to permit the disposition (in accordance with such intended methods
thereof) of the Registrable Securities so requested to be registered, provided
that:
(a) if at any time after giving written notice of its
intention to register any securities and prior to the effective date of such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to the Holders who requested inclusion and,
thereupon, (A) in the case of a determination not to register, the Company shall
be relieved of its obligation to register any Registrable Securities in
connection with such registration and (B) in the case of a determination to
delay such registration, the Company shall be permitted to delay registration of
any Registrable Securities requested to be included in such registration for the
same period as the delay in registering such Other Securities;
(b) (i) if the registration referred to in the first
sentence of this Section 3 is to be an underwritten primary registration on
behalf of the Company, and the managing underwriter advises the Company in
writing (with a copy to the Holders who requested registration) that, in such
firm's opinion, such offering would be materially and adversely affected by the
inclusion therein of the Registrable Securities requested to be included
therein, the Company shall include in such registration: (1) all securities the
Company proposes to sell for its own account ("the Company Securities") and (2)
up to the full number of Registrable Securities in excess of the number or
dollar amount of the Company Securities, which, in the good-faith opinion of
such managing underwriter, can be so sold without materially and adversely
affecting such offering of the Company Securities (and, if less than the full
number of such Registrable Securities, allocated pro rata among the Holders of
such Registrable Securities on the basis of the number of securities requested
to be included therein by each such Holder), and (ii) if the registration
referred to in the first sentence of this Section 3 is to be an underwritten
secondary registration on behalf of holders of securities (other than
Registrable Securities) of the Company (the "Other Holders"), and the managing
underwriter advises the Company in writing (with a copy to the Holders who
requested registration) that in their good-faith opinion such offering would be
materially and adversely affected by the inclusion therein of the Registrable
Securities requested to be included therein, the Company shall include in such
registration the amount of securities (including Registrable Securities) that
such managing underwriter advises, allocated pro rata among the Other Holders
and the Holders on the basis of the number of remaining securities
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<PAGE> 7
(including Registrable Securities) requested to be included therein by each
Other Holder and each Holder;
(c) The Company shall not be required to effect any
registration of Registrable Securities under this Section 3 incidental to the
registration of any of its securities in connection with mergers, acquisitions,
reincorporation, dividend reinvestment plans or stock option or other executive
or employee benefit or compensation plans; and
(d) no registration of Registrable Securities effected
under this Section 3 shall relieve the Company of its obligation to effect a
registration of Registrable Securities pursuant to Section 2 hereof.
4. EXPENSES. The Company agrees to pay all Registration
Expenses with respect to an offering pursuant to Section 2 and Section 3 hereof.
5. REGISTRATION AND QUALIFICATION. If and whenever the
Company is required to use its best efforts to effect the registration of any
Registrable Securities under the Securities Act as provided in Section 2 or 3
hereof, the Company, shall:
(a) prepare and file a registration statement under the
Securities Act relating to the Registrable Securities to be offered as soon as
practicable, but in no event later than 30 days (60 days if the applicable
registration form is other than Form S-3) after the date notice is given, and
use its best efforts to cause the same to become effective as promptly as
practicable;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
90 days (or, in the case of an underwritten offering, such shorter time period
as the underwriters may require);
(c) furnish to the Holders and to any underwriter of such
Registrable Securities such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus included in
such registration statement (including each preliminary prospectus, final
prospectus and any summary prospectus) in conformity with the requirements of
the Securities Act, and such other documents, as the Holders or such underwriter
may reasonably request in order to facilitate the public sale of the Registrable
Securities, and a copy of any and all transmittal letters or other
correspondence to, or received from, the SEC or any other governmental agency or
self-regulatory body or other body having jurisdiction (including any domestic
or foreign securities exchange) relating to such offering;
(d) unless the exemption from state regulation of
securities offerings under Section 18 of the Securities Act applies, use its
best efforts to register or qualify all
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<PAGE> 8
Registrable Securities covered by such registration statement under the
securities or blue sky laws of such jurisdictions as the Holders or any
underwriter of such Registrable Securities shall request, and use its best
efforts to obtain all appropriate registrations, permits and consents required
in connection therewith, and do any and all other acts and things which may be
necessary or advisable to enable the Holders or any such underwriter to
consummate the disposition in such jurisdictions of its Registrable Securities
covered by such registration statement; provided that the Company shall not for
any such purpose be required to register or qualify generally to do business as
a foreign corporation in any jurisdiction wherein it is not so qualified, or to
subject itself to taxation in any such jurisdiction, or to consent to general
service of process in any such jurisdiction;
(e) (i) use its best efforts to furnish an opinion of
counsel for the Company addressed to the underwriters and each Holder of
Registrable Securities included in such registration (each a "Selling Holder")
and dated the date of the closing under the underwriting agreement (if any) (or
if such offering is not underwritten, dated the effective date of the
registration statement), and (ii) use its best efforts to furnish a "cold
comfort" letter addressed to the underwriters and each Selling Holder, if
permissible under applicable accounting practices, and signed by the independent
public accountants who have audited the Company's financial statements included
in such registration statement, in each such case covering substantially the
same matters with respect to such registration statement (and the prospectus
included therein) as are customarily covered in opinions of issuer's counsel and
in accountants' letters delivered to underwriters in underwritten public
offerings of securities and, in the case of such accountants' letter, with
respect to events subsequent to the date of such financial statements;
(f) immediately notify the Selling Holders in writing (i)
at any time when a prospectus relating to a registration pursuant to Section 2
or 3 hereof is required to be delivered under the Securities Act of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, 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 light of the circumstances under
which they were made, not misleading, and (ii) of any request by the SEC or any
other regulatory body or other body having jurisdiction for any amendment of or
supplement to any registration statement or other document relating to such
offering, and in either such case at the request of the Selling Holders prepare
and furnish to the Selling Holders a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading;
(g) to the extent not already listed, use its best efforts
to list all such Registrable Securities covered by such registration on each
securities exchange and inter-dealer quotation system on which a class of common
equity securities of the Company is then listed; and
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<PAGE> 9
(h) furnish unlegended certificates representing ownership
of the Registrable Securities being sold in such denominations as shall be
requested by the Selling Holders or the underwriters with expenses therewith to
be paid in accordance with Section 4 hereof.
6. CONVERSION OF OTHER SECURITIES, ETC. If a Holder offers
any options, rights, warrants or others securities issued by it or any other
person that are convertible into or exercisable or exchangeable for any
Registrable Securities, the Registrable Securities underlying such options,
rights, warrants or other securities shall, but such options, rights, warrants
or other securities shall not, be eligible for registration pursuant to Section
2 and Section 3 of this Agreement.
7. UNDERWRITING, DUE DILIGENCE.
(a) If requested by the underwriters for any underwritten
offering of Registrable Securities pursuant to a registration requested under
this Agreement, the Company shall enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such representations
and warranties by the Company and such other terms and provisions as are
customarily contained in underwriting agreements with respect to secondary
distributions, including, without limitation, indemnities and contribution
substantially to the effect and to the extent provided in Section 8 hereof and
the provision of opinions of counsel and accountants' letters to the effect and
to the extent provided in Section 5(e) hereof. The Selling Holders on whose
behalf the Registrable Securities are to be distributed by such underwriters
shall be parties to any such underwriting agreement and the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters, shall also be made to and for the benefit of
such Selling Holders. Such underwriting agreement shall also contain such
representations, warranties, and other agreements by the Selling Holders on
whose behalf the Registrable Securities are to be distributed as are customarily
contained in underwriting agreements with respect to secondary distributions.
Selling Holders may require that any additional securities included in an
offering proposed by a Holder be included on the same terms and conditions as
the Registrable Securities that are included therein.
(b) In the event that any registration pursuant to Section
3 shall involve, in whole or in part, an underwritten offering, the Company may
require that the Registrable Securities requested to be registered pursuant to
Section 3 be included in such underwriting on the same terms and conditions as
shall be applicable to the other securities being sold through underwriters
under such registration. If requested by the underwriters for such underwritten
offering, the Selling Holders on whose behalf the Registrable Securities are to
be distributed shall enter into an underwriting agreement with such
underwriters, such agreement to contain such representations, warranties and
other agreements by the Selling Holders and such other terms and provisions as
are customarily contained in underwriting agreements with respect to secondary
distributions, including, without limitation, indemnities and contribution
substantially to the effect and to the extent provided in Section 8 hereof. Such
underwriting agreement shall
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<PAGE> 10
also contain such representations and warranties by the Company and such other
person or entity for whose account securities are being sold in such offering as
are customarily contained in underwriting agreements with respect to secondary
distributions.
(c) In connection with the preparation and filing of each
registration statement registering Registrable Securities under the Securities
Act, the Company shall give the Holders of such Registrable Securities and the
underwriters, if any, and their respective counsel and accountants, such
reasonable and customary access to its books and records and such opportunities
to discuss the business of the Company with its officers and the independent
public accountants who have certified the Company's financial statements as
shall be necessary, in the opinion of such Holder and such underwriters or their
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) In the case of each offering of Registrable Securities
made pursuant to this Agreement, the Company agrees to indemnify and hold
harmless each Holder, its officers and directors, each underwriter of
Registrable Securities so offered and each person, if any, who controls any of
the foregoing persons within the meaning of the Securities Act, from and against
any and all claims, liabilities, losses, damages, expenses and judgments, joint
or several, to which they or any of them may become subject, under the
Securities Act or otherwise, including any amount paid in settlement of any
litigation commenced or threatened, and shall promptly reimburse them, as and
when incurred, for any reasonable legal or other expenses incurred by them in
connection with investigating any claims and defending any actions, insofar as
such losses, claims, damages, liabilities or actions shall arise out of, or
shall be based upon, any untrue statement or alleged untrue statement of a
material fact contained in the registration statement (or in any preliminary or
final prospectus included therein) or any amendment thereof or supplement
thereto, or in any document incorporated by reference therein, or any 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 liable to a particular Holder in any such
case to the extent that any such loss, claim, damage, liability or action arises
out of, or is based upon, any untrue statement or alleged untrue statement, or
any omission, if such statement or omission shall have been made in reliance
upon and in conformity with information relating to such Holder furnished to the
Company in writing by or on behalf of such Holder specifically for use in the
preparation of the registration statement (or in any preliminary or final
prospectus included therein) or any amendment thereof or supplement thereto.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of a Holder and shall survive the transfer of
such securities. The foregoing indemnity agreement is in addition to any
liability which the Company may otherwise have to each Holder, its officers and
directors, underwriters of the Registrable Securities or any controlling person
of the foregoing; provided, further, that, as to any underwriter or any person
controlling any underwriter, this indemnity does not apply to any loss,
liability, claim, damage or expense arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged
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<PAGE> 11
omission in any preliminary prospectus if a copy of a prospectus was required
to be sent or given and was not sent or given by or on behalf of an underwriter
to such person asserting such loss, claim, damage, liability or action at or
prior to the written confirmation of the sale of the Registrable Securities as
required by the Securities Act, such untrue statement or omission had been
corrected in such prospectus, and copies of the corrected prospectus were
provided to such underwriter prior to the giving or sending of such written
confirmation.
(b) In the case of each offering made pursuant to this
Agreement, each Holder of Registrable Securities included in such offering, by
exercising its registration rights hereunder, agrees to indemnify and hold
harmless the Company, its officers and directors and each person, if any, who
controls any of the foregoing within the meaning of the Securities Act (and if
requested by the underwriters, each underwriter who participates in the offering
and each person, if any, who controls any such underwriter within the meaning of
the Securities Act), from and against any and all claims, liabilities, losses,
damages, expenses and judgments, joint or several, to which they or any of them
may become subject under the Securities Act or otherwise, including any amount
paid in settlement of any litigation commenced or threatened, and shall promptly
reimburse them, as and when incurred, for any legal or other expenses incurred
by them in connection with investigating any claims and defending any actions,
insofar as any such losses, claims, damages, liabilities or actions shall arise
out of, or shall be based upon, any untrue statement or alleged untrue statement
of a material fact contained in the registration statement (or in any
preliminary or final prospectus included therein) or any amendment thereof or
supplement thereto, or any omission or alleged omission to state therein a
material fact relating to the Holder required to be stated therein or necessary
to make the statements therein not misleading, but in each case only to the
extent that such untrue statement of a material fact is contained in, or such
material fact relating to the Holder is omitted from, information relating to
such Holder furnished in writing to the Company by or on behalf of such Holder
specifically for use in the preparation of such registration statement (or in
any preliminary or final prospectus included therein) or any amendment or
supplement thereto. The foregoing indemnity is in addition to any liability
which such Holder may otherwise have to the Company, or any of its directors,
offices or controlling persons; provided, however, that, as to any underwriter
or any person controlling any underwriter, this indemnity does not apply to any
loss, liability, claim, damage or expense arising out of or based upon any
untrue statement or alleged untrue statement or omission or alleged omission in
any preliminary prospectus if a copy of a prospectus was required to be sent or
given and was not sent to given by or on behalf of an underwriter to such person
asserting such loss, claim damage, liability or action at or prior to the
written confirmation of the sale of the Registrable Securities as required by
the Securities Act, such untrue statement or omission had been corrected in such
prospectus, and copies of the corrected prospectus were provided to such
underwriter prior to the giving or mailing of such written confirmation; and
provided, further, that in no event shall any such Holder be liable for any
amount in excess of the net proceeds received from the sale of the Registrable
Securities by such Holder in the subject offering.
(c) Procedure for Indemnification. Each party indemnified
under paragraph (a) or (b) of this Section 8 shall, promptly after receipt of
notice of any claim or the
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commencement of any action against such indemnified party in respect of which
indemnity may be sought, notify the indemnifying party in writing of the claim
or the commencement thereof; provided that the failure to notify the
indemnifying party shall not relieve it from any liability which it may have to
an indemnified party on account of the indemnity agreement contained in
paragraph (a) or (b) of this Section 8, except to the extent the indemnifying
party was prejudiced by such failure, and in no event shall relieve the
indemnifying party from any other liability which it may have to such
indemnified party. If any such claim or action shall be brought against an
indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein, and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the indemnified
party of its election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party under this
Section 8 for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; provided that each indemnified party, its officers and
directors, if any, and each person, if any, who controls such indemnified party
within the meaning of the Securities Act, shall have the right to employ
separate counsel reasonably approved by the indemnifying party to represent them
if the named parties to any action (including any impleaded parties) include
both such indemnified party and an indemnifying party or an affiliate of an
indemnifying party, and such indemnified party shall have been advised by
counsel either (i) that there may be one or more legal defenses available to
such indemnified party that are different from or additional to those available
to such indemnifying party or such affiliate or (ii) a conflict may exist
between such indemnified party and such indemnifying party or such affiliate,
and in that event the fees and expenses of one such separate counsel for all
such indemnified parties shall be paid by the indemnifying party. An indemnified
party will not enter into any settlement agreement which is not approved by the
indemnifying party, such approval not to be unreasonably withheld. The
indemnifying party may not agree to any settlement of any such claim or action
which provides for any remedy or relief other than monetary damages for which
the indemnifying party shall be responsible hereunder, without the prior written
consent of the indemnified party, which consent shall not be unreasonably
withheld. In any action hereunder as to which the indemnifying party has assumed
the defense thereof with counsel reasonably satisfactory to the indemnified
party, the indemnified party shall continue to be entitled to participate in the
defense thereof, with counsel of its own choice, but, except as set forth above,
the indemnifying party shall not be obligated hereunder to reimburse the
indemnified party for the costs thereof. In all instances, the indemnified party
shall cooperate fully with the indemnifying party or its counsel in the defense
of each claim or action.
If the indemnification provided for in this Section 8 shall for
any reason be unavailable to an indemnified party in respect of any loss, claim,
damage or liability, or any action in respect thereof, referred to herein, then
each indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, in such
proportion as shall be appropriate to reflect the relative fault of the
indemnifying party on the one hand and the indemnified party on the other with
respect to the statements or omissions which resulted in such
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<PAGE> 13
loss, claim, damage or liability, or action in respect thereof, as well as any
other relevant equitable considerations. The relative fault shall be determined
by reference to whether the untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party on the one hand or the
indemnified party on the other, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission, but not by reference to any indemnified party's stock
ownership in the Company. In no event, however, shall a Holder be required to
contribute in excess of the amount of the net proceeds received by such Holder
in connection with the sale of Registrable Securities in the offering which is
the subject of such loss, claim, damage or liability. The amount paid or payable
by an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this paragraph shall be deemed
to include, for purposes of this paragraph, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claims. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
9. RULE 144. Until such time as each Holder may sell in
compliance with the Securities Act all Registrable Securities held by such
Holder without an effective registration statement under the Securities Act or
compliance with Rule 144, the Company shall take such measures and file such
information, documents and reports as shall be required by the SEC as a
condition to the availability of Rule 144.
10. HOLDBACK.
(a) Until the first to occur of (i) there no longer being
any Registrable Securities, (ii) the Holders having completed their sale under
their last registration demanded under Section 2(b), and (iii) the Holders no
longer having the right to demand a registration under Section 2(b), each Holder
agrees, if so required by the managing underwriter in writing to the Holders,
not to sell, make any short sale of, loan, grant any option for the purchase of,
effect any public sale or distribution of or otherwise dispose of any securities
of the Company, during the 10 days prior to and the 90 days after any
underwritten registration pursuant to Section 2 or 3 hereof has become effective
(or such shorter period as may be required by the underwriter), except as part
of such underwritten registration. The Company may legend and may impose stop
transfer instructions on any certificate evidencing Registrable Securities
relating to the restrictions provided for in this Section 10.
(b) The Company agrees, if so required by the managing
underwriter, not to sell, make any short sale of, loan, grant any option for the
purchase of (other than pursuant to a stock option plan or agreement for
employees of the Company or its subsidiaries or other Company employee benefit
plans), effect any public sale or distribution of or otherwise dispose of its
equity securities or securities convertible into or exchangeable or exercisable
for any such securities during the 30 days prior to and the 90 days after any
underwritten registration pursuant
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<PAGE> 14
to Section 2 or 3 hereof has become effective, except (i) as part of such
underwritten registration, (ii) pursuant to registrations on Form S-4, S-8 or
any successor or similar forms thereto or (iii) upon the exercise, conversation,
exchange or consummation by the holder of a convertible or exchangeable security
or security-sales commitment (including the 16,500,000 outstanding "Feline
Prides" of the Company) of the Company outstanding on the date such underwritten
registration pursuant to Section 2 or 3 became effective.
11. TRANSFER OF REGISTRATION RIGHTS.
(a) Subject to Section 11(c), a Holder may transfer its
rights under Section 2(b) and Section 3 of this Agreement, with its obligation
under Section 2(a), to (i) any transferee of Registrable Securities representing
at least 5% of the total outstanding common equity of the Company, (ii) any
transferee who as of the date of this Agreement is a shareholder or member of a
transferring Shareholder that as of the date of this Agreement is a Subchapter S
corporation or limited liability company, or (iii) any transferee who is a
member of the immediate family, a sibling, a descendant, or a niece or nephew of
the transferring Shareholder (including without limitation family trusts, trusts
for the benefit of family members, siblings, descendants, and/or nieces and
nephews, and other similar entities used for the transferring Shareholder's
estate-planning purposes) (each, a "transferee"). The Holder making such
transfer shall promptly notify the Company in writing stating the name and
address of any transferee and identifying the amount of Registrable Securities
with respect to which the rights and obligations under Sections 2 and 3 of this
Agreement are being transferred. In connection with any such transfer, the term
"Holder" as used in this Agreement shall, where appropriate to assign the rights
and obligations of a Holder hereunder to such direct transferee, be deemed to
refer to the transferee holder of such Registrable Securities.
(b) After any such transfer, the Holder making such
transfer shall retain its rights and obligations under this Agreement with
respect to all other Registrable Securities still owned by such Holder.
(c) Upon the request of the Holder making such transfer,
the Company shall execute a Registration Rights Agreement with such transferee
or a proposed transferee substantially similar to this Agreement. Upon the
written request of the Company made to the transferring Holder before
consummation of the transfer, such Holder shall deliver to the Company, as a
condition to the transfer of rights under Sections 2 and 3, a written assumption
of the obligation under Section 2(a) signed by the transferee.
12. MISCELLANEOUS.
(a) INJUNCTIONS. Each party acknowledges and agrees that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. Therefore, each party shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement
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<PAGE> 15
and to enforce specifically the terms and provisions hereof in any court having
jurisdiction, such remedy being in addition to any other remedy to which such
party may be entitled at law or in equity.
(b) SEVERABILITY. If any term or provision of this
Agreement shall be held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms and provisions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and each of the parties shall use its best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term or provision.
(c) FURTHER ASSURANCES. Subject to the specific terms of
this Agreement, each of the parties hereto shall make, execute, acknowledge and
deliver such other instruments and documents, and take all such other actions,
as may be reasonably required in order to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby.
(d) WAIVERS, ETC. No failure or delay on the part of
either party (or the intended third-party beneficiaries referred to herein) in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power preclude
any other or further exercise thereof or the exercise of any other right or
power. No modification or waiver of any provision of this Agreement nor consent
to any departure therefrom shall in any event be effective unless the same shall
be in writing and signed by an authorized officer of each of the parties, and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given.
(e) ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect to its subject matter. This Agreement
supersedes all prior agreements and understandings between the parties, whether
written or oral, with respect to the subject matter hereof. The paragraph
headings contained in this Agreement are for reference purposes only, and shall
not affect in any manner the meaning or interpretation of this Agreement.
(f) COUNTERPARTS. For the convenience of the parties, this
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original but all of which together shall be one and the same
instrument.
(g) AMENDMENT. This Agreement may be amended only by a
written instrument duly executed by an authorized officer of each of the Company
and the Shareholders.
(h) NOTICES. Unless expressly provided herein, all
notices, claims, certificates, requests, demands and other communications
hereunder shall be in writing and shall be deemed to be duly given (i) when
personally delivered or (ii) if mailed registered or certified
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<PAGE> 16
mail, postage prepaid, return receipt requested, on the date the return receipt
is executed or the letter refused by the addressee or its agent or (iii) if sent
by overnight courier which delivers only upon the signed receipt of the
addressee, on the date the receipt acknowledgment is executed or refused by the
addressee or its agent:
(i) if to the Shareholders:
to their addresses and telecopy numbers set
forth on the signature pages hereto;
With copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071
Attention: Richard A. Boehmer
Telecopy No: (213) 430-6407
(ii) if to the Company:
Kaufman and Broad Home Corporation
10990 Wilshire Boulevard
Los Angeles, California 90024
Attention: Barton Pachino
General Counsel
Telecopy No.: (310) 231-4280
With copy to:
Munger, Tolles & Olson LLP
355 South Grand Avenue, Suite 3500
Los Angeles, CA 90071-1560
Attn.: R. Gregory Morgan
Telecopy No.: (213) 687-3702
(i) GOVERNING LAW. This Agreement and the rights and
obligations of the parties hereunder shall be construed in accordance with and
be governed by the internal laws of the State of California.
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(j) TERM. This Agreement shall remain in full force and
effect until there are no Registrable Securities outstanding or until terminated
by the mutual agreement of the Company and the Shareholders.
(k) ASSIGNMENT. Except as provided herein, the parties may
not assign their rights under this Agreement. The Company may not delegate its
obligations under this Agreement.
(l) APPROPRIATE ADJUSTMENTS. If, at any time when a Holder
may demand registration of Registrable Securities under Section 2 of this
Agreement, the issued Common Stock shall have been changed into a different
number or class of shares as a result of a stock split, reverse stock split,
stock dividend, spin-off, extraordinary dividend, recapitalization,
reclassification or other similar transaction, the limitation of the number of
Registrable Securities for which registration may be requested shall be
appropriately adjusted.
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IN WITNESS WHEREOF, the Shareholders and the Company have executed this
Agreement or caused this Agreement to be duly executed by their authorized
representative as of the date first above written.
KAUFMAN AND BROAD HOME CORPORATION
By: /s/ WILLIAM R. HOLLINGER
-------------------------------------
Its: Vice President and Controller
-------------------------------------
SHAREHOLDERS
Ralph M. Lewis
By: /s/ ROBERT E. LEWIS
-------------------------------------
Robert E. Lewis, his attorney-in-fact
/s/ ROBERT E. LEWIS ON BEHALF
OF GOLDY S. LEWIS
-------------------------------------
Goldy S. Lewis
-------------------------------------
Richard A. Lewis
/s/ ROBERT E. LEWIS
-------------------------------------
Robert E. Lewis
/s/ ROGER G. LEWIS
-------------------------------------
Roger G. Lewis
/s/ RANDALL W. LEWIS
-------------------------------------
Randall W. Lewis
/s/ JOHN M. GOODMAN
-------------------------------------
John M. Goodman
18
<PAGE> 19
LH RANIER, LLC
Ralph M. Lewis, its member
By: /s/ ROBERT E. LEWIS
-------------------------------------
Robert E. Lewis, his attorney-in-fact
/s/ ROBERT E. LEWIS ON BEHALF
OF GOLDY S. LEWIS
-------------------------------------
Goldy S. Lewis, its member
LHE PLATTE, LLC
By: Lewis Holding Company, a Delaware limited
liability company, its member
By: Forehand Development Corp., a California
corporation, its member
By /s/ JOHN M. GOODMAN
---------------------------------
John M. Goodman,
its Authorized Agent
19
<PAGE> 20
LH AUGUSTA, LLC
By: /s/ RICHARD A. LEWIS
------------------------------------
Richard A. Lewis, its member
LH EVANS, LLC
By: /s/ ROBERT E. LEWIS
------------------------------------
Robert E. Lewis, its member
LH GRUNHORN, LLC
By: /s/ ROGER G. LEWIS
------------------------------------
Roger G. Lewis, its member
LH WHITNEY, LLC
By: /s/ RANDALL W. LEWIS
------------------------------------
Randall W. Lewis, its member
LH JAGERHORN, LLC
By: /s/ JOHN M. GOODMAN
------------------------------------
John M. Goodman, its member
20
<PAGE> 21
COLLINE ENTERPRISES, INC.
By: /s/ RICHARD A. LEWIS
------------------------------------
Name:
Title:
TERRAIN ENTERPRISES, INC.
By: /s/ ROBERT E. LEWIS
------------------------------------
Name:
Title:
MARMOT ENTERPRISES, INC.
By: /s/ ROGER G. LEWIS
------------------------------------
Name:
Title:
GITAN ENTERPRISES, INC.
By: /s/ RANDALL W. LEWIS
------------------------------------
Name:
Title:
TOPSPIN ENTERPRISES, INC.
By: /s/ JOHN M. GOODMAN
------------------------------------
Name:
Title:
21
<PAGE> 22
For purposes of Section 12(h) of this Agreement, the address and
telecopy number for each Shareholder is as follows:
Address: Lewis Operating Corp.
1156 N. Mountain Avenue
Upland, CA 91785
Telecopy Number: (909) 912-6740
24
<PAGE> 1
EXHIBIT 99.2
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (the "Agreement"), dated as of January
7, 1999, is entered into by and among KAUFMAN AND BROAD HOME CORPORATION, a
Delaware corporation (the "Company"), and the other signatories hereto listed on
the signature pages to this Agreement (each a "Shareholder" and collectively the
"Shareholders").
WHEREAS, the Company and the Shareholders (or their predecessors
in interest) are parties to that certain Purchase Agreement (the "Purchase
Agreement") whereby, among other things, the Company will issue an aggregate of
7,886,686 shares of its common stock, par value $1.00 per share ("Common
Stock"), to the Shareholders or entities controlled by them as partial
consideration for the Company's purchase from the Shareholders (or their
predecessors in interest) of the Homebuilding Business (as defined in the
Purchase Agreement) of the Homebuilding Entities (as defined therein) of the
Lewis Group of Companies; and
WHEREAS, in connection with the Purchase Agreement, the parties
hereto desire to enter into this Agreement, which sets forth the terms of
certain rights and obligations regarding the nomination of a designee of
Shareholders for election as a director of the Company and regarding voting and
transfer by the Shareholders of their shares of Common Stock;
NOW, THEREFORE, upon the premise and the mutual promises herein
contained, and for good and valuable consideration, the receipt and adequacy of
which are acknowledged, the parties hereby agree as follows:
1. Board Representation. Effective on the date of this Agreement,
the Shareholders collectively shall be entitled to designate one person from
those listed on Exhibit A hereto to serve on the Company's Board of Directors
(the "Board") until the Company's annual meeting of shareholders held in 2000
(the "2000 Annual Meeting"), such designee to serve in the class of directors
("Class II") whose term of office will expire upon the election of their
successors at the 2000 Annual Meeting. The Shareholders have designated Randall
W. Lewis. The authorized number of Class II directors shall be increased by one
and such designee shall be elected as a Class II director as soon as
practicable. The Board will not be obligated to nominate the Shareholders'
designee for re-election at the 2000 Annual Meeting. If, before the 2000 Annual
Meeting, the Shareholder's designee for any reason shall become unable or
otherwise shall cease to serve as a director, the Shareholders shall be entitled
to designate another person from those listed on Exhibit A hereto to complete
the prior designee's term of office and the Company as soon as practicable will
use its best efforts to cause the Board to elect such designee to complete such
term.
1
<PAGE> 2
2. Voting By Shareholders. Each Shareholder hereby agrees to vote
and to grant or withhold a written consent with respect to (or, if and to the
extent that a Shareholder is the beneficial but not record owner, agrees to
cause to be voted and to cause a written consent to be granted or withheld with
respect to) all shares of Common Stock that such Shareholder beneficially owns
(whether acquired pursuant to the Purchase Agreement or otherwise) in the manner
recommended by the Board on all matters submitted to a vote of the Company's
shareholders; provided, however, that the Shareholders shall be entitled to vote
and to grant or withhold a written consent with respect to their shares in favor
of the election to the Board of the person designated by them in accordance with
Section 1 hereof without regard to the recommendation of the Board. The
foregoing agreement (the "Voting Agreement") shall be suspended automatically
and become ineffective if (a) the aggregate beneficial ownership (whenever used
herein, as defined under Section 13(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) of Common Stock by the Shareholders becomes
less than 10% of the outstanding Common Stock or (b) the Board does not nominate
the Shareholders' designee for election at the 2000 Annual Meeting or a
subsequent annual meeting at which directors of the designee's class are
nominated for election. If the Voting Agreement is suspended solely by reason of
clause (a) of the immediately prior sentence, such suspension shall terminate
and the Voting Agreement shall become effective again automatically if the
aggregate beneficial ownership (as so defined) of Common Stock by the
Shareholders again becomes 10% or more of the outstanding Common Stock.
3. Restriction on Transfer.
a. No Shareholder shall, directly or indirectly, offer,
sell or transfer any shares of Common Stock that such Shareholder beneficially
owns (whether acquired pursuant to the Purchase Agreement or otherwise) without
offering the Company a right of first refusal in the manner provided in Section
4, except:
(i) in compliance with the right of first refusal
procedures of Section 2(a) of that certain Registration Rights Agreement dated
the date hereof among the Company and the Shareholders (the "Registration Rights
Agreement"), or in compliance with the volume limitations, manner of sale
requirements, and other conditions of Rule 144 under the Securities Act of 1933,
as amended (whether or not such limitations, requirements, and conditions would
then apply to sales of Common Stock by the Shareholder), provided that, despite
compliance with the right of first refusal procedures of the Registration Rights
Agreement and the registration of shares of Common Stock pursuant thereto, a
Shareholder may not knowingly sell (directly or through underwriters) all or a
portion of such registered shares constituting 2% or more of the total combined
voting power of all shares of Common Stock then outstanding to any one person or
group (as defined under Section 13(d) of the Exchange Act) without offering the
Company a right of first refusal in the manner provided in Section 4 over the
shares proposed to be sold to such person or group,
(ii) to another Shareholder,
2
<PAGE> 3
(iii) to a transferee who as of the date hereof is a
shareholder of a transferring Shareholder that as of the date hereof is a
Subchapter S corporation or who as of the date hereof is a member of a
transferring Shareholder that as of the date hereof is a limited liability
company, provided that such Subchapter S corporation shareholder or limited
liability company member is controlled by one or more Shareholders, or
(iv) to a transferee who is a member of the immediate
family, a sibling, a descendant, or a niece or nephew of the transferring
Shareholder (including without limitation family trusts, trusts for the benefit
of family members, siblings, descendants, and/or nieces and nephews, and other
similar entities used for the transferring Shareholder's estate-planning
purposes);
provided that any transferee described in clause (ii), (iii), or (iv) (an
"Excepted Transferee"), if not already a signatory hereto, has executed and
delivered to the Company, prior to the transfer, a signature page to this
Agreement agreeing to be bound by the terms and conditions hereof.
b. A Shareholder making a transfer to an Excepted
Transferee shall notify the Company in writing, concurrently or in advance,
stating the name and address of the Excepted Transferee, identifying the number
of shares of Common Stock to be transferred, and providing to the Company, if
the Excepted Transferee if not already a signatory hereto, the Excepted
Transferee's signature page hereto. In connection with any such transfer, the
term "Shareholder" as used in this Agreement shall, where appropriate following
a permitted transfer to an Excepted Transferee, be deemed to include the
Excepted Transferee.
c. The foregoing agreement and that set forth in Section 4
(the "First Refusal Agreement") shall be suspended automatically and become
ineffective if (a) the aggregate beneficial ownership of Common Stock by the
Shareholders becomes less than 5% of the outstanding Common Stock or (b) if the
aggregate beneficial ownership of Common Stock by the Shareholders becomes less
than 10% of the outstanding Common Stock, the Board does not nominate the
Shareholders' designee for election at the 2000 Annual Meeting or a subsequent
annual meeting at which directors of the designee's class are nominated for
election. If the First Refusal Agreement is suspended, such suspension shall
terminate and the First Refusal Agreement shall become effective again
automatically if the aggregate beneficial ownership (as so defined) of Common
Stock by the Shareholders again becomes 5% or more of the outstanding Common
Stock.
4. Right of First Refusal. To the extent required by Section 3, a
Shareholder, prior to making any offer to sell, sale or transfer of shares of
Common Stock, shall give the Company the opportunity to purchase such shares in
the following manner:
a. A Shareholder intending to make such an offer, sale or
transfer shall give written notice of such intention (the "Transfer Notice") to
the Company, specifying (i) the number of shares proposed to be disposed of,
(ii) the proposed price therefor, and (iii) the
3
<PAGE> 4
identity of the proposed transferee and the terms and conditions of the proposed
transfer. Without limiting the foregoing, a Shareholder's tender of shares of
Common Stock in response to a bona fide third-party tender offer or exchange
offer to purchase shares of Common Stock shall be deemed to be an offer by the
Shareholder to sell shares of Common Stock at the price specified in the tender
offer or exchange offer, without regard to conditions to the tender or exchange
offeror's obligation to purchase, and such a tender is subject to the Company's
right of first refusal herein.
b. The Company shall have the right, exercisable by
written notice given by the Company to the Shareholder who gave the Transfer
Notice within 10 business days after receipt of such Transfer Notice (or in the
case of a tender or exchange offer, no later than 24 hours prior to the latest
time by which shares of Common Stock must be tendered in order to be accepted
pursuant to such offer, or in the case of an offering of registered shares, no
later than 24 hours prior to the time of sale as indicated by the Shareholder in
a Transfer Notice given no less than 48 hours prior to the time of sale), to
purchase (or to cause an affiliate of the Company to purchase) all, but not
fewer than all, of the shares of Common Stock specified in such Transfer Notice
for cash at the price set forth therein. If the purchase price specified in the
Transfer Notice includes any property other than cash, such purchase price shall
be deemed to be the amount of any cash included in the purchase price plus the
value (determined as stated below) of such other property included in such
price. For this purpose:
(i) The Shareholder and the Company shall use their
best efforts to determine or cause the determination of the value of any
securities included in the purchase price to be made within three business days
after the date of delivery of the Transfer Notice and any determination of the
value of property other than securities to be made within 10 business days after
the date of delivery of the Transfer Notice. If the parties are unable to agree
upon the value of any such securities or other property, they will select a
financial institution or appraisal firm acceptable to both of them (or, if the
parties cannot agree upon such an institution or firm, they will each select
such an institution or firm and representatives of the selected institutions or
firms shall select a third such institution or firm) to determine the value of
any such securities or other property within such three-day or ten-day period,
as applicable. The determination of the parties or the financial institution or
appraisal firm shall be conclusive.
(ii) The date on which the Company must exercise its
right of first refusal shall be extended until three business days after the
determination of the value of property included in the purchase price if such
property consists solely of securities or 10 business days after the
determination of such value if other property is included.
c. If the Company exercises its right of first refusal
hereunder, the closing of the purchase of the shares of Common Stock with
respect to which such right has been exercised shall take place within 10
business days (or if approval of such purchase by the Company's shareholders is
required by law or pursuant to any stock exchange rule or policy, within 90
days) after the Company gives notice of such exercise. Upon exercise of its
right of
4
<PAGE> 5
first refusal, the Company shall be legally obligated to consummate the
purchase contemplated thereby, subject to the Shareholder's delivery of such
shares of Common Stock free and clear of any adverse claims.
d. If the Company does not exercise its right of first
refusal hereunder within the time specified for such exercise, the Shareholder
who gave the Transfer Notice shall be free during the period of 90 calendar days
following the expiration of such time for exercise to offer, sell, or transfer
the number of shares of Common Stock specified in such Transfer Notice at the
price specified therein or at any price in excess thereof, and to the proposed
transferee specified therein upon the terms and conditions specified therein.
The Shareholder may not offer, sell, or transfer shares of Common Stock at a
price less than the price specified in such Transfer Notice without again
following the procedures set forth above.
5. Certain Public Statements. Each Shareholder hereby agrees,
at all times when the Voting Agreement is effective and not suspended, not to
issue or make, or cause to be issued or made, any press release, other statement
disseminated generally to the public, investors or the Company's shareholders,
or statement to security analysts or homebuilding industry analysts, with
respect to any matter on which the Shareholder has agreed to vote or grant or
withhold a written consent pursuant to the Voting Agreement, except, with
respect solely to the Shareholders' designee as director, to the extent that
such director determines, after consultation with legal counsel, that fiduciary
duties to the Company's shareholders require a statement of disagreement with
Company policy or action.
6. Beneficial Ownership. Upon the request of the Company from
time to time, the Shareholders will inform the Company of the aggregate
beneficial ownership of Common Stock by the Shareholders. Other than the
signatories hereto who are natural persons, no other natural person has or
shares beneficial ownership of any of the Common Stock held by the Shareholders,
and each signatory hereto that is an entity is controlled solely by one or more
of the signatories hereto who are natural persons.
7. Miscellaneous.
a. Injunctions. Each party acknowledges and agrees that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. Therefore, each party shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically the terms and provisions hereof in any court having
jurisdiction, such remedy being in addition to any other remedy to which such
party may be entitled at law or in equity.
b. Severability. If any term or provision of this
Agreement shall be held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms and provisions set forth herein
shall remain in full force and effect and shall in no way
5
<PAGE> 6
be affected, impaired or invalidated, and each of the parties shall use its best
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term or provision.
c. Waivers, etc. No failure or delay on the part of either
party in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this Agreement nor
consent to any departure therefrom shall in any event be effective unless the
same shall be in writing and signed by each of the parties, and then such waiver
or consent shall be effective only in the specific instance and for the purpose
for which given.
d. Entire Agreement. This Agreement is the Shareholders
Agreement referred to in 5.11 of the Purchase Agreement and contains the entire
understanding of the parties with respect to its subject matter. This Agreement
supersedes all prior agreements and understandings between the parties, whether
written or oral, with respect to the subject matter hereof. The paragraph
headings contained in this Agreement are for reference purposes only, and shall
not affect in any manner the meaning or interpretation of this Agreement.
e. Counterparts. For the convenience of the parties, this
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original but all of which together shall be one and the same
instrument.
f. Amendment. This Agreement may be amended only by a
written instrument duly executed by each of the Company and the Shareholders.
g. Notices. Unless expressly provided herein, all notices,
claims, certificates, requests, demands and other communications hereunder shall
be in writing and shall be deemed to be duly given (i) when personally delivered
or (ii) if mailed registered or certified mail, postage prepaid, return receipt
requested, on the date the return receipt is executed or the letter refused by
the addressee or its agent or (iii) if sent by overnight courier which delivers
only upon the signed receipt of the addressee, on the date the receipt
acknowledgment is executed or refused by the addressee or its agent, in any case
to the addresses and with copies to counsel as set forth in the Purchase
Agreement.
h. Governing Law. This Agreement and the rights and
obligations of the parties hereunder shall be construed in accordance with and
be governed by the internal laws of the State of California.
i. Assignment. Except as provided herein, the parties may
not assign their rights or delegate their obligations under this Agreement
without the prior written consent of the other parties.
6
<PAGE> 7
IN WITNESS WHEREOF, the Shareholders and the Company have executed this
Agreement as of the date first above written.
KAUFMAN AND BROAD HOME CORPORATION
By: /s/ MICHAEL F. HENN
-------------------------------------
Its: Senior Vice President and
Chief Financial Officer
------------------------------------
SHAREHOLDERS
----------------------------------------
Ralph M. Lewis
By: /s/ ROBERT E. LEWIS
--------------------------------------
Robert E. Lewis, his attorney-in-fact
/s/ ROBERT E. LEWIS ON BEHALF
OF GOLDY S. LEWIS
----------------------------------------
Goldy S. Lewis
/s/ RICHARD A. LEWIS
----------------------------------------
Richard A. Lewis
/s/ ROBERT E. LEWIS
----------------------------------------
Robert E. Lewis
/s/ ROGER G. LEWIS
----------------------------------------
Roger G. Lewis
/s/ RANDALL W. LEWIS
----------------------------------------
Randall W. Lewis
/s/ JOHN M. GOODMAN
----------------------------------------
John M. Goodman
7
<PAGE> 8
LH RANIER, LLC
Ralph M. Lewis, its member
By: /s/ ROBERT E. LEWIS
-------------------------------------
Robert E. Lewis, his attorney-in-fact
/s/ ROBERT E. LEWIS ON BEHALF
OF GOLDY S. LEWIS
----------------------------------------
Goldy S. Lewis, its member
LHE PLATTE, LLC
By: Lewis Holding Company, a Delaware limited
liability company, its member
By: Forehand Development Corp., a California
corporation, its member
By /s/ JOHN M. GOODMAN
-----------------------------------
John M. Goodman,
its Authorized Agent
8
<PAGE> 9
LH AUGUSTA, LLC
By: /s/ RICHARD A. LEWIS
------------------------------------
Richard A. Lewis, its member
LH EVANS, LLC
By: /s/ ROBERT E. LEWIS
------------------------------------
Robert E. Lewis, its member
LH GRUNHORN, LLC
By: /s/ ROGER G. LEWIS
------------------------------------
Roger G. Lewis, its member
LH WHITNEY, LLC
By: /s/ RANDALL W. LEWIS
------------------------------------
Randall W. Lewis, its member
LH JAGERHORN, LLC
By: /s/ JOHN M. GOODMAN
------------------------------------
John M. Goodman, its member
9
<PAGE> 10
COLLINE ENTERPRISES, INC.
By: /s/ RICHARD A. LEWIS
------------------------------------
Name:
Title:
TERRAIN ENTERPRISES, INC.
By: /s/ ROBERT E. LEWIS
------------------------------------
Name:
Title:
MARMOT ENTERPRISES, INC.
By: /s/ ROGER G. LEWIS
------------------------------------
Name:
Title:
GITAN ENTERPRISES, INC.
By: /s/ RANDALL W. LEWIS
------------------------------------
Name:
Title:
TOPSPIN ENTERPRISES, INC.
By: /s/ JOHN M. GOODMAN
------------------------------------
Name:
Title:
10
<PAGE> 11
EXHIBIT A TO SHAREHOLDER AGREEMENT
Ralph M. Lewis
Goldy S. Lewis
Richard A. Lewis
Robert E. Lewis
Roger G. Lewis
Randall W. Lewis
John M. Goodman
